Binance rolls out Chainalysis “know your transaction” compliance system
The rollout of systems like Chainalysis KYT is significant for wider cryptocurrency adoption.
Chainalysis describes itself as the only real-time transaction monitoring solution for cryptocurrencies. Of course, technically, the blockchain itself is also a real-time transaction monitoring system for cryptocurrencies.
But Chainalysis goes many steps further, applying pattern-recognition systems, its own proprietary algorithms and millions of open-source references to identify and categorise thousands of different cryptocurrency services.
Do you KYT?
The result is a monitoring system for cryptocurrencies.
Called Chainalysis KYT (Know Your Transaction), it presents a potentially much more efficient and effective way of helping cryptocurrency businesses comply with their KYC (Know Your Customer) and AML (Anti-Money Laundering) obligations.
It already serves over 150 of the world's leading cryptocurrency businesses, financial institutions and government agencies, and can now count Binance – the world's number one crypto exchange by volume – as a client.
"By working with Chainalysis, we are able to continue building a foundational compliance program that enables the next phase of our growth," said Binance CFO Wei Zhou. "Our vision is to provide the infrastructure for a blockchain ecosystem and increase the freedom of money globally, while adhering to regulatory mandates in the countries we serve."
Given the cost of KYC/AML compliance in the crypto space, Chainalysis expects many more to follow Binance's lead in using its product. For exchanges committed to earning regulatory goodwill around the world, it might be a valuable tool.
"Cryptocurrency businesses of all sizes face the same core challenge: earning the trust of regulators, financial institutions and users," said Jonathan Levin, co-founder and COO of Chainalysis. "We expect many to follow Binance's lead to build world-class AML compliance programs to satisfy regulators globally and build trust with major financial institutions."
Those "many" almost certainly aren't limited to just cryptocurrency exchanges.
As cryptocurrency moves beyond being a thing for crypto companies alone, it will be vital for anyone who wants to make use of it to have an effective way of handling new compliance obligations. For example, consider the Brave Browser, which uses the BAT cryptocurrency to share revenue between users, publishers and advertisers. It's a micropayment system which simply wouldn't be possible without cryptocurrency given the high cost of transacting fiat currency around the world.
At the same time, distributing cryptocurrency still means complying with AML/KYC obligations. So Brave users who receive a few cents for viewing an ad must be broadly subject to the same scrutiny as someone making a money transfer. Here, the lack of a suitably cost effective AML/KYC solution would undermine the lack of payment friction which makes the entire thing possible. Fortunately, it found a suitably priced (ie, free) solution on the blockchain.
Incidentally, it kind of makes you wonder whether terrorist groups monetise their web content. Did ISIS earn any advertising revenue from its widely-viewed YouTube videos, websites and social media? Did ISIS's top Instagram stars get sponsorships? Are the now-deceased ones called has-beens?
And beyond cryptocurrency, given the near-crisis situation currently facing AML/KYC efforts in traditional finance, it's likely that many traditional financial institutions would love to start using a system like Chainalysis KYT sometime down the line.
The wider adoption of these kinds of cryptocurrency AML/KYC systems isn't just good news for Binance and other immediate customers. It's probably good news for much wider cryptocurrency adoption too, going a long way towards overcoming the regulatory and cost obstacles currently keeping a lot of traditional financial institutions out of the space.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.