That's probably still not a good thing for users though, since it means Coinbase probably knows more about them than they think.
Absolutely they do. They probably know more about you than your average fiat bank.
If I withdraw cash from my bank, I can go and spend that on gambling, drugs, and prostitutes, and my bank have no idea. My bank know how much I have withdrawn, but they don't know how much I have in my wallet, they don't know when or where I spend it, they don't know where any new money is coming from. Their monitoring capabilities are limited to one transaction deep.
that's just with cash though. i would agree that cash is superior for black market transactions, particularly those that might warrant FBI or similar attention.
yet we live in an increasingly cashless world. with debit/credit cards, paypal, venmo and the like, financial institutions know
exactly how/where your money was spent and what your balance is. the dots can be easily connected in a law enforcement investigation.
when coinbase tries to analyze blockchain activity, at best they are applying probabilistic/heuristic models. they don't
know much of anything. for example, if i withdraw outputs from coinbase and 3 hops later they end up in an exchange or casino or DNM, it's impossible to know whether or not those outputs changed hands up to thrice before arriving there. and once swept by a centralized service, that's generally the end of the trail. they apply risk-based models to account for that re AML compliance, but that still doesn't provide the sort of insight into account holder activities that electronic banking does.
Coinbase, on the other hand, are known to probe several transactions prior to a deposits and several transactions after a withdrawal. The exact number seems to vary depending on how "suspicious" or otherwise they think you are, but there are reports of users having their Coinbase accounts banned for gambling with 4 or 5 transactions between withdrawing from Coinbase and depositing to a casino.
like this---it's purely risk-based. something like this would never hold up as evidence in a court of law. it's just a company deciding a customer is risky and refusing to do business with them.
