Over the past couple of days, sections of the cryptocurrency community have heavily criticized Coinbase cryptocurrency exchange for acquiring blockchain analytics company Neutrino.
The center of the controversy is the role of some of Neutrino’s key members prior to their work at the analytics firm. Some of them had worked with controversial software firm Hacking Team which allegedly shared its surveillance tools and expertise with law enforcement agencies, corporations, governments, and even dictators. This runs totally against the tenets of decentralization hence crypto fans were livid.
Coinbase’s CEO Brian Armstrong has come out to remedy the situation through a blog post on Monday. While admitting error on the path of the exchange, he assured that the Neutrino members who previously had ties with Hacking Team will be asked to leave Coinbase.
“We took some time to dig further into this over the past week, and together with the Neutrino team have come to an agreement: those who previously worked at Hacking Team (despite the fact that they have no current affiliation with Hacking Team), will transition out of Coinbase.”
He admitted that the company had a gap in its diligence process. “While we looked hard at the technology and security of the Neutrino product,” Armstrong said, “we did not properly evaluate everything from the perspective of our mission and values as a crypto company.”
Avoiding a Coinbase Boycott
Coinbase exchange, which consistent declares its intent to create an open financial system for the world, faced one of its biggest tests in the last few days as people called for a total boycott of the exchange as the Neutrino saga unfolded. Several crypto traders claimed they had deleted their Coinabase accounts and branded the exchange as a sellout on several social forums.
But Coinbase said its intentions are noble.
Armstrong, in his blog, explained that acquiring Neutrino served as an opportunity to have a blockchain analytics services in-house, something they handled through third-parties in time past.
He noted that this analytics is important for the exchange to be compliant with Anti-money laundering (AML) and Know Your Customer (KYC) requirements. “Any cryptocurrency exchange that touches the banking system must implement a know-your-customer (KYC) and anti-money-laundering (AML) program, and a key part of those programs is blockchain analytics,” he wrote.
“…most of the money in the world is tied up in the traditional financial system, this means we need to connect to that system and be compliant with all laws and regulations as a financial service business.”
Christine Sandler, Coinbase’s director of institutional sales earlier suggested that third-party blockchain analytics firms were selling Coinbase clients’ data thereby justifying the need to have the blockchain analysis done in-house.
In a related development, blockchain intelligence firm Elliptic which works with Coinbase has denied selling its Coinbase clients’ data or that of other exchanges it works with.