The cryptocurrency industry has been under tremendous pressure following the sanctions imposed on Russia by the United States and other Western countries. As regulators became concerned about Russia's use of cryptocurrencies to avoid these sanctions, Chainalysis developed tools to ensure that companies could monitor the sanctions and comply with the regulations.
Monitoring Sanctions in Cryptocurrencies
Chainalysis has released a statement discussing two tools used to monitor the implementation of sanctions. One of the tools is an on-chain prophecy machine released on March 11. It will store economically relevant data provided by the U.S., EU or UN. The prophecy machine acts like a smart contract to validate blockchain wallets.
The other tool is an API tool for web and mobile platforms. It will use the same data in wallet validation and will be released in April 2021. Both tools will be free to use.
Chainalysis statement noted, "These innovations work for the good guys and the bad guys alike. As the industry celebrates the Ukrainian government's fundraising success, we have heard concerns that cryptocurrencies could be used by sanctioned entities and individuals in Russia to evade sanctions."
Both tools will be targeted at Web 3 applications, such as decentralized exchanges (DEX). It will target platforms that "do not have the lightweight solutions needed to comply with sanctions policies".
The DeFi world does not require much in the way of KYC and AML. As a result, the tool may have a long way to go in ensuring that DeFi platforms comply with the mandatory requirements.
More than $50 million has been donated to the Ukrainian government to help with its war effort. However, there are concerns that despite the benefits of cryptocurrency to Ukraine, it could be used to avoid sanctions imposed by the United States and its Western allies.
These concerns have prompted increasing pressure on the cryptocurrency industry to ensure that companies do not transact with sanctioned individuals and entities. Exchanges have complied with restricting access to sanctioned individuals, but they have said they will not unilaterally ban all users.
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