A new debate has been taking place on Reddit today, as some users complain how Coinbase tracks the funds being purchased through their exchange platform. BitBet, one of the many Bitcoin gambling websites, had one user “threatened” by Coinbase after placing a bet on their site. Albeit blockchain technology makes it easier to see where funds are going, this is not the best business practice by any means.
Coinbase Will Track Your Bitcoins
There have been rumors in the past regarding Coinbase tracking how users spend their bitcoins. While no serious action has been taken so far, one BitBet user was facing potential account termination for gambling. This has spurred a whole new debate as to whether or not exchanges should follow coins, and have a say in how funds are being spent.
The reason Coinbase was able to identify this particular gambling habit is due to BitBet publishing the deposit address on their website. Gambling sites are provably fair – or they should be, at least – which requires publication of deposit addresses. Conducting a quick cross-reference will show the funds came from a Coinbase wallet and was sent to BitBet.
According to the Coinbase Terms of Service, they can track funds as part of their Know-Your-Customer compliance. Moreover, the blockchain makes it a lot easier to see where funds come from and where it is going to. However, once funds hit a user’s private wallet, Coinbase has no longer any say in the matter.
One possible solution would be to use the so-called Bitcoin mixing services, and erase any trace of funds originating from Coinbase. These services usually charge a fee for doing so, though, and a lot of people will not pay that price. However, in doing so, they give Coinbase an opportunity to terminate their account if any funds transferred from exchange wallet is sent to services violating their TOS.
Note from the Author: Other Bitcoin exchanges may be employing similar techniques.
In the end, it all comes down to using platforms such as Coinbase as an exchange, and not as a wallet. Keeping funds in third-party wallets outside of the user’s control is asking for trouble. The regulatory guidelines for Bitcoin exchanges in the US are very strict, although one may argue Coinbase is going to extreme measures sometimes.
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