Coinbase, a digital asset exchange based in San Francisco, recently acquired Neutrino, an Italian firm that specializes in cryptocurrency surveillance. The deal is intended to help the exchange cut down on theft, a major problem for the cryptocurrency industry. Shortly after the announcement, though, Twitter users sounded the alarm about Coinbase’s shiny new toy.
That’s because Neutrino’s founders previously worked for a company which sold spyware (i.e., surveillance software) to Saudi Arabian operatives as well as other repressive regimes. As far as we know, none of Neutrino’s employees are still affiliated with that business, called Hacking Team, but the connection is deeply distressing to some Coinbase users. In December, the Washington Post linked Hacking Team to the Saudi unit which ultimately killed Jamal Khashoggi, a Saudi Arabian dissident and journalist.
Brian Armstrong, Coinbase’s CEO, explained in a blog post this week that the exchange was aware of Neutrino’s ties and suffered “a gap in [its] diligence process.” Although Coinbase assessed Neutrino’s transaction mapping technology, he said, it didn’t consider all aspects of the acquisition properly. “We sometimes need to make practical tradeoffs to run a modern, regulated exchange, but we did not make the right tradeoff in this specific case,” Armstrong wrote.
Coinbase declined Quartz’s request for comment.
For the tech industry at large, these issues are familiar. Googlers protested plans for a censored Chinese search engine. Facebook engineers requested internal transfers after the Cambridge Analytica scandal broke. Microsoft employees rebelled when the giant agreed to provide the US army with augmented reality headsets. It seems, though, that Coinbase’s workers haven’t taken a similarly public ethical stand.
But as Coinbase races to build the most robust and expansive cryptocurrency exchange, it seriously misjudged the reaction of the bitcoin community. Online, word spread quickly about Neutrino’s past and bitcoin advocates encouraged the exchange’s users to #DeleteCoinbase. While social media activism is unlikely to put a serious dent in Coinbase’s user numbers (20 million and climbing), the complaints were heard.
In a gesture of remorse, Armstrong says Coinbase will “transition out” Neutrino employees who worked for Hacking Team and built/sold that other surveillance software. However, Armstrong did not provide names and dates, nor did he address whether those employees might remain in unofficial capacities.
For Coinbase’s competitors, the exchange’s misstep serves as a cautionary tale. There are dozens of platforms available to invest in cryptocurrencies, so conscientious objection can lead to meaningful action, turning bad behavior into bad business.
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What you need to know—and why
Civil still makes no sense
Due to an underwhelming public reception, Civil Media scrapped its sale of CVL tokens five months ago. The company planned to use proceeds from those digital tokens to provide grants to local newsrooms. Meanwhile, token buyers were meant to use CVL to vote on the reliability of those newsrooms. At its heart, the plan sounded wonderfully idealistic—and naive.
Although Civil CEO Matthew Iles suggests that journalism needs a new business model, it’s never been clear how putting a gatekeeper between newsrooms and their customers would benefit anybody except, well, the gatekeeper. Nonetheless, Civil has pressed on, capitalizing on the investing public’s continued enthusiasm for anything related to blockchain, the accounting system that underpins bitcoin.
Earlier this month, Iles announced a second token sale, which began yesterday (March 6). Participating is still extremely convoluted, requiring a user to register with an email, connect their cryptocurrency wallet, and complete a 30-minute tutorial. But if you just want to donate, now you can give Civil money directly using PayPal. At least that’s one improvement.
The CVL token, though, remains a vexing proposition. Now, the company is creating 100 million CVL tokens, which will be sold on a sliding scale from $0.20 to $0.94 until they run out, and anyone brave enough to buy CVL tokens will receive Civil Membership. That will allow token holders to vote on whether Civil’s newsrooms should be allowed to continue publishing on the Civil platform.
Takeaway: Civil’s goals are admirable but the arcane voting process and token that the company is selling wholly undermine its altruistic efforts.
If you’re a concerned citizen who wants to support good journalism, you would be better off buying subscriptions to your favorite publications. Unfortunately, Civil is one of those companies that uses blockchain as marketing hype without considering the demand for their platform or the practicality of their business model. Especially in journalism, that’s a death sentence. ↘️
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Chart interlude
Winters of discontent
The price of bitcoin peaked in mid-December 2017. Since then, it’s lost roughly 80% of its value. The previous “crypto winter,” between December 2013 and February 2015, also saw bitcoin shed 80% of its value.
In fact, the value destruction during these two episodes ended up at almost the same spot (in relative terms) at the same point past the peak. If you think that bitcoin will follow a similar trajectory as before—for whatever reason—then history suggests patience is needed: It took bitcoin two years from its trough in early 2015 to claw back all of its losses. In the current cycle, bitcoin’s most recent trough was in mid-December 2018.
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Regulatory Watch
Caribbean countries test a digital currency
A Barbados-based fintech company, Bitt announced on Wednesday that it will soon begin a pilot for a blockchain-based version of the Eastern Caribbean dollar. The company has signed a contract with the Eastern Caribbean Central Bank, which serves eight island countries—Anguilla, Antigua and Barbuda, the Commonwealth of Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines. The digital version of the Eastern Caribbean Dollar could eventually be used by businesses and citizens.
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Hacks scams and capers
A cryptocurrency trader is brutally attacked
According to local media, a Dutch bitcoin trader was assaulted in his home by three people disguised as police officers. The victim, a resident of Drouwenerveen, was tortured with a drill in front of his 4-year-old daughter in early February. The Independent says it seems the attempted theft was unsuccessful, though the bitcoin trader was seriously injured.
Please send news, tips, and neutrinos to privatekey@qz.com. Today’s Private Key was written by Matthew De Silva and Jason Karaian, and edited by Oliver Staley and Jason Karaian. If at first you don’t succeed, don’t try skydiving.
