Recently, Cointelegraph reported that Coinbase, the major crypto exchange, has come under fire “for its alleged efforts to sell crypto surveillance services to both the U.S. Drug Enforcement Administration and the Internal Revenue Service.”
Coinbase has responded by saying, “the company’s analytics services do not share any personally identifiable data with law enforcement,” and that it sources all data from publicly available information.
Some dispute Coinbase’s claims, and a source who worked in compliance with crypto exchanges revealed “that multiple government entities have been actively monitoring users across nearly every centralized exchange and custodial crypto service provider for years.” The anonymous source also claimed that this activity goes back to the early days of Bitcoin, and that after the Mt Gox incident, it increased and intensified.
The source told Cointelegraph: “I’ve worked for crypto exchanges, bitcoin ATM companies, general crypto services providers, and more. They all engage in surveillance practices. They have no choice.”
They also explained, “that the U.S. government’s favored methodology is called a Suspicious Activity Report, or SAR. While SARs are common in most money transmission businesses, crypto SARs appear to operate under different standards.” They said: “In traditional institutions, a transaction needs to meet certain criteria in most cases to be deemed suspicious. That’s not really true for Bitcoin and other cryptocurrencies though. As far as the government is concerned, the threshold of ‘suspicious’ is met as soon as cryptocurrency is involved.”
Who is watching?
Who is most interested in crypto users’ data? It appears that “reports are shared with FinCEN, the IRS, the FBI, various other federal law enforcement agencies.” But this is not just happening in the USA. The source said: “It’s the U.S., China, Japan, Russia, the UK, others I’m sure; it depends on where you’re based. But nearly every world power has legally mandated methods of reviewing centralized user data.”
What do they want to know?
The source revealed that this is the information government agencies can access: “What coins you hold, how often you trade, the initial source of any funds used to buy crypto, the amount of profit you’ve taken within a certain period of time. They can and do ask for it all. They also keep track of where your coins are sent once they leave centralized custody. So if you’re keeping your coins in cold storage, there is a good chance that some office within one or more world governments is aware of that wallet address. No matter where you move them, if a centralized exchange has ever held those coins, they can track you.”
In brief, the only way to protect yourself is to use decentralised exchanges and privacy coins.