Coinbase CEO Praises Privacy While Allegedly Blacklisting Anonymous Transactions

Co-founder and CEO of major U.S.-based cryptocurrency exchange Coinbase Brian Armstrong attracted criticism after praising private crypto transactions in a tweet published on June 22.

In the aforementioned tweet, Armstrong notes that “a scalable, sufficiently decentralized, chain that supported private transactions by default (privacy coins) would be a game changer.” He then compares anonymous cryptocurrency transactions to cryptography on the web, pointing out that it is increasingly predominant. He also used messaging as an example:

“Same with messaging, end to end encryption started out fringe and is now the expected default.”

Armstrong also cited the recent news about the Electric Coin Company (ECC), the firm behind second-biggest anoncoin zcash (ZEC), intending to build a new scalable zcash blockchain as an example of privacy by default. In response, Luke Dashjr raised a question towards what he perceives to be an unclear stance on privacy on Coinbase’s part:

“Why does @Coinbase seem to blacklist people who might get their coins from certain sources, if you support privacy? I'm a bit confused...”

To which bitcoin core developer answered stating that — according to him — as long as it is possible to distinguish “dirty” coins, the exchange is forced to block them. Self-proclaimed bitcoin (BTC) maximalist Giacomo Zucco stepped in disagreeing:

“Complete nonsense. They can distinguish ‘privacy coins’ better than they can distinguish bitcoins from coinjoins. [...] If they are forced to blacklist CJs, they'll be forced to blacklist ‘privacy coins.’”

Then, when a different user asked whether Coinbase blocks CoinJoin transactions, Zucco claimed “Of course. And (the very few and low-anonymity set anyway) shielded Zcash txs.” According to a post published by the exchange in late November 2018, Coinbase does not fully support zcash shielded addresses:

“Initially, we will support deposits from both transparent and shielded addresses, but only support withdrawals to transparent addresses. In the future, we’ll explore support for withdrawals to shielded addresses in locations where it complies with local laws.”

As of press time, Coinbase, Giacomo Zucco and several representatives of zkSNACKs, the company behind CoinJoin-enabled BTC wallet Wasabi wallet, have not responded to Cointelegraph’s inquiry. As a consequence, it has not been confirmed whether Coinbase is blocking CoinJoined BTCs.

As Cointelegraph reported at the time, data provided by zkSNACKs CTO Adam Fiscor revealed at the end of April that mixed bitcoin transactions now represent 4.09% of the total after CoinJoins have risen by 300% in the space of nine months.

As a recent Cointelegraph analysis explains, bitcoin’s increasing anonymity is considered a threat to privacy-focused coins by some.