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ShapeShift and Kraken pull back curtain on law enforcement requests

Posted: 21 January 2019 3:42 pm
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Responding to law enforcement requests is one of the costs of doing business in crypto.

One thing you'll often encounter at cryptocurrency exchanges is a note warning that US residents are not allowed to use the platform. Bitfinex, for example, doesn't serve US customers. It might seem odd a first that one of the world's biggest exchanges is opting out of serving such a huge market, but as Bitfinex said at the time, it's just not worth the cost.

A large part of these costs is the expenditure involved in fielding a stream of subpoenas from US law enforcement agencies.

"You can see why many businesses choose to block US users," Kraken agreed in a public breakdown of how it handles these requests. Inspired by Kraken, ShapeShift has now chosen to do the same, pulling back the curtain on how it fields subpoenas and other demands.


One of the first takeaways is that the number of demands, and therefore the costs associated with complying with them, sharply increased in 2018. In the case of Kraken, it tripled from 160 in 2017 to 475 in 2018 with an especially sharp surge arriving towards the end of the year.

From Kraken

The cryptocurrency boom of late 2017 seems to have corresponded with a sharp and lasting uptick in the number of requests, but they don't really correspond with cryptocurrency prices. Rather, the flow waxes and wanes with the time of year more than anything else. June is especially quiet, while the start and end of the year is the busiest.

ShapeShift experienced broadly similar seasonal shifts in the number of subpoenas it received.

From ShapeShift

Born in the USA

Also like Kraken, the USA was the biggest contributor to ShapeShift's workload. But while a full 315 out of 475 requests for Kraken came from the states, only 18 of 60 of ShapeShift's subpoenas did. Within the US, Kraken and ShapeShift also tended to get requests from different departments.

Homeland Security made 91 requests to Kraken, but in the same period of time, they only made 2 requests to ShapeShift. The FBI was prolific in both cases though, getting in touch with both ShapeShift and Kraken more frequently than most other agencies.

The CIA and NSA requests were absent from both ShapeShift and Kraken because as Kraken said "when you already have all the data, you don't need to request it."

The workload

The main problem with all these requests, said Kraken CEO Jesse Powell, is the sheer workload involved in accommodating them coupled with some irritation of not having any choice in the matter.

"Part of why these are so taxing is that they often require a significant amount of education and back-and-forth," the Kraken Twitter account explained. "We'll get requests for 'all transactions,' which could be petabytes of data when they actually only need the withdrawals from last week for one guy."

It usually takes one or two weeks to fulfil a request, ShapeShift says, although "the requested information can vary wildly."

"It could be something as simple as a crypto address (in or out of our system), transaction IDs, or it could include names, emails, IP addresses, coins/asset information and more."

The biggest takeaway, ShapeShift said, is that subpoenas and the cost of handling them is par for the course. And on the plus side, it's quite possible to predict the costs and allocate resources accordingly as the number of requests received overall is mostly based on transaction numbers and user volumes.

With great trading volumes come great compliance costs, especially if you serve US customers.

Disclosure: At the time of writing, the author holds ETH.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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