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Coinbase has recently filed a patent that could minimize illicit activities for the U.S.-based crypto exchange. In a filing submitted on Nov. 19, the exchange explained that this account monitoring system uses several factors to identify accounts and rate them based on their activities and transactions.
These factors include several data sets, some of which are coming from the user, while others are determined by the compliance system itself. By gathering significant data points from the exchange and juxtaposing the information with the compliance system, Coinbase can gauge how trustworthy an account is.
“An investigator may be able to determine whether an account is being used for illicit activities by doing research on the parties of the transaction who receive or send payment and determining whether such parties are regularly involved in illicit activities. It may, for example, be relatively easy to determine that a party sending or receiving payment is in the business of conducting online services that may be illegal,” the filing explained.
Big transactions are closely monitored
Accounts that are determined as trustworthy are left untouched, while the shady ones are scrutinized, especially those that involved more than $2,000 transactions. The compliance system has also been designed as a self-learning model, giving it the ability to gain more accuracy in future monitoring of accounts.
Coinbase has always had strict know-your-customer and anti-money laundering protocols. This new system adds a layer of protection to itself and its users, while also providing the means for investigators to track down people engaged in illicit activities.
Growing demand for tracking capabilities
Regulatory bodies all over the world have been creating stringent regulations on crypto exchanges given the prevalence of money laundering activities and fears surrounding terrorist financing and drug dealers moving massive funds through the crypto space. In 2019, security research company CipherTrace released a report concluding that crypto theft amounts to $4.4 billion in funds lost, which was $1.7 billion the year prior.
It’s for these reasons – and several more – that crypto companies are creating software to trace these illegal actors. Kryptos, Know Your Transactions, Reactor, and TRM Labs are just some of the many products and initiatives that are being developed to counter this growing issue.
