Hearing the buzzword ‘blockchain analytics’ again, you would be forgiven for thinking of it as a passing fad. Nevertheless, it is not just an obsession of our times. Blockchain analytics is already helping organizations and teams of all sizes to better understand publicly available data, make informed financial decisions, and limit their exposure to potential security risks in Web3.
In our latest addition to the DeFi 101 series, we look at the value of blockchain analytics and the promising range of applications that this branch of data science offers. Real-time visibility of fund flow history and transaction patterns is leveling the playing field among investors and generating new ways of tracking irregular activity. Much is still in store.
Analyze and react
Although frequently approached with the “Do we really need this?” attitude, blockchain analytics has a way of eventually winning over the hearts and minds of senior management. After all, although everyone can look at the publicly available blockchain data — it’s the accurate interpretation of that data that makes all the difference to informed decision-making. With blockchain analytics, organizations can tap those rich veins of insight hidden in public data.
Blockchain analytics can be difficult to define succinctly. That is because it is an umbrella term for various processes that include identifying, inspecting, classifying, clustering, modeling, and visually representing blockchain transaction data. Nevertheless, to put it in plain language, blockchain analytics is a data-driven way to glimpse into the past, explain what’s happening in the present, and anticipate the future. Real-time tracking of blockchain transactions is widely used for trend analysis, market analysis, and investigations of all kinds. With blockchain analytics, organizations can cut through the noise, discover ROI-generating opportunities, and even anticipate security risks.
Blockchain analysis allows researchers to uncover the source of the data, identify its original owners, and explore how the data has been amended over time. The ability to spot irregularities and links to dark web activities in real time has enormous value to law enforcement and everyone with an incentive to stop crypto-funded crime. Blockchain analytics is also a fundamental pillar of AML, CFT, and KYC initiatives and the first line of defense within next-generation compliance frameworks. Without automated due diligence systems, a legal and fair crypto environment could not flourish.
On the individual level, blockchain analytics also has enormous potential to level the playing field. Even retail investors with access to commercial blockchain analytics tools can now cut through the noise and follow the “smart money”. Transparency and visibility can prove to be empowering, getting us closer to the goal of complete decentralization and mutual prosperity.
Modern Risk Management
Additionally, extensive monitoring of crypto asset transactions is an essential component of every company’s risk management strategy. Real-time screening of potential security risks, together with automated alerts, go a long way to ensure that crypto businesses stay safe. It also helps to ensure transparency and trust among stakeholders. By detecting suspicious transactions and distancing themselves from fraudulent and illicit activity, organizations can remain compliant and minimize the risk of associating with financial crime. Without such automated solutions, organizations risk enormous reputational damage and serious regulatory ramifications from aiding and abetting illicit activity.
As financial institutions compete to provide crypto-based products, there’s now enormous pressure to hold them to the same regulatory standards as fiat-based products and financial services. Teams of Cryptocurrency Intelligence Analysts (CIAs) — together with data scientists — are designing machine learning and pattern recognition systems to look through publicly available transactions and identify new behavioral patterns with potential links to illicit activity. By creating ‘heuristics’ that cluster transaction and wallet data with similar typologies, new connections are made that link pseudonymous transactions together. Additionally, all transactions linked to known illicit activity or matching certain signifiers linked to suspicious behavior are immediately flagged or assigned risk scores.
For companies that do not need an in-house solution of this type, some commercial tools might be a better fit to ensure their project security and compliance. For Web3 projects looking for that extra layer of security, Lossless has designed an always-on threat monitoring system with firewall-like capabilities. Aegis is our flagship Web3 security product that utilizes predictive analytics to identify suspicious smart contract interactions, anticipate threats, and prevent exploits before they happen.
Our flexible product design covers all smart contract types and comes with a dedicated API and an intuitive dashboard to monitor all interactions. Aegis provides zero-configuration threat monitoring capabilities and real-time alerts without integration. More advanced firewall-like protection and blacklisting features for smart contracts are enabled with on-chain and off-chain integrations.
About Lossless
Restoring trust in web3 security. Lossless incorporates a new layer of blockchain transaction security, protecting projects and their communities from malicious exploits and the associated financial loss.
Lossless protocol implements an additional layer of blockchain transaction security for ERC-20 standard tokens, mitigating the financial impact of smart contract exploits and private key theft. Lossless protocol utilizes community-driven threat identification tools and a unique stake-based reporting system to identify suspicious transactions, providing real-time protection.
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