A document posted on the agency’s website indicates that the IRS is seeking new ways of accessing cryptocurrency Hardware Wallets in criminal investigations and finding key clues as more and more investors and criminals are turning to these wallets to secure their money and protect ill-gotten bitcoins.
The document also states that decentralization and anonymity provided by cryptocurrencies have fostered an environment to store and exchange something of value beyond the traditional scope of the legislation and regulatory bodies. But there remains a piece of that cryptographic puzzle eluding institutions, billions of dollars, within cryptocurrency wallets.
Typically, investors store their cryptocurrency keys on the exchange with which they conduct transactions or on a personal device. But some always seek greater security by using hardware wallets that store user keys securely and offline.
The safety of wallets is a concern for investigators. Agencies may have a hardware wallet as part of a case, but they can’t access it if the suspect does not comply. This means that the authorities cannot “effectively investigate currency transactions” and can “prevent confiscation and recovery” of funds.
The other issue is that the money is not in the wallets and only the keys are there and if the owner knows that he is going after it and that he can take action, the money can be moved.”
This is why the IRS wants researchers and contractors to find solutions to access these wallets. The IRS does not want a final solution, but rather tools that it will be able to use reliably in multiple situations going forward.
The IRS intends to monitor cryptocurrency scams more closely by announcing a “hidden treasure operation” aimed at searching for undisclosed gains in cryptocurrencies. Through this contract, the agency seeks to tame cybersecurity research into replicable digital judicial processes that can be trained and monitored in the Digital Forensic Laboratory.
According to Andrew Tierney, security research, while the desire to use a reusable tool makes sense, it makes demand extremely challenging. aka Cybergibbons told Motherboard that hardware wallets are secure now, and it would be very difficult to obtain vulnerabilities ready to work against many of them.
Cybersecurity expert Adrian Sanabria tells Motherboard that there are many missing Bitcoins, it’s like the sunken ships of the 21st-century carrying treasures aboard. In fact, according to cryptocurrency research firm Chainalysis, about 20 percent of all bitcoins are worth over $100 billion locked in wallets.
“It seems to be exaggerated”, Nicholas Weaver, a researcher at the International Institute of Computer Science at the University of California, Berkeley, told the motherboard.”For most of these devices, choosing to ‘give us the password or rot in jail for contempt may be sufficient.”