WBD210 Audio Transcription

Is Chainalysis Evil with Jonathan Levin

Interview date: Thursday 2nd April 2020

Note: the following is a transcription of my interview with Jonathan Levin from Chainalysis. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to the co-founder of Chainalysis Jonathan Levin. We discuss whether Chainalysis is antithetical to Bitcoin, how they decide who can use the software, and if they are helping erode privacy.

“Bitcoin can be used for good and bad. I don’t want North Korea building nuclear weapons because of cryptocurrencies.”

— Jonathan Levin

Interview Transcription

Peter McCormack: Hi Jonathan, how are you?

Jonathan Levin: Doing very well Peter, thanks for having me on the show.

Peter McCormack: No worries, thank you for coming on the show. Wanted to talk to you for a while actually and so it was quite interesting that you guys came to me and asked to come on the show, because there's quite a few areas I wanted to cover with you outside of this. Rather strange times we're in right now. So not everyone will know who Chainalysis are. Some people will, but probably a good starting point is to explain who the company is and what they do.

Jonathan Levin: I started Chainalysis with Michael Guernica and Yon Mulla. The three of us had been in cryptocurrencies for a long time and what we found was that cryptocurrency businesses were unable to get bank accounts with financial institutions to increase the adoption of cryptocurrency.

So what we decided to do was start Chainalysis to help cryptocurrency businesses assess their anti-money laundering obligations by understanding how and why people use cryptocurrencies, to have them get greater access to financial institutions and help governments around the world essentially combat the abuse of cryptocurrencies and protect the most vulnerable in society.

So what we do is we provide anti-money laundering software to cryptocurrency businesses and financial institutions and we provide investigation software to law enforcement to protect the integrity of cryptocurrencies.

Peter McCormack: Okay and the range of clients is cryptocurrency companies and governments. Are there any other companies you work with?

Jonathan Levin: Yeah, we also work with financial institutions. So I think what's important to remember when it comes to preventing the abuse of cryptocurrencies is that really every stakeholder has a role to play. So it's not just that we rely on the government to protect us, we regulate cryptocurrency businesses and financial institutions to help with identifying abuse of cryptocurrencies and then that is shared between the different stakeholders.

So what we do is we provide the necessary services to the cryptocurrency businesses and the financial institutions and the government so that we can have a fair and open marketplace.

Peter McCormack: When did you launch as a service that cryptocurrency businesses could use you?

Jonathan Levin: So we launched the business in 2014, so we've been around for a while. The original product that we launched was a product called React, which is a broad solution where you can really understand where money is coming from, what services are involved in cryptocurrency transactions, and that was used by cryptocurrency businesses and law enforcement at the time from early 2015.

Peter McCormack: Okay, so what are the rules that cryptocurrency company has to follow to be able to get banking services? Because they're not obliged to just use Chainalysis. Surely they can have their own practices in place and you're providing more of a turnkey solution for that?

Jonathan Levin: Yeah, so the obligation is to understand the riskiness of particular transactions and report suspicious activity to the regulator. So a business needs to, when they're meeting their regulatory obligations or when they're opening a bank account, they need to be able to prove to those people that they are doing an appropriate amount of due diligence on their customers and what we have done is really create a standard of what that should look like when it comes to assessing money laundering risk from transactions on the blockchain.

Peter McCormack: Is it public knowledge of which companies you work with, say any of the exchanges or is that private information?

Jonathan Levin: So that's private information. We don't typically disclose our customers. There are some that we are public, but yeah.

Peter McCormack: Can you list any of the ones that you are public with?

Jonathan Levin: Yeah, publicly we work with people like with Bitstamp and other top exchanges. There would be brands that you recognize, many of the top 10 cryptocurrency exchanges use our products in order to assess the risk of their client.

Peter McCormack: But they're not obliged to. They can do this themselves, and they can be subpoenaed for information by the government and deal with it privately I guess.

Jonathan Levin: So the question is whether you build systems to be able to identify risky activity and the types of systems that the exchanges can implement themselves are about sort of activity on their platform. What we are the experts in is identifying why some of the customers and what is the activity behind the cryptocurrency usage. That is almost impossible to determine if you are a cryptocurrency business without building the intelligence of what other services are existing on the blockchain. So if you are an exchange, yes, you can understand what trade activity, what devices are being used and who your customers are.

You'll do some due diligence gathering their IDs and KYC information, but you won't be able to tell what are the services they are engaging with when they come to your platform. So what we provide is the ability for an exchange to understand if the cryptocurrencies being sent to the exchange are coming from a dark net market, a child abuse material site, a ransomware campaign, but also it's also determining are they coming from other exchanges? What is the use in terms of like the activity that the exchange should be aware of when assessing the risk, but also understanding sort of how their customers are using cryptocurrencies.

Peter McCormack: So if they're not using you, are they unable therefore to follow the regulations? Because they're unable to know where the money has come from, where it's been used? And we'll just refer to cryptocurrency as money here.

Jonathan Levin: Yeah, I think increasingly that that is the case that it's not... You need to have appropriate measures, and I don't want to make broad statements depending on exactly all of the different business models out there, but typically yes. If you are not using something like Chainalysis, you are not meeting the obligations. In most countries today, you need to be using that in order to assess the risk of your customers.

Peter McCormack: And the benefit of Chainalysis is that you guys can aggregate all the information. So you've got the biggest picture available of what's happening on all of these blockchains.

Jonathan Levin: Correct.

Peter McCormack: Okay, great. So in terms of your customers, are there any limitations to which countries and governments that you can work with or you would choose to work with? And obviously my expectation is you can't work with Iran and North Korea, but are there any other limitations of countries that you would choose not to work with?

Jonathan Levin: Yeah, I think that we obviously are a US company and so the countries you mentioned are countries that are on the sanctions list. We obviously need to meet our obligations as a US company for complying with sanctions. We also take a stance that we have to think from a business standpoint and from a moral standpoint. What are good customers for us? And we vet that all the way across the different customers. It's not just with governments, it's also with private enterprises.

We think about who makes a good Chainalysis customer and when we see different countries come to us, what we'll do is we'll take a view on whether we would want to do business in those countries. We have a committee internally made up of individual stakeholders that go through and say whether we should be engaging or not engaging with those countries and obviously, sanctions in general is quite a fast moving, evolving landscape. Those are the types of things that we need to keep an eye on as a business.

Peter McCormack: What other things would concern you? What other countries would you be worried about getting? So let's try and think of a country, perhaps someone like Turkey. Does that present any challenges for you as it's a country, which has kind of fallen down that slippery slope of authoritarianism now that Erdoğan has essentially put in place a dictatorship and restricted the press? Is that the kind of one that would be a difficult choice or is that a simple choice?

Jonathan Levin: I think it's a difficult choice and I think that one of the reasons why it's a difficult choice is that again, partly you've got to be able to assess the rule of law in that place, the amount that actually holds, the amount of individual freedoms and you've got to be able to also assess your exposure to sanctions risk.

You saw with Turkey, for instance, that Turkey became subject to US sanctions and that moved very quickly to and from, and it's very complicated to navigate. You might say that that becomes something that you don't want to actually deal with because there are more important things to focus on as a business.

Peter McCormack: Does some of it come down to like, excuse the question, but does some of it come down to who the US is friends with and are you obligated to receive any kind of approval for who you work with outside of the obvious sanctions list? Do you, as a company, have to every country go and seek approval to work with you?

Jonathan Levin: No, so I think that when you think about the world, yeah, it's quite easy to sort of divide the world into friends of the US and not friends of the US. I think that that can be helpful just on the broadest strokes of where does rule of law exist, where that democracy is, where is the freedom of the press and other types of freedoms, I think that that is helpful yeah.

As a business and actually in general times, like the US government doesn't give instruction to companies to do certain things. There's very big limitations of what the government can actually instruct you to do as a private company, so we don't need to do that.

Peter McCormack: Yeah, so for example, I would think of someone like Consensus, who proudly celebrated their work with Saudi Arabia. Is that a country you could work with?

Jonathan Levin: I think we could work with Saudi Arabia. I would have to understand like exactly what the use case is and are we talking about the private enterprises that operate in Saudi Arabia or are we talking about the government and what part of the government? So I think that yeah, but that would be something that we would assess based on an individual case.

Peter McCormack: Yeah, because that's a difficult one and there's a few ones I look at that are quite difficult. So my country sells arms to Saudi, and Saudi has committed genocide in Yemen and sometimes the judgment depends on who people are friends with. Israel is seen as a friendly country to the US, but others see the oppression of the Palestinian. So I don't imagine that these are easy decisions that you as a team have to make. I kind of wonder how you come to those conclusions, for example, could you work with Israel?

Jonathan Levin: Yeah, so here's the thing that I think about, is we're in a position where actually the types of crimes that are being prevented or prosecuted using our software are crimes that actually are universal in nature that actually there is a huge amount of collaboration internationally across a lot of the lines that typically you would never see collaboration of over.

If you haven't looked at the "Welcome to Video" case, which was the largest takedown of a child pornography site and you look at the different types of countries that were involved in taking the evidence that came from Chainalysis on who was paying for content on that child pornography site, you saw collaboration between nations that you might have a problem with sort of Israel or Saudi or any of these countries. But we're not going to have a problem with, or even the US, but you're not going to have a problem with them saving children's lives and preventing them from harm.

So that's where it also comes down to are we selling... We're selling into preventing cyber crime that actually has victims all over the world, we're preventing child abuse material distribution and those types of things actually go and transcend national borders and there's enormous amount of collaboration between people that you wouldn't necessarily expect to be collaborative.

Peter McCormack: Yeah, I would never disagree that taking down a child porn network is a bad thing. Obviously, it's an amazing thing that that can happen as a scourge on society. But then I guess what I'm getting at is there a trade off here as well in the loss of financial privacy. People often point out that is a loss of freedom and that freedom and privacy are linked, especially with financial privacy, because financial privacy is linked to freedom of expression.

So I guess where I'm leading with this is to say you've talked about it's used for crime prevention, but different countries have different laws. So for example, smoking weed in the US is in most States legal now, or decriminalized. In the UK, it's still illegal. So how do you actually set the balance of what it can be used for? Does the country say, "Here is a list of the crimes we want to track, can you help us with this?" Or do you only have a set list of crimes that they have to choose from which they can use the software for?

Jonathan Levin: Yeah and it's a good point that you put at the end there, which is we are a software company, we're not investigating these cases ourselves. So we are building the tools that these countries use and I'm not going to go through the criminal statute of every country and say that it all needs to be aligned with my personal view. I think that we need to rely on the idea that these are democracies that have rule of law, that have certain things that their citizens need to abide by.

I think that those are the types of things that we look to support where we sell to a country, they need to enforce their laws in their local country and we are ultimately going to take a view that that rule of law in that country and that social contract is for that country to decide.

Peter McCormack: What are the rules of somebody using the software? So for example, say, is it a case that things are flagged to them? Or are people also able to follow and investigate the blockchain and follow the data as they choose? Or is it both?

Jonathan Levin: Yeah, so for our private sector clients, typically what we're doing is, they are getting alerted to different types of activity and rules that they want to monitor for. So they might be looking for a payment coming from a ransomware campaign into their exchange, they would get an alert in Chainalysis KYT, which is our transaction monitoring solution, where they can then go and investigate that. Typically, that system of alerting and then clearing those alerts and dealing with them and making an assessment is sort of the workflow that a cryptocurrency business will do.

The same actually also applies to the financial institutions. For financial institutions that are banking cryptocurrency businesses, they are also looking at, "How am I exposed to any activity that is going on, on the blockchain? I want a high level view of this and if something major changes on the blockchain, either there's been a sanctions risk or there's been a major change in activity with one of my clients on the blockchain, let me know on a weekly or monthly basis, and I'll go and investigate."

So from a compliance standpoint, that's really the workflow, is you get alerted to certain changes, certain abnormalities, and then you go and investigate that. On the government side, most of the time, this is something where they start an investigation based on some information that they already have, and then they build an investigation out from that.

Peter McCormack: But that information is obviously potentially confidential. They can't tell you what the information is? Or do they have to tell you what the information is?

Jonathan Levin: No, they don't necessarily need to tell us what the information is. We're a software company and so they sort of do the investigation themselves.

Peter McCormack: Because one conflict I'm worrying about is, you're working with different governments who may have some kind of information locally, they want to interrogate the blockchain, but they're potentially interrogating data about people who live in a different country. So for example, say you have an investigation, which is... I don't know the countries you work with, but say that you do work with a country which isn't the best of friends with the US, but not an obvious target, if they were doing an investigation, but that meant investigating the actions of people who are based in the US, how does that work in terms of a conflict?

Jonathan Levin: So the way that that works is, and actually this is sort of the difficulty of cyber crime investigations in general, is there are typically multiple jurisdictions involved. A particular website may be hosted in one country, the operator might live in another country, there might be a victim in another country and so these crimes definitely are global in nature. Take the "Welcome to Video" case again, the administrator is based in South Korea, there were victims, actual children, based in 20 or so different countries and there were people buying the content in even more countries.

You've got to be able to coordinate across all those national boundaries and the way that that actually happens in these types of investigations, is they may know from Chainalysis, they understand, "What are the exchanges? What are the services that these people are using to use cryptocurrency? So what are the exchanges? Maybe, what are the merchant service programs? What are the darknet markets?" Or whatever is involved in the case. They get that information from Chainalysis.

Now to request the information about the individuals, there is something called the Multilateral Assistance Treaty, the MLAT process, where that actually is a legal request that gets sent between countries to get information from the local country about individual people and that needs to go through a legal review and protects the privacy of individuals.

Peter McCormack: What about domestically? How does the privacy protect individuals? So say if a country was doing an investigation on somebody domestically within their country, how much information can they get about that individual from the software? Is that possible?

Jonathan Levin: So we don't collect information about individuals. Chainalysis collects information about how people are accessing cryptocurrency services, so we're really mapping out the services in cryptocurrency and allowing people to go to those services to obtain actual personally identifying information that that business themselves collect about their customers.

Peter McCormack: So you don't collect any of their KYC information itself?

Jonathan Levin: We do not collect any KYC information from any of our customers.

Peter McCormack: You just have an ID, which is linked to their own KYC database.

Jonathan Levin: We do not necessarily even have that. So we have information about which addresses are controlled by which services and then when someone is doing an investigation, they will be able to see, "Okay, this UK based exchange, this specific UK based exchange, was involved in this transaction." This is a transaction ID that they're interested in, they will go and ask that exchange, "Which customer was responsible for that transaction?" And that exchange will need to reveal that information to law enforcement in that process.

Peter McCormack: And the other side of the transaction; how are you identifying what types of transactions are being done? So for example, what the cryptocurrency is being used to be spent on.

Jonathan Levin: So typically that comes down to the different type of service that is being run. So there are merchant service providers that I don't know particularly, necessarily what good is actually being sold on those merchant service providers. So we recently did a study about the impacts of the COVID epidemic and market movement on how merchant services have changed and we actually saw a change in the way that they behave during this time.

Now I can't say exactly what was being bought and sold during this time, but my thought is that people are spending more time at home, they might be buying more digital goods and services that they might be using cryptocurrency for. The normal ways for them to buy goods and services at this time may be interrupted, and maybe there's some ways that services are using cryptocurrency to be able to gain access to other goods and services.

So we don't necessarily know exactly what is being bought and sold on those merchant service platforms. But if, for example, there is money going to a darknet market or money going to a credit card market or a market place that sells personally identifiable information, or a service like that, then there are single use services that exist out there where we can give more information about what is actually being bought and sold.

Peter McCormack: Because what my worry is, is that I don't think you can guarantee that the software can't be used for oppressive purposes, it can't be used by governments to build patterns around people.

Jonathan Levin: But neither can you guarantee that any form of technology can't be used for oppressive use, right? I think the internet can be used for oppressive use, most generally. So I think that we take a view that we actually enable better trust to be built in the institutions that are around cryptocurrency.

We build the ability for exchanges to be legitimate regulated businesses, where consumers can really trust and gain access to cryptocurrencies, we build the way for governments not to outright ban cryptocurrencies, but see it as a legitimate medium of exchange and store of value for people that can actually create new markets in the world and we build that in order so that people can actually have faith, and adopt and benefit from the advantages of cryptocurrencies. So yes, there can be collateral damage in that, and yes, technology is always dual use, but that is the goal in how we make decisions.

Peter McCormack: So in terms of the trade off between privacy and crime fighting, you feel crime fighting is more important than privacy?

Jonathan Levin: So I think that privacy and crime fighting are actually, in an interesting way and in Bitcoin specifically, actually fairly well balanced, in the sense that I've seen personally through the use of Chainalysis, many lives being saved and many crimes being prosecuted that should be prosecuted for the protection of society. At the same time, I don't think that we have limited the amount of privacy that actually individuals can have when they actually use Bitcoin.

Peter McCormack: Do you know about how I got into Bitcoin?

Jonathan Levin: No, I actually don't know the story.

Peter McCormack: So my mum was dying from cancer and we wanted to get a cannabis oral treatment, which is obviously an illegal product in the UK. The only way I could get that product was the dark market and using Bitcoin. It was the only way we could get that purchase, but that would flag me as a criminal within your system.

Jonathan Levin: It wouldn't necessarily... We don't flag criminal activity, we flag activity. Now if you are based in a country where the rules say that you cannot do that, that is something that you have to take up with the country that you live in, rather than something that Chainalysis says. But we never flag something as criminal. We don't make criminal determinations.

Peter McCormack: Well you do, kind of. You put criminal flags up because your tool is for helping fight crime. So it's a flag that a potential crime has happened, this needs investigating, which means there's every chance there is data about me within Chainalysis as somebody who may have committed a crime at some point.

Jonathan Levin: Yes, but that exists independent of Chainalysis, right? So the fact that you may have at some point used Bitcoin to buy something from someone, that exists as evidence forever on the blockchain. Yes, it may have been picked up by us, but the fact that that thing happened is something that exists on the blockchain, not necessarily inside Chainalysis.

Peter McCormack: It exists on the blockchain, but my point being more is that you are happy to build tools for governments to track us and destroy financial privacy and my concern with it is, because the thing I want to ask you is, are you a Bitcoiner, or are you a somebody, as a company, that provides services within the Bitcoin industry? Or do you consider yourself a Bitcoin person?

Jonathan Levin: I consider myself a Bitcoin person. I don't think I would be running this business if I didn't think that there were actual benefits to the industry existing and us being able to actually grow the size and sophistication of the industry. I think that our mission is really to build trust in the industry, it's not to ban Bitcoin or do anything like that.

What we're here for is to say that I think that there is an amazing balance, and actually Bitcoin constantly evolves in this way, is that amazing balance where you actually have the ability to increase the amount of and variety of financial transactions that people can do in a world of cryptocurrency. That is something that I think is really important in the current state of the world, and what we need to do in order to realize a lot of those goals and ambitions for the technology, is to have ways to mitigate the abuse of the technology itself. Bitcoin can be used for good and bad.

I don't want North Korea building nuclear weapons because of cryptocurrencies, I want to be safe. I don't want people to have easier lives to distribute child pornography due to cryptocurrencies. I don't want people to be able to hold hospitals to ransom during the COVID crisis because of cryptocurrencies. I want a system in which we can mitigate those types of risks and realize the benefits of something that is decentralized, resilient and where communities of people from around the world can connect and transact in ways that they couldn't have done before the invention of cryptocurrency.

Peter McCormack: What is it you like about Bitcoin?

Jonathan Levin: So the thing that I like about Bitcoin, the way that I got into Bitcoin initially, it wasn't quite the same story as you, but the way...

Peter McCormack: Well actually, mine goes one step further back. My introduction actually was buying cocaine on the Silk Road. I used to be a bit of a druggy and I stopped it, but then when my mum got sick, I was able to say to my dad, "Oh, I know a way we can get her treatment." So that's the actual story, sorry there's a backstory to that.

Jonathan Levin: Okay, so yeah, my story goes a little differently to that. So my story goes, I really got into Bitcoin as an economist and when I got into Bitcoin in about 2012, there was no serious economist looking at Bitcoin. I said, "Well actually, Bitcoin asks some of the best fundamental questions about the way that money should work, the way that technology influences how we do monetary and fiscal policy, how actually the internet architecture and backbone of society is going to be structured in the future.

This is fundamentally an economics question that we need to answer." The more I looked into it, the more I found that Bitcoin continues to make some of those questions, questions that really do need to be asked, and also answered. So I found that it is a technology that is resilient, it constantly fights off against... Someone says, "Bitcoin's dead" and then it's not. It is decentralized, it is incredibly resilient and I think one interesting thing in the current world that we live in, is that we're doing this podcast, you're sitting in your room, I'm sitting in my room, we're on other sides of the world, the only thing that's connecting everyone right now is the internet.

The only thing that people are talking about is resilience and decentralization and innovation, and the types of things that we're going to need to put in place as society to weather this storm. Things that we're going to need to put in place as society to weather this storm, those types of things excite me that actually in those environments where we need resilience, it's not necessarily going to be a central institution that's going to be able to provide that for everyone and that actually, cryptocurrencies can have a moment in providing more resilient systems to unite people over the internet. That's why I go into it.

Peter McCormack: Sorry, I was just going to say, I don't care about cryptocurrencies, I'm Bitcoin. So all the others I'm not too fussed about. So with Bitcoin, why is decentralization important to you?

Jonathan Levin: To me, I think that without decentralization, Bitcoin is not as interesting a piece of technology. I understand the need in certain parts of the world for people to have access to a flight to safety or a store of value, I understand those types of things. I see Bitcoin as a really interesting global market that every person can interact with in the world, it's the only global market that's available to every single person in the world. That's what makes Bitcoin interesting.

Peter McCormack: Hmm, but again, sorry to pin you on this question, but why is decentralization important?

Jonathan Levin: Well without decentralization you don't get something truly global in nature.

Peter McCormack: Well that's not true. There's plenty of things that are global in nature that aren't decentralized.

Jonathan Levin: Give me a good example of a market that's truly global in nature, where every single person in the world can participate that's not decentralized.

Peter McCormack: Okay, sorry, I see your point. So you're saying, because it's decentralized everyone else... Whereas if it's the stock market, you have local laws and regulations. But I guess what I'm trying to ask you, is that why is there a need for a global decentralized market? Why can't we just build one on the internet without decentralization? What is the power of decentralization?

Jonathan Levin: Well the power of decentralization means that you effectively build a system that actually at the most basic level is permissionless and is accessible to everyone and then as it becomes sort of adopted in different parts, local regulations get built on top of that. That's basically what we have in Bitcoin, we have an underlying system, which I think is great, which is permissionless, decentralized, there's no one controlling it. We have the ability to innovate on top of it and build markets and have people interact freely on it. We also have those people live in a country...

Peter McCormack: Sorry, so you think permissionless is important?

Jonathan Levin: Yes, I think it was very important.

Peter McCormack: Because?

Jonathan Levin: Because otherwise you don't get something that's global in nature and you don't get universal participation. You don't get the ability for people to build communities and use cases that are something that people should be able to do.

Peter McCormack: Because I think where I'm going with this is that's why I like it, it's permissionless. The other thing, which you didn't mention, which may be because you can't, is that I think decentralization is important because you don't want governments to be able to shut it down, because this is something that sits outside of government regulation. Hence, why I could buy a treatment for my mother. But then if that's what you care about, I don't understand then, why you would want to build the tools, which erode those benefits.

Jonathan Levin: But they don't erode those benefits, because actually the people that are interacting with Bitcoin in their local places, if you're running a business particularly, you need to be able to comply with the local rules and that is the nature of how Bitcoin has gone from an irrelevant science experiment to a global asset class that actually people care about.

Peter McCormack: But it does erode, because now, if I had to buy a treatment now, because this was back two or three years ago where I didn't even know that blockchain can be analyzed, I do know now. Say, if my father got sick and I wanted to buy a treatment for him, I couldn't use Bitcoin now, or I know I'd have to take that risk because I know your company may flag me up to an exchange as someone who's potentially committing a criminal act and then I might have the police knocking at my door. So it feels like you're actually you're undoing what Bitcoin has enabled.

Jonathan Levin: I think that you sort of take the decision to do that. There are many things in the chain of buying something illegal on the internet and getting it delivered to your door that you're going to need to think about. You're going to take some level of risk there, which I think is fine. If you want to make that risk and you want to make that decision, that's how you want to live your life, that's okay.

Peter McCormack: Yeah, but what I'm saying is I explained how I got into Bitcoin and your company has undone one of the things that I'm able to do. The reason I came in, that is now a much more risky thing to do, because Bitcoin isn't really about the state, Bitcoin is about the individual and it's enabling freedom, and financial privacy is tied to freedom. So by providing tools for governments to erode away at our financial privacy, I believe you're undoing what some of the benefits of Bitcoin have created for people.

Not just me though, there's people in different places, there's people under religious oppression who may be using it to buy religious material, maybe to be able to protect their finances. There's all different things where we have to separate what is a moral judgment and what is a local law. I'm pretty sure if we surveyed Bitcoiners and asked them what do they think about my use case of buying a treatment for my mother, they would highly support me and then I think if we surveyed the same people and said, "Well, what do you think about Chainalysis?"

I think they would be slightly against you. You must have fielded questions like this all the time. There are people who think your company is evil and they even said you're evil. I can't see the connection between claiming to be a Bitcoiner when Bitcoin is a tool to claim back some of our civil liberties, that you would then build a company, which gives tools to the government to erode those civil liberties again. That's the connection I'm struggling...

Jonathan Levin: But there is this all over the internet. We try and make the...

Peter McCormack: It doesn't make it right.

Jonathan Levin: I take it pretty seriously that we built a company that I think helps actually make the technology more usable, makes it more trustworthy, makes it something that actually more people can have access to in general, in the world. The fact that there are millions of people who use cryptocurrencies around the world is actually somewhat due to the ability for governments and businesses to assess the risks of their customers, and to protect society against...

Peter McCormack: Really?

Jonathan Levin: Yes.

Peter McCormack: You honestly believe that? Sorry, I find that a bit of a stretch.

Jonathan Levin: When we started getting into cryptocurrency, all of the problems that businesses had was gaining access to actual financial services, to be able to get people access to Bitcoin. So in the early days, you needed a way to get between Pounds and Bitcoin. Now, if the government bans Bitcoin, because they think that everything is illegal, or the bank won't bank any cryptocurrency business, because they're too high risk, you have a fraction of the population that would be able to actually gain access to cryptocurrencies or Bitcoin specifically.

The ability for people to mine Bitcoin in their own homes and then participate in the Bitcoin network long sailed, so you need a much more widespread ability for financial institutions to be able to interact with Bitcoin in order for there to actually be adoption of Bitcoin. If you think there would be as many people who have interacted with Bitcoin today, if there were no link between financial institutions and Bitcoin... I'm slightly challenged to see how people would have been able to access Bitcoin.

Peter McCormack: I'm not saying that the regulatory environment hasn't made it easier. I guess what I'm getting at is, is the trade off worth it? Because if you keep close to a lot of the developers working in Bitcoin, what they're focused on now is privacy, is trying to undo the work that you've done, trying to stop you tracking people.

We've seen it recently with the ability to track people using CoinJoin, that these are the tools they're trying to build to give people financial privacy, because yes, we have this global financial system that everyone can access, but really it's a tool where people are coming for financial privacy or seizure resistance or censorship resistance and censorship resistance without privacy doesn't really exist.

Jonathan Levin: But there is privacy, and most people entrust their privacy... As I said, we don't collect any individual information about Peter or Tom or Bob. So we were only collecting it at the service level where people all using third party services in order to gain access to cryptocurrencies.

Now that is the majority of the activity, and the reality is even if using a third party service is not how Bitcoin was intended, maybe someone needs to use a stepping stone between them getting into this space and then taking it and using it on their own wallet or something like that and what we enable is the ability for those third party services to actually have a business and to actually provide services to people. Actually, the privacy of individuals is really protected by those institutions that are also in many parts of the world regulated so that they have to protect the privacy of those people.

Peter McCormack: I was watching an Andreas interview earlier and he said, "If you give the government power over money, they will use it and in their countries where the government is the criminal, they will use it to oppress people, separating state and money should be a no brainer. It is not yet and we're having to learn the hard way."

So I'm going to just go back. See this is where I wondered why you were into Bitcoin because I'm into Bitcoin to give people freedom and I still believe you're building the tools that take some of those freedoms away. So why do you think most people in Bitcoin see your company... You must have heard them called you evil, and they have. Why do you think people think you've got an evil company then?

Jonathan Levin: Part of the reason to come on your show is to talk about exactly what we do and to give you a sense about what we actually believe in and I think that people sometimes look at the business and don't necessarily understand what we do and think that we track individuals when we do not. I think that the reality is, is that we help all of the businesses in the cryptocurrency sphere be more respected legitimate institutions that broadens the amount of access to cryptocurrencies and that actually helps everyone in the industry.

I think the importance of privacy is there, I think we respect that for individuals and we respect that for businesses and the people that are using cryptocurrencies as businesses in the local jurisdictions need to abide by the local laws and need to be able to access financial services. That's where I think we all very aligned with the growth in the industry.

Peter McCormack: Couple of side questions. What do you think of WikiLeaks as a company?

Jonathan Levin: Are they a company?

Peter McCormack: Well okay, as an organization. So for example, when it was leaked that the US Apache helicopter... When they essentially murdered two Reuters journalists alongside other people, do you think that the freedom of that information is a good thing?

Jonathan Levin: Yeah, I think freedom of information is a good thing. I think that as any organization though, there are sort of political problems and other types of things that come up. But I do believe in the principle of freedom of information, yeah.

Peter McCormack: Do you think it would be important therefore for you as a company, to be transparent about the governments that you work with?

Jonathan Levin: I think we are a private company that has to abide by laws and legal arrangements that we have. We make business decisions that ensure the survival of our company.

Peter McCormack: So the business decisions about the survival of your company is a priority?

Jonathan Levin: Yeah, my fiduciary responsibility is to make sure that this company survives and thrives. That is my legal obligation to my shareholders.

Peter McCormack: Okay, and is your fiduciary responsibility, does that outweigh the potential... Because you said you can't guarantee the software isn't used for oppression, does that outweigh the need to protect individuals under authoritarian regimes? Over half the world now lives under authoritarian regimes and you've got this wealth of information, there's no way anyone could know whether or not you are doing business with a dictatorship and whether or not this is being used for oppression. That's one of the things we can't guarantee. Can you categorically say you don't work with any dictatorship?

Jonathan Levin: Yeah, we do not work with any dictatorship.

Peter McCormack: Under any circumstance?

Jonathan Levin: Yeah.

Peter McCormack: What about countries which have questionable histories of human rights abuses?

Jonathan Levin: But that would apply to most countries in the world. I'm not saying it's easy, I'm saying...

Peter McCormack: I know. Look, I know these are tough questions as well.

Jonathan Levin: Yeah, so it's not necessarily easy, but we do take that responsibility seriously, we have a committee that looks at it. We believe that in order to run a business effectively, we have to make these types of decisions and I take it seriously myself and know that when you're having a material impact on the world, you have responsibilities that follow that.

Peter McCormack: Could you guarantee, for example, that you don't work with the government of Hungary?

Jonathan Levin: I'm not going to go through and list the people that we work with or don't work with. I may not even know...

Peter McCormack: Let me tell you why that question is important. It's not so much whether or not you are working with Hungary, the point being is you could be working... This is a point Andreas made, you could be working with a country which has now opened a fair democracy, but could easily go down a slippery slope and descend into a country which becomes essentially an authoritarian dictatorship, as Hungary has become and at that point, all previous transactions is now data that can be used for oppression and you've already provided the tools for that.

Jonathan Levin: Let's just go through an example. The way that you would be able to identify these things are, in Chainalysis you would see a Hungarian exchange, a Hungarian business that allows people to go between local currency and Bitcoin. In essence, in an authoritarian regime, the regime can go and knock on the door and take all of that information anyway.

It's not that we're providing information, the information about the individuals is maintained at the exchange and so in these authoritarian regimes themselves, they can go in and reach in and take all of the data about their local citizens and oppress the people and I'm not saying that's a good thing, but that's...

Peter McCormack: No, it's the purchase. You provide the spend behaviour, not the fact that the own cryptocurrency.

Jonathan Levin: No, but the actual data about what people have done is also maintained at the exchange.

Peter McCormack: It's only the transactions at the exchange. You're providing the layer of purchase information, whether or not they've used a dark market or such.

Jonathan Levin: Yeah. that's true. In a situation like that, where they're all fast changes in how a regime works, we would obviously assess that on an ongoing basis.

Peter McCormack: Yeah, I guess all I'm really getting at with this and, look, I'll be honest I came onto the... Firstly, I was surprised you wanted to do it, and fair play for you coming on, and I think you've been fair in answering my questions, but I don't like the company at all. To me, Chainalysis is antithetical to Bitcoin, and yes, you can make the argument and I think you've done that on multiple occasions, about what about the pedophiles, and that is a great thing that a pedophile network is taken down, but it doesn't stop pedophiles operating.

You're not going to stop criminals being criminals. Criminals already have more privacy than most people, they're quite ingenious and also there's a lot of moral judgment here, for example sanctions. Do you personally think sanctions are a good thing?

Jonathan Levin: It's not actually relevant whether I think sanctions are a good thing or not.

Peter McCormack: It is, you have to sleep with your decisions. What about in Iran that they can't get certain medicines to treat people with coronavirus because of the sanctions?

Jonathan Levin: I take these types of things, and I do think about them and they definitely have an impact on... But I'm not necessarily going to change any of these laws, so what we...

Peter McCormack: But it's what you stand for as a person. Do you stand for sanctions or do you stand against them? Do you provide tools to help people get around sanctions or do you help provide the tools which punish people for trying to get around the sanctions? It's where do you stand. My view on sanctions is that I understand the theory behind it, they just always harm the wrong people. If you look at North Korea, Iran, it doesn't force change, it doesn't lead to regime change, it just oppresses the people.

Jonathan Levin: Let's go to the example of North Korea. So yes, the North Korean people are an oppressed people, and yes, I think that we should try. Yes, I think that we have a duty to try and liberate people from that oppression. It's very clear to me however, the sanctions regime, even recently, when we had a webinar on this, it is possible for using our software to prevent millions of dollars who are stolen from legitimate people around the world to stop that money in transit before it goes towards funding, nuclear programs in North Korea.

Peter McCormack: The nuclear program in North Korea isn't a post-Bitcoin program. So I just find it a bit of a stretch.

Jonathan Levin: But hold on, how does North Korea generate enough income? I'm not happy that North Korea does not pay for the health care and wellbeing of its people and I would rather North Korea and not spend money on nuclear weapons and spend money on providing education, healthcare, and basic human rights to its people, but at the end of the day, North Korea has been shown to use stolen cryptocurrency to fund its operations.

Peter McCormack: Yes, but what I'm saying is that you're not stopping the North Korea regime, the North Korean regime exports its population into Russia as slave labour. They've got arrangements with China. What I'm saying is....

Jonathan Levin: Sure, I can't do everything, but I can try and help. If you look at the GDP of North Korea, the GDP of North Korea is somewhere around $10-$15 billion a year. If you look at the amount of cryptocurrency that they're stealing from exchanges, it's not an insignificant amount of money and so the sanctions regime actually allows seizure of those assets in order to stop it from going to that regime. So in that case, I think we can all be in agreement that we don't want that money going to potentially fund nuclear programs in North Korea.

Peter McCormack: Of course I don't want it to, but I don't think it stops the North Korean nuclear program and I don't think it stops the Iranian nuclear program and I don't think it actually stops Maduro from human rights abuses in Venezuela. But what the sanctions always tend to harm is the people at the bottom.

Maduro is still able to have a nice steak with salt lick, and he's able to drink his bottles of cognac or whatever he does with his cronies, but it's the people at the bottom who are unable to get food and medicine who are starving and eating from rubbish trucks.  

So I'm fundamentally against sanctions as a tool. So I'm fundamentally against the tool you've provided to oppress people and to make the lives of the poorest and worst off in places like Iran and Venezuela more difficult. So I'm just wondering do you agree with sanctions?

Jonathan Levin: I don't alter the sanctions, but I think that there have been examples where the sanctions regime has been used.

Peter McCormack: You've agreed with them.

Jonathan Levin: But I'm telling you that in the examples where I have seen sanctions be used recently, particularly when it comes to cryptocurrencies, it's been used to effectively target individuals who were trafficking fentanyl into the US killing people. It's been used to target people who have actually sent targeted ransomware campaigns to US hospitals, potentially killing people and it's been used to prevent money going to North Korea that potentially goes towards nuclear programs and that is something that the whole world can agree on as being good.

So I'm not saying that all sanctions, and again it's not to say that there's no harm with sanctions. These things are not always that easy to look at. In these particular instances, I think it's also important for people to know that these are individuals that get listed on these lists that are actually usually also involved with criminal indictments as well.

Peter McCormack: See what I think is, I don't think you stop crime. I don't think you're a deterrent. I think you are a tool for catching criminals. I don't think you are a deterrent. If Bitcoin didn't exist and Chainalysis didn't exist, that there would still be pedophile networks, they would find another tool. There would still be drugs being distributed, there would still be fentanyl finding their way into the US, there would still be sanctions and I don't think you stop it.

But at the cost of providing a tool for catching criminals, you've removed financial privacy for billions of people and financial privacy is tied to freedom, it's tied to freedom of expression, freedom of association, it's tied to religious freedom and I'm wondering for you as an individual, how much value you put on freedom? Or whether you actually think these tools are much important? Or whether it's just the fact that you've created a successful business and perhaps you've compromised your own principles?

Jonathan Levin: I disagree that we've compromised financial privacy for billions of people. You can still use Bitcoin today in a private way.

Peter McCormack: I can't.

Jonathan Levin: Yes, you can.

Peter McCormack: How? All my addresses are tied in your software and if I was to choose it to do something, which is a moral judgment for me, I have to consider it. Everybody now has to consider the fact that any transaction they do might be tracked within Chainalysis and if they try to use CoinJoin to avoid it, we're also aware that that is something else that you guys are trying to track and that is also something. So whenever somebody tries to build a tool for privacy, you're trying to undo it.

Jonathan Levin: You can essentially find ways to maintain privacy in Bitcoin transactions. You can have your own wallet, you can interact with other people on a peer to peer basis that doesn't necessarily need to go through a service.

Peter McCormack: It's very, very difficult to do that now, though. Look I get it, we all have to follow the bullshit laws of the government. I have to pay tax, I don't want to pay tax, but I have to do it because if I don't, I'm going to go to court and potentially end up in jail, face a fine, I get it. I'm just wondering, I don't see how you can be a Bitcoiner and support a tool which is designed for freedom and then build a tool which supports oppression.

Jonathan Levin: Well it's only a tool for freedom if people can access it and it's only a tool for freedom if the world understands and realizes the potential for the technology and for that, we need to build a business that protects the integrity of that system. We need to find ways that are using the rule of law in the countries that we've chosen to live in for them to also save it as something that is used for legitimate purposes and is something that we should promote.

Peter McCormack: So if I went on, do you know the website Hive.one?

Jonathan Levin: What's that? Hive.one?

Peter McCormack: Hive.one yeah. Do you know Hive.one?

Jonathan Levin: No.

Peter McCormack: It ranks people. So it's good for me for finding people to interview on the show. But if I went back and say, polled, everybody, who's been on my show and said, "What do you think of Chainalysis?" What do you think the general sentiment would be?

Jonathan Levin: After or before this episode?

Peter McCormack: Oh no, before this, just generally in the market. What do you think the general sentiment around Chainalysis is with Bitcoin people?

Jonathan Levin: Well I think many of the people who have, actually if you polled every single Bitcoiner out there?

Peter McCormack: No, no, just like the likes of the Andreas, the Saifedeans, the Giacomos, the Jimmy Songs, all the people who are out there kind of promoting and talking about Bitcoin on their podcasting shows.

Jonathan Levin: But that's a very specific part of the Bitcoin audience and I think that one of the interesting things is that you want to see billions of people use Bitcoin, you need billions of people to be able to use Bitcoin. You need billions...

Peter McCormack: Actually I don't. It's not the number. I want people to have financial privacy and be able to access a tool where they have censorship resistance, which they don't have without financial privacy and they have seizure resistance and they are able to escape oppression from the government. That's all I want.

Jonathan Levin: You can do that by holding a private key to Bitcoin and you could be anywhere in the world and no one could touch you.

Peter McCormack: Yeah, but how do I get that Bitcoin?

Jonathan Levin: You either go through a regulated business because that's the way the world works or you meet someone and you swap cash for Bitcoin, or you mine it. So those are your options.

Peter McCormack: It's just made it really difficult.

Jonathan Levin: It's also made it much, much simpler. So either you give it...

Peter McCormack: But the trade off hasn't been worth it.

Jonathan Levin: But this is the choice. So this is the amazing thing about having the underlying network be a permissionless open system for the world is that if you want, you can sit somewhere in the Saharan Desert with a private key that no one else has access to and you have absolute freedom, right? You can also get access to that through a regulated financial institution that actually is promoting this idea that you have and making it more popular through making it more trustworthy and accessible and those two things are not contradictory.

Maybe everyone eventually agrees at the end of the day that we should all now… Again, we're all sitting in our own little space capsules, and we could all have our private keys in our pockets or it could be that we trust a lot of the world's population that have actually interacted with Bitcoin trust, some central institutions to manage the Bitcoin. So these are the types of things that can also evolve.

Peter McCormack: Yeah, no, I get it. But the guy in the Sahara, the only use it has, is if at some point he can sell it or spend it and at the point that he's spending it, I'm assuming he's flagged on your system, but it's like, "Oh, this is an anonymous person, we don't know this one yet. Okay, so we need to find this one." At some point, just some small mistake, it could be a service they use that you're tracking could end up destroying their privacy and I guess what I'm getting at is that it's very hard.

I get every defence you've got, I get it. But Bitcoin for me, it was about financial privacy, it's about censorship resistance, it's about seizure resistance and I'm very anti a lot of practices by the state. I'm certainly very anti-sanctions, I'm anti a lot of the judgment of what is criminal and what is not criminal, so it's very hard for me to look at a service like yours and agree with it and it's very hard when it feels like it's a service, which bends the knee to the state and provides tools, which can be used for oppression.

I really struggle with that and I really struggle with the thought that anyone can say they're pro-Bitcoin and be building tools that support oppression. It's just really hard for me.

Jonathan Levin: No, I understand that. But I think that hopefully what I've sort of described as sort of where we are on that spectrum, where we put our values and I think that it's also about understanding that there can be a spectrum of people that are interested in Bitcoin and not necessarily everyone needs to have exactly the same views about how the government should and can behave.

Peter McCormack: Yeah, that's a fair point. Bitcoin is for everyone because it is permissionless. So all right, listen, look, I think you've been very fair in answering some pretty pokey questions. Is there anything you want to add at the end?

Jonathan Levin: No, I really appreciate being pushed on these things and the opportunity to actually demonstrate what Chainalysis stands for and give a bit of my personal opinion and I hope that if my popularity on the list of previous guests was really bad before, hopefully I've moved up one ranking on this website that you have.

Peter McCormack: Usually this is a bit where I ask people to tell them where to find the business, but I obviously don't want people to find your business! That's a tough one for me to do, but they'll find it anyway. But listen, look, I appreciate you coming on. I'm not sure if you'll do it again, but if you did, I would probably even sharpen my arguments a little bit and I would still come at you for these exact same points. But I do appreciate you coming on, you've been very fair game.

Jonathan Levin: Thanks so much!