One of the advantages of using bitcoin to conduct transactions is the cryptocurrency’s anonymous nature. But that anonymity may be in danger.
In a legal precedent of sorts, the Internal Revenue Service (IRS) won a court order yesterday asking Coinbase, America’s largest bitcoin exchange, to provide identification information for users who conducted annual transactions worth more than $20,000 on its platform between 2013 and 2015. (See also: The IRS Says Only 807 People Declared Bitcoin For Taxes.)
Coinbase is required to disclose taxpayer ID numbers, names, dates of birth, addresses, transaction logs, and account statements. In its petition to a San Francisco court, the IRS said it was seeking the information to ascertain reasons for the discrepancy in the user numbers and transaction amounts at Coinbase (5.9 million and $6 billion, respectively) and the number of people who electronically filed Form 8949, which is required to declare gains accruing from bitcoin-related transactions, between 2013 and 2015.
Coinbase has stated that the summons period accounted for 8.9 million transactions by 14,355 account holders on its trading platform.
Coinbase put forward seven reasons for not disclosing the identities of its users. These range from the possibility that users may have made paper-based tax declarations (as opposed to the electronic claims cited by the IRS) to the agency’s conclusions not being supported by “proper enforcement purpose.”
The current summons for Coinbase is a narrowed version of the summons filed by IRS last year, when it sought identifying information for all Coinbase users. (See also: Court Forces Coinbase Bitcoin Exchange To Give User Data To IRS.) Regardless, the case could have far-reaching implications on the privacy of bitcoin transactions.
Peter Van Valkenburgh, director of research at Coin Center, said the ruling sets “a bad precedent for financial privacy.” “Without better rationale for why these specific transactions were suspect, a similarly sweeping request could be made for customer data from any financial institution,” he stated.