ChainEyes KYT: Tools to Protect Your Digital Assets from Risks

In the world of Web 3.0 digital transactions occupy a vital space. However, as convenience and accessibility increase so does the potential for heightened risks. To combat these malicious activities, Know Your Transaction (KYT) becomes imperative. This article introduces "What is KYT" and highlight its importance in preventing financial crimes and monitoring transactions within the Web 3.0 space.

What is KYT? How is it different from KYC?

KYT (Know Your Transaction) refers to monitoring and verifying transactions that occur in a blockchain network. KYT serves as an essential tool for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations as it helps ensuring that all transactions comply with regulatory requirements and do not engage in any illicit activities. KYT solutions involve the use of software to monitor transactions in real time and flag any suspicious activity for further review by compliance teams.

On the other hand, KYC (Know Your Customer) is a critical process that financial institutions and other businesses must follow to verify the identity of customers. It aims at preventing money laundering and other financial crimes. KYC usually involves collecting & verifying personal information such as name, address and identification documents.

KYT aims at providing a deeper understanding of customer transactions for financial institutions and other businesses. It involves real-time analysis of transaction data to identify suspicious activities and patterns. 

While KYC is a necessary first step, it does not give a complete picture of the potential risks for customers where bad actors can use false identities to engage in illegal activities. KYT helps to detect suspicious activities even if the user has passed KYC verification.

How KYT helps in Preventing Financial Crimes

In recent years, KYT has repeatedly proven to be critical in detecting fraud, money laundering and other malicious activities:

In 2020, the US Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) published a report showing several high-profile digital asset exchanges allowing transactions worth millions of dollars linked to criminal activities going undetected. The report highlighted the importance of KYT in preventing such activities. 

Furthermore, other reports have showcased how KYT has helped identify illicit activities on various blockchain platforms. In September 2021, the US Department of Justice (DOJ) announced the arrest of four individuals who illicitly gained over $31Mn through cryptocurrency money laundering, including bulletproof hosting services for criminal enterprises, SIM swapping attacks and ransomware payments. According to DOJ, the defendants purchased Bitcoin anonymously and then used multiple cryptocurrency exchanges to launder the money. These exchanges detected suspicious activity and reported it to authorities through their KYT systems collaborating with law enforcement which eventually resulted in the arrest of those involved.

These cases highlight the significance of KYT in preventing & detection of financial crimes especially in the rapidly growing digital currency market. It reduces the risk of engaging in fraudulent activities while compiling with regulatory requirements and safeguarding the institution's reputation. It also encourages risk-based approach helping to improving the overall customer experience. Without KYT, identifying and preventing such illicit activities would be significantly more challenging. It is therefore imperative for financial institutions to continue investing in KYT solutions to protect their businesses, customers and wider economy from financial crimes.

Importance of KYT in monitoring transactions in the Web3.0 era

KYT plays an important role within the Web3.0 space. Web 3.0 is poised to revolutionize numerous industries with its unparalleled advantages in security, reliability and transparency compared to traditional solutions. With the rise of Decentralized Finance (Defi) and Non-fungible Tokens (NFTs) the need for effective transaction monitoring has become critical than ever before. The decentralized feature of blockchain technology ensures security while eliminating the need for intermediaries. However, this decentralization also makes transactions untraceable which is where KYT comes into play.

KYT helps verify the source and destination of transactions making it easier to quickly flag suspicious activities thereby assisting corporates, financial institutions and regulatory bodies in minimizing risks. As traditional financial institutions have their own KYC & AML policies, the Web3.0 space also needs to be compliant to verify transactions and reduce criminal activities.

ChainUp's KYT System: ChainEyes

ChainUp's KYT system is provided by its subsidiary, ChainEyes a technology company registered in Singapore offering digital assets security and compliance services worldwide. ChainEyes utilizes Big Data & Artificial Intelligence to provide global digital assets security and compliance solutions. It integrates on-chain transaction data and social media information based on blockchain - big data & AI algorithms.

ChainEyes currently supports real-time tracking of transaction risks for addresses on four major blockchain networks: Bitcoin, Ethereum, BSC, and TRON. It also provides real-time scoring of wallet address credibility. The product supports address risk detection, transaction risk calculation, fund chain tracking, risk transaction monitoring services and is currently expanding to support more blockchains.

With ChainEyes KYT you can gain more risk control and compliance references:

1. Monitor Encrypted Transactions: Screens your crypto transactions for risk, automates AML, CFT, sanction checks and performs fraudulent extortion determinations. 

2. Wallet Address Screening: Screens digital asset wallets for AML, CFT, FATF, sanctions risks and assess the risks associated. Gains accurate understanding of your transaction counterparts at the lowest cost to comply with sanctions regulations and reduce fraud.

3. Encrypted Financial Investigation: Analyzes all transaction behaviors from wallet creation to on-chain activities of a specific address. Gains new insights about the sources, destinations and beneficiaries of transaction funds. Also, analyzes related transaction activities and potential risk factors at each stage.

4. Fund Flow Tracking: Helps customers track the flow of encrypted currency assets, funds in multiple dimensions, identify possible risks by providing comprehensive and professional asset management services.

5. Analyzing Suspicious Transactions: ChainEyes KYT offers comprehensive data analysis to identify suspicious patterns and transactions. It continuously narrows down the analysis scope based on the characteristics of the investigation and supports the export of reports as well as related analysis details.

Anti-Money Laundering (AML) Screening with ChainEyes KYT

Due to anonymity, openness and transparency transactions of digital assets over-the-counter are easier to participate in transactions without disclosing private information. However due to its anonymity, it is subjected to many illegal transactions as well as compliance risks especially AML, CFT, FATF and other financial supervision.

ChainEyes KYT can monitor encrypted transactions through AML checks to identify illegal fraudulent judgments and identify money laundering risks before they harm the business.

Wallet address risk investigation is conducted based on the ChainEyes TCR (Transaction Credibility Rating) score including scoring factors and risk sources. If the TCR score is below 200, it indicates significant risk associated with that wallet address. Currently, ChainEyes supports 39 risk types.

Background checking on wallet addresses focus on specific risk types, as different risks have varying impacts on fund and transaction security. The ChainEyes KYT model employs a theoretical framework for modeling severe, high and other risk threats.

For example, whether it involves financial regulations whether the risk address and transactions are flagged as SDN (Specially Designated Nationals), OFAC (Office of Foreign Assets Control), Sanction, AML, CFT, US political blacklist, or other risk labels all fall into the categories of capital and transaction risk threats.

Through ChainEyes KYT you can conduct background investigations on transaction counterparts and associated transactions while predicting/analyzing risk causes and reduce risks. Also, safeguard the reputation of your wallet addresses and protect the security of your digital assets transactions.