Is Bitcoin Really Anonymous? IRS Moves To Track Cryptocurrencies With New Chain Analysis Tools

Tyler Durden's picture

Authored by Mac Slavo via SHTFplan.com,

Last month Alt-Market.com founder Brandon Smith warned that Bitcoin may not be all that it’s cracked up to be in terms of its purported anonymity:

For years, one of the major original selling points of bitcoin was that it was “anonymous.” It always surprised me that so many people in the liberty movement bought into this scam.

 

Surely after the revelations exposed by Edward Snowden and organizations like Wikileaks, it is utterly foolish to believe that anything in the digital world is truly “anonymous.”

 

The feds have been proving there is no anonymity, even in bitcoin, for some time, as multiple arrests using bitcoin tracking have indeed occurred when the FBI decided it was in their interest. Meaning, when the feds want to track bitcoin transactions, they can, and it does not matter how well the people involved covered their actions.

Because every transaction exists on a public blockchain ledger, an enterprising organization – say like the NSA or IRS – could conceivably implement blockchain analysis tools to track down Bitcoin fund transfers around the globe. These days most bitcoin transactions are originated on “trusted” exchanges that exist in Western nations, where governments have always found new and innovative ways to ensure citizens have no privacy whatsoever, especially when it comes to personal finances. This means that there is more than likely a record of your original Bitcoin transaction, perhaps involving a credit card or bank transfer, and if regulators ask an exchange to turn over the information you can bet they’ll do so in order to avoid unwanted government scrutiny. Moreover, most exchanges now require a driver’s license, passport and even a phone number in order to approve your account for trading.

The point is, for government investigators with a bone to pick, your crypto currency activities online may not be as anonymous and private as you may think.

In fact, so exposed is the blockchain to Big Brother monitoring and interference, that the Internal Revenue Service has now implemented blockchain analysis tools to help them track down individuals who are profiting off the crypto currency and not declaring these profits on their tax returns.

Via Bitcoin.com:

According to a contract recently obtained by the Daily Beast, the IRS can now track bitcoin and other cryptocurrency addresses. They can do this to route out potential tax evaders. They purchased software from the blockchain analysis group Chainalysis.

The document details that “criminals” have used digital currencies to launder money, deal drugs, and commit other unlawful behavior. However, criminals have also been using digital currencies to ignore tax liabilities and evade responsibility. The Daily Beast article elaborated:

The document highlights how law enforcement isn’t only concerned with criminals accumulating bitcoin from selling drugs or hacking targets, but also those who use the currency to hide wealth or avoid paying taxes.

Reason for IRS Crackdown; Tracking Bitcoiners

 

The reason the IRS is cracking down on digital currencies appears to be because only 802 people declared bitcoin profits or losses in 2015. The Daily Beast article suggests that many people may have not expected the IRS to collect on digital currencies. Others may have just thought they could easily sidestep this alleged obligation.

As a result of this failure to pay taxes, the IRS consulted with Chainalysis.

 

They are now providing the IRS with tools to track bitcoin addresses through the blockchain and centralized exchanges. A Fortune article captured a screen shot of the letter:

 

 

The tool that Chainaylsis gave the IRS is called a refactor tool. It visualizes, tracks, and analysis transactions on the blockchain. Agencies from law enforcement, IRS, and banks will be able to use the tool, according to sources.

 

To date, records show the IRS has paid Chainaylsis $88,700 since 2015 for its services.

 

Full article at bitcoin.com

Prepare for a full-out onslaught against the government’s newest enemy: crypto terrorists.

That means YOU, if you happen to own any Bitcoin.

Because as we highlighted in 2014, under new directives passed by the Obama Administration, concrete facts are not necessary for you to be put on any number of government watch lists:

The recently declassified Watchlisting Guidance rule book issued in 2013 and developed by members of 19 law enforcement agencies that include the FBI, NSA, CIA, and NSA, outlines the rules for placing individuals, including American citizens, on the various watch lists currently in use. As noted by The Intercept, the rules, much like America’s secretive anti-terrorism laws, are vague and often contradict each other.

It reveals a confounding and convoluted system filled with exceptions to its own rules, and it relies on the elastic concept of “reasonable suspicion” as a standard for determining whether someone is a possible threat.

 

Because the government tracks “suspected terrorists” as well as “known terrorists,” individuals can be watchlisted if they are suspected of being a suspected terrorist, or if they are suspected of associating with people who are suspected of terrorism activity.

 

“Instead of a watchlist limited to actual, known terrorists, the government has built a vast system based on the unproven and flawed premise that it can predict if a person will commit a terrorist act in the future,” says Hina Shamsi, the head of the ACLU’s National Security Project. “On that dangerous theory, the government is secretly blacklisting people as suspected terrorists and giving them the impossible task of proving themselves innocent of a threat they haven’t carried out.”

The guidelines for who is or is not a terrorist are now so vague that any American could potentially be added to a list for something as menial as knowing someone who has committed an activity deemed to be of terrorist nature. And as has been highlighted previously, those activities could range from making a hand gesture that looks like a gun or manufacturing your own gold and silver coins.

And now, of course, trading or owning Bitcoin.

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aloha_snakbar's picture

The Birth of Bitcon

Two friends, Bob and Satosh are sitting around after an evening of consuming copious amounts of some especially wicked dank. Bob says to Satosh:

Hey Satosh... I have a genius idea

Yeah, what is it?

You know that app you coded...the one that churns out the useless SHA algorithms?

Yeah?

LOL...lets sell them as digital currencies!

Dude...you are fucking wasted, here, have another bong

No, seriously. We get that graphic artist you know create a slick image of a 'gold' coin, and then we can further confuse the rubes by telling them their 'coins' have to be "mined", as if they were real, physical metals!

Dude... you are insane! What kind of moron would buy something like that?

Bob: Oh... I dont know. Remember that now worthless token you paid stupid money for on WoW?

They sit there and stare at each other for a moment, and then both burst out into torrents of tear stained laughter

They are still laughing today.

The rest is history

tmosley's picture

This is how oldbugs deal with soul-shattering grief. 

hedgeless_horseman's picture

 

Bitcoin is not anonymous. We learned that in Marfa.

tmosley's picture

The only coins that are anonymous are the ones that appear in miner wallets when a block is completed.

If you want anonymity, best to take such coins and use shapeshift to turn them into anonymous crypto like Dash, Monero, or Zcash.

wee-weed up's picture

 

 

As I've continued to say to those who do not want to hear...

Poof, it's gone!

The Cooler King's picture

mosley!

 

The dude who:

 

- wanted to CRASH JP MORGAN (so he bought a house full of silver).

- then proceeded to sell all the silver (at a loss), to buy bitcoin.

- & whereby, he could, perhaps, buy a cheap Chinese made living room ensemble from OVERSTOCK.com, with bitcoins, but if he did, he'd essentially be booking profits, which, if he didn't report to the IRS, they could put him in a room that was already furnished (and maybe even with a roommate, but no computer or internet access).

- or, if he just keeps his bitcoins in a wallet, then he's sitting there, on the floor, in an empty house, telling everyone else how stupid they are.

 

So far, I'd say the score is

 

JP MORGAN  1

MOSLEY        0

Manthong's picture

 

Well, they did not get Al Capone on the murders, racketeering or bootlegging….

They got him on tax evasion.

 

runningman18's picture

The banksters love cryptocurrencies.  They're pouring mountains of capital into them and have been for a few years.  The one world currency will be a cyrptocurrency if the banksters get their way.  The death of anonymity in trade means the death of freedom.  This is what the crypto-cult doesn't understand.       

Mister Ponzi's picture

This is a classic example of investors violating one of the most basic principles of successful investing: compliance. With the technical possibilities today you have to fear that illegal behavior will always be detected. Never do illegal things! There are hundreds of legal possibilities to lower or even avoid paying taxes on investment that don't land you in hot water.

runningman18's picture

You're promoting the classic logical fallacy surrounding privacy, though.  "If you aren't doing anything wrong then you have nothing to worry about..."  It's bullshit.  The government has no business intruding on our personal transactions.  The IRS was created in the first place just to feed the Federal Reserve and the expanding shadow government.  The income tax is a sham.  It shouldn't exist, and neither should the Fed or the IRS.  If a law is unjust and unconstitutional, then you should break it at every opportunity. Screw "compliance".  Plus, there's a whole host of other tyrannical problem caused when privacy is lost, beyond the taxes issue.     

Mister Ponzi's picture

No, I'm not. Nowhere do I suggest that privacy is not important. In fact, here in Europe privacy laws are much stricter than anywhere else in the word and people are generally much more concious of privacy issues. What I'm suggesting is that you should maximize your privacy and minimize your taxes - but to do it in a legal way.I completely agree with you that taxation is theft - plain an simple. That doesn't change the fact that the thief is mightier than you and will come after you if you break his rules.

Let me give you an example what I mean. We have clear rules for the taxation of cryptocurrency transactions where I live. Without going into detail I can say that taxes on gains are very high for short holding periods but become completely tax-free if you realize them after holding tokens for more than one year. For changes in your inventory you can choose between FIFO and LIFO but have to stick to it once you chose one of them. To me that means abstaining from short-term trading and ICO flipping and only invest into projects that I think have a good chance to become more valuable medium- to long-term. In this case I don't have to report any transactions, gains or accounts to the tax authority.

CarpetShag's picture

"taxes on gains are very high for short holding periods but become completely tax-free if you realize them after holding tokens for more than one year."

I would be intrigued to know for which countries this is the case. I can't imagine that it is true.

Mister Ponzi's picture

I currently live and work in Germany and pay my taxes there. The German finance ministry has declared Bitcoin & Co. to be neither money nor a financial asset. Therefore, they are treated as digital non-financial assets. For those asset §23 of the German tax code has to be applied. While financial assets are taxed at 25% independent of the holding period, §23 states that those other assets are subject to some sort of speculation tax. For gains realized within one year your personal marginal tax rate applies. For holding periods above one year, no taxes are levied. Please note that this used to be true for other assets as well including stocks. A capital gains tax independent of the holding period was introduced in Germany in 2009. However, there are currently discussions in Germany to get back to the old system that heavily rewards long-term holdings.

Please note that if you trade cryptocurrencies intensively the financial authorities can judge that you are a professional trader ("gewerblicher Handel"). In this case gains are considered as regular income and an income tax is levied.

Of course, the classification of cryptocurrencies as non-financial digital assets maybe subject to change. As usual, do your own research and consult with a tax expert.

 

EDIT: Google: taxation Bitcoin Germany. There are several articles in English on that subject.

runningman18's picture

No, you're using the classic sheeple argument that if you "aren't breaking the law then you have nothing to worry about".  You might think privacy is "important", but obviously not important enough to fight for or to take risks for, which means essentially that it is NOT very important to you. Also, you missed the point.  The value of privacy and private trade goes way beyond the mere avoidance of taxes.  This is about tyrannical intrusion into a core pillar of society, and you should fight that regardless of how strong the tyranny might be, or what is arbitrarily considered "legal".

Mister Ponzi's picture

So let me get this straight. When I say something along the lines "Don't do illegal things in investing, it's not worth it", you think I implied that I mean if you follow the law then you don't have anything to fear. I'm sorry to say but this is a non-sequitur. I'm completely aware that is not sufficient and further steps have to be taken to protect yourself. However, that doesn't mean that by not paying taxes that your government requires you to pay you are doing you and your privacy any favor.

It seems to me that you are missing my point. In the article it is stated that the IRS is going after people who didn't pay taxes on their realized gains but were required to do so. This was a mistake. It would have been better to choose a construction that would have lowered or avoided any tax obligation. That was my whole point. Taking additional measures to enhance your privacy are always a good idea. But then you shouldn't use Bitcoin with transactions for everyone transparently to see on the blockchain.

runningman18's picture

That is exacly what you implied.  Your position was that following the law is better because the government is too powerful to counter.  But even if you have nothing to fear at the moment personally when following the law, there is still the matter of future posterity and generations to come.  Tyranny tolerated by one generation tends to make life much more difficult and the oppression harder to reverse for future generations.   You're hyperfocused on the tax issue in terms of privacy and missed the greater implications of the point I originally made and to which you responded.  Without privacy in trade ALL freedom dies.  Taxes are only a part of the problem. 

Mister Ponzi's picture

I'm going to stop this discussion. You don't know what I implied to say, only what you read out of my words. And I'm not "hyperfocused", I only commented on the topic of the article.

runningman18's picture

Yes, your words directly indicate what you implied, and now you want to backpeddle.  Read my original comment and then reread your first response to me, in case you are suffering from memory loss. 

merizobeach's picture

"Never do illegal things!"

Go FUCK yourself!

I say that with all sincerity.

Mister Ponzi's picture

I understand your reaction. What I meant to say was don't do illegal things in an investment strategy. Outside investing do what you want.

merizobeach's picture

Your clarification is accepted and appreciated.  Semantics can be a bitch, but it's generally pretty important in all-text forums, which I am sure you already know.

As an aside, above you commented, "that doesn't mean that by not paying taxes that your government requires you to pay you are doing you and your privacy any favor."  I would have to dispute that, too: by working off the books and not paying taxes, I've done myself some six figures of favors over the years!

VD's picture

tmoron the resident crypto-muppet will lose far more than money on his silver when his Tulipcoin goes to zero. let him act out to reinforce his crypto-delusions.

 

go back to my older Tulipcoin posts - i called it that the IRS will crack down, the Deep State runs this farce and a day is coming when they "crack" this blockchain. (they can "crack" it today if they wanted to...)

tmosley's picture

Improbable, since I lost more money on silver than I invested in Bitcoin.

You, on the otherhand, remain firmly invested in silver, and will continue to lose everything.

I won't cry for you, because I won't even hear about it when they find you hanging in a bathroom somewhere.

Mr. Universe's picture

Gee, you got me panicked there for a minute. I boated on out to the lake and with a bit of effort found all of my silver. Wow, I didn't lose one dollar, the same amount that sank was still there. Unfortunately I had an accident on the way in and it all returned to the bottom of the lake. Dear me. Good thing is, I still didn't lose any money.

You keep using that word, but I don't think it means what you think it does.

tmosley's picture

>Wow, I didn't lose one dollar

I came here to laugh at you.

VD's picture

only ones hanging are those like yourself shilling for an NSA crypto-fiat scam. when TPTB pull Tulipcoin to zero, only crypto-muppets like yourself will be swinging from ropes, assuming you all have enough FIAT left to buy any.

 

and silver only has a 6k plus history as store of value; ie it'll never go to zero

 

keep shilling tmoron -- one day soon you'll be dead quiet.

tmosley's picture

Any second now...

Hahaha

tmosley's picture

Silver went down, bitcoin went up, and I STILL can't read chicken scratch.

If that was the only language I could speak, i would be BEGGING for a hawk to take me to my maker.

VD's picture

the language you used overzealously shilling silver is similar to this crypto-scam you're shilling today. if you had true conviction in either, you'd have no reason to shill so hard. it's obvious what you're doing and why you're doing it.

DWD-MOVIE's picture

I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do… http://disq.us/url?url=http%3A%2F%2Fwww.jobproplan.com%3A68UoF1LgzM-Yo3S...

sickavme's picture

How do we know that the government(Either US/China or even both) did create the thing in the first place?

 

The creator of bitcoin still remains a mystery despite some evidence that it might be this one guy...

 

Still, why invest in something that you have no idea where in the hell it came from?

 

Network Security 101: "Any device or computer connected to the internet is considered unsecure"...+

runswithscissors's picture

More like Poof, its taxed...if they don't get it this time they will keep trying until they do. (((THEY))) are relentless when it comes to stealing your wealth.

factorypreset's picture

So you think the govt isn't going to ask where the original money went?

tmosley's picture

Hookers and blow. Bad investments. Locked out of the wallet.

Honestly, best to just be outside of their reach by the time they come around asking questions.

Or, you know, just PAY YOUR FUCKING TAXES.

factorypreset's picture

I'm simply responding to YOUR comment regarding shapeshifting into monero.  

Got The Wrong No's picture

Did you buy it with a debit/credit card or a bank account? They know. You can run but can you hide.

tmosley's picture

>Or, you know, just PAY YOUR FUCKING TAXES.

tmosley's picture

Is that supposed to be a reply to what I said?

sessinpo's picture

"The only coins that are anonymous are the ones that appear in miner wallets when a block is completed.

If you want anonymity, best to take such coins and use shapeshift to turn them into anonymous crypto like Dash, Monero, or Zcash"

_____________

Comments like this totally miss the point that the IRS. Is going after the records and people that are eventually changing their crypto back to fiat.

While changing one form of crypto to anorher is considered a taxable event, It is when one changes crypto to fiat that the criminal banking system gets involved and that is how they get you (not you specifically but you as in any joe cashing in their crypto).

tmosley's picture

Ok.

If you don't want to pay taxes, don't do that.

Fiat currency is stinky, sticky garbage that people want for some reason. There is little that is compelling about transacting in it when there is any other option available.

factorypreset's picture

I'm not talking about paying taxes.  I agree - if you make a profit off crypto pay your taxes like you would any other investment and you don't have to worry about the IRS breathing down your neck.  

HOWEVER unless I'm really missing something - I would think shapeshifting sizeable amounts of crypto that were once on a public /distributed  ledger into something like Monero may serve to raise flags that you're a money launderer even if you aren't.  

And your premise seemingly comes from the idea that the ONLY reason someone might want anonymity in their financial dealings is to avoid paying taxes. There are a lot of other reasons.  So again, I have nothing against cryptos but anonymity does not seem to be a central feature and there are many crypto advocates that would have you believe it is- and even if it is now relatively under the radar as far as govts are concerned, I highly doubt this will remain the case in the future.

CarpetShag's picture

The "wallets" do not contain the digital coins. They only contain the keys required to access the "coin" addresses.

anarcode's picture

Wow, you got some downvotes there for speaking the truth. That'll teach ya.