On June 5, media outlet The Block reported that it had obtained records that showed US-based exchange Coinbase was in talks with the Internal Revenue Service (IRA) and Drug Enforcement Agency (DEA) to license its blockchain analytics software.
These documents, which were published in April and May 2020, show that the two agencies hoped to make use of the software to tackle illicit transactions. The IRS document explains how the tool would be used,
As law enforcement techniques evolve and other cryptocurrencies gain acceptance, criminals are using other types of cryptocurrencies, not just Bitcoin to facilitate their crimes...Coinbase Analytics (fka Neutrino) allows for the analysis and tracking of cryptocurrency flows across multiple blockchains that criminals are currently using. Coinbase Analytics also provides some enhanced law enforcement sensitive capabilities that are not currently found in other tools on the market.
The intent, at least according to the DEA document, is to “provide investigators with identity attribution”, among other things.
This new development about potentially selling tools to the US agencies may upset some in the community, who believe that this may lead to government meddling. The worry is that this will give the agencies access to user information, but Coinbase has said that the agencies would never have access to Coinbase internal data or customer data.
Jameson Lopp, a prominent voice in the space, said that this strengthened the distrust in Coinbase,
The cryptocommunity has reacted in largely the same way, with further reactions being seen in an outflow of funds from Coinbase. This has added to the woes, which in recent weeks has been centered on the downtime it has experienced. Coinbase has said that it would look into all issues.