Coinbase vs. the IRS: The Privacy Battle Rages On

  • Grace Noto
  • January 18, 2017
  • 1

pexels-photo-285283Digital currency exchange Coinbase obtained a BitLicense from the New York Department of Financial Services, a grant that officially authorizes the exchange to operate (that is, to receive and transmit money and virtual currency) within the Empire State.

Announcing the license, Coinbase wrote on the company’s blog:

We believe the long-term success of virtual currency and blockchain technologies will require productive partnerships between industry and government, and we will continue to make heavy investments in the security and integrity of our operations as we expand our business in New York and around the world.

Partnership between virtual currency startups, such as Coinbase, and government entities requires a certain amount of transparency; however consumer privacy has been a sticking point between virtual currency exchanges and government since the dawn of bitcoin.

As we know, anonymous transactions are ideal for certain types of less than legal exchanges, and regulation for cryptocurrency has been… murky, because we still haven’t exactly decided that these virtual tokens are currency, per say.

Obtaining a “BitLicense” certainly provides a bridge between New York State and the virtual currency exchange, technically putting Coinbase under the regulatory supervision of the New York State Department of Financial Services—however, as this authorization comes as Coinbase continues to cross swords with the Internal Revenue Service over its customer data, the firm’s regulatory and compliance battles seem far from over.

The dispute between the two began in November of 2016 when the IRS filed a request for three years of the exchange’s customer records, citing that the documents were necessary to uncover tax fraud among those customers.

Coinbase, citing customer privacy—as well as the “extraordinarily broad” nature of what has become known as the “John Doe summons”—filed last week to dispute the request despite concerns from Coinbase that the fight will eventually cost the exchange at least $1 million in legal fees alone (fortuitous that the firm has raised upwards of $117 million in venture capital funding, in that case).

Regardless, it certainly seems evident that there needs to be more regulatory work done in the cryptocurrency sector—maybe we could start by finally putting the “is it/isn’t it currency” debate to rest once and for all this year. Hope, eternal, etc.

1 - Reader Likes This Post

One thought on “Coinbase vs. the IRS: The Privacy Battle Rages On

Leave a Reply