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The United States Internal Revenue Service (IRS) is offering a $625,000 reward to any individual capable of cracking untraceable privacy cryptocurrencies such as Monero (XMR) and tracing transactions on the Bitcoin Lightning Network.

Last week, the IRS issued the proposal with a due date of Sept. 16 for an acceptable working prototype. If accepted, applicants will receive a payment of $500,000 as part of an ongoing grant.

Following the initial payment, applicants will then have an eight-month window to further develop a fleshed-out prototype. At the end of the eight-month period, the IRS will grant the remaining $125,000.

IRS needs new tools to trace criminal organizations

The announcement read, "IRS-CI is seeking a solution with one or more contractors to provide innovative solutions for tracing and attribution of privacy coins, such as expert tools, data, source code, algorithms, and software development services."

The grant is designed to assist the IRS' criminal investigation unit, where special agents trace transactions, such as identifying transaction dates and times, amounts transferred, and wallets.

All final products from applicants will be handed over to IRS CI for further development and fine-tuning. The agency is hoping the grant will result in new ways of tracing persons of interest operating within the cryptocurrency market.

In particular, Monero (XMR) is favored by criminal organizations over other currencies like Bitcoin because Monero is largely untraceable. According to the IRS, XMR has been used for ransoms demands by ransomware group Sodinokibi due to "privacy concerns."

Criminal organizations have begun to increasingly use 'privacy coins' like Monero instead of Bitcoin because authorities have successfully traced criminal activity with improved crypto forensic capabilities, a prime example being the contractor Chainalysis.

Chainalysis has worked closely with law enforcement to successfully trace and prosecute human trafficking rings, money laundering operations, and terrorism financing funds. Last month, the contractor was able to assist law enforcement in tracking down and neutralizing three terrorist cells.

CipherTrace, a blockchain analytics firm, reportedly has the capabilities to trace transactions through Monero, but the technology is largely untested.

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