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‘Know Your Transaction’
The alerts form part of Chainalysis’ “Know Your Transaction” (KYT) service, flagging cryptocurrency transactions that may be associated with hacked funds, darknet markets, sanctioned entities, and all the other more routine financial shenanigans bankers are well accustomed to. KYT alerts will cover transactions in BTC, ETH, BCH, LTC, often-used “stablecoins” such as Tether (USDT) and a range of ERC-20 tokens. The alerts will flag transactions based on amount, category and service, direction of funds, and direct/indirect exposure to risk. There are also four tiers of risk category ranging from Severe to Low. In banking and currency trading, “know your customer” (KYC) rules are written in law and require financial businesses to know a degree of detail about the individuals or companies they’re doing business with. They’re intended to make moving money difficult for anyone that may be involved in money laundering, organized crime, corruption, terrorism, and tax avoidance.
Whether they do this effectively or not can be a contentious point, since large financial institutions have been found several times to flaunt the rules and criminals have developed sophisticated structures to mask themselves. However, just as they’re a requirement for mainstream finance they’re also a major concern for cryptocurrency-handling businesses, since cryptocurrencies allow users to transact via pseudonymous addresses rather than ID-verified accounts. Because of this, cryptocurrency exchanges and other companies often come under greater scrutiny from the authorities. It is also one of the most common arguments leveled against cryptocurrency use by regulators, and the reasons services like Coinbase have become far stricter with user ID requirements over the years.
Chainalysis was one of the first blockchain analytics firms to reach prominence in the industry, and was at one stage involved in the investigation at defunct exchange Mt. Gox in Japan. By performing deep analysis on blockchain data (which is all publicly available), firms like Chainalysis can find patterns that can identify users by their addresses, timing, and habits. They can also highlight the path of cryptocurrency units through the system and flag transactions even when senders and receivers remain unknown.
Some decry the growing authoritarian intrusion into financial privacy, and warn that a growing “blockchain forensics” industry will lead to “blacklisting” of certain coins (whether their spenders engage in wrongdoing or not), damaging their fungibility and use as money. However the reality is that government agencies will use whatever technology they have at their disposal to counter whatever they see as wrongdoing, criminal or otherwise. Likely there will be a technological cat-and-mouse game as both “sides” try to outsmart each other in the years to come.
Article Produced By
Jon Southurst
Jon Southurst is a Senior Editor at Bitsonline. He is based mainly in Tokyo, and is interested in the roles Asian economies play in developing cryptocurrency and blockchain technology. Follow him on Twitter @southtopia
