Unfold The Tale Of Blockchain Analysis Software

Blockchain is pushing the envelope of financial technologies by making transactions possible without the need for a centralized authority (read banks and financial institutions). This promotes better accountability, decentralization of currency and transparent transactions among users. However, a blockchain ecosystem tends to be very complex. Hence, specialized tools are required to allow individuals, law enforcement agencies and businesses to explore, visualize and understand it.

That's where Blockchain Analysis Software steps in! This tool enables users to analyze the working of any blockchain system and gain deeper insights about the different actors using the network. If your business owns crypto or deals with any of the hundred digital resources that run on blockchain, you need this tool in your arsenal - trust us!

In this blog we outline all you need to know about Blockchain Analysis Software - so let's analyze, shall we?

What The Heck Is Blockchain Anyway?

Here’s a quick recap of blockchain technology – it is a digital ledger that records transactions (made in cryptocurrencies or other digital assets) and maintains them across several computers linked in a network. This immutable ledger preserves a secure record of transactions, so no one can erase or change the data as they did with the “minority reports!” With us so far?

Moving on, blockchain analysis is the practice of analyzing, categorizing and monitoring blockchain wallets and their transactions. It allows cryptocurrency exchanges to understand the activities of its users and helps them be compliant to prevent the usage of unlawful funds on the blockchain.

Naturally, the need for analyzing blockchain data arose after the proliferation of blockchain technologies – read on to understand how and why blockchain analysis emerged.

How Did Blockchain Analysis Software Evolve?

In 2011, a digital black-market platform called Silk Road was created for money laundering and illegal drug transactions. It traded exclusively in Bitcoin, so users could remain anonymous. However, in August 2013, the FBI finally tracked down the creator of Silk Road and shut down the website.

Behind the scenes, an FBI special agent had to track 3,760 Bitcoin transactions and more than 700,000 individual Bitcoins on the blockchain for over a year to narrow it down to one wallet owned by Dread Pirate Roberts - AKA the creator of the Silk Road website. This was the first time someone had analyzed blockchain data. (Can someone please make a movie about this starring Tom Cruise!)

Ahem, soon, people started realizing the need for blockchain analysis tools. Moreover, as cybercrime and money laundering through cryptocurrencies increased, investigators demanded better analytics software to analyze data and extract information about wallet addresses, transaction amounts, user identities, etc. Therefore, blockchain analytics tools were developed for transaction analysis and fund tracing. These tools helped blockchain companies prepare customer intelligence reports, estimate the total revenue being traded each day and stay compliant with the latest blockchain regulations.

Furthermore, as the number of cryptocurrency accounts being hacked increased, so did the demand for such solutions. Hence, between 2013 and 2017, several Blockchain Analytics Software were developed, providing businesses with blockchain analysis services.

With that out of the way, let’s see how Blockchain Analysis Software actually works!
 

How Does Blockchain Analysis Software Work?

The fundamental idea behind using Blockchain Analysis Software is to analyze blockchain data and correlate wallet addresses with real-world identities to provide extensive insights into transaction activity. Don’t worry, it’s not as complex as the crime prediction software shown in Minority Report!
Most Blockchain Analysis Software include three main modules –
 

• Address Classification Tools

  One of the software's primary applications is to link blockchain wallet addresses with real-world identities using the KYC (Know Your Customer) or registration details on the blockchain platform.

• Transaction Monitoring And Risk Analysis Tools

  The software also monitors every transaction on the blockchain to identify factors such as the transaction amount, the origin of funds, money flow history of sender/recipient wallets, etc.

• Investigative Tools

  These tools provide visualization capabilities to help understand the association among transactions and blockchain addresses through graphical interfaces. (Pretty much like the PreCrime program!)

With these powers combined, Blockchain Analysis Software lets you make sense of blockchain data. How does that help, you ask?

Read on!

Here’s Why Businesses Need Blockchain Analysis Software!

Well, there are two main benefits of using a Blockchain Analysis Software -
 

• Ensuring Compliance

  Blockchain Analysis Software helps enforce blockchain compliance through risk mitigation and monitoring strategies. For example, crypto exchanges do not want criminals to use its services to launder money or utilize cryptocurrency for illegal purposes like sponsoring terrorist organizations. Hence, every transaction needs to pass regulatory obligations to ensure compliance standards.

• Conducting Surveillance And Cyber-Investigations

  Blockchain surveillance and investigations into cryptocurrency fraud rely heavily on Blockchain Analysis Software. The software uses the KYC (Know Your Customer) registration details to enable law enforcement agencies to track blockchain transactions and identify the offenders' addresses quickly.

Well, wouldn’t it be handy to have the Precogs from Minority Report predict such offenses before they occur! While we cannot really predict the future, we can confidently say that Blockchain Analysis Software has a bright future – read on to understand why.
 

What’s The Future Of Blockchain Analysis Software?

One of the best things about Minority Report is its depiction of the future; in 2054 there would be retinal scanners, personalized advertisement and (we’re sure) blockchain-based transactions!


Today’s blockchain analysis tools have two main drawbacks; the inability to analyze the large volume of data and identifying users with multiple wallet addresses. However, as the blockchain industry grows and becomes more prevalent in day-to-day financial transactions, the methods of blockchain analytics will also become increasingly sophisticated.

Moreover, Blockchain Analysis Software will become crucial to cryptocurrency exchanges and businesses as part of their AML (Anti-Money Laundering) initiatives. We’re sure the adoption of this tool will continue to increase as global regulatory laws adapt to the crypto and blockchain revolution! 
 

Conclusion

Blockchain networks, cryptocurrency exchanges, user wallets and transactions are all susceptible to hackers and cyberattacks. This is where a Blockchain Analysis Software steps in - by continually monitoring transactions and addresses across a blockchain protocol, the tool enables organizations to analyze the inflow and outflow of blockchain assets. This is critical in the detection of suspicious behavior and to track the transfer of funds with transparency and traceability.

Whether your business holds cryptocurrencies, allows payments in Bitcoin or markets blockchain-based digital assets, a Blockchain Analysis Software will help you stay compliant and informed about all that’s happening around you.