Blockchain analytics startups are on the rise
Needless to say, 2018 was a turbulent year for the blockchain and cryptocurrencies sector. Yet, there is one area in that ecosystem that is rising: analytics. Let’s explore some the movers and shakers in that burgeoning field.
New players receive fresh funding, get acquired
US-based cryptocurrency exchange and wallet Coinbase acquired Italian “blockchain intelligence” startup Neutrino, as per a post published on the company’s blog on February 19. Coinbase stated that the company will continue to operate as a standalone business via its London office. More specifically, Neutrino develops technology for law enforcement and financial institutions to investigate and track transactions on blockchains. The company claims to be able to monitor and track Bitcoin but also more privacy-oriented (and consequently harder to track) coins such as Monero. In 2017, the company concluded that the North Korean hackers behind the WannaCry ransomware cashed out their bitcoins and turned them into moneros. It is emerging that CoinBase acquired Neutrino in part because providers were selling customer information to third parties. In an interview with Cheddar, Christine Sandler, CoinBase’s Head of Marketing said: “It was important for us to migrate away from our current providers. They were selling client data to outside sources and it was compelling for us to get control over that and have proprietary technology that we could leverage to keep the data safe and protect our clients.” Neutrino, she added, has the best talents and their expertise would be used to keep “data safe and protect” clients.
CipherTrace, a San Francisco Bay Area-based startup that develops “crypto security solutions” including anti-money-laundering (AML), forensics, and compliance, recently closed a $15 million round led by Aspect Ventures and joined by other funds such as Galaxy Digital. The company stated it will use the funds to grow its global presence and expand product features. CipherTrace is reputed for its quarterly cryptocurrency AML reports and deep forensic expertise, having a number of global stakeholders as clients, including government regulators, law enforcement investigators/auditors, cryptocurrency exchanges and financial institutions. The products are used to enforce AML laws and combat fraud, among other security threats. The company was founded in 2015 and secured initial funding from the U.S. Department of Homeland Security’s Science & Technology Division, as well as the Defense Advanced Research Projects Agency (DARPA).
Coin Metrics, a startup based in Cambridge, UK raised $1.9 million in its seed funding round last month (with Castle Island Ventures as the lead investor and Fidelity among additional investors). The startup also announced the release of a suite of commercial products that aims to help institutions access customized research reports. According to the firm’s co-founder Nic Carter, Coin Metrics seeks to bridge the gaps resulting from current crypto price aggregators whose services “do not satisfy institutional investors, chiefly as a result of questionable data sets”. Carter stated that the startup was after building a service that would “whitelist exchanges” a move that could give users access to market reference rates from credible exchanges, versus those that “engage in wash trading and other types of nonsense.” In a blog post, Fidelity mentioned that this would help users make sense of cryptocurrency markets and network data. Coin Metrics also utilizes a blockchain data analytic methodology that helps traders navigate the challenges that may come with the purchase of cryptoassets (including the associated risk of having to deal with artificially inflated transaction data).
Criticism within the cryptosphere
Not everyone in the “cryptosphere” is enthusiastic about these developments. The brunt of criticisms has centered around Neutrino.
“When I said it would be great to have more infosec people involved in the ‘crypto’ space, I didn’t mean the largest US exchange should acquire an analysis tools company run by a former Hacking Team member, but here we are,” Amber Baldet, CEO of blockchain startup Clovyr and the former blockchain program lead at JPMorgan Chase, tweeted on February 24. Baldet told Motherboard in an online chat that “given the number of accounts Coinbase has opened, how they choose to implement compliance tools and their relationship with law enforcement will impact a lot of people.” Francis Pouliot, co-founder of Canadian company Bull Bitcoin, tweeted in his usual bluntness that Hacking Team was a “a pro-government mercenary hacker firm that gave Saudis tools/consulting to track/eliminate dissidents,”.
In a statement to Motherboard, a Coinbase spokesperson said that the company “does not condone nor will it defend the actions of Hacking Team.” “We are aware that Neutrino’s co-founders previously worked at Hacking Team, which we reviewed as part of our security, technical, and hiring diligence,” the spokesperson added.
It’s perhaps a bit too early to really say if blockchain analytics firms have a bright future but the demand for monitoring, tracking and verifying the compliance of cryptoassets is certainly there in 2019.