Chainalysis Report: Criminals Are Using Emerging Digital Assets to Evade Taxation

According to the latest report from blockchain analytics platform Chainalysis, criminals are using emerging digital technologies such as Bitcoin Ordinals and BRC-20 tokens to conceal wealth in an attempt to evade tracking by tax authorities.

The Ordinals protocol was launched in 2023, assigning sequence numbers to the smallest unit of Bitcoin, “satoshis,” and allowing data such as images or text to be embedded in Bitcoin transactions. The BRC-20 standard is built on top of this, supporting the deployment, minting, and on-chain transfer of text inscriptions.

Chainalysis points out that as digital assets become increasingly mainstream, criminals frequently use new technologies such as NFTs, DeFi protocols, and emerging token standards to hide wealth from tax and law enforcement agencies.

Data shows that in the United States, only an estimated 32% to 56% of cryptocurrency holders report their earnings, while in Norway, the figure is only 12%, making tax evasion a serious problem. The Internal Revenue Service (IRS) estimates that the total annual tax gap in the United States is as high as approximately $606 billion.

Meanwhile, Italian authorities recently uncovered a typical case. The suspect used Ordinals and the BRC-20 standard to hide about $1.1 million in unreported capital gains on the Bitcoin network.

Specifically, the suspect first created tokens using the Ordinals protocol and BRC-20 standard, and then sold them at several times the cost, transferring Bitcoin profits back to the main wallet, and continuously reinvesting the proceeds into new inscription tokens.

However, Chainalysis emphasizes that using cryptocurrencies for tax evasion has “fatal flaws,” because the inherent transparency of blockchain leaves all transactions with permanent, non-tamperable records.

By using blockchain intelligence tools to reconstruct financial networks and cross-check them against data that exchanges report upon request, relevant transaction activity involving suspected tax evaders can be tracked.

Chainalysis notes that as new categories of digital assets continue to emerge and generate profits, the gap between actual on-chain wealth and tax filings will become a target of global regulatory investigations.

And in the current financial environment, the technological novelty of cryptocurrencies does not mean anonymity. Blockchain intelligence has become a key tool for tracking these gaps, and an indispensable infrastructure for maintaining financial order.

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