Blockchain data analysis company Chainalysis has announced the accelerated launch of two major “sanction check” tools that it will provide free of charge to the cryptocurrency industry.
According to a report shared by Chainalysis on March 10, the verification tools include two main components of new tracking software that will help exchanges check wallets and transactions for activities that appear to circumvent economic sanctions. The first tool that is immediately available is the on-chain oracle.
An on-chain oracle is a smart contract designed more specifically for DeFi (decentralized finance) projects. It checks if the cryptocurrency wallet address has been included in the sanctions list. This means that all wallets included in the lists of economic sanctions provided by the US, EU and UN will be automatically available to anyone who runs the oracle.
The second tool, scheduled for release next month, is an Application Programming Interface (API). The API uses the same data as the web oracle to check if a wallet is on any sanctions list, however it is intended to be used in a much wider range of applications, including centralized cryptocurrency exchanges and mobile user interfaces.
Speaking about the importance of transparency in cryptocurrencies, Chainalysis co-founder and CEO Michael Gronager said in a statement:
“The time has come for the industry to demonstrate that the inherent transparency of blockchains makes cryptocurrencies a powerful deterrent to sanctions evasion.”
He added that Chainalysis has accelerated the development of its screening tools and will provide them for free to anyone working in the cryptocurrency industry.
“In anticipation of ongoing sanctions, we are prioritizing the development of these tools to ensure that all crypto market participants have what they need to take advantage of this transparency and conduct basic sanctions checks for free.”
Related: BNY Mellon Partners with Chainalysis to Track Users’ Cryptocurrency Transactions
Chainalysis continues to say that it will focus more on monitoring and verifying transactions in the growing DeFi sector.
“Many of the decentralized protocols and platforms that have grown in popularity recently do not include tools to effectively manage sanctions risk.”
Currently, users of DeFi platforms can operate with more anonymity than centralized exchanges, which tend to have stricter identity verification protocols such as KYC.
U.S. cryptocurrency platform Coinbase has also backed the idea that the inherent transparency and public nature of cryptocurrencies can indeed help governments enforce sanctions.
Where traditional fiat currencies allow attackers to use shell companies, tax havens and opaque ownership structures to “hide the movement of funds,” crypto assets are largely public and traceable, helping authorities “detect and prevent evasion,” the head of Coinbase said. Legal Counsel Paul Grewal on his blog earlier this week.