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Major cryptocurrency exchange Binance has partnered with Chainalysis to fight the problem of money laundering. A press release published today stated that Chainalysis has finished a “global roll-out” of its software on the exchange, which will help Binance comply with anti-money laundering (AML) regulations.

Binance already complies with AML regulations to some extent by collecting identity documents from users (KYC), but this is not a foolproof way to detect money laundering, and Binance has not been enthusiastic about subjecting its customers to these regulations.

Chainalysis provides an alternative way to discover criminal activity. It investigates blockchain transactions analytically in order to identify users and detect suspicious behavior. After receiving $16 million in funding in April, the company released its “Know-Your-Transaction” (KYT) software:

“The software uses pattern recognition, proprietary 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.”

Prior to this, the company’s software mainly analyzed existing transactions: the IRS, for example, used Chainalysis to identify tax evaders by delving into four-year-old records.

The advent of Chainalysis’ real-time software has allowed the company to expand, and it now serves more than 150 customers in the areas of cryptocurrency, finance, and government.

Suggested Reading Learn how to transfer Bitcoin from Coinbase to Binance.

What Does This Mean For Users?

Although many privacy-concerned users are turning away from exchanges that demand their identity, Chainalysis’ KYT software could reduce user privacy even in exchanges that do not use KYC. Binance’s upcoming decentralized exchange could conceivably be watched over by Chainalysis’ KYT software, for example.

It is not clear how consistently Chainalysis succeeds at extrapolating private information from the public ledger, but as the Bitcoin network grows, the task becomes easier due to an abundance of interconnected information. For this reason, privacy advocates have urged users to use coin mixers ever since the early days of Bitcoin. Privacy coins like Monero provide another way to stay truly anonymous.

On the other side of the debate, some see regulatory compliance as an important step toward the mainstream adoption of cryptocurrency. The co-founder of Chainalysis, Jonathan Levin, notes that all crypto companies “face the same core challenge: earning the trust of regulators, financial institutions and users.” As the leading crypto exchange, Binance undeniably has succeeded in achieving mass appeal, even if it does sacrifice the tenet of privacy.

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