Blockchains make cryptocurrency transaction data public and permanently available. They record when a transaction happened, the amounts transacted, and which addresses were involved. However, they do not contain information about the real-world service behind a transaction.
Cryptocurrency businesses and financial institutions need more context beyond just transaction amounts to comply with anti-money laundering (AML) regulations. These regulations require them to identify and report user activity that is indicative of money laundering. To do that effectively with cryptocurrency transactions, they need to know what services their customers send cryptocurrency to and receive cryptocurrency from.
As these businesses scale, they need to potentially monitor thousands of transactions across millions of customers. This is why businesses require an automated transaction monitoring solution that constantly updates a large dataset linking transactions to real-world entities.
That’s where Chainalysis comes in. We put cryptocurrency transaction data in context for our customers by labeling addresses with the real-world entities that control them. We identify services and do not label individual users’ wallets.
For example, here’s a historical transaction on the Bitcoin blockchain:
Here’s how Chainalysis labels that transaction in our software:
This helps make sense of a blockchain’s alphanumeric strings and lets exchanges know whether they are sending funds to another exchange or sending them to a darknet market.
How exchanges use our product
Exchanges that use Chainalysis KYT (Know Your Transaction) for AML compliance submit their transaction data—not personally identifiable customer data—to Chainalysis to automate the process of transaction monitoring. The alternative—manually checking every possible transaction for counterparty risk—would simply be unmanageable.
Any link from a transaction back to the person or people involved in that transaction must be made outside of Chainalysis because we do not collect any personally identifiable information from exchanges. Chainalysis only knows that a particular address belongs to a customer at that exchange, not who the customer is.
Chainalysis will flag a transaction based on indicators of risky behavior. For example, we will flag a transaction if we identify the counterparty as an illicit service, such as a darknet market or terrorist financing organization. Our customers can customize which entities they consider to be high and low risk. Their risk appetite and investigations are the exchange’s own responsibility.
In short, Chainalysis provides service-level identification, not individual-level identification.
We can’t speak for all other vendors. It’s possible other vendors may ask for more information. But Chainalysis is concerned only with service-level transaction data.
How we share information among our customers
We do not share any personally identifiable information about cryptocurrency users with exchanges. When we screen a transaction in KYT for an exchange customer, we add it to our list of transactions made by that service. This complements our own research that maps out the transactions conducted by each service. This helps all of our customers understand the services their users transact with and make risk determinations based on the most accurate information.
As such, our customers can establish comprehensive compliance programs and disrupt criminal networks that take advantage of cryptocurrency to traffic drugs and other illicit products, fund terrorist organizations, hack businesses, scam consumers, and more.
Ultimately, compliance and investigations solutions like ours build trust in cryptocurrency as a safe way to move value across the world.