On January 17, 2020, British tax collection department Her Majesty’s Revenue and Customs (HMRC) published an open contract[1] seeking bid applications for tools that can track, identify and associate bitcoin transactions with real identities. Correspondingly, developers of such “intelligence gathering methods to identify and cluster Cryptoasset transactions” can apply for the £100,000 ($131,000) contract until January 31, 2020.
The initiative is effectively a government-sponsored attempt to deanonymize bitcoin transactions — though the expectations for the tool extend toward targeting privacy coins like monero and zcash.
Currently, the U.K. government is able to collect transaction and investment data that takes place on regulated cryptocurrency exchanges that operate within its territories. However, it’s much more difficult for HMRC to track bitcoin being sent back and forth by U.K. citizens who run their own nodes[2], use Tor[3] for connection privacy or employ CoinJoin[4] as forms of obfuscation.
As explained in the notice, HMRC is interested in targeting coins being sent to mixing services, gambling operations and darknet markets. Essentially, every attempt to attain sender privacy and use the cryptocurrency outside of the boundaries of regulated businesses is suspected as a possible attempt to evade taxes or perform another illicit activity.
Interestingly, the methodology to determine the winning bid for the blockchain analysis tool prioritizes its costs over the security offered — which means that a company that provides good tracking at a reasonable price, but with backend vulnerabilities that can potentially be hacked, is more likely to be awarded the contract than one which is more expensive but better across the board. Furthermore, the bounty for this contract is less than 16 BTC, an amount that represents only a small fraction of Gregory Maxwell’s bounty fund to incentive work on
