Chainalysis Supports Two Privacy Coins Despite Regulatory Overhead

Privacy coins make it harder for exchanges and custodians to comply with international AML guidelines.

Chainalysis, a New York-based provider of compliance software for monitoring cryptocurrencies transactions, today announced support for two privacy coins, Dash and Zcash.

The move comes even as major crypto exchanges preferred to delist the privacy-focused cryptocurrencies to align with international anti-money-laundering standards. On the Chainalysis part, while digital asset platforms find it easier to delist these coins, the Blockchain intelligence firm opted to figure out how to help them adhere to the additional risk management requirements.

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Chainalysis appears to be developing technologies to better understand the structure of privacy-focused coins and to help law enforcement authorities and other parties trace their transactions.

The subset of digital assets dubbed privacy coins, such as Monero, Zcash and Dash, are making it harder for exchanges and custodians to comply with international guidelines to prevent illicit financing.

Explaining the move, the company said in a statement announcing the newly-supported assets:

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“That’s an oversimplification, in that it misunderstands both the privacy features coins like Dash and Zcash offer and how users actually utilize those features in everyday transactions. Below, we’re going to examine how Dash and Zcash allow investigators and compliance professionals to investigate illicit activity in a way that balances users’ privacy needs with the industry’s compliance needs.”

But as things stand, crypto analytics firms such as Chainalysis are still not close to finding a comprehensive solution for tracing transactions due to its privacy features. That’s already proving to be painful for strictly regulated exchanges, with a single coin like Monero has market capitalization of about $1.2 billion, according to crypto data aggregator CoinMarketCap.

Enormous regulatory overhead

The flurry of delistings has developed recently as privacy protections led to many venues halting support in recent months, including OKEx Korea, Coinbase and U.K.-based crypto exchange CEX.io, taking into account global regulatory and compliance developments.

Chainalysis Alerts include different severity levels based on their self-calculated score for each specific vulnerability and risk factors such as category, service, direct versus indirect exposure, the direction of funds, and amount.

The New York-based firm says alerts are being generated whenever a transfer involves a risky counterparty and crosses a value threshold.

Chainalysis’ compliance software can help both crypto firms and law enforcement agencies detect suspicious activity in order to battle any related criminal activity. It uses pattern recognition, algorithms, and millions of open source references to “identify and categorize thousands of cryptocurrency services to raise live alerts on transactions involved in suspicious activity,” the company says.

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