• econoalchemist

CoinBase, things aren't as they seem.

Here's an attempt to highlight what's at stake with Coinbase from my point of view. Call me crazy or paranoid but a company with your personal data & your public data will not resist the temptation to combine them.


The info transmitted on the Bitcoin network is public. Meaning anyone in the world can watch the network & see all the addresses and transactions made. This public information is kept in a decentralized database that dates back to the first transaction and catalogs all transactions.


The public availability of this data isn't concerning to you because your true identity is masked by a pseudonymous address. Even though evidence of every transaction is captured in the database, nobody knows it's you unless you tell them or you leak sensitive information.


Then CoinBase comes along and announces a new chain analysis tool. But it's only available to law enforcement. This tool makes it easy to organize all kinds of meta data like time, date, amount, addresses involved, geo-location, & more. Even map out all your transactions.


Those amazing features are great and all but what is law enforcement going to do with a bunch of meta data connecting pseudonymous addresses? Especially when it comes to law enforcement activities like pressing charges, prosecutions, & submitting evidence?


Well lucky for law enforcement, CoinBase gathered all your personal information when you signed up with them. Remember? So it wasn't just the people you trusted with your address that knew your identity. It was also CoinBase that could link your identity to all your BTC transactions.


So law enforcement has access to this great data organization tool provided by the company with all your personal information. Which combined, remove any expectation of privacy. Why wouldn't they link private & public data to build a better relationship with law enforcement? Brian Armstrong has explicitly expressed that is CoinBase's objective.


Typically, law enforcement would need a subpoena to access your personal information. But there is room for interpretation in CoinBase's privacy policy. And no clear guarantee they won't combine private and public data. Here are a few screen shots from their website:





Multiple law enforcement agencies have signed up for subscriptions to this chain analysis spyware. At first, they may claim the majority of the data will stay on CoinBase servers but slowly & surely as much data as the government thinks it needs in the course of an investigation, that data will trickle off CoinBase servers into less secure government hands. During the discovery process of trials it may be necessary to get 2nd or 3rd opinions, the scope may need to be widened, or all the combined data might be sold outright with the subscriptions. Who knows?


But one thing is for sure, more & more data will be put in the hands of government agencies that have proved time & again that they are sitting honey pots. There are a couple reasons this is more dangerous than most other data sets though.


Once your KYC is linked to a Bitcoin UTXO it creates a trail that can be followed wherever you spend it and all the transactions after that. Even after you transfer funds off CoinBase the path is still easy to follow. The only thing protecting you is that only CoinBase knows your identity.


What if your identity, physical address, and the amount of bitcoin you own were leaked in a government data breach. That's valuable information for someone in the ransom or armed robbery business. Or maybe an angry mob that's been stirred up like wasps by their own government that demand to tax the rich.


That may sound absurd but think about a not so distant future where BTC is trading at $300k per coin and fiat inflation has caused Zimbabwe-like situations to unravel globally. Do you think your identity and UTXO balance circulating the dark web won't make you a target?


Data breaches aside, let's imagine a world for a moment where self custody of bitcoin is illegal. Government agents show up at your house and demand you return the KYC bitcoin you have. You claim that you lost it in a terrible boating accident. You would probably wind up in a civil trial trying to plead you don't have access to the funds any longer. Let's say you make it through that and remain free. Maybe that gets the agents off your back but that doesn't mean they are not watching your addresses. They know your identity is tied to those addresses since CoinBase gave them that information. You disregard the 6102 order and defiantly held onto your bitcoin, you would never be able to spend those coins, nor would your children if you think you'll pass it down to them. Those funds are now forever frozen because the second they move, a warrant goes out for your arrest.


Central Bank Digital Currencies are coming, they will replace cash. Society will go completely cashless. The government oppressors around the globe want to be able to switch your livelihood off at the flip of switch at the first sign of disobedience.


CBDC will be a shadow technology to Bitcoin and it will be used to manifest the opposite of Bitcoin's best features. Instant censorship in place of censorship resistance, limited by geographic borders instead of borderless, governed by oppressors instead of consensus, unlimited supply instead of a hard cap. Anyone caught using bitcoin outside a walled garden like PayPal or Robinhood will be instantly shut off from the CBDC system and it will only be a matter of time before an arrest follows and their voice is erased.


Luckily there are some pretty awesome tools available to people interested in preserving their privacy. @COLDCARDwallet offers a way to store your private keys off-line with a ton of security features in a cool hardware device.


@SamouraiWallet offers privacy enhancing features in their mobile wallet that break the links between your previous transactions and your post-mix BTC addresses.


@RoninDojoUI offers a backend server that you can host on a simple computer like @Raspberry_Pi and it's designed to integrate with your @SamouraiWallet. This way you have a private Bitcoin full node to broadcast your transactions and no central party to log your IP address.


@bisq_network provides a peer to peer exchange where you can buy and sell bitcoin to individuals like yourself without exposing volumes of KYC data to corporations intent on selling your transaction history and identity. Stop using KYC services. Set up a fresh and totally separate wallet for non-KYC coins. Sell your KYC coins where you bought them from to provide undeniable proof you no longer own them. Then use that money to buy back in from Bisq.


Bitcoin enables anyone to be their own bank. But that takes responsibility & tenacity. The skills are not gained overnight. It's more of a life style change. You can do it. Be weary of those who preach about compliance. The old system is broken, keep it out of the new one.


Thanks for reading! I hope this got you thinking critically about the slippery slope CoinBase is on with law enforcement agencies and the dangers of using KYC services to obtain bitcoin.


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This article is available on Twitter as a thread here.

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