The IRS Is Probing Coinbase For User Information
Bitcoin is a peer to peer crypto currency that was created anonymously by the Japanese developer who goes by Satoshi Nakamoto. Transactions encrypted using the SHA-2 hashing algorithm. Bitcoins are awarded to miners that keep the network alive with their computing power. China currently dominates the Bitcoin mining market due to the cost efficiency of mining in the country. Although it is used as a currency, many countries treat Bitcoin as a digital asset instead.
The source code of Bitcoin is open source and has lead to development of other similar crypto currencies. Litecoin, Dogecoin, Feathercoin and Clamcoin are examples of alternative crypto currencies that have emerged since the launch of bitcoin.
The anonymous nature of Bitcoin has attracted shady activities including money laundering, online scams and drug dealing. The online drug marketplace known as The Silk Road is an example of a large criminal enterprise that depended on Bitcoin to conduct business. There are many law abiding Bitcoin enthusiasts in the community but the criminal presence has always been prevalent. Many legitimate businesses use Bitcoin as an alternative payment processor since it cheaper than credit card processing and it is more widely available in third world countries.
The IRS is very much interested in uncovering the identities of many Bitcoin users since it is seen as an easy way to avoid taxes. They are targeting the San Francisco based Bitcoin exchange Coinbase. The company received a John Doe to surrender the identities of Bitcoin purchasers in their database. The IRS is primarily searching for the identities of Bitcoin purchasers that do not have any tax information on file with them.
If done correctly, it is possible for a user to use Bitcoin without leaving a paper trail. This would involve methods like buying Bitcoin with cash, online bartering, mining from home or working under the table for Bitcoin. It is obviously not very convenient to exchange Bitcoin using these methods so exchanges like Coinbase serves the majority of users.
Coinbase is currently fighting this intrusive request of information. The company usually complies with criminal investigations, but they believe this broad request of information is a gross infringement of the users’ privacy. There will be many names uncovered in such a request of mostly law abiding citizens. It is currently up to the US Magistrate Judge Jacqueline Scott Corley of San Francisco to determine if Coinbase is legally required to give up the information.