Chainalysis Warns of Rising Crypto Tax Evasion

• Authorities in charge of collecting and disbursing taxes have been rushing to keep up with technological developments.
• A tax evasion plan was allegedly detected by the Economic and Financial Police Unit in Foggia, Italy, according to Chainalysis.

Blockchain analytics firm Chainalysis reports that tax evaders are increasingly using digital means such as Bitcoin Ordinals and BRC-20 tokens to conceal their income from tax authorities.

In a research released on Wednesday, Chainalysis said that although tax evasion and unreported income have been around for a long time, the techniques used to perpetrate these crimes are always changing.

Authorities in charge of collecting and disbursing taxes have been rushing to keep up with technological developments. Only between 32 and 56 percent of US cryptocurrency holders disclose their profits, according to a March survey. An August 2024 research found that figure to be a meager 12% in Norway.

Bitcoin Ordinals and BRC-20 Tokens Being Used

A tax evasion plan was allegedly detected by the Economic and Financial Police Unit in Foggia, Italy, according to Chainalysis. The perpetrator allegedly exploited Bitcoin Ordinals and the BRC-20 token standard to conceal 1 million euros ($1.1 million) in unreported capital gains.

The Ordinals protocol was introduced in 2023 and enables data, including pictures or text, to be encoded in Bitcoin transactions. It also provides a serial number to a satoshi, the smallest unit of Bitcoin. On top of it, the BRC-20 standard enables the deployment, minting, and transfer of text inscriptions on the Bitcoin blockchain.

The suspect was found to have been creating tokens utilizing the Ordinals protocol and the BRC-20 standard, sending them, and listing them on marketplaces, as revealed by Italian police throughout their investigation, according to Chainalysis.

According to Chainalysis, the assets were sold for much more than their initial value, and the proceeds were sent back to the suspect’s main Bitcoin wallet. This money was constantly being re-invested by the suspect into more inscriptions.

About $606 billion is the best estimate of the total tax that the government is legally due but did not collect, according to the US Internal Revenue Service. Underreporting income and paying in cash are common strategies for tax avoidance.

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