KEY POINTS
- Coinbase is widely criticized for offering its analytics tool to government agencies
- Coinbase defends its decision and said no personally identifiable information can be obtained from the tool
- Users began withdrawing their Bitcoins from their Coinbase accounts
With news that Coinbase is going to sell its analytics software to the United States government, many prominent persons in the crypto industry are encouraging others to delete their Coinbase account as a sign of protest.
Coinbase, the largest cryptocurrency exchange in the U.S., is under intense criticism for selling its blockchain analytics software licenses to the U.S. Drug Enforcement Administration (DEA) and the Internal Revenue Service (IRS). Public documents showed the IRS intends to use the software to analyze and track the flow of cryptocurrency in multiple blockchains that criminals will use. The agency also said Coinbase Analytics has tools that can “enhance the law enforcement’s capabilities” which could not be found in other analytics tools in the market.
While Coinbase has not yet been awarded the government contract, it appears the company offered the service April 28.
The DEA document explained the Coinbase Analytics tool can provide the agency with “identity attribution” and can de-anonymize blockchain addresses globally. DEA claims the tool is critical to avoid false positives.
In theory, cryptocurrency is a way to avoid the government or any “prying eyes” from tracking transactions. When a person initiates a credit card purchase, there’s always more than four parties looking at this transaction for verification. Ideally, in a blockchain transaction, it only requires the sender and the receiver. The transaction is broadcasted in a public blockchain. Anyone can see the transaction took place, but there’s no way to find out who are the parties involved.
In the course of Bitcoin’s 10 years of existence, there are those in favor of regulation and those who are not. Coinbase and the Winklevoss Twins’ Gemini Exchange are two of the most heavily regulated crypto platforms in the world. In exchange for being regulated, they can provide their service in the U.S. The crypto industry has accepted it needs to cooperate with the governments of the world to thrive. However, the matter of identity privacy still is, and naturally, a sensitive topic. As such, Coinbase selling its analytics software to government agencies has sparked criticism of the company.
The backlash has been swift as Coinbase users began withdrawing their Bitcoins at a record pace. Because the blockchain is transparent, this is tracked by analytics firm Glassnode. On June 7, 22,000 BTC was withdrawn from Coinbase.
Coinbase denies it is breaching any privacy issues. In a statement sent to The Block, the company said Coinbase Analytics “is fully sourced from online, publicly available data” and that it does not include personal information. The company also said it uses the tool internally, and the technology used in the tool is that from Neutrino, an intelligence agency purchased by Coinbase in 2019.
The mere mention of Neutrino added spark to the backlash. Coinbase’s purchase of Neutrino was controversial because its founders were previously executives of a hacking firm that sold spyware tools to government agencies worldwide. Thus, Coinbase selling a tool to the government drew parallels to the previous news, and the company was heavily criticized for it.
#DeleteCoinbase is now being used on Twitter, encouraging users to delete the app out of principle; not to mention the fact that the exchange crashes every time there is a price rally.