Coinbase bought Hacking Team, we are all doomed and we will soon live in a post-futuristic blockchain worshipping world that will burn to the ground. At least that’s the feeling you have when you read social media posts and articles about Coinbase’s latest acquisition.
In this article we will explore the details of the acquisition, and spell out some of the facts as we know them.
In case you were on a trip to the moon the last few days here’s a tl;dr: Coinbase bought Neutrino, a London-based company created by three high-profile former Hacking Team members. The (in)famous Hacking Team is an Italian company that specializes in surveillance software. Since this article is about Coinbase and not Hacking Team, here is a link to an extensive source on the matter.
As soon as the acquisition became official, a lot of outrage was raised from the public, including many people boycotting Coinbase and deleting their accounts. When questioned about the matter, Coinbase replied that, yes, they knew about Hacking Team ties but Neutrino was objectively the most advanced and professional solution on the market and it was extremely fitting for their needs. In this acquisition lies the biggest dilemma in the cryptocurrency space: Bitcoin was born as a form of rebellion against the financial system status quo and its early users were cypherpunks, libertarians and anarchists, but with growth, exposure and development, things have changed. The user-base is a much broader segment of society around the globe, and everyone is anticipating wide adoption as the next step for cryptocurrency and blockchain, but this is only rapidly achievable at the cost of centralization, with developing companies like Coinbase at the center of that adoption. If transaction validation is not at the consensus level, it’s centralized, and one could argue that the transaction activity occurring on exchanges like Coinbase fit that description.
To grow as a method of payment, cryptocurrencies have to overcome existing well- established frictionless systems with the ability to issue refunds for unwanted spending, protect you from human mistakes and from thieves. Unfortunately this is most easily achieved through centralized services like credit card issuers or banks. Coinbase is one of the more reputable cryptocurrency exchanges, and with not one but two eyes toward compliance, it’s also developed a valuation of several billion dollars while managing to nearly double profits in the past year, despite the bear market conditions. With their size and market position, they have a lot at stake, and the pressure is on to remain compliant with regulations they must adhere to. Of course the acquisition is debatable but when your business is state of the art technology the risk to fail is quite high, so one can see from their position the need to add on methods to provide security and reduce risk.
How will Coinbase use Neutrino services?
In this graphic you can see some of the services and capabilities that Neutrino offers, making it a bit more clear as to why Coinbase pursued this acquisition. Let’s dig into a couple of their services and what CoinBase may likely do with them:
Track stolen and criminal funds
This is one of the most peculiar services, yet must be the most attractive to Coinbase. One of the main features of a public ledger is that allows for easy analysis of transaction data with a wallet address, as you can follow many ties to activity with other addresses. However, it is really difficult (impossible as far as we know on a reasonable amount of data i.e. the BTC blockchain) to analyze the entire flow looking for very specific data. Neutrino claims to have proprietary solutions to achieve chain analysis and we can say without hesitation that they must have it, considering the $300M Coinbase spent on this acquisition. This is something really big, that would justify the investment alone.
“…spot the wallets used for consolidating funds and for cashing-out.” Imagine how annoying would be for Coinbase to be labeled as the fiat currency gateway for ransomware cashout. With this service they achieve a double goal: preventing the blackmailer from completing their scam and offer clients a sense of security and protection with a bulletproof proprietary system.
Who wouldn’t want this kind of service from their exchange/fiat gateway? In the space is a common knowledge that your assets are most secure when they are in your possession and not sitting on an exchange, yet during the ten-year history of cryptocurrency we have seen numerous hacks/leaks/malicious employees, and third-party firms hired for auditing and ended up stealing (mtgox 2011). Coinbase is trying to change this sentiment towards exchanges.
There’s also the ethical side of the matter: Coinbase should or shouldn’t care? It’s hard to say without expressing opinions, but what we can say is that Hacking Team developed the most advanced and sophisticated malware of all time, and Neutrino will likely be as advanced and professional as we can expect on the white hat side of the line, projecting Coinbase in a stronger position with the ability to compete at the top of the market, particularly as they develop the institutional side of their business.