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March 22, 2023 marked 10 years of Elliptic and the day we introduced blockchain analytics. As the first firm to develop this game-changing technology and bring it to market, we are proud to see how it has helped the industry evolve over time and achieve effective compliance and regulation.
Thanks to Elliptic, blockchain analytics are now routinely used by the world’s leading compliance teams, law enforcement agencies and governments.
But why is blockchain analytics important as an industry? And why is it so crucial in fighting crypto crime and bringing legitimacy to the space? In this blog post, we’ll break down what blockchain analytics actually is and how it makes the world safer for all of us.
An indispensable tool
Blockchain transaction analytics are critical for crypto companies and financial institutions that want to protect their transactions from illegal activity, minimize the risk of financial crime, and stay compliant.
Even if a financial institution does not have direct exposure to cryptoassets, through its clients making and receiving payments on a crypto exchange, it may have indirectly exposure. Blockchain analytics can help him better quantify what risk this poses to his business.
Insight into the risk of cryptoassets offers visibility and better response time for traders, companies and institutions. This means you can inform and support your decision-making with immutable and actionable blockchain analytics data.
The use of these analytics is equally valuable to law enforcement and other institutions involved in money laundering (ML) and terrorist financing (TF). These agencies are not only concerned with the quality of the data that underpins the analytics, but also, more importantly, with the ease with which it enables them to triage the best cases for further investigation.
Criminals are using new and more sophisticated methods to disguise transactions to hide the source of funds. For example, they can use technology that allows them to move across the blockchain – better known as cross-chain crime.
However, blockchain analytics technology can overcome such obstacles. With Elliptic’s unique holistic screening capabilities, you can track the proceeds of crime as they move between assets and the blockchain in an efficient and scalable manner
Finally, analytics can also help cryptocurrency regulators assess whether a firm is “fit and proper” to continue to be authorized to conduct business in their jurisdiction. Blockchain data – rather than being ignored – can be taken into account by a regulator when making an overall assessment of the risk a cryptoasset firm poses to its regulatory oversight and responsibilities.
So what is blockchain analytics?
Once a transaction is made on the blockchain, the data is recorded forever and is publicly available. It usually cannot be changed or deleted, and includes information about the address of the sender and receiver, as well as the amount of cryptoasset involved.
Blockchain analytics is the act of inspecting, identifying and understanding data on the blockchain. It also models and visualizes data to identify key information about wallets and transactions. Blockchain analytics provides users with useful insights into the various actors operating on the blockchain, and is most often used to detect and deter financial crime.
Providers of such solutions create “heuristics”, which are essentially a set of input and transaction data linked to wallet data. This means that although cryptoasset transactions are anonymous in nature, parties conducting illegal transactions can be identified and grouped together. This is a continuous exercise.
Therefore, blockchain analytics overcome this pseudonymity by identifying ownership or control of wallets by both legal and illegal actors, and their interactions with other wallets and transactions on the blockchain.
Users of blockchain analytics can subsequently monitor the flow of funds and assess the money laundering (ML) and terrorist financing (TF) risks of wallets and transactions. They can then take the necessary actions to stop transactions that facilitate money laundering/TF and other illegal activities from being carried out on the blockchain.
Using blockchain analytics, compliance departments can identify fraudulent or illegal activity and protect themselves from risk. It also helps create greater trust and transparency within the system, thereby maximizing opportunities for growth and profitability.
Law enforcement agencies can have better visibility to “follow the money” and ensure they are best equipped to deal with crime and serious crime in their jurisdiction.
Block analysis tools for crypto compliance
Blockchain analytics are typically used in four different use cases, as revealed below in the Financial Action Task Force (FATF) Standards and relevant regulatory guidance:
- Wallet Overview: which determines the source of funds or source of wealth for customers before fitting them. A pre-transaction is also used to check the wallet of the user or recipient to determine if they are under the control of illegal actors before any transfer is allowed.
- Transaction tracking: to review the post-transaction transfer facilitated to determine the final destination of the funds, as well as to assist in the ongoing analysis of the client.
- Investigations: specifically, those that require detailed forensic analysis and network visualization of wallets and transactions to uncover complex financial crime schemes.
- Virtual Asset Service Provider (VASP) Verification for Counterparty Analysis: this is to understand the risk profiles of such entities before engaging them as clients or counterparties, or for supervisory purposes to understand the exposure of their regulated entities to high-risk actors.
Regulators may also conduct wallet verification and transaction monitoring during their oversight and inspections. This is to ensure that AML/CFT controls and processes are robust and properly implemented in jurisdictions.
Blockchain analytics is quickly becoming the industry standard for continuous security and compliance, and these use cases aren’t the only things the technology has to offer. All organizations working in the cryptoasset market – whether they are digital asset businesses or financial institutions – must remain compliant.
How we can help
Elliptic tracks 98% of all cryptoasset trading volume, and we’ve collected over 100 billion data points – preventing rogue nation states and cybercriminals from using cryptoassets to hide their ill-gotten gains. We also boast the widest coverage of digital assets and blockchain available on the market.
Our verification, due diligence and investigative solutions mean compliance teams and investigators can track and visualize the proceeds of crime across blocks and assets in real-time – helping you achieve the highest levels of risk detection.
Contact us to find out more.
Financial Services Compliance Cryptocrime
