Surveillance Firm Chainalysis Adds Bitcoin To Balance Sheet

Blockchain tracing platform Chainalysis announced today the execution of a bitcoin purchase through NYDIG for the firm’s balance sheet, marking an advancement of a long-standing partnership between the two companies. Despite the bullish purchase, Chainalysis is still a surveillance company acting in self-interests and against the Bitcoin ethos.

“Our expanding partnership with Chainalysis is a mutually beneficial relationship,” said Nate Conrad, NYDIG’s Head of Asset Management, in the announcement. “We are happy that they trusted our platform to safeguard their assets.”

NYDIG is a services provider for institutional investors seeking bitcoin exposure. The firm specializes in trading, execution, and custody of BTC, and has enabled Chainalysis to acquire an undisclosed amount of bitcoin for its balance sheet.

“We are thrilled to be adding Bitcoin to our corporate investment portfolio,” said Michael Gronager, co-founder and CEO at Chainalysis, per the announcement. “Our longstanding relationship with NYDIG enabled us to invest with confidence, knowing we were dealing with an industry leader.”

Chainalysis moves forward with this purchase, however the company doesn’t align very well to the true Bitcoin ethos as its business model is based on surveillance, allowing its customers to obtain information on bitcoin transactions for discrimination purposes.

Bitcoin was created to allow nearly anyone to transact money freely without needing to trust the other party. Its permissionless and decentralized monetary network empowered by proof-of-work (PoW) is a great humanitarian tool as it enables sovereignty and freedom for people facing restrictions or discrimination from the traditional financial system.

Gronager’s belief that “with any financial transaction, a level of trust and transparency is necessary” highlights how Chainalysis tries to undermine what Bitcoin was built to achieve  a trustless financial system built on open source code.

But Bitcoin is able to shine brighter when challenged, thanks to the antifragility conferred upon it by its peer-to-peer network and the PoW system.


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Bitcoin Exchange Bybit To Require Stricter KYC, Including Facial Recognition

Bitcoin derivatives exchange Bybit will require stricter KYC verification for users who wish to withdraw more than 2 BTC per day.

Bitcoin derivatives exchange Bybit will require stricter know your customer (KYC) procedures for individuals and corporations who wish to withdraw more than 2 BTC on a given day, including facial recognition screening.

“We have had KYC procedures on certain selected group of customers since last year,” a Bybit spokesperson reportedly said. “The new policy is to implement the procedures in a more systematic way, as part of our efforts to align our KYC procedures with the industry standard.”

Bybit’s new directives for individuals were recently posted on its website. The article details the three levels of KYC verification that users need to choose from. The first, “KYC 0,” does not require any verification but caps daily withdrawals to 2 BTC. Those who wish to take control of more bitcoin, up to 50 BTC, would have to move to “KYC 1,” which requires photos of a national identification document, full name, date of birth, and facial recognition screening. Lastly, users who wish to withdraw up to 100 BTC daily will also need to provide proof of residential address.

The bitcoin exchange also updated its requirements for corporate withdrawals. Company accounts only have two levels of KYC; KYC 0, which is the same as the individual account, and KYC 1, which allows up to 100 BTC to be withdrawn per day. The latter requires the company representative to provide many documents to share corporate information, and to prove the company’s legal condition. The requirements include a register of all members and directors, as well as a passport/ID and proof of residency of the ultimate beneficial owner (UBO) that owns more than 25% of the company.

KYC requirements, allegedly a way to prevent bad actors from leveraging bitcoin to commit financial crimes, have been increasingly spreading within the Bitcoin space. Besides its doubtful goals –– which are advertised as positive –– KYC procedures introduce a set of attack vectors and third-party vulnerabilities to the consumer, while being based on flawed assumptions that bitcoin is mainly used for criminal activities.

As Michele Korver recently shared in a Department of Justice journal, “…as mainstream adoption of cryptocurrency has grown, the percentage of transactions used to promote or conceal crime has also decreased.”

Furthermore, companies asking for their customers’ private information do not necessarily have the technical infrastructure necessary to preserve the data’s integrity. More often than not, these companies get hacked and the data exposed. That leaves the customer with their hands tied, and they often become a target for a range of attacks, from sophisticated scams to more.

Additionally, companies can leverage KYC details to censor users and prevent them from accessing certain services. Users might have their financial sovereignty compromised, effectively experiencing the opposite of what Bitcoin is set to achieve –– a monetary network that does not discriminate, does not wield violence, and does not require a special status or level of wealth to use. And in the end, all that these stricter requirements might tangibly achieve is reducing Bybit’s liquidity and user base.


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OFAC Requests Chainalysis Subscription For Bitcoin Blockchain Surveillance

The U.S. Office of Foreign Assets Control wants a renewed subscription to Chainalysis blockchain surveillance tools for monitoring Bitcoin.

The Office of Foreign Assets Control (OFAC), a financial intelligence and enforcement agency within the U.S. Treasury Department, has requested a second subscription to license, training and support packages from blockchain analysis firm Chainalysis, according to a public contract notice.

“OFAC requires a commercial online blockchain tracing web-based application tool to equip investigators in its Office of Global Targeting (OGT) to analyze and track virtual currency transactions e.g. Bitcoin, in order to gather attribution information on involved parties that OGT may put on the [Specially Designated Nationals] List,” the notice reads. “This tool would specifically support cyber sanctions implementation undertaken by OFAC.”

OFAC made a similar request on May 4, 2021. The Specially Designated Nationals (SDN) List includes parties that are sanctioned from conducting financial transactions by the U.S. due to money laundering or terrorist financing concerns.

While Bitcoin can facilitate pseudonymous financial transactions, every transaction is recorded on a public and immutable digital ledger. This allows blockchain analysis firms such as Chainalysis to determine details about Bitcoin transactions, sometimes including the real-world identities behind them.

There are some privacy layers that Bitcoin users employ to better obscure these transactions, such as coin mixing and CoinJoin. But it appears this latest subscription request is specifically targeting coin mixing services like Wasabi Wallet.

“This license also includes Wasabi Demixing services at no additional cost to OFAC, and with no limits to the number of requests,” per the notice. “Chainalysis meets OFAC’s requirements by effectively providing the following capabilities: Address clustering; Transaction flow mapping and graphing; Wallet explorer; Analysis of user behavior, exchange rate, trade, and market data.”


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US sanctions agency OFAC to rely more heavily on Chainalysis

The U.S. Office of Foreign Assets Control has requested another subscription to Chainalysis analytics software in order to step up its blockchain transaction surveillance efforts.

In a public notice sent out on May 26, the agency confirmed its intention to subscribe to Chainalysis’s Rumker Training and Support Packages for what it deems as “mission-critical research”, further expanding its arsenal of surveillance tools.

This week’s public notice marks the second such request that the agency has made this month, having made a prior request for Chainalysis blockchain surveillance tools on May 4.

The latest notice stated the Department of Treasury’s Office of Foreign Assets Control requires a commercial online blockchain tracing web-based application tool to equip investigators in its Office of Global Targeting (OGT).

OFAC is a financial intelligence and enforcement agency of the U.S. Treasury Department that administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives.

The primary purpose of the software acquisition is for the U.S. government and foreign partners to collaborate in investigations into money laundering and terrorist financing.

The software would be used to analyze and track virtual currency transactions to harvest information on involved parties that OGT may put on the “Specially Designated Nationals And Blocked Persons List” (SDN) list.

The Chainalysis Rumker software suite includes Observations and Nodes, which help locate where server nodes are running. It also comes with Wasabi Demixing tools which allow the agency to access cryptographic information on previously obfuscated transactions. The notice stated:

“Chainalysis meets OFAC’s requirements by effectively providing the following capabilities: address clustering, transaction flow mapping and graphing, wallet explorer, analysis of user behavior, exchange rate, trade, and market data,”

A report by blockchain analysis firm Elliptic on May 27 has revealed that financial criminals have stepped up their efforts to circumvent state tracking by using mixing services, which let users mix their coins with others in a pool of funds to add a layer of anonymity to transactions.

Other methods include the use of privacy coins such as Monero and privacy wallets, in addition to using unregulated exchanges to avoid know-your-customer requirements.

In March, U.S. crypto exchange Coinbase reported that a number of its transactions were under review by the OFAC for potential violations of U.S. sanctions laws. There were no apparent violations at the time, it added.

In February, Cointelegraph reported that BitPay faced a half a million dollar fine from the OFAC for providing crypto services to sanctioned regions.


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U.S. Wants To Require That Large Bitcoin Transactions Are Reported To IRS

A tax enforcement proposal from the Biden administration may compel businesses to report bitcoin transactions exceeding $10,000 to the IRS.

A tax enforcement proposal from the Biden administration would compel businesses accepting bitcoin transactions of more than $10,000 to report them to the Internal Revenue Service (IRS).

“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” according to a report from the U.S. Department of the Treasury on tax enforcement proposals, issued today. “Within the context of the new financial account reporting regime, cryptocurrencies and cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies would be covered. Further, as with cash transactions, businesses that receive cryptoassets with a fair market value of more than $10,000 would also be reported on.”

The report was part of a larger announcement about new methods to combat tax evasion being explored by the Biden administration. These would include providing more funding and resources to the IRS and instituting harsher penalties for tax evaders, per CNBC.

The report comes in the wake of other indicators that the IRS wants to compel bitcoin investors to pay applicable taxes more readily. In April, the agency was authorized to summon Circle and Poloniex to provide user data and earlier this month, it received approval to do the same for Kraken users. Recently, a deputy associate chief counsel for the IRS indicated that it would attempt to seize “virtual” currencies like bitcoin to satisfy tax collection if necessary.

Bitcoin is a permissionless financial system that can be leveraged pseudonymously, so there is question about how thoroughly the IRS can track its use.


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Russia Reportedly Plans To Track Bitcoin-To-Fiat Sales

Authorities in Russia are planning to track transactions involving the exchange of bitcoin for rubles, according to a report from the local news agency Regnum.

Per the report, the country’s deputy head of Moscow’s financial monitoring service Rosfinmonitoring, Herman Neglyad, announced the plan during a governmental meeting

According to a translated version of the Regnum report, Neglyad said that financial institutions in the country like banks have already begun to report transactions involving the exchange of cryptocurrencies like bitcoin for fiat currencies. Per the report, he said that “banks have already begun to pay attention to exchange operations, that is, when they see that an operation has come after the exchange of virtual assets for hard currency, they have already begun to evaluate them and actually inform us about these operations.”

The government official also noted that the agency was collaborating with the country’s central bank in creating a code that would allow these financial institutions to differentiate between legal and illegal transactions. This, he believes, would help the agencies and the banks to easily identify transactions that might be suspicious.

In a separate interview with another local media agency, TASS, Neglyad hinted that this decision was being made because bitcoin was being used to finance terrorism and other illegal activities in the country. He added that the agency had worked with other countries’ financial surveillance agencies to gather the data used in arriving at that conclusion.


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