Did you know that your cryptocurrency transactions are being tracked now unless you’re using a privacy coin like monero everything you do is being closely watched by blockchain analysis companies and even then, there’s a high likelihood that they know what you’re up to today, i’m going to explain How your crypto transactions attract, tell you about the three biggest blockchain analysis companies and what effects their constant surveillance could have on cryptocurrency in the not so distant future. Before we look at how crypto is being tracked, i need to spit out a few facts. If you’re here for financial advice, i’m afraid you won’t get any of that if you’re here for entertaining educational content, however, this video is packed so please contact a financial advisor if you’re, trying to make your wallet fat now welcome to anyone new and to those coming Back my name is guy, and the coin bureau is where it’s at: that’s, because it contains some of the highest quality, crypto content in the world, coins, tokens, news, reviews and other topics that make no coiners hurl. If this is the kind of content you crave, subscribing to the channel and pinging that notification bell is the only way, there’s only so much time in a day, which is why i’ve left timestamps below that you can use to skip around. If you don’t have time to stay, just make sure that you come back and watch the rest later.
Okay, right! That’S all you need to know about me. Let’S see how these companies are tracking cryptocurrencies, if you’re surprised to hear that cryptocurrency transactions are being tracked, you probably didn’t know that not all cryptocurrency transactions are anonymous. In fact, quite the contrary, most cryptocurrency blockchains are public, meaning anyone can analyze the transactions within each block, especially if they have the right tools. When bitcoin began back in january 2009, these tools didn’t exist, so it wasn’t all that easy to track btc transactions.
Unless you are a hardcore cypherpunk, this changed in november 2010, when the first explorer was created for the bitcoin blockchain by a bitcoin talk forum, user called themos, aka, michael marcart and funnily enough. The first reply to michael’s post is quote as a non-programmer. I like this. I can see how my transactions are not 100 anonymous in the months that followed, more elaborate, blockchain explorers were made for bitcoin, and today there are blockchain explorers for just about every cryptocurrency out there. Besides, allowing anyone to easily analyze the transactions in every block.
Today’S blockchain explorers also offer a series of simple tools. The most popular of these is probably the rich list or top holders page, which lets you see the largest holders of any given coin or token. As such, you could say that blockchain explorers are the precursor to modern, blockchain analytics companies. The only real difference is that blockchain analytics companies use much more advanced tools to track transactions and it costs money, sometimes lots of money to use these tools. If you’re wondering why these companies exist at all, the answer is regulations, institutions and institutional investors are subject to much stricter requirements and regulations than the average person, at least on paper.
They need to know where all the money is coming from and where it’s going to. This is something that can be difficult to do for cryptocurrencies. Without advanced tools. Blockchain analytics companies make institutions more comfortable with providing services to cryptocurrency companies, namely banking. They also make institutional investors more comfortable, investing in cryptocurrency, since they can know that all their investments are above board, whatever that board may be now most of these regulations come from the financial action task forces or fat f’s recommendations, and you can learn more about what They’Re recommending for cryptocurrency using the link in the top right, although every blockchain analytics company has its own unique approach to tracking cryptocurrency transactions, their methodologies are more or less the same.
It all starts with cryptocurrency exchanges. Now, if you’ve ever used a crypto exchange that requires kyc, your identity is connected to your crypto wallet, assuming you sent coins and tokens to or from the exchange of course. While this information is not necessarily known by blockchain analytics companies, they can tip off the exchange. If they see any suspicious transactions coming to or from your wallet address at this point, the exchange could flag or even freeze your account if the transaction is deemed to be related to illicit activities such as hacks or scams. Blockchain analytics companies also pay close attention to transactions going to and from wallet addresses belonging to darknet marketplaces.
There are actually many ways that blockchain analytics companies can find out, which wallet addresses belong to darknet marketplaces. One of the simpler ways is to analyze all the wallet addresses belonging to people who are known to be a part of those marketplaces and see where most of their transactions were coming from or going to. One of the more complex ways is to analyze the transaction. Behavior of one or more wallet address to determine whether they fit the profile of a person, who’s involved in shady activities. Now this relates to another thing that blockchain analytics companies watch and that’s wallet clusters.
In short, by analyzing, the transactions between certain wallets, it’s possible to figure out whether those wallets belong to the same person or multiple people and, last but not least, blockchain analytics companies track transactions coming from mixers. Now, for those unfamiliar mixers make it possible to break the link between sender and recipient on a public blockchain, it’s often assumed that mixers are mostly used by criminals, but data suggests that only eight percent of all mixed transactions are related to illicit activity. Meaning mixers are more often used to enhance privacy anyways. This crazy statistic about mixers was discovered by chainalysis, which is believed to be the largest blockchain analytics. Company analysis was founded in october 2014 by jonathan levin, michael groninger and jan muller.
Jonathan holds a master’s in economics from oxford, and chanalysis is basically his only employment. History michael holds a phd in quantum mechanics and has over a decade of experience, doing research and consulting related to his field. Michael is also the former chief operating officer of the kraken cryptocurrency exchange jan holds a masters in computer science and has over two decades of experience working as a systems. Architect, jan is also the former principal engineer at mycelium, a bitcoin wallet loved by bitcoin evangelist andreas antonopoulos, who happens to hate chain analysis i’ll, explain why later chain analysis is based in the united states and has received over 366 million dollars of funding since its inception. This money came from various venture capital firms, including a few cryptocurrency vcs according to chain analysis website, it tracks every single cryptocurrency and provides transaction analytics services for over 500 customers, primarily cryptocurrency exchanges and governments.
Now this list includes binance gemini, bitpay, bittrex, bitfinex huobi bit hum upbit tether and recently robinhood note that the full list of chain analysis clients is not known. What is known, however, is that chainalysis has worked closely with the us government for years and has apparently been the primary recipient of government contracts related to crypto transaction tracking. The most famous of these is the irs’s contract to crack monero cryptocurrency’s leading privacy coin, which was awarded to chainalysis last september. To my knowledge, it has yet to succeed. Chair analysis also employed a former official from the financial crimes and enforcement network in 2019, who eventually returned to fincen to serve as its acting director.
In april this year, chainalysis recently opened an australian office to work closely with the australian government, which is somewhat concerning, given what’s been going on there recently chanalysis was even accused of selling coinbase user data in march 2019, something which chain analysis debunked in a blog post. Now, with all that said, though, chain analysis is extremely pro crypto. For starters, it pushed back against the fat f’s cryptocurrency recommendations in 2019 in 2020, co-founder jonathan levin said that quote: full transparency is not ideal for cryptocurrency and even praised privacy coins. Jonathan also accepted peter mccormick’s invitation to get grilled on the what bitcoin did podcast and he explicitly did so to show that chain analysis is pro crypto to top it all off the company recently added btc to its balance sheet with co-founder michael groninger, mentioning that quote. We will continue to pursue other digital assets as potential future investments.
Now, if you want to know what other companies are buying btc, you can check out my video about that. Using the link in the top right, the second largest blockchain analytics company is elliptic. Now elliptic was founded in october 2013 by adam joyce, james smith and tom robinson adam holds a phd in mathematics and worked as a quant before co-founding elliptic james holds a phd in computer science from oxford, with a specialization in machine learning and natural language processing. He also worked in finance prior to co-founding. Elliptic tom holds a phd in atomic and laser physics.
Now there is a cool qualification from oxford and dabbled in finance and green energy until he co-founded elliptic elliptic is based in the united kingdom and has received over 100 million dollars in funding. Since its inception, this money came primarily from vcs and partially from a few banks, such as wells fargo. According to elliptic’s website. It tracks quote: 100 plus crypto assets representing 97 plus of all assets by trading volume and provides transaction analytic services for over 100 customers, primarily cryptocurrency exchanges and banks. This list includes coinbase, bitgo, bitcoin, swiss local bitcoins, silvergate, santander, sbi and fidelity one of the largest asset managers in the world.
The full list of elliptics clients is likewise unknown, but what is known is that elliptic provides specialized tracking services for specific cryptocurrencies, notably stella. Now this makes sense, given that stella’s goal is to integrate with and improve the existing financial system by partnering, with existing institutions in legacy finance more about stella. In the description like chain analysis, elliptic was accused of selling coinbase user data in 2019.
Elliptic co-founder james smith admitted that elliptic had been selling coinbase user data, but that it was not selling personally identifiable data. In contrast with chain analysis, elliptic seems to have a much more neutral attitude towards cryptocurrency.
It’S fine with the fat f’s overreaching recommendations, but it frequently discusses its own, dank statistics like how 77 of people don’t trust. The current financial system and fewer than 0.5 percent of all crypto transactions are related to illicit activity. Even so, elliptic is slightly off-center, so to speak, and that’s because it’s keen on helping governments keep a close eye on their central bank digital currencies. Now, if you want to know what the central banks are planning, you can find out by clicking the link up there in the top right, the third largest blockchain analytics company is ciphertrace.
Now ciphertrace was founded in september 2015 by dave, jevens, shannon holland and stephen ryan dave holds a masters in computer science and spent most of his life working in executive positions at companies he founded the most famous of these is iron key, which made super secure. Usb keys so secure that ripple’s former cto has been struggling to get his btc out of his iron key for years. Shannon holds a bachelor’s in computer science and was an early employee at apple before joining iron. Key stephen holds a bachelor’s in information systems and held executive positions at a series of high-profile companies, including visa, where he served as senior vice president stephen also worked at iron. Key ciphertrace is based in the united states and has received over 45 million dollars in funding.
Since its inception, this money came from vcs, but ciphertrace’s website suggests that most of its funding comes from the united states department of homeland security. Ciphertrace’S website also notes that it tracks over 800 cryptocurrencies across a dozen blockchains and provides transaction analytics services to over 150 customers. Primarily financial institutions, ciphertrace’s only crypto clients seem to be crypto.com, binance and galaxy digital, though the full list of their clientele is not on display. What is on display, however, is mastercard’s acquisition of ciphertrace, which took place in september.
Mastercard subsequently announced that it was preparing its payment infrastructure to support central bank digital currencies, which is surely a coincidence. Now in case you couldn’t already tell ciphertrace, isn’t exactly pro crypto. It seems to be a fan of the fat f and almost every headline. I could find about ciphertrace reeks of fud and fiat stuff. For example, in 2019 ciphertree’s co-founder dave jevens warned that criminals will turn to privacy coins in response to the fat f’s recommendations.
Ciphertrace also warned that u.s banks were unknowingly handling, billions of dollars belonging to non-compliant crypto companies in 2020, ciphertrace released a tool to facilitate freezing cryptocurrency funds and transactions on exchanges, as reported by decrypt. This tool comes with quote predictive capabilities. Ciphertrace also urged banks to be more aggressive in their search for illicit crypto transactions and even said that d5 protocols are problematic because they don’t require kyc. This seems to have caused some backlash since dave came out to defend ciphertrace in december, saying that it’s trying to defend the cryptocurrency industry not destroy it.
Earlier this year, ciphertrace partnered with chainlink to create a defy compliance tool that tracks whether transactions are coming from countries sanctioned by the united states. Ciphertrace also warned that cryptocrimes will increase, even though a report it released found that cryptocrimes had actually dropped by almost 60 percent. In 2020, ciphertrace has also been trying to crack monero for years and in an august interview, dave tacitly admitted that it hasn’t made much progress because monero is a quote moving target and is maintained by some quote extremely intelligent people. This is certainly good to know, and you can learn more about monero yep by using the link in the top right anyhow, it’s clear that not all blockchain analytics companies are created equal and i’ll reiterate that the ones i discussed today are just three of many. The real question is what effect they will have on cryptocurrency and i think that’s best understood by comparing the consequential pros and cons of these kinds of companies.
So, let’s start with the pros now, as i mentioned earlier, blockchain analytics companies were created to meet the demand for regulatory compliance coming from institutions and institutional investors who are interested in cryptocurrency. Thanks to the transaction tracking tools provided by blockchain analytics companies, it’s made these parties comfortable enough to port trillions of dollars into the crypto market without blockchain analytics companies, it’s possible that we wouldn’t even be in a bull market, because i reckon regular retail investors like you And me don’t have trillions of dollars sitting around between us. It would also be much more difficult to buy crypto and cash out of it, since banks wouldn’t be comfortable working with cryptocurrency exchanges. Another pro is that blockchain analytics companies have been actively pushing for pro crypto regulation and the cross-pollination of personnel between public and private sector compliance departments has certainly helped as part of this mission. Blockchain analytics companies have created hundreds of amazing reports, most of which are public.
These reports have gone a long way towards informing individuals and institutions alike as to what the crypto market is really like. My favorite finding comes from chanalysis and that’s that 85 of the crypto sent to exchanges comes from just four percent of crypto traders. More importantly, these reports made it possible to prove that cryptocurrency is by and large compliant and only a sliver of cryptocurrency transactions are related to illicit activity, and this ties into the final benefit of blockchain analytics companies and that’s that the tools they’ve developed have helped authorities Catch some seriously evil people and lock them up for life, and the founders of all the companies i mentioned today are genuinely passionate about the rule of law. The thing is that not all laws are just – and this brings me to the cons of blockchain analytics companies, as i mentioned earlier – bitcoin evangelist, andreas antonopoulos, hates these companies and that’s because they’re happy to work with any government so long as the price is right. Now it’s easy to forget that not every country is as benevolent as the western ones.
Many of us live in and there’s no guarantee that our countries will remain that way indefinitely either. Put simply the tools provided by these companies are ultimately like weapons. They can be used for good or evil and they’re going to become more powerful as cryptocurrency adoption continues. A misuse of these tools could lead to a level of totalitarianism. We have never seen before now.
Some would say that a line has already been crossed in this direction because of the erosion of privacy, these transaction tracking tools create for cryptocurrency holders. If you watch my video about the worst case for cryptocurrency you’ll know that privacy is required for financial freedom. This is because, even though cryptocurrency transactions aren’t controlled by a centralized authority, you could still be punished for making a transaction a centralized authority doesn’t like if it can track it. The biggest con with blockchain analytics companies is that it’s not clear who sets the standard for what counts as a suspicious or undesirable transaction, and what crypto holders should or should not do with their coins and tokens. In theory, these companies simply tailor their tools to their customers needs in practice.
However, we could see something very different emerge, especially when it comes to stuff like esg. It’S also not clear if there are time limits to these risk assessments. If you bought something from a dark net marketplace a decade ago, will your wallet address forever be seen as suspicious? Will the btc or eth you used for that purchase be forever tainted? Crypto holders need to know the answers to these questions, and i reckon they also have the right to know exactly how these blockchain tracking companies work and who they are working with.
This degree of transparency is only fair after all, isn’t that what the blockchain is all about? Well, that’s it for my video about blockchain analytics companies folks, but now i want to hear from you. So how do you feel about these companies drop me a comment down below now, if you enjoyed the video hit that, like button to, let me know, remember to subscribe to the channel and ping that notification bell before you go if you’ve already watched all the videos Here, on coin bureau, head on over to coin bureau, eclipse to get the rest of the show, you can also follow me on twitter, tik, tok and instagram, and get all the daily crypto updates. You need on telegram. I also send out a newsletter once a week which comes packed with the crypto wisdom.
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