Major cryptocurrency exchange signs $1.4 million deal to help ICE track crypto trades

One of the big appeals of cryptocurrency is anonymity: Unlike actual money and conventional financial transactions, crypto is very difficult to track. Not everyone thinks that's a good thing, of course. In 2018, for instance, Bill Gates said the anonymous nature of crypto was making it more difficult for government agencies to combat criminal activity such as money laundering, tax evasion, and terror funding. The values of Bitcoin and Ethereum also took a big hit in 2021 when the EU proposed new regulations on cryptocurrencies that included the prohibition of anonymous crypto wallets.

According to The Intercept, however, Coinbase—the largest cryptocurrency exchange in North America—has made a deal with US Immigration and Customs Enforcement, better known as ICE, that grants the government agency access to a suite of tools used to track and identify crypto users. The report says the arrangement began with the sale of a single software license in August 2021 for $29,000, and then expanded into a second contract worth $1.36 million the following month.

A copy of the contract obtained by non-profit organization Tech Inquiry indicates that ICE has licensed access to multiple analytical and tracking tools for 12 currencies, including Bitcoin and Ethereum, as well as relevant training sessions. Quoted services include:

• Blockchain explorer
• Multi-hop link analysis for incoming and outgoing funds
• Transaction demixing and shielded transaction analysis
• Historical geotracking data
• Graphical analysis (wallet, transaction, address, transaction + address)
• A bunch of other stuff

It sounds comprehensive to say the least, and according to The Intercept, a Freedom of Information Act (FOIA) request indicated that ICE was not required to sign an EULA that put limits on what it can do with the tools. A Coinbase rep also declined to say whether any limits on analytics usage had been imposed.

The rep did tell the site, however, that none of the tools that it offers for sale provide access to proprietary or internal Coinbase data, pointing to a disclaimer on the Coinbase website saying that information provided by Coinbase Tracer services comes “from public sources and does not make use of Coinbase user data.” Coinbase reiterated that message, with emphasis, on Twitter:

“We want to make this incredibly clear: Coinbase does not sell proprietary customer data,” it tweeted. “Our first concern has been and always will be providing the safest and most secure crypto experience to our users.

“Our Coinbase Tracer tools are designed to support compliance and help investigate financial crimes like money laundering and terrorist financing. Coinbase Tracer sources its information from public sources, and does not make use of Coinbase user data. Ever.”

It's fair to say that crime is bad and nobody wants to actively support it (or at least, nobody wants to be seen actively supporting it), but even so the reaction to the Coinbase statement on Twitter was strongly negative. Many of the replies are complaints about completely unrelated matters, but among those that stay on topic, there is what could politely be called a substantial level of doubt: Multiple users shared variations of the thought that while Coinbase might not sell user data, there's nothing saying it won't give it away.

“The devil is in the details,” one respondent wrote. “If you can't just say 'we're not tracking you' then there is a big problem here.”

Another asked—reasonably, I think—why ICE would want access to this kind of data if it couldn't use it to track people.

The reasonable response, I think, is that both things are true: ICE can (and will) use the data to track people, and ICE really is not interested in everyday crypto users, the vast majority of whom are not trying to buy planeloads of Bolivian marching powder. Coinbase's active pursuit of these deals with ICE and other US government agencies may seem particularly noxious to committed crypto users, who tend to roll with a fairly pronounced libertarian streak, but the truth is that crypto-anonymity only goes so far anyway: Converting holdings to an actual currency requires the use of a licensed exchange, like Coinbase, and they're going to play by whatever rules they have to in order to stay in business.

“As explained on our website, Coinbase Analytics, now Coinbase Tracer, is a compliance solution that Coinbase offers to governments, financial institutions, and crypto businesses,” a Coinbase spokesperson said in a statement send to PC Gamer. “It enables them to investigate financial crimes including money laundering and terrorist financing.

“All Coinbase Tracer features use data that is fully sourced from online, publicly available data, and does not make use of Coinbase user data.”