Coinbase Patents System that Identifies Non-Compliant Accounts

  • Coinbase’s system will use a variety of factors to determine if an account fails the compliance standards or not.
  • The system will self update its compliance model from the data that it collects, as well as suspended and report “bad” accounts.
Coinbase CEO Brian Armstrong at Vanity Fair's New Establishment Summit, talking about the future of crypto and Facebook's Libra

Coinbase CEO Brian Armstrong at Vanity Fair’s New Establishment Summit, October 2019.Vanity Fair

Cryptocurrency exchange Coinbase has secured a patent for a self-learning system that identifies and flags non-compliant user accounts, according to a filing with the U.S. Patent and Trademark Office published on 19 November.

The document describes an automated system with a scoring model, which would aim to detect non-compliant accounts, especially those suspected of illegal activities.

It will use a variety of factors to assign an overall compliance score to each account, and then compare the scores to find those that fail the compliance standards.

While some of the factors are calculated by the exchange itself, others are user-inputted or executed data points, and will include user age, account balance, transaction volume, location, verification history and the number of devices with access.

The system will also measure “the level of due diligence” performed on accounts, and the history of compliance reviews, in order to determine whether an account is “bad or good”.

The filing reads:

“An investigator may be able to determine whether an account is being used for illicit activities by doing research on the parties of the transaction who receive or send payment and determining whether such parties are regularly involved in illicit activities. It may for example be relatively easy to determine that a party sending or receiving payment is in the business of conducting online services that may be illegal.”

The system was also designed to learn and constantly update its compliance model from the data that it collects, and the accounts it is flagging.

Though accounts that are flagged as “bad” are suspended and reported to law enforcement authorities if there is a transaction for more than $2,000, investigators will have an override function that will enable them to bypass the suspension.

Yesterday, blockchain security company CipherTrace released a report, titled “Cryptocurrency Anti-Money Laundering Report, 2019 Q3”, which claimed that the total volume of cryptocurrency-related fraud and theft resulted in losses worth $4.4 billion in 2019.

The firm also analyzed the 120 most popular cryptocurrency exchanges’ Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, and concluded that two-thirds of exchanges lack strong KYC policies.

Related Coverage
FTX, Alameda Wallets Move $13M to Exchanges
  • A little over $13 million in altcoins were sent to crypto exchanges Binance and Coinbase in the past 24 hours, which is in accordance with a September court order.
  • The court ordered a phased liquidation process, which allows the bankruptcy estate to sell $3.4 billion worth of digital assets over a certain period of time.
November 1, 2023, 2:27 PM


Coinbase Opens Base Blockchain to the Public
  • Coinbase’s Base blockchain was made available to the public on Wednesday, featuring over 100 dApps and services as part of its ecosystem.
  • In order to show its capabilities and promote its mainnet partners, Base has also launched an event called “Onchain Summer” that will allow users to mint exclusive NFTs on the network.
SEC Staff Asked Coinbase to Delist all Crypto Except BTC Before Lawsuit
  • During an interview with FT, CEO Brian Armstrong said that before the lawsuit a SEC staff member had said that all crypto except BTC was security, and should be delisted.
  • When asked how he came to that conclusion, the SEC staff member reportedly said “we’re not going to explain it to you, you need to delist every asset other that Bitcoin”.