Edward Snowden Calls Coinbase Over-Compliance ‘Toxic and Embarrassing’

By André Beganski

As society went from dial-up modems to near-constant online presence via smartphones, the ways in which individuals engaged with networks underwent a pivotal shift. The internet became not only a place for people to access vast amounts of information and connect with others, but also an avenue for corporations and governments to harvest swaths of information.

Edward Snowden says that this shift away from the internet’s roots was partly a result of corporations that prioritized growth and didn’t put users first.

“We lost that internet because we onboarded billions of people, and the people who were providing the gateways for that didn’t have their best interests at heart,” he said in an intimate fireside chat before 75 attendees at Camp Decrypt in Napa Valley last month.

The former NSA contractor turned whistleblower, known for revealing an unlawful mass surveillance program in the U.S. in 2013, said he sees a similar trend emerging when it comes to the adoption of cryptocurrencies.

Snowden compared the way cryptocurrency exchange Coinbase onboards users to the way Facebook became synonymous with social media.

“We’re seeing people exploiting the kind of ignorance that made so many people now think tapping the Facebook app on your phone [is] the internet, and now think crypto is Coinbase or something else equally horrible as that,” he said.

Coinbase is the only publicly listed cryptocurrency exchange in the U.S. and the country’s leading exchange by volume, according to CoinGecko. The company reported it had 8.5 million monthly transacting users on average in its third fiscal quarter of this year, a 16% increase from the same period a year ago.

Snowden told Camp Decrypt attendees that Coinbase has put regulatory compliance over the founding ideals of blockchain-based networks—an innovation that could tilt power back into the hands of internet users.

“To those of you in the room who work for Coinbase, it’s really nothing personal, you’re just an example of [the] overly compliant, overly indulgent,” he said. “Yeah, you guys still get rich, you’ll make a lot of money, but have you actually advanced the interests of society?”

Coinbase claims to have prioritized regulatory compliance since its earliest days, and the company has asserted that working with regulators is key to widespread acceptance for cryptocurrencies as an asset class.

“We’ve always believed that for crypto to gain the legitimacy needed for mainstream adoption, compliance can’t be an afterthought—it has to be core to the way we operate,” the company wrote in a blog post. “Compliance with existing regulatory frameworks isn’t an option—it’s a necessity.”

Snowden went on to compare Coinbase to a company that sells products much in the same way a home improvement retailer like Home Depot does, adding that its commitment to Know-Your-Customer (KYC) procedures—which helps them remain compliant with anti-money laundering regulations—is a drag on the crypto space.

“You're not even building lawn mowers, you're selling them, but great, you've popularized the lawnmower—lawnmowers are important, they're valuable,” he said. “But when I go buy a lawnmower, nobody asks for me to hold up my passport and scan my face, and the fact that you guys go along with that is frankly toxic and embarrassing.”

Snowden said that companies looking to bring individuals into the world of Web3 while also remaining compliant with regulations at the same time should do so in a way that doesn’t compromise the ideals that originally drove people to the industry.

“My plea to those of you who are in that big end of the pool is, if you're going to cave, cave strategically,” Snowden said. “Leave space for the protocol and for the sort of values that we're all supposed to be representing here.”

Coinbase has said that it has the same responsibilities as other large financial institutions when it comes to verifying customers who engage with the company and enforcing policies that prevent money laundering. Many of its compliance programs are modeled on retail banks.

The company explains that its compliance programs—which include monitoring the overall cryptocurrency market and detecting financial crime—are intended to protect customers. 

Snowden broadened his criticism to include any crypto exchange that keeps track of users’ funds.

“You don't want to be in a position where you can check that, because really, that's not your role in society, even if [the] government says it is,” Snowden said. “That's for police, that's for intelligence—that's their job, and their job is supposed to be hard. Don't make their lives easier."

Coinbase did not reply to a request for comment from Decrypt.

Recommended News