Coinbase Suffers Backlash Based on Recent Acquisition
On February 19th, Coinbase announced the acquisition of Neutrino, a blockchain intelligence firm. Since then, the company has received significant pushback from customers who believe Neutrino to be an untrustworthy company.
As a major United States cryptocurrency exchange, Coinbase users expect to be able to have a high degree of trust in the company. If they wanted risk, they would go for a cheaper exchange that had a higher degree of risk involved in the platform.
The Neutrino acquisition is meant to help augment the current Anti-Money Laundering and Know Your Customer technology. The technology is said to be best-in-class and represent a strong strategic move by internalizing those tools.
Neutrino’s Management is in Question
The main issue with Neutrino is senior management and the actions they’ve taken in the past. The co-founders were previously involved in a commercial software firm called Hacking Team, which has been known to work with international governments and enforcement agencies. Hacking Team used to produce spyware to help authoritarian governments spy on their citizens, and has been named one of the top 5 corporate enemies of the Internet.
Since the announcement, a “#DeleteCoinbase” hashtag has gained momentum. The trustless nature of Bitcoin is very important to users and part of what makes it special. As with many of these trends, it is difficult to tell who is following through and who isn’t, but it definitely isn’t getting Coinbase more users.
Coinbase’s Director of Institutional Sales, Christine Sandler, has justified the controversial acquisition with the revelation that the previous client data providers they were using had been selling Coinbase user data to outside sources.
“It was important for us to migrate away from our current providers. 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.”
This is a wild way to justify the acquisition, since it is technically a scandal in itself. Privacy is a major consideration within the Bitcoin world. Although some investors are just looking for an astronomical return, many of them are also investing with the belief that a more private, censorship resistant coin is the way of the future. If Coinbase essentially compromises this with bad practices, then these customers will not feel safe using them.
The technology may be essential, and it could be possible that senior management and talent has no effect on the way Coinbase will be run in the future, but it is definitely a suspicious, if dubious, choice. Coinbase has said they were aware of these people’s actions, and reviewed as part of their due diligence, but did not foresee to be a problem.
All of this comes as additional controversy arises surrounding Coinbase’s listing of Ripple. XRP has been shown to violate some of Coinbase’s listing parameters by having more than a minority stake held by the team. Ripple holds approximately 60% of the supply, which is another part of the continuing controversy surrounding the coin. Additionally, Coinbase has had to come out and say they do not make decisions for whether Ripple is a security or not, as they “are not securities lawyers”.