In the sleepy days between Christmas and New Year’s, Michael Gronager was relaxing at his home in Miami with family visiting from his native Denmark, when his girlfriend had her cryptocurrency account hacked.

More curious than upset, Gronager, who is the cofounder and CEO of Chainalysis, the blockchain data platform, began corresponding with the thief on WhatsApp. “[The hacker] was asking for some money in order to get access to her account back,” he says. He asked for proof. How could he know the account would be restored once the ransom was paid? The hacker duly sent through a transaction history, showing 16 statements for accounts that were hacked and then returned to their original owners once the money was sent through.

Then Gronager sat back and laughed. The thief had given him all the clues he needed to track him down. Gronager called one of the exchanges that the hacker used and asked them to freeze his account. Then he sent money to that account knowing that it would be closed and the transaction wouldn’t go through. Four hours later, his girlfriend had her money back, and he had caught and reported the swindler.

The hacker in question couldn’t have known that Gronager has spent the last eight years building a business doing this kind of work for large organizations. The New York-based Chainalysis leverages publicly available data on the blockchain to trace transactions and identify scams, hacks, crimes, and fraud. Its 750 clients in 70 countries include financial institutions like BNY Mellon, PayPal, Barclays, and even the U.S. government. In May, the company raised a $170 million round of fundraising from the likes of Blackstone and Accel, giving Chainalysis a whopping $8.6 billion valuation amid an exploding demand for crypto investigation software as scams proliferate. Even amid the new crypto winter—Bitcoin and Ethereum are each down more than 60% since their November 2021 peak—the company has continued to grow.

The transparency of the blockchain is what attracted so many people to crypto in the first place, and even the most ardent crypto evangelists will lament frauds as tarnishing or slowing the broader adoption of this new financial system. Yet Chainalysis has vocal (if not particularly eloquent) haters in the crypto community. The attention that Chainalysis has received illustrates the tension between the celebration of the immutability of the blockchain and the belief that crypto also affords anonymity to users and prevents regulation from reaching people who want to exist outside its system.

The service Chainalysis provides, according to detractors including Bankless presenter and writer Ryan Sean Adams and Bitcoin expert Andreas Antonopoulos, is a gross invasion of privacy and fundamentally opposed to the libertarian ethos of cryptocurrency in general. “I think it’s fundamentally immoral to work at a company like this,” Antonopoulos said on a recent episode of Lark Davis’s hit YouTube show, Talking Bitcoin. “Just like I wouldn’t work for a weapons manufacturer or a company that builds cages for refugee concentration camps.”

Gronager and his clients argue that Chainalysis is what brings confidence and legitimacy to crypto transactions. “The value proposition is not about anonymity,” Gronager says. “This is about financial opportunities for everyone and financial innovation. Crypto for me is building the operating system for finance that never existed.”

THE INSIDER’S OUTSIDER

The relatively new world of crypto—with its Bored Ape peddlers, musical women of web 3, and p00ls hypebeasts—can attract a wacky crowd, but Gronager isn’t one of them. A droll and curious Dane with an impish smile and clear blue eyes, he does not own NFTs because he’s unable to assess their value. “It’s not that I don’t believe in them, but there are so many and I don’t know [which ones are good]. It’s like how I don’t day trade because I don’t have a system to do it,” he says. While he dreams big, and bold, he is risk-averse. Perhaps that’s why, attracted to a nascent industry with a new financial system, he decided that the best thing he could do was find a way to regulate it. When he joins our Zoom call, wearing a lightly-patterned shirt from a sunny apartment in Miami (he couldn’t buck every stereotype), he apologizes for the background noise from the windows. He keeps them open all the time.

Just because Gronager welcomes regulation doesn’t mean he likes bureaucracy. In his first career, after achieving a PhD. in quantum mechanics, he ran research infrastructure projects in Europe eventually serving as CEO of Nordic DataGrid Facility and working for CERN in Geneva. He describes his old job as “asking politicians for money to fund projects.” He hated it. He discovered crypto, then a fringe interest, during a break from that career. “I stumbled onto bitcoin–I read about it on Slashdot—in 2010 and I thought it was just another project. Then in the summer of 2011, the price went up to $32 and then crashed. I downloaded the source code and got really deep into it,” he says.

Gronager also wanted to learn about the community. “It was hard because it was mainly online,” he says. He decided to go to the first Bitcoin conference in New York in 2011. He says the crowd was similar to what you might find at an NFT-enthusiast gathering today. “It’s people with the highest risk appetite. It’s a strange mix of people with a gambling mindset and actual innovators.” He jokes that the attendees of that first conference fell into three camps. “One group is in jail, one group started some of the big companies, and a third just went long on bitcoin and is sitting on an island somewhere.” He did not always have the foresight of that last group. At an early bitcoin gathering in San Antonio—”it was a complete failure: Only 11 [people] showed up and it was on St. Patrick’s Day”—he spent a couple of bitcoin on half a pound of coffee. That coffee would be worth about $50,000 as of June 13.

It was at one of these gatherings that he met Jesse Powell with whom he cofounded the crypto exchange Kraken in 2013, which lets participants trade various cryptocurrencies. At the company—which became his first unicorn—he served as chief operating officer. A year later, Mt. Gox, a bigger rival exchange based in Tokyo, ceased operation when it was revealed that it had been hacked and lost 744,408 bitcoins (roughly half a billion dollars at the time). Chainalysis would go on to become the official investigator on the Mt. Gox case.

For Gronager, it was a call to action. “I realized that no one—I mean, the Tokyo Police had no clue—could figure it out.” He realized something else: To make bitcoin more mainstream and usher in the widespread adoption of cryptocurrency, it needed to be regulated.

Here lies the point of contention between him and his naysayers.

THE CONTRADICTION AT THE HEART OF CRYPTO

What makes the pieces of paper in your wallet worth anything? Why can you insert a debit card, type in a PIN, and in exchange, obtain produce from a grocery store? Why can “fiat” money, as the crypto-pilled masses call it, buy anything? The answer: It’s protected. Protected by a government that regulates it, a law enforcement that prevents it from getting stolen (or tries to return it if misappropriated), and banks that in an ideal world keep it safe. At Kraken, when Gronager first started, he wasn’t even able to open a bank account as a crypto business. The main pushback? There was no way to do transaction monitoring and easily keep track of the funds.

So that’s what Gronager built, using publicly available data to trace transactions on the blockchain. It wasn’t even difficult: He coded a rudimentary prototype on a transcontinental flight from San Francisco to Europe. The company allows customers to track the flow of cryptocurrencies as they move to and from different accounts, and on different blockchains. By following the money, the company can link activity to suspicious users. Chainalysis also issues a widely-cited annual crypto-crime report. “Michael is a visionary, but he’s also got a really good head on his shoulders. You can see him itching to code sometimes,” says Pratima Arora, chief product officer of Chainalysis, who joined a year ago after a career at Atlassian and Salesforce.

In 2014, Gronager left Kraken to focus on Chanialysis full-time. At the time, he faced an uphill battle fundraising. He was faced with something of a Catch-22. At the time, he says that many VCs expressed concern that many people involved in crypto were bad actors. The thing that would persuade them to invest in Chainalysis? An environment already regulated by a company like Chainalysis.

The company attracted enough clients—including 10 government agencies—to start to change investors’ minds. “I won’t say too much, but someone in government was interested in crypto and found us, Gronager says. “He emailed us from a personal email with the words ‘pizzaman’ in it.” The agent would eventually help them register and set up contracts with agencies. “There was an urgent need for the product,” he says, citing the expensive and cumbersome investigation into the Silk Road as an example of something that could have been solved with Chainalysis’ help. In April 2018, when the price of Bitcoin hovered around $10,000, Benchmark invested in the company’s series A, impressed by the company’s roster of government clients. It was off to the races.

As it has grown, the company has attracted more controversy. Pascal Gaulthier, who runs Ledger, a Paris-based company that makes hardware wallets for crypto accounts and uses Chainalysis to keep his customers’ money safe, compares the way the service de-anonimyzes crypto transactions to having your house broken into. “In crypto, you own what’s yours,” he says. “So when someone starts looking into your stuff [by tracking your transactions on the blockchain], you feel violated.” Though he acknowledges that Chainalysis is incredibly useful—in part because it can work across borders, unlike a national police force that doesn’t have jurisdiction when money moves to other countries—he is also wary of the company because it prevents competition in the space. Upstart companies may not have the cash to employ the likes of Chainalysis to monitor their transactions.

Gaulthier’s position illustrated the paradoxical position that many Chainalysis detractors find themselves in. They want privacy in a system designed for transparency. One of the key arguments for recording transactions on the blockchain in the first place is that records are immutable and can be viewed by anyone. Chainalysis’ haters can seem to be talking out of both sides of their mouths. “In the early days of crypto, there were a lot of crypto-anarchists who basically wanted complete anonymity and didn’t believe in government,” Gronager says. “Some people accuse us of working with totalitarian governments, but to them a totalitarian government is the U.S.” He points out that Chainalysis has stayed away from the Russian and Chinese governments.

He claims that the market bears this out. While there are many privacy coins intended to maintain owner anonymity, they are not the most popular. “It’s pretty clear that Ethereum has the worst privacy preservation in the world,” he says. “But it’s been growing pretty well. For me, that shows that the value proposition here is not anonymity.” To him, Chainalysis is enabling the system to work, letting financial institutions, high net-worth individuals, and businesses trust the system enough to enter it.

But while Chainalysis helps bigger institutions, there isn’t much to protect the little guy. Not every individual whose account has been hacked has Michael Gronager as a boyfriend. Every day, thousands of people, from dabblers to famous people like _Seth Green_ (https://www.wired.com/story/seth-green-bored-ape-nft-stolen/), get ripped off with no recourse for justice. “We have a network that can coordinate these investigations, but we need someone with a badge to do something about it,” Gronager says, adding that he’d like to be part of the solution.

Right now though, he’s got bigger fish to fry. “In the past, there were internet companies and other companies. Then, every company became an internet company. I think every company will become a blockchain company. I want to bring transparency and compliance to every transaction. I want to make it a system everyone can actually use.”