Arkham Intelligence has created a marketplace that allows people to buy and sell blockchain data. That’s bad news for the anonymity-loving world of cryptocurrencies.
By Nina Bambysheva, Forbes Staff
“Deanonymization is destiny.” For Arkham Intelligence, an Austin-based startup specializing in blockchain data, this thesis, proclaimed on its website, is inevitable. “Eventually, everyone’s blockchain identity will be linked to their real-world identity,” the company insists, ending the pseudonyms behind which many users now hide, in much the same way as social-media profiles have evolved.
Arkham has built a marketplace for blockchain data, where people can buy and sell information on cryptocurrency wallet ownership and transaction history. The concept brings together online sleuths who already comb the internet for information with traders or consumers willing to pay for such knowledge. Arkham sees this as a public service for an industry that is plagued by hacks and thefts; for privacy-loving crypto users, however, the concept could not be more dystopian.
“My goal for the marketplace, the intel exchange, is for anybody to be able to make requests and post information that could be very meaningful in this space, either because it provides alpha for trading and investment or because it helps with risk management, exposing some major fraud,” says Miguel Morel, Arkham’s 23 year-old CEO.
“The crypto space needs transparency and accountability. There needs to be a mechanism by which people are incentivized to share information helpful to the community. Otherwise things will continue to be in the dark.”
Using a system of bounties offered by information seekers and auctions held by data detectives, Arkham seeks to bring light to a crypto world “covered in darkness,” according to the white paper describing the exchange.
In Morel’s view, the system offers opportunities for victims of digital thefts to pool resources to acquire data that may help identify the hacker and generally provides more transparency for the market. After the wave of cryptocurrency bankruptcies last year, headlined by the fall of the FTX exchange, he thinks that will be a popular service. But waggish Twitter users have dubbed it a “dox-to-earn program,” and privacy proponents are ringing the alarms.
Deanonymizing requests are already being posted on the new exchange, which launched last week. Arkham itself has posted a bounty of 100,000 arkm, approximately $60,000, for information on the hacker who robbed FTX of $415 million as it was failing in November. It has also posted a bounty of $600 for anyone finding Elon Musk’s cryptocurrency wallet.
“In effect, their hope is to do in the open what Chainalysis and others do in private. This is more dangerous insofar as Arkham Intelligence incentivizes snitching,” says Harry Halpin, CEO and co-founder of privacy startup Nym Technologies. He also called the project “utterly disgraceful” on Twitter and said it “should be publicly disowned by the entire crypto community.”
Although Arkham’s mission is to shine a light on the murkier corners of the digital asset space, its founder is reluctant to share much information about himself or his firm.
Arkham’s model is simple. Users must acquire the information exchange’s token and pledge the amount they are willing to offer to obtain specific information. Any blockchain analyst or other crypto sleuth can respond. Other users can join in the request by staking at least the amount of the initial offer, which would have the effect of making the question more valuable to answer. The first analyst to fetch the requested data that passes Arkham’s verification requirements would collect the tokens offered as the bounty.
Sleuths can also set up auctions for intelligence they have that they believe is valuable to others. Any data bought and sold on the exchange will be exclusively accessible by the buyer for 90 days. Afterwards, it will be shared with all users. Arkham takes a 2.5% maker fee on submitted bounties and auction payouts and a 5% taker fee on bounty payouts and successful auction bids. Thus Arkham earns a 7.5% commission on completed deanonymization transactions.
The firm says its blockchain analytics platform, which now incorporates the intel exchange as well as an AI assistant for data analysis called the Arkham Oracle, has more than 500,000 registered users.
Like many other crypto startups, Arkham has its own digital currency (arkm), which is needed to post bounties on its exchange. The tokens were initially offered on Binance via its Launchpad platform on July 18 to holders of the exchange’s native bnb token. They were sold 50 million tokens at 5 cents each. Like an oversubscribed initial public offering for stock, the discount deal drew nearly 115,000 Binance users who had committed 10 million bnb, or $2.4 billion, for a chance to get the coins on the cheap. On the first trading day, arkm was bid up to a price of 75 cents per token, and today the startup’s 150 million tokens outstanding (circulating supply) are trading at about 60 cents, giving arkm a market cap of $90 million. Early bnb buyers are thus sitting on a 12-fold profit windfall on arkm’s initial offering.
Although Arkham’s mission is to shine a light on the murkier corners of the digital asset space, its founder is reluctant to share much information about himself or his firm. Morel will only say that he comes from Philadelphia and was convinced by a “mentor” while he was in high school to skip college and move, courtesy of this counselor, to the San Francisco Bay area at age 17. He is not a coder, but says he helped found reserve.org, a stablecoin company launched in 2017 to combat hyperinflation.
Morel started Arkham in 2020 and received investments from Tim Draper, Bedrock Capital, Wintermute, GSR Markets and an unnamed co-founder of OpenAI. He claims he met famed crypto-loving venture capitalist Draper at a conference held at the University of Wyoming in October 2020. “I spoke with him about Arkham. He committed to investing $1 million after 20 minutes,” says Morel. So far Arkham has raised $12.5 million in funding. Morel will not say how many people work at his startup, but his head of business development and operating chief are both ex-military officers, according to their LinkedIn profiles.
Some Twitter users have speculated that Arkham has ties to the CIA because it also received investment from Joe Lonsdale, co-founder of spook-connected Palantir. The firm has denied the affiliation on Twitter with a Q&A sheet, which states “No, Arkham is not secretly a government project.”
Crypto researchers linking blockchain addresses to firms and individuals is nothing new, but creating a public market for outing crypto identities could result in a wave of unwelcome transparency. So it’s no surprise that blockchain purists are up in arms over Arkham’s exchange.
Privacy has long been a core tenet for crypto, even though digital assets have proven to be traceable. Many users use pseudonyms, either to shield their identities in homage to crypto’s libertarian free-market roots, or simply out of concerns about safety. A handful of blockchains and cryptocurrencies were specifically designed with anonymity and privacy in mind.
The Arkham exchange was created with the opposite goal, but there may be a silver lining for privacy supporters, says Sebastian Bürgel, founder of privacy-focused Hopr protocol. “In a weird way, I see the positive of it in that it creates more pressure to deliver privacy. We have to do whatever it takes to protect users better.”
Morel’s terse response to critics is that “public blockchains have never been private,” and he points to the guidelines that his team has devised to prevent malicious use.
For example, bounty submissions must exclusively rely upon publicly available data, such as blockchain labels, internet posts and corporate press releases, and individual attributions should serve “public interest.”
Additionally, personally identifiable information including physical addresses, phone numbers, government identification documents and bank account information will be prohibited. However, nothing prevents users from performing additional searches on posted names or pseudonyms.
Halpin and other privacy advocates argue that just because data is publicly available, does not mean it should be shared this way.
Hudson Jameson, former Ethereum Foundation community lead, contends there’s another, larger issue. “The closely related Arkham Foundation is the single arbiter of the exchange and decides whether a submitted piece of intel is legitimate or not,’’ he says. “There is no transparency.”
He also points out that incorrect labeling in Arkham’s public database could lead to false accusations of money laundering and other crimes. Nym’s Halpin adds that the platform “almost certainly violates the European Union’s General Data Protection Regulation,” which the 27-nation bloc describes as “the toughest privacy and security law in the world.”
Morel says: “we have a platform with over 350 million labels of different blockchain addresses where users already trust us to provide correct labels and identification for the wallets that they are looking at.”
He adds, “I think that people are not taking a very nuanced approach to this. The majority of this on-chain analysis and research is focused on doing good for the community.”
So far, Arkham’s token offering has been a financial success, but the launch of its exchange has been rocky.
In its zeal for outing identities, Arkham inadvertently let information on its own customers leak out. Users quickly discovered that they could take appended data from Arkham’s referrals, plug the information into a decoding program, and see the bounty poster’s email address. Morel said the process has recently been changed to encrypt the referral link.
