Bitcoin,  Technology

Coinbase defends $183K contract with the U.S. Secret Service

‘I don’t think it’s particularly newsworthy,’ tweets a dismissive Brian Armstrong

Coinbase is providing blockchain analytics software to the U.S. Secret Service in a four-year contract that’s worth $183,750.

The crypto company’s CEO, Brian Armstrong, has defended the lucrative deal—releasing a long Twitter thread in which he said the revelation is not “particularly newsworthy.” Of course, calling something “not newsworthy” is the best way to ensure journalists cover it.

Some of the exchange’s users have expressed concerns about how their data is being used, but Armstrong has shrugged off this criticism, writing: “Whether Coinbase sells blockchain analytics software or not, transactions on public blockchains are still traceable by any number of people out there.”

Coinbase’s (not so secret) service

Attempting to reassure his 338,500 followers that there was nothing untoward about the deal, Armstrong said blockchain analytics software is nothing new, explaining: “It uses publicly available data to try and track crypto transactions—usually to catch bad actors.”

He said Coinbase had initially used external blockchain analytics providers to achieve compliance with anti-money laundering laws, but decided to acquire a specialist company because “we don’t like sharing data with third parties when we can avoid it.”

“[W]e don’t like sharing data with third parties when we can avoid it.”

Brian Armstrong, Coinbase

Defending the government contract, Armstrong added: “It’s expensive to build this capability, and we want to recoup costs. There is an existing market for blockchain analytics software, so we sell it to a handful of folks as well. It also helps us build relationships with law enforcement which is important to growing crypto.”

In a later tweet, he wrote: “Blockchain analytics software is essentially just compiling publicly available data that is already out there on the blockchain, trying to organize it to make it more useful.”

Armstrong rounded it out by saying that people who want to keep their transactions confidential should use cryptocurrencies that allow payments to be obfuscated: “I’m a fan of privacy coins because I think everyone should have more financial privacy. It will be similar to how the internet moved from HTTP to HTTPS over time.”

An angry response

To say that the CEO’s statements didn’t go down well on crypto Twitter would be something of an understatement. Some took the opportunity to attack Coinbase’s “outrageous” fees and “predatory” business model—others went further, describing the company as “bad for Bitcoin and bad for crypto.”

Coinbase did have its defenders, though—with one Twitter user arguing that consumers who use exchanges that comply with anti-money laundering measures should fully expect their data to be handed over to law enforcement agencies.

“It’s expensive to build this capability, and we want to recoup costs … It also helps us build relationships with law enforcement which is important to growing crypto.”

Brian Armstrong, Coinbase

According to The Block, which first reported on the Secret Service contract, the Drug Enforcement Agency and the Internal Revenue Service have also expressed an interest in using Coinbase Analytics. In March, the Secret Service began merging task forces focused on electronic crimes and financial crimes into a single cyber fraud task force—and it is planning to roll out this network to its 160 offices worldwide.

Coinbase Analytics was built following the acquisition of the intelligence firm Neutrino in 2019—but The Block claimed this division of the company was kept under wraps until its reporters wrote about it.

A statement at the time stressed that the intelligence offered by Coinbase Analytics is kept completely separate from the exchange’s internal data, adding: “Coinbase Analytics data is fully sourced from online, publicly available data, and does not include any personally-identifiable information for anyone, regardless of whether or not they use Coinbase.”

Last week, Reuters reported that Coinbase is planning a stock market listing as early as this year, in a move that would make it the first major U.S. cryptocurrency exchange to go public. Any flotation would face hurdles—not least from the Securities and Exchange Commission. In recent days, Paul Grewal was also appointed as Coinbase’s new chief legal officer after being poached from Facebook. The former judge replaces Brian Brooks, who is now acting head of the Office of the Comptroller of the Currency.

Coinbase’s conundrum

Blockchain intelligence firms have long been viewed with suspicion by some Bitcoin proponents—and it isn’t just Coinbase that has ended up in the line of fire.

Back in April, Chainalysis was accused of “violating the civil rights of millions of people” by the BTC educator and evangelist Andreas Antonopoulos, who had accused the company of assisting “the world’s worst dictators and regimes either directly or indirectly.”

Antonopoulos had added: “I think it’s fundamentally immoral to even work at a company like this. Just like I would consider it immoral to work for a weapons manufacturer or a company that builds cages for refugee concentration camps.”

With Coinbase being compared to a poacher turned gamekeeper, Antonopoulos may very well take a dim view of its fledgling analytics arm, too.

 You May Also Like

Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.