Miguel Morel: Shining a Light on Crypto's Leaky Pseudonymity

There has long been a push-and-pull between transparency and privacy in the crypto industry. On one hand, Bitcoin's first users were cypherpunks and cryptographers who have long been concerned about financial privacy – drawn to the blockchain's pseudonymity provided through alphanumeric addresses. On the other: everything is public by default on-chain, and many boosters praise crypto as a way to usher in a more "transparent" economy.

It was precisely this tension that CEO Miguel Morel sought to exploit when founding Arkham Intelligence, a popular (and mostly free!) blockchain analytics platform that launched in beta late last year.

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Arkham is one of a number of on-chain analytics software companies, like rivals Chainalysis and Elliptic, that are loved and hated in equal measure. These firms are often criticized for the work they do to explicate data, thereby often revealing identities and information that some people would rather keep hidden, for corporations and governments. At the same time, these intelligence gathers provide crypto users with useful info – helping to dispel myths like the idea that blockchains are often abused by criminals and terrorists, and tracking down hackers.

This year, Morel tried to take blockchain analysis one step further into crypto – causing more controversy for an already controversial company. Over the summer, Arkham launched what it called the Intel Exchange, a token-powered system that would enable people to earn crypto ("intel bounties") for providing valuable information that helped identify wallets. It also allowed users to anonymously buy and sell information, using smart contracts, on the identities of any crypto wallet address.

The reaction was intense, with many calling the new scheme a "snitch-to-earn" or "dox-to-earn" system (a play on the "play-to-earn" revenue models in Web3 gaming). Many raised concerns that the Intel Exchange could be used to "attack" or target people, doxx the innocent and just generally degrade privacy in the industry. Others began to speculate the platform, which raised over $12 million, including from investors like Peter Thiel and Sam Altman, who both founded data companies that work with the U.S. government, was a CIA project.

Morel felt misunderstood.

The Bay Area transplant from Philly was also ready to fight. He took to Twitter to defend the Intel Exchange and Arkham, making the case that much of the information used to label wallets that could now be bought and sold was already widely discussed among crypto sleuths. "The Intel Exchange is creating a liquid market for it so that on-chain researchers can more easily monetize their work and exchange information," he said at the time.

Moreover, "no other personal information" was being offered.

Amid the fury, other claims about Arkham were also raised. Apparently, in preparation of the planned token sale, Arkham launched a referral program that may have revealed user's email addresses, many speculated. DL News reported that Arkham was aware of the data leak as early as January, but only addressed the concerns following the uproar of its data exchange.

"Criticism birthed by speculation about our use cases have vanished," Morel said in an interview with CoinDesk this weekend. "We've had a track record of success since going live and the Intel Exchange has proven positive for the industry as a means of incentivizing on-chain sleuths to uncover information that helps the community at large."

There is a case to be made that companies like Arkham and Chainalyis, though controversial, have a singularly positive impact on crypto. Chainalysis, for instance, was founded in the aftermath of the massive Mt. Gox breach to help find the hackers and recover funds. Although many BitcoinTalk users at the time considered bitcoin to be "privacy-preserving," and were angry that the company was created even for seemingly altruistic reasons, there is a real argument that in the long run, it's better to be completely aware that blockchain pseudonymity can (and likely will) be compromised.

So it is with Arkham's data brokerage. The lesson being that when it comes to privacy and transparency there are always trade-offs.