Exchanges

Coinbase responds to its controversial acquisition of blockchain intelligence platform Neutrino

Quick Take

  • Coinbase acquired blockchain intelligence firm Neutrino on Feb. 19
  • The executive team at Neutrino were previously founders and executives at Hacking Team, a controversial intelligence firm designated by Reporters Without Borders as an “Enemy of the Internet”
  • Coinbase has sent The Block an official response surrounding this acquisition

Coinbase, one of the largest crypto firms, is speaking out about the fiery debate it ignited over a recent acquisition.

The firm earlier this month snapped up Neutrino, an Italy-based company founded in 2016 led by Giancarlo Russo, Marco Valleri, and Alberto Ornaghi

Prior to founding Neutrino, CRO Marco Valleri and CTO Alberto Ornaghi were executives of Hacking Team, an intelligence firm which sold spyware tools to government agencies worldwide. Giancarlo Russo, Neutrino’s CEO, was Hacking Team’s COO. Herein lies the controversy. As details about Neutrino’s history flooded Twitter, market participants criticized the exchange, including The Block analyst Matteo Leibowitz, who questioned whether Hacking Team’s history of consistently facilitating human rights abuses taint Coinbase’s claims of democratization and democratizing cryptocurrency. Now, Coinbase has addressed those questions.

In a statement sent to The Block, Coinbase states that it is “aware that Neutrino’s co-founders previously worked at Hacking Team, which we reviewed as part of our security, technical, and hiring diligence,” adding that “Coinbase does not condone nor will it defend the actions of Hacking Team,” but “it was important for Coinbase to bring this function in-house to fully control and protect our customers’ data and Neutrino’s technology was the best we encountered in the space to achieve this goal.”

Coinbase also tells The Block that “significant effort is required to understand the flow of cryptocurrencies and manage risks across public blockchains” and that “we are proud of our long track record balancing a compliant, regulated cryptocurrency exchange with the commitment to protecting our customers’ right to privacy.”

The firm concludes that “for Coinbase to meaningfully grow the cryptoeconomy, we know we can never take the trust our customers place in us for granted.”

As for Neutrino, the firm has a comprehensive solution developed specifically for law enforcement agencies that supports analysis of flows from different public blockchains including Bitcoin, Ethereum, and Litecoin. And while blockchain intelligence itself is antithetical to the “censorship-resistant” ethos of the crypto community, Neutrino, or to be exact, its founders’ historical backgrounds, is the main the source of contention of this story.

Hacking Team’s work with government agencies to use spyware tools to target journalists and dissidents has earned it a label from Reporters Without Borders as a certified “Enemy of the Internet.” According to Reporters Without Borders, malware designed by Hacking Team has been used by governments “to capture the passwords of journalists and netizens” and “to commit violations of human rights and freedom of information.”

A 2016 report from Vice covered Hacking Team’s work in Latin America. According to Vice, in Ecuador, Hacking Team planted spyware to target a “well-known activist who’s been opposing the government of President Rafael Correa.” Furthermore, in the city of Puebla, Mexico, the governor used one of Hacking Team’s products to “spy on several political rivals, academics and journalists.”