Cryptocurrency exchange Binance is partnering with Chainalysis to release a system detecting suspicious trade activity, according to a press release earlier this week.
The Chainalysis Know Your Transaction (KYT) software uses pattern recognition, algorithms and sampling to raise live alerts on dubious trades and transfers.
The move is an attempt to appease financial regulators outside the crypto ecosystem. But as the world’s most popular exchange eyes foreign expansion, its security standards must comply with high international expectations.
The software upgrade targets money laundering and other fraudulent activity — issues that have plagued cryptocurrency exchanges in the past.
“By working with Chainalysis, we are able to continue building a foundational compliance program that enables the next phase of our growth,” Binance CFO Wei Zhou said in the October 17th press release.
“Our vision is to provide the infrastructure for a blockchain ecosystem and increase the freedom of money globally, while adhering to regulatory mandates in the countries we serve.”
Binance is a community giant, and offers wallet, educational and research services alongside its own Binance Coin (BNB). The platform is able to process 1.4 million orders a second, making it Chainalysis’ biggest client yet.
Good Cop, Bad Cop
Chainalysis is the world leader in cryptocurrency compliance services and security solutions. Its mission is “to build trust in blockchains between people, businesses and governments” according to the company’s website.
In a company profile by ComputerWeekly.com, reporter Warwick Ashford compared Chainalysis to an industry-wide police force.
“As Chainalysis software becomes more widely deployed, the number of jurisdictions in which cyber criminals can use bitcoins with impunity will be very limited.”
But to many in the crypto community, Chainalysis is an unwelcome incursion on privacy.
In a recent article BitNewsBot.com reported that Binance had “caught the regulatory jitters,” adding that “it seems like the compliance bug has finally bitten Binance.”
TheNextWeb writer David Canellis didn’t pull any punches either. He wrote that “[Binance] is looking to appease government regulators worldwide with some fancy new tech.”
Fancy tech aside, the partnership with Chainlalyst shows Binance is committed to customer protection. But will that cost customers their privacy?
Binance On Fire and Under Fire
The Chainalysis press release comes a day after Binance’s fifth token burn in which roughly $17 million worth of BNB were destroyed. In response, BNB price dropped more than 2%.
This caught the attention of Twitter user BambouClub, who also said Binance trading fees have almost doubled since July.
— BambouClub (@BambouClub) October 16, 2018
While token burning should increase the long-term value of remaining BNB, prices are continuing a three-month long descent. According to Bitcoinist.com, Binance has reported a decline exceeding 20%.
Even as profits fall, Binance continues to search for opportunities overseas. The exchange launched a fiat to cryptocurrency service in Uganda recently and has hinted at plans for a decentralised exchange.
Binance is gaining mainstream regulatory acceptance with the KYT detection software. While while growth is slowing, the exchange giant shows no sign of stopping.
As Q3 earning report analysis starts coming in, check back with Bitcoin Australia to read our thoughts on Binance.
Liz is a Canadian journalist and writer for Bitcoin Australia. Connect with her on Twitter @Elizabeth_Utley, or on Linkedin as Elizabeth Utley.