The U.S. Department of Homeland Security (DHS) has published a pre-solicitation notice that seeks public information on whether it is possible to track and analyze blockchain transactions completed using privacy coins.
The ultimate goal of the pre-solicitation notice is to eventually:
“Design a product to support the implementation of block chain based forensics, data analysis, and information sharing.”
Published by DHS’ Small Business Innovation Research (SBIR) Program, the proposal begins by highlighting the value of blockchain and Distributed Ledger Technology (DLT), with bitcoin as the most popular use case.
Evolution of privacy coins
Bitcoin’s emergence a decade ago has also seen the development of newer cryptocurrencies like the privacy-focused Zcash and Monero.
The DHS acknowledges that cryptocurrencies have been and continue to find usefulness as underlying assets in applications used in both commercial and government projects.
However, with the emergence of privacy coins, the government agency wants to get information on how forensic teams from homeland security and other law enforcement agencies can analyze transactions on these networks.
The DHS is specifically interested in unlocking the ability for the privacy coins to completely mask transactions via their anonymity and privacy features.
Such features “are desirable,” the DHS says, but adds that there is a “compelling interest in tracing and understanding transactions and actions on the blockchain,” to help know which ones are illegal in nature.
Privacy coins make it difficult for a third party to ascertain the origin of a transaction or determine the amounts of money involved. Ideally, you cannot tell whether or not any of the transactions are of a criminal nature- like in cases of money laundering or terrorist financing.
In the pre-solicitation document, the DHS notes that:
“This proposal seeks applications of blockchain forensic analytics for newer cryptocurrencies, such as Zcash and Monero. […] This proposal calls for solutions that enable law enforcement investigations to perform forensic analysis on blockchain transactions.”
The forensic analysis applied to blockchain transactions can be approached in different ways, including considerations for diverse data situations or use cases and whether or not off-chain data sources are available.
Although DHS document specifically mentions Zcash and Monero, it does note that there is a possibility of new coins with similar features emerging. Therefore, any solution or proposal should be able to “provide working approaches” that can work with any new blockchain implementation.
In this pre-solicitation period, the SBIR will only allow comments, consultations and technical questions concerning the topic in the proposal. It means that the agency does not accept any formal applications, whether from experts or businesses, seeking to offer potential solutions.
Interested parties have until December 18 to contact topic authors via email, with the government expected to release the actual solicitation around December 19, 2018.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.