Chainalysis offers a service that provides financial institutions with the means to obtain regulatory compliance through real-time analysis of the blockchain. Based in Switzerland and headed by ex-Kraken COO Michael Grønager and former Mycelium engineer Jan Møller, the company provides an API for sophisticated in-depth real-time blockchain transaction analysis.
Chainalysis customers – including regulatory entities, law enforcement and financial service providers – are empowered with unique insight on all transactions recorded in the Bitcoin blockchain and tools to determine the origin of the bitcoin held by any address.
Bitcoin transactions are not anonymous. Every transaction and the full transaction history of any Bitcoin address are permanently recorded in the tamper-proof public blockchain and open to analysis. The illusion of anonymity stems from the pseudonymous nature of Bitcoin addresses, which are not explicitly associated to their owners.
But blockchain analysis can often de-anonymize bitcoin users. For example, if a pseudonymous Bitcoin address often sends funds to another address that can be associated to a person (for example a Circle user), it is highly probable that the two persons are one and the same, or closely related.
Recommended privacy practices, from simple measures such as using fresh Bitcoin addresses for new transactions to strong privacy measures such as dark wallets and mixing services, reduce the risk of being de-anonymized. But the fact that all bitcoin transactions are recorded in the blockchain implies that even one mistake can de-anonymize a user, and especially so when sophisticated blockchain analysis tools are available. In particular, the end-point where bitcoin is exchanged for cash, goods or services is vulnerable.
A few weeks ago, Chainalysis was forced to defend itself after allegations it had disrupted services with a “Sybil attack” that created more than 250 “false” Bitcoin nodes to harvest information on the whereabouts of transactions, which provoked strong and often angered reactions by the Bitcoin community. Grønager told CoinDesk that Chainalysis permits monitoring compliance with applicable money transfer regulations, and therefore helps Bitcoin companies to obtain bank accounts and do business with mainstream financial institutions.
It is evident that Bitcoin is moving toward mainstreaming and regulations, and therefore services such Chainalysis are here to stay, but such services likely will continue to meet opposition from an important part of the Bitcoin community. A leaked Chainalysis roadmap, now trending on Reddit, has been received with anger and hostile comments.
The leaked roadmap sheds light on the current and forthcoming features of the Chainalysis API. For example, Chainalysis customers will soon be able to “search by transaction hash, cluster name, category etc. [which] will allow for faster investigations via known clusters of interest but also for the API to answer specific questions about transactions or entities of interest.” Soon after that, the API will support unconfirmed transactions as well as “Shared multi client repositories for known bad actor reporting,” and an “Advanced Profiling API” is in the works. The roadmap also details Chainalysis pricing plans – for example, Institutional clients will pay $500 per month for a set of features including unlimited investigations, shared fraud databases and full API access.
Many participants in the Reddit discussion are expressing support for strong privacy tools, such as Dark Wallet and the Lightning Network, which may offer better protection against Chainalysis snooping.