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Have seen a few articles talking about Coinbase Analytics - figured I would share my thoughts on it, since I don't think it's particularly newsworthy - and lots of conjecture out there.
Blockchain analytics software is nothing new - has been around a long time - it uses publicly available data to try and track crypto transactions - usually to catch bad actors.
Exchanges that maintain connections into the existing financial system (i.e. ability to connect your bank account, do wires, etc so you can convert fiat to crypto) need to follow AML laws, and this often includes utilizing blockchain analytics software for transaction monitoring.
There is a lot that could be better about existing AML laws, and we didn't create them - but those are the rules to operate a fiat to crypto exchange legally.
In the early days, Coinbase started off by using some of the existing blockchain analytics services out there. This worked out ok, but the issue with it was that we don't like sharing data with third parties when we can avoid it, and they didn't support all the features/chains...
...we needed. So we realized at some point we would need to bring this capability in house.
We did this via an acquisition (which did not go very well honestly, and we had to cycle out some team members). But we were able to rebuild the team, and set up this functionality in house.
It's expensive to build this capability, and we want to recoup costs. There is an existing market for blockchain analytics software, so we sell it to a handful of folks as well. It also helps us build relationships with law enforcement which is important to growing crypto.
Especially if you want more fiat in the world to flow into crypto over time (as I do). Blockchain analytics software is essentially just compiling publicly available data that is already out there on the blockchain, trying to organize it to make it more useful.
If people want true privacy, that is what privacy coins are for. I'm a fan of privacy coins because I think everyone should have more financial privacy. It will be similar to how the internet moved from HTTP to HTTPS over time. https://web.archive.org/web/20200529152207/https://www.project-syndicate.org/commentary/rise-of-cryptocurrencies-after-covid19-pandemic-by-brian-armstrong-2-2020-04
Whether Coinbase sells blockchain analytics software or not, transactions on public blockchains are still traceable by any number of people out there.
We (at Coinbase) often feel somewhat caught in the middle on this one - we maintain relationships with both the traditional financial world, and the new crypto world, because we act as a bridge between the two.
These groups sometimes have different ethos, but it's important we provide that bridge to keep the flow of fiat and crypto working. https://blog.coinbase.com/building-the-bridge-why-compliance-is-key-to-digital-currencys-success-7bfdd88a084c
That's the only way we're going to get to a truly crypto-to-crypto economy which can have all sorts of new improvements (including better financial privacy).
