Due to the anonymity that virtual currencies offer, a market has emerged for forensic services that uncover who is using these digital coins. One of the companies offering this kind of blockchain forensics service is Chainanalysis, which was co-founded by Jonathan Levin, the current chief operating officer of the company.
Initially Chainanalysis would monitor cryptocurrency transactions at the behest of the United States government investigators on the hunt for money launderers, fraudsters and other shadowy types. Now the blockchain forensics firm has expanded its client base and counts financial institutions as its customers.
Series A fundraising round
Recently Chainanalysis announced that it had raised approximately $16 million in a Series A round which was led by Benchmark, a venture capital firm that was an early investor in the likes of Uber and eBay and which has been following digital currencies since 2014. Four years ago Benchmark made an investment in Xapo, a Bitcoin storage startup. Benchmark also participated in co-launching a Bitcoin investment fund.
In its early years the Chainanalysis software was a reactive program which was largely reliant on human beings to make the connections between the various Bitcoin accounts. This could then be used to follow the money in a bid to uncover criminals who were making the digital currency transactions. However progress has been made and now it is mostly automated and can make decisions regarding the risk that individual Bitcoin accounts pose by analyzing their history of transactions. This way businesses which are dealing in digital coins are in a position of telling that the users they are transacting with are legitimate or are crooks or money launderers.
Know Your Transaction
One of the new features of Chainanalysis is a Know Your Transaction product and it is used in screening suspicious activity in digital wallets in real-time. Thus someone who is receiving funds can decide on the fly whether to accept to process or decline to process the transaction in real-time.
The software that Chainanalysis has developed has been used by major law enforcement agencies across the globe. This includes the Dutch police who disclosed last month that they used the software of the blockchain forensics firm to track down Hansa, one of the largest dark web narcotics marketplaces in the world. Chainanalysis? software was also instrumental in assisting Mt. Gox?s creditors track down coins numbering 650,000 which went missing in 2014.
Other blockchain forensics companies
Besides Chainanalysis there are other blockchain forensics and monitoring firms and they are promising to guarantee trust in virtual currencies such as Bitcoin (BTC) by monitoring the various blockchain networks that exist.
Chainanalysis? biggest rival is Elliptic which raised approximately $5 million two years ago in a Series A round. Last year Elliptic also raised another round but did not disclose how much was netted. Among the participants in that round were SignalFire, a venture capital firm based in San Francisco, California.
Due to an anticipated demand for its services from law enforcement agencies such as the Drugs Enforcement Agency and the FBI, Elliptic intends to increase the number of its employees from 25 to 50 this year.
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