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An official from U.S. Homeland Security has claimed that the authorities can trace every crypto to fiat currency conversion. Is that really a surprise in the modern age of surveillance?

He was talking about international drug dealers bringing vast quantities of Fentanyl into the US to sell on the Dark Web, but the inference is clear: Big Brother is watching the crypto market and the days of anonymity and free money are coming to an end.

Matthew Allen, Assistant Director of Domestic Operations with Homeland Security Investigations, appeared before the US Senate on October 3rd to discuss cryptocurrencies and how they are being used and abused by drug traffickers.

He said: “On dark net marketplaces and other ‘unindexed’ websites, purchases are often paid for with cryptocurrencies such as Bitcoin and Monero, among many others.”

Litecoin and Monero Popular on Dark Web

Monero and Litecoin are both big players on the Dark Web and some criminals actively avoid Bitcoin due to personal security concerns. At some point, though, the money has to come out of the crypto sphere and into the real world.

Allen claimed that the on- and off-ramps to the cryptocurrency world are the best spots to apprehend wrongdoers. “Whenever monetary exchanges are made, a vulnerability is created,” he went on to say. “This is the time when criminals are most susceptible to identification by law enforcement.”

Allen continued with “Utilizing traditional investigative methods such as surveillance, undercover operations, and confidential informants, coupled with financial and block-chain analysis, ICEHSI is able to disrupt the criminals and dismantle the TCOs, [transnational criminal organizations] as well as the cryptocurrency exchangers who typically launder proceeds for criminal networks engaged in or supporting dark net marketplaces.”

After localbitcoins was mentioned by name:

“Targeting these illicit P2P exchangers helps to pull back the veil of pseudo-anonymity provided by virtual currencies. Through interviews and suspect cooperation, along with forensic analysis of computers, mobile phones, and other seized electronics, as well as the use of advanced blockchain tracing tools, ICE-HSI can identify other criminals using virtual currency to fund and further their illicit activities.”

The IRS is Coming

The main takeaway is that there is a way for the government’s prying eyes to get into your crypto trades. The IRS has already sued Coinbase for full details of its users and it’s clear that cryptocurrency taxes are a fact of life already.

Allen was speaking of more nefarious users, but blockchain analysis, powered by AI, could turn the IRS into a bloodhound for every stray dollar. If that happens, it will be easier to report our income in real time, on an IRS-linked blockchain system.

The window of opportunity for under-the-counter earnings in cryptocurrency is closing fast, and the very tools that helped people get rich anonymously will eventually shut tax evasion down.

Blockchain is in Government’s Future

Blockchain technology is finding a foothold in government departments all around the world and income tax is basically tailor-made for the blockchain. It’s a vast number of numbers and files that can be broken down into individual digital ledgers. AI can calculate everybody’s taxes as they go, identify issues ahead of time and give you a simple roadmap for your finances.

When technology gets to that stage, it will likely be plugged into your bank account and cryptocurrency exchanges. It will do the math for you, but it won’t miss a single cent. It will be a simpler system, and could make it more difficult for criminals, secret crypto traders and tax evaders alike.

The author is not invested in any digital asset.