InfoNesia.xyz – Despite consistent attacks, cryptocurrencies have provided the financial landscape with an immense amount of potential. Luckily, platforms like Chainalysis have come up as a solution.
What is Chainalysis?
Chainalysis is a software service and blockchain data provider company that focuses on providing solutions and services for government agencies and financial institutions. It is one of the leading providers of blockchain analytics and compliance for financial institutions. The company helps financial firms and insurance providers implement blockchain technology through its work with regulators.
Financial institutions and government agencies widely use the company’s products and services. Its market intelligence and investigation software has helped solve some of the most prominent criminal activities on the blockchain. As the industry shifts toward Web3 and digital transformation, Chainalysis is leading the way in providing regulatory clarity and compliance.
Before founding the cryptocurrency exchange Kraken in 2011, Michael Gronager worked in quantum mechanics. In 2015, he left the company to establish Chainalysis, a startup focused on developing a platform that enables financial institutions and governments to reduce the threat of cybercrime.
Before becoming the CEO and co-founder of Kraken, Michael Gronager got a quantum mechanics Ph.D. before founding the platform in 2011. In 2015, he left the company to establish Chainalysis, a startup focused on developing a platform that enables financial institutions and governments to reduce the threat of cybercrime.
Why Does Chainalysis Matter?
Since 2014, Chainalysis has promoted transparency and trust in the blockchain space. The company’s software helps legacy institutions manage their interactions with distributed ledger technology. It also aims to create reliable compliance standards that minimize risk.
In addition to helping law enforcers identify and prevent criminal activity in the blockchain industry, Chainalysis has also conducted extensive research on illicit activities on the platform. The company’s 2022 Crypto Crime Report comprehensively analyzes these activities.
This article will discuss the company’s role in helping financial institutions and governments integrate blockchain technology. We’ll also discuss its core product, KYT. Finally, we’ll look at Chainalysis’ 2022 Crypto Crime Report, which provides a comprehensive analysis of criminal activities in Web3.
Know Your Transaction (KYT)
The KYT(Know Your Transaction) on Chainalysis is a next-generation blockchain intelligence solution that enables clients to manage real-time transactions. It features a sleek and user-friendly interface allowing them to integrate easily with various applications and workflows. Its tools help them stay compliant with global regulations and improve their efficiency. Also, it will enable them to take advantage of the latest innovations in decentralized finance.
Through its mapping capabilities, Chainalysis KYT can identify real-world entities involved in illegal activities, such as ransomware and dark web markets. It can also help prevent transactions from being conducted through sanctioned addresses. Moreover, users can monitor their transactions to detect high-risk activities with the ability to configure real-time alerts to meet specific anti-money laundering policies. Users can also prevent their assets from being used for illegal activities.
With its ability to link real-time events to on-chain activities, Chainalysis KYT can help organizations conduct investigations and develop a complete audit trail. With the ability to customize alerts, users can also improve their efficiency and comply with regulations.
Chainalysis KYT Certification (CKC)
The KYT certification helps practitioners identify and implement effective on-chain compliance workflows. It provides them with the knowledge and skills to manage risk and improve efficiency.
This course is designed for professionals involved in developing and implementing on-chain compliance workflows, such as financial institutions and cryptocurrency businesses. It uses the tools of Chainalysis KYT and Reactor. This training is conducted in a small, in-person setting.
Prerequisites for CKC
This training aims to provide participants with a basic knowledge of Chainalysis KYT and Reactor. That is done through an introduction to both procedures.
The KYT Essentials training webinar is designed to introduce participants to the company’s basic workflows. It is very important as it forms the foundation for creating the Centralized Knowledge Base.
Participants should have a basic understanding of the user interface of Reactor and the various features of its due diligence tools. These concepts will allow them to perform more accurate risk assessments.
Before attending the KYT certification, it is recommended that participants take the Chainalysis Reactor certification. Doing so will allow them to gain a deeper understanding of the procedures and functions of this software.
The Cryptocurrency Essentials webinar is also a good option for people who are new to the industry. On its website, you can watch all of Chainalysis’s live and on-demand training sessions.
Although Bitcoin and other cryptocurrencies are legal in most jurisdictions, bad actors can still use them for illegal activities. Because of this, businesses that accept cryptocurrency payments must have a compliance program designed to prevent and detect illegal activities. In most countries, businesses that process payments using cryptocurrencies must comply with the regulations related to money laundering and terrorism financing(AML/CFT).
Due to cryptocurrency businesses’ volume of transactions, it’s hard to detect all potential illegal activities without having many false positives. That can lead to unnecessary work for the compliance team and negatively affect the user experience.
To reduce the number of false positives, Chainalysis launched Alerts in beta. This product is now available to all of its customers. It can help businesses identify high-risk transactions and detect illegal activities. Here are some of the services Chainalysis offers under KYT Alerts;
The blockchain constantly changes due to the number of transactions being added to it. That can affect the risk of a given transaction. For instance, if an exchange user wants to withdraw Bitcoin from an unused Bitcoin address, it is not immediately possible to assess the risk of this transaction due to its newness.
After the exchange withdrawal, the address may spend the funds on a darknet market. Chainalysis can then identify this address as belonging to a darknet market.
Due to the continuous monitoring of the blockchain, Chainalysis can send out Alerts to KYT whenever it sees high-risk activity. That ensures compliance teams can still catch any potential issues even if they do not see the activity immediately.
Compliance teams can easily detect high-risk activity using Chainalysis KYT Alerts, powered by the company’s massive repository of illicit cryptocurrency addresses. Whenever a cryptocurrency address is registered with a real-world entity name, Chainalysis will only label it with a false positive if it is 100% certain that that entity controls it. That ensures that false positives do not occur.
In a recent webinar, Chainalysis discussed the various high-risk activities that cryptocurrency typologies can carry out. These include terrorist financing, darknet markets, illegal gambling, scams, high-risk exchanges, and cryptocurrency ATMs.
Through constant monitoring, Chainalysis can continuously identify high-risk activities through cryptocurrency typologies. Its KYT platform generates alerts for these activities.
One of the most important steps in preventing false positives is identifying both low and high-risk entities on the blockchain. For instance, let’s assume that a customer of yours withdraws bitcoin from your exchange and then sends the funds to an address known as address A. That could be a deposit address for another exchange, which then uses the funds from the transaction to fund the customer’s withdrawal.
In this case, the customer was transferring funds to another exchange. The exchange that handled the transaction is responsible for exposing the sanctioned addresses.
Tuning and Customization
Transaction monitoring can help you meet your compliance requirements by adjusting Alert rules. The team at Chainalysis can help you analyze your historical data to identify the optimal thresholds for your business.
Through machine learning, Chainalysis KYT can help you prioritize your Alert requests based on your previous compliance decisions. Your compliance team can then use this process to review those most likely to cause concern.
Empower Safe Access to DeFi
With Chainalysis KYT, you can monitor the multiple addresses that control the funds of an entity. It allows you to identify the source of funds and the destination of your transactions. It can also help you make trades for non-fungible tokens and crypto-related products.
Who Does Chainalysis Work With?
Chainalysis Professional Services
Chainalysis provides a team of experts specializing in complex on-chain investigations through its professional services. This service helps clients get the most out of their investigations by delivering the best possible analysis tools.
For over 500 institutional customers, Chainalysis provides blockchain analysis and data solutions. Some of these include the UN Office on Drugs and Crime, the IRS Criminal Investigations division, and the World Economic Forum. We’ll take a closer look at the company’s core client bases it serves:
Government Agencies: Chainalysis can help agencies identify and prevent criminal organizations from operating through its investigation tools. These tools can also help them contextualize sex trafficking, terrorism, and money laundering data.
Cryptocurrency Businesses: With a dedicated team of account management and compliance experts, Chainalysis helps businesses reduce their regulatory workload. That allows them to focus on their core business. Additionally, they have the opportunity to develop a robust compliance framework.
Financial Institutions: Due to the complexity of the blockchain ecosystem, it can be very challenging for financial institutions to manage the risks associated with its integration into their existing infrastructures. With Chainalysis, they can access the same data regulators utilize to minimize risk. Additionally, they can gain access to a wide range of tools that help them manage their risk exposure.
Chainalysis vs. Privacy
Due to its close collaboration with the government, Chainalysis has been accused of undermining the privacy of the blockchain. Privacy is one of the reasons why Bitcoin grew in popularity.
In response to the IRS’s recent actions, a New Hampshire resident filed a lawsuit against the agency. The IRS sent out around 10,000 letters to individuals suspected of avoiding taxes. It also partnered with Chainalysis to identify tax evaders. James Harper claims that the IRS violated his constitutional rights by obtaining the power to demand private information without a judicial process.
According to Gronager, his company’s product does not undermine the privacy of individuals. He claims it allows users to find leads and trace money transactions on the blockchain. However, he noted that law enforcement would need to be involved in the investigation to get a proper lead.
In April, Antonopoulos, a Bitcoin advocate, claimed that Chainalysis helps some of the world’s worst dictators. He also stated that working with a company that supports such organizations was fundamentally immoral. A spokesperson for Chainalysis noted that the company does not work with countries under sanctions.
The Chainalysis 2022 Crypto Crime Report: What is it?
The “Crypto Crime Report 2022” report comprehensively analyzes various crimes related to the cryptocurrency industry. It states that the volume of illicit transactions in 2021 reached an all-time high of $14 billion, almost doubling the amount received in 2020. Despite this, the overall share of illicit transactions decreased.
The total transaction volume of the cryptocurrency market in 2021 was over $15 trillion. That represents a 567% increase from the previous year. It’s also a clear indication that the number of people using cryptocurrencies is increasing, but the growth of legitimate transactions outpaces that of illegal ones. In addition, illicit activity has never been able to account for a small portion of the total transactions.
According to the report, money laundering mainly concentrates on a few small centralized exchanges. Despite the DeFi landscape’s rise in activity related to money laundering, centralized crypto exchanges continue to be the preferred destination for illegal transactions.
The report provides a detailed analysis of how criminals can use cryptocurrencies to commit illegal activities. Despite the apparent rise of blockchain-related crime, it’s still believed that government agencies and regulators have the necessary tools and resources to monitor and prevent illicit activity using cryptocurrencies effectively.
With over 20 years of experience, Chainalysis has developed world-class blockchain analysis tools and services for the financial, government, and crypto industries. As the adoption of cryptocurrencies continues to grow, the ability to prevent breaches, losses, and hacks is more important than ever before. Through its work, Chainalysis has assisted numerous high-profile criminal cases.