Blockchain analysis companies apply data science techniques to publicly available blockchain data. They do this to discover useful information about transactions; the process involves identifying, clustering and modelling data. This data can then be visually represented and access sold in commercial packages using a familiar SaaS (software as a service) model.
The most obvious commercial uses include:
- finding missing coins
- analysing spending & holding patterns
- detecting fraud & money laundering
- tracing the proceeds of crime
- tracing nation level hacking & sanctions evasion
- combating the trade of online illegal goods & services.
These analysis companies’ customers range from crypto startups to governments, and they conduct big business with key players in the industry, having raised over $80 million in funding to date.
The most prominent companies include Chainalysis, Elliptic and Whitestream. According to 82 records of federal procurement contracts reviewed by CoinDesk federal agencies have spent at least $10 million in American tax dollars on Chainalysis’ tools, services and training since Chainalysis was founded in 2015. The agencies include the FBI and ICE so it is clear that blockchain analysis is lucrative and has broad applications.
Crypto analytics firms are effective at promoting the value in their services by publishing reports about crypto crime and significant successes. The perpetrators of the highly publicised Twitter hack in 2020 were quickly traced thanks to blockchain analytics.
Unfortunately the vast amount of data that can be harvested from public blockchains won’t necessarily be used to fight crime. Given the huge controversy around the exploitative nature of the data practices of big data firms – notably Facebook & Cambridge Analytica – we should expect blockchain data to be weaponised in a similar way.
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