It has been revealed that Coinbase is providing blockchain analytics software to the Drug Enforcement Administration (DEA) and the Internal Revenue Service (IRS). Specifically, Coinbase is selling the IRS and DEA licenses to use Coinbase Analytics, which is the software that Coinbase developed after acquiring blockchain forensics firm Neutrino.
Coinbase has publicly commented on this issue after it was brought to light, and is trying to make it seem like this blockchain forensics partnership with the government is totally separate from the Coinbase exchange.
However, Coinbase Analytics is apparently the cheapest blockchain forensics software available to the government and has the most features for the money that it costs.
In other words, Coinbase is endeavoring to provide the government with blockchain forensics tools that de-anonymize cryptocurrency transactions at lower costs than ever before.
At the least, this proves that Coinbase is closely tied with the government and is willing to help the government to de-anonymize the crypto space.
Zooming out, it is clear that Coinbase is basically a crypto space honeypot, with a honeypot being a tool used by law enforcement in order to trap criminals. For example, an excellent example of a digital honeypot is a darknet market that gets seized by the government, but then the government keeps running the darknet market in order to expose as many criminals as possible.
In the same way, now that it is clear that Coinbase is working with the government to de-anonymize crypto transactions via blockchain forensics, it is also clear that Coinbase will happily provide any customer data to government agencies.
Zooming out even further, back in the early days of crypto numerous transactions were conducted via Localbitcoins and peer to peer crypto dealers. However, the peer to peer crypto trade got wiped out by government regulation and Coinbase largely took the place of peer to peer crypto trading.
Now it seems this could have been the government’s masterplan to create the ultimate crypto honeypot. Since peer to peer crypto trading is largely unavailable, most crypto users in the United States are using Coinbase, and through Coinbase the government has easy access to the identification information of practically all crypto users in America.
If you are highly concerned about your privacy, consider not using Coinbase for your crypto trading needs, since it is possible that all of your identification information will be sent to the IRS and other government agencies.