Coinbase CEO Brian Armstrong today admitted that the acquisition of Neutrino, a company run by an infamous team of hackers, in March 2019, was a mistake. Speaking with Peter McCormack on the What Bitcoin Did podcast, he said Coinbase had no excuse.
“We definitely made a mistake,” said Armstrong, adding that “Most of our diligence was around the technology itself. What we failed to do was due diligence more around our values and our culture.”
Armstrong explained that Coinbase needed new analytics software and the choice was between developing it in-house, acquiring someone or investing. In the end, the company decided to buy blockchain analytics platform Neutrino.
“This is an instance where we messed up. We should’ve done more diligence. Since that happened, we revamped our diligence process to include these kinds of reputational checks in the process. There’s really no excuse I can give you,” Armstrong acknowledged.
As Decrypt reported, after Coinbase’s acquisition, commentators were quick to point out that key members of Neutrino were linked to an Italian organization called Hacking Team, known for selling spyware to authoritarian regimes in Saudi Arabia, Sudan and Venezuela. As McCormack put it, “some of their work led to journalists being arrested and deaths of people.”
Armstrong said that after realizing that Coinbase could’ve hired some “black hats,” he insisted on first speaking to Neutrino staff to find out how much of this was true. After assessing the situation, he sacked some of the ex-Hacking Team members but did not specify who.
All of the key people who had “some kind of question mark or reputational or values issue” were let go from the company, he said. While some lower-level engineers who “were not the decision-makers and weren’t as culpable” remained with the company.
Since then, Coinbase has continued to develop its blockchain analytics software, offering it up as a service to the DEA and IRS. On this, Armstrong recognized that it’s not a popular move but that such measures are needed to connect the fiat and crypto worlds.
“One of those unfortunate realities of the world, like we didn’t create it, is that the AML kind of regulations are increasing,” he noted, adding that, “Blockchain analytics companies, Chainalysis and others, are essentially selling data that is publicly available. So that’s what Coinbase analytics is doing too.”
At the same time, the exchange is paying a lot of money in taxes to the IRS, so providing agencies with some paid analytics service could be a way to get some of it back, he explained.
“They can go and buy this kind of blockchain analytics software anywhere they want, so I think we should get some money back for it if we have to do it as a cost of doing business,” said Armstrong.
On the other hand, he also acknowledged that the amount of revenue is “pretty negligible” and Coinbase even considered providing this service for free but “apparently the government doesn’t let you do that.”