Will crypto wallets be “hacked” by the IRS?- The Cryptonomist

Will crypto wallets be

The US IRS would like to somehow “hack” hardware crypto wallets

In reality, although the term “hack” may seem excessive from a technical point of view, the term does give a good idea of the actual intrusion attempt that the US tax agency has in mind. 

In fact, the IRS recently drafted a document explicitly entitled “Development of Exploitation Techniques Against Cryptowallets” for the Criminal Investigation (CI), the law enforcement arm of the Internal Revenue Service (IRS). 

This document states that the Digital Forensics Unit (DFU) of the IRS-CI regularly comes across cryptocurrencies that are subject to seizure and confiscation. The point is to gain access to the crypto hardware wallets where they are stored. 

If the owner of the wallet does not voluntarily provide the keys, or if the keys are not found by law enforcement, the DFU has no choice but to try to “hack” the wallet. 

The SRI is explicitly trying to “identify new methods to gain access to cryptographic wallets”, with the goal of “identifying consistent, repeatable exploitation techniques against a given device”.

To achieve this, it is looking for contractors to whom it can entrust this task

The document also states: 

“The decentralization and anonymity provided by cryptocurrencies has fostered an environment for the storage and exchange of something of value, outside of the traditional purview of law enforcement and regulatory organizations. There is a portion of this cryptographic puzzle that continues to elude organizations—millions, perhaps even billions of dollars, exist within cryptowallets”.

What would happen if crypto hardware wallets were hacked

Obviously, these are initiatives linked to the violation of individual devices already in the hands of law enforcement agencies because they have been seized by the judiciary, but once found, these techniques can be used on any device that one can get their hands on. 

It is worth noting that if such techniques were actually found, the security level of hardware wallets would be drastically reduced. Specifically, hardware wallets are used to safely store private keys, which are not stored anywhere else but within the device. Therefore, if there were a way to access those private keys, hardware wallets would effectively become insecure devices, because anyone in possession of them could access all the funds stored on the public addresses associated with those private keys. 

However, the same applies to software wallets, the only difference being that they are not based on dedicated hardware.

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