The Internal Revenue Service has issued warnings to more than 10,000 individuals who hold cryptocurrencies, cautioning them about potential violations of federal tax regulations.

The IRS has begun to send out various types of letters to U.S. taxpayers, tailored to the specific information the agency has on each recipient. Cryptocurrencies have gained popularity among thousands of Americans and others worldwide, either as an alternative form of currency or for investment purposes. Unlike traditional fiat currencies managed by central banks and government regulations, cryptocurrencies are digital assets stored on blockchain servers with encryption.

This move by the IRS comes at a time when cryptocurrencies are experiencing a comeback. Following a significant surge in value in January 2018, the interest in crypto dwindled throughout the year, with Bitcoin ending the year valued at under $4000. However, the digital currency has seen a resurgence in the summer of 2019, surpassing $12,000 in mid-July with the backing of major retailers and the introduction of Facebook’s Libra. Despite this rebound, concerns about the illicit use of cryptocurrencies by entities like terrorists and drug traffickers have continued to raise regulatory alarms.

Curious about how the IRS identified individuals to receive these warning letters? One explanation could be the data provided by Coinbase, a popular cryptocurrency exchange. In 2018, over 13,000 Coinbase account details were disclosed to the IRS following a court order, revealing information about customers engaged in transactions exceeding $20,000.