Chainalysis Raises $16 Million for Real-Time Crypto Compliance

Blockchain startup Chainalysis has today announced a new real-time cryptocurrency compliance tool and a $16 million Series A investment from Benchmark Capital.

Founded in 2014, Chainalysis provides cryptocurrency exchanges, international law enforcement agencies, and other clients with bitcoin transaction analysis software to help them comply with regulations, assess risk and identify illicit activity. Notably, the company helped investigate the Mt. Gox bankruptcy case.

“What we decided when we founded Chainalysis was that we need to solve how we can make the new world of finance work together with the old world of finance. Basically, how can we bridge the gap between banks and bitcoins?” Co-founder Michael Gronager, previously the chief operating officer of Kraken, told CoinDesk in an interview. 

More specifically, co-founder Jonathan Levin explained, that the firm builds a data set that links “real-world activity to cryptocurrency transactions so that we can uncover the underlying real-world purpose of the transaction.”

Until now, Chainalysis’ software has only allowed customers to analyze transactions retroactively. Its new tool, dubbed Chainalysis KYT (for “know your transaction”), provides transaction analysis in real time.

This gives exchanges, for example, the capacity to instantly know if they are dealing with a trusted financial institution or with suspicious entities, Levin said. Exchanges can then use this knowledge to inform how they treat deposits and withdrawals on their platform, he added.

Levin claimed that the rapid expansion of the cryptocurrency industry has made this software a necessity:

“When we started the business, exchanges were much smaller. They could use manual reviews and have the types of rules in place that allowed them to be compliant. Today, they’re onboarding the same amount of customers on a weekly or monthly basis. So now there are millions of customers who need automation tools to trigger reviews and to do investigations, and you need to have these investigations not take half an hour to 45 minutes. It needs to be right up front.”

The company has trialed the product with several existing unnamed customers, Levin said, adding that they’ve seen a “20-times improvement” in the speed of investigations.

And there’s more

Chainalysis’ software previously only supported the bitcoin blockchain, but the company announced on Thursday that it is rolling out bitcoin cash-compatible tools for its law enforcement and government clients. Furthermore, Gronager and Levin said the company will aim to support 10 cryptocurrencies by the end of 2018.

To fund this expansion, the company will tap some of the $16 million garnered from its funding round with Benchmark Capital. However, the funding isn’t the only thing Chainalysis has acquired from Benchmark, which has been investing in the industry since 2014.

The company also snagged Sarah Tavel, a general partner at the firm who was previously a product manager at Pinterest, for its board.

“Chainalysis is really an enabling technology that you need to participate in this ecosystem,” Tavel told CoinDesk.

The company’s appeal, she said, comes from its founders’ early recognition of the need to address compliance obstacles in order for the ecosystem to grow.

In her new capacity as a board member, Tavel said she hopes to use her experience at Pinterest to help the company scale.

“I think a lot of what I bring to the table is just the experience of having scaled through hyper growth and helping them, as much as possible, look around corners,” she explained.

Levin and Gronager don’t expect Chainalysis’ rapid growth period to stop anytime soon – but just not because governments and law enforcement agencies are becoming increasingly interested in the industry.

“We’ve seen just massive interest from the cryptocurrency market,” Levin said, adding:

“Actually, despite market conditions, that part of our business is growing stronger than anything else. It’s been exploding. We’ve got triple the number of customers in that segment than we had last year, and that growth is actually just accelerating.”

Magnifying glass image via Shutterstock

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