What is Chainalysis?

The crypto industry is looking to fully integrate itself with the traditional financial industry. A major hindrance to this goal is a lack of trust between law enforcement, regulators, and cryptocurrency firms. Chainalysis aims to build trust between these parties by boosting the trust and transparency of the crypto industry through its firm that monitors transactions across different De-Fi platforms. In this article, we will examine what Chainalysis is about, its history, how it works, and how crypto investors can benefit from it.

What is Chainalysis?

Chainalysis is a software and data service provider that produces tools and carries out investigations for government agencies, crypto companies, and other financial institutions. The service provider collaborates with several regulatory bodies to develop industry standards and compliance to aid the integration of traditional financial institutions into blockchain technology.

Chainalysis is also responsible for developing products for insurance providers and cybersecurity firms in over 70 countries. The firm has a hand in creating some of the industry’s most popular compliance and investigation tools that have been critical in solving high-profile criminal activities on the blockchain.

The firm believes that if all parties (law enforcement, regulators, cryptocurrency businesses, and financial institutions) trust each other, the industry can continue growing.

History of Chainalysis

Chainalysis was co-founded by Michael Gronager, Jan Moller, and Jonathan Levin in 2014 and is the first start-up focused on Bitcoin tracing. Co-founder/ CEO Michael Gronager graduated with a Ph.D. in quantum mechanics before launching the Kraken crypto exchange in 2011.

Later, in 2015, Gronager established Chainalysis after leaving Kraken. His new venture aimed to build a platform that enables Governments and financial institutions to reduce the threat cyber crimes and stolen funds pose in the blockchain ecosystem.

The idea for Chainalysis was birthed when Michael noticed the difficulty the crypto space faced in integrating with the financial system. He then applied previous knowledge from working with scientists and his crypto knowledge to lay the foundations of Chainalysis products today.

Jonathan was trained as an economist, and he felt that entrepreneurship was the best solution to the issues around people moving money around the world. In 2013, Jonathan began consulting with governments and FTSE 100 companies on national security and the future of finance. Currently, he leads strategic initiatives at Chainalysis.

In 2019, Chainalysis was first able to raise $16 million in a Series A round. In the next round of fundraising, they were able to amass $36 million in the Series B round. This was followed by $13 million raised in series B1 round in the year 2020. CHainalysis later raised $100 million dollars in the Series C and Series D rounds done in 2020 and 2021, respectively. The company’s Series E round saw them raise another $100 million in funding before they topped it up with $170 million raised in its Series F round.

Chainalysis Core Clients

Chainalysis provides services for different organizations, some of which include the United Nations (UN) and the Internal Revenue Service (IRS). However, the firm provides its service to three core client bases:

Cryptocurrency Businesses

Chainalysis provides its services to crypto businesses alongside Bespoke Compliance solutions to spread the workload. The cryptocurrency sector is prepared to work with authorities to develop new and more effective regulatory frameworks to aid the integration of the industry into financial institutions. These crypto organizations also gain access to investigation and compliance experts who assist them in building a wide compliance framework.

Financial Institutions

Blockchain integration into existing financial infrastructures comes with several risks. Chainalysis allows financial institutions to gain access to the same regulators used to minimize risks and boost compliant growth in the crypto industry.

Government Agencies

Government agencies use Chainalysis to monitor criminal agencies and bring them to justice. Chainalysis offers its industry-leading investigation tools to government agencies, ensuring that criminals can not continue to evade the law.

How Does Chainalysis Work?

Chainalysis’ mission is essentially to build trust and transparency in cryptocurrency. To achieve this, it aims to develop clearer regulations, establish standard audit practices, and apply powerful compliance control for cryptocurrency to keep growing while slowly integrating into the global finance infrastructure. To achieve its goals, Chainalysis has grouped its business into two categories: Products and Solutions.

Chainalysis Products and Features:

This category covers products made available to customers to help these users ensure the safety of the blockchain industry. Some of these products include:

• Chainalysis KYT: This makes use of industry-leading blockchain technology, a user-friendly interface, and a real-time API to help organizations cut down manual workflows, obey crypto regulations, and safely interact with upcoming technologies such as Decentralized Finance (DeFi).
• Kryptos: With Chainalysis Krypto, customers can navigate the cryptocurrency landscape and verify new opportunities. Kryptos provides in-depth on-chain metrics of crypto businesses. These metrics are obtained from the industry’s most trusted blockchain data.
• Reactor: This is the company’s investigation software that links blockchain transactions to real-world entities. With Chainalysis Reactor, you can examine illegal activities such as theft, as well as legal activities like flash loans and NFT transfers.
• Storyline: With Storyline, users can swiftly assess and investigate the world of smart contracts, NFTs, and a lot more going on in the crypto industry.

Solutions (Investigations, Compliance and Data)

These are services offered by Chainalysis to help customers solve cybersecurity breaches, keep track of stolen funds, calculate the capabilities of recovering lost funds in the event of a cyber incident, and more. Below are some of the solutions offered by the company:

• Investigations: Users here make use of Chainalysis to detect and investigate crypto crimes. They solve more cases related to cryptocurrency, disrupt criminal operations, reduce illicit activities, and recover funds from victims. This helps battle the constant effort by criminals to finance and conceal illegal activities on the blockchain.
• Compliance: This ensures that firms and platforms adhere to both local and international rules and regulations while staying ahead of financial crimes and avoiding sanctioned entities. Chainalysis provides solutions that seamlessly integrate into your compliance workflow to help you properly manage risks while building strategies, offerings, and partnerships built on crypto.
• Chainalysis Data: This is the world’s most trusted blockchain knowledge graph. It makes use of clever machine learning, dedicated forensic experts, and an extensive customer network to continually map on-chain data to real-world entities.

Chainalysis Main Features

Chanalysis Know Your Transaction (KYT)

Chainalysis Know Your Transaction (KYT) provides next-level blockchain intelligence with a real-time application programming interface (API) through a sleek and straightforward user interface. It is an integrative API installed on a blockchain project and ensures the company complies with local and global regulations.

KYT combines leading blockchain technology, an easy-to-use interface, and a real-time API to detect dangerous trends such as frauds, darknet marketplaces, sanctioned addresses, and unusual transactions on a blockchain network.

KYT also ensures that withdrawals from blacklisted addresses, freeze deposits from hacks, scams, and ransomware are impossible. This greatly depends on the AML (Anti-Money Laundering) policy applied by the firm.

Most importantly, the KYT is infused into the compliance framework. Since every step taken to a compliance decision is documented, it is possible to export the entire audit trail and share such information with the appropriate institutions.

Chainalysis KYT facilitates real-world investigations by linking real-world events to on-chain activities. Clients can also create special alerts to warn against predetermined behavioral patterns and produce a full audit trail to show regulators and financial institutions.

Chainalysis Data

Chainalysis consists of a large database that stores profiles of exchanges and wallet addresses of cryptocurrencies it has previously analyzed. Through this huge database, Chainalysis has successfully identified a lot of scams and different fraudulent platforms, a lot of them being traced back to the shady halls of the dark web.

The Chainalysis data contains information on crypto wallets, platform users, and transactions. This information is used to prevent crimes and monitor illegal activities. It is mostly used by law enforcement agencies and financial bodies worldwide.

For any blockchain or token looking to join Chainalysis’ database, they have to first meet the platform’s strict rules and standards for quality and coverage. Once the blockchain has complied, the platform’s innovative technology is then able to automatically connect each address to its authorized counterparties to properly monitor where money is being exchanged.

With the database, Chainalysis serves as a common ground for crypto businesses, banks, and law enforcement bodies worldwide to access the pool of the blockchain industry data.

Chainalysis Kryptos

New crypto projects are released almost every day due to the popularity of major tokens like Bitcoin and Ethereum. The surge in new projects poses a great danger to investors. Chainalysis Kryptos is a product that helps investors analyze the risk involved in a project, ultimately leading them to a more reliable and stable strategy, ensuring that potential investors can reduce their risk.

Kryptos’ major function is to constantly keep its database updated with information that contains updated profiles of crypto firms gotten from their Know-Your-Customer (KYC) system. When news from a firm is potentially harmful to the investor’s fund associated with that firm, Kryptos alerts the investor, making the investor aware of the threat. This feature is super handy in emergencies.

Chainalysis Reactor

This is the most popular function amongst the Chainalysis product list. This is because it is used to investigate, analyze, and link blockchain transactions to real entities. Its purpose is to accurately research the track record of certain wallets by examining similar information that is linked to the wallet, like social media and dark web activities.

Chainalysis Reactor makes use of user IDs for its research and investigations. It identifies user wallets by simply inserting a crypto address and automatically going through several social media forums as well as the darknet. In a situation where a suspicious wallet is identified, Chainalysis uses Reactor to notify the appropriate authorities whenever a transaction takes place.

Chainalysis Storyline

With Chainalysis storyline, users can easily understand, investigate, and communicate web3 interactions. They can easily keep track of the timeline and the impact of complex De-Fi events by utilizing revolutionary visualizations to track the movement of tokens, stablecoins, liquidity pools, governance, and many more across all supported blockchains to discover their story. Storyline allows customers to search at the transaction level down or up the line, visualize the flow of assets, add strategic labels, and uncover activities on the address level across several blockchains.

Chainalysis Playbook

Chainalysis Playbook helps customers develop impactful churn-prevention strategies, helps them stay ahead of competitors, and helps them discover their next major growth opportunities. With the Chainalysis playbook, Customers can gain actionable insight that helps them nurture impactful user relationships.

Use Cases of Chainalysis

As a data platform, Chainalysis is paving the way for a blockchain-based global economy. Its core clients, Businesses, banks, financial institutions, and Government agencies use the firm’s services to make critical decisions, boost innovation, and protect customers. Below are some ways the clients mentioned above use the firm’s products.

Risk Management

Chainalysis helps investors calculate the risk involved with investing in a particular crypto project or transaction. This includes identifying risky addresses or profiles, monitoring the flow of funds from marked entities, and making informed investment decisions.

Asset Recovery

Chainalysis helps investors in the event of funds and assets stolen due to scams, hacks, and theft. The firm can help investors who want to claim their lost funds or wish to work with law agencies to find the culprits.

Market Analysis

Chainalysis works with data and, as such, can carry out sufficient market analysis that is helpful to the investor. The firm can provide insight to investors, analyze market trends, identify trading patterns, and help investors make informed trading decisions. This can be achieved by tracking the flow of large amounts of tokens, identifying market manipulation by whales, and interpreting market sentiments.

Portfolio Management

Chainalysis can help investors properly track their stored assets, assess the performance of their holdings, and use that information to make strategic decisions to balance their portfolios.

Conclusion

Chainalysis plans to bridge the gap between financial institutions, government agencies, and the crypto industry. As the world continues to adopt blockchain technology, the ability to prevent hacks, stop breaches, and limit loss of funds is more valuable than ever.