Pitchforks & torches for Coinbase after Neutrino acquisition

The listing of XRP, and the release of a new cloud security feature which some users believe is a security compromise, have both contributed to a growing sense of discontent among Coinbase users, but this sparked into full-blown social media activism after the company announced the acquihire of controversial blockchain analysis firm Neutrino.

Now joining the ranks, albeit from a standalone office in London, are the former ‘cyber mercenaries’ of disgraced security group Hacking Team, which earnt itself the illustrious title "Enemy of the Internet" by selling its products and services to governments with poor human rights records; including Sudan, Venezuela, and Saudi Arabia: "Hacking Team has been listed as an "Enemy of the Internet" by @RSF_inter because they "sell products that are used by authoritarian governments to commit violations of human rights and freedom of information" tweeted Youtuber Janine, who drew attention to the group’s history.

After riding the storm for two weeks Coinbase CEO Brian Armstrong announced on Medium that the Neutrino staff who had been part of the Hacking Group would be let go. "We had a gap in our diligence process," Armstrong wrote. "While we looked hard at the technology and security of the Neutrino product, we did not properly evaluate everything from the perspective of our mission and values as a crypto company. 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."

Enemy of the Bitcoin?

End of story? Maybe not. Also in an attempt to quell the flames, Coinbase executive Christine Sandler appeared on Cheddar — explaining that Coinbase was aware of the background issues of its new employees, but that the "industry leading" technology developed by the firm was too much to pass up.

But, in her haste to justify the purchase, Sandler revealed something even more contentious: that the motivation behind the purchase was the misbehaviour of Coinbase’s previous analytics provider — who she says had been selling clients data to third parties: _"_It was important for us to migrate away from our current providers," said Sandler when asked why Coinbase bought Neutrino. "They were selling client data to outside sources and it was compelling for us to get control over that and have proprietary technology that we could leverage to keep the data safe and protect our clients." Coinbase’s former analytics partner Elliptic denies Sandler’s allegations, and have issued a statement claiming that the comments "fundamentally misunderstand the data we analyse, the insight we share with our clients, and the role we play in the industry."

All that aside, the idea that Neutrino could be the lesser of two evils only added fuel to the fire, raising new questions about exactly what data had been sold, and if customer privacy had been breached.

Concerned Coinbase users still don’t have an official answer to those questions, but Sandler assured the audience that having Neutrino’s proprietary technology available will help ensure the future safety of customer data.

Coinbase not alone

Among centralized exchanges, having market surveillance software onboard is not unusual. In order to remain compliant with KYC/AML laws, all regulated exchanges rely on these blockchain detectives to trace the provenance of transactions and avoid accepting money obtained unlawfully.

Rival American exchange Gemini for example, uses Nasdaq’s SMARTS Market Surveillance software to monitor the marketplace for manipulation and fraudulent trades. Even Binance, an exchange governed by no single jurisdiction, has formed a partnership with research firm Chainalysis to appease regulators.

And, according to an unnamed source speaking to Messari, many of these external market surveillance firms rely on a reciprocal agreement with exchanges — swapping customer data in return for analytic services: "Those firms [Elliptic and Chainalysis] had moved to a ‘give-get’ data model, where Coinbase would only have been permitted to use the service in return for providing its own data. Coinbase "brought that capability in house so they weren’t in a situation where using a 3rd party tool was making it better" as a surveillance tech. The Neutrino tuck-in "legitimately increases privacy for Coinbase customers."

Ideology vs reality

After a stint in the spotlight for several decisions that ran against the grain, Coinbase is now particularly vulnerable to criticism. But as the rumblings of discontent continue, some within the community are warning that continuing to toe such an ideological hardline could ultimately be counterproductive for the cryptocurrency community: _"_There’s a scale between ideological & practical. Hardcore bitcoiners are too ideological & need to realize that we need to create better products and obtain more people before we shave off the best way for more people to enter the space" Tweeted Thomas Schulz, founder of ChaChing wallet

Nevertheless, and even after Coinbase has announced that the exchange "will transition out" Neutrino members that were previously involved with Hacking Team, the #deletecoinbase trend is proving persistent.