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Blockchain Analysis Explained – Functions, Use Cases, FAQs

Blockchain is the next biggest disruptor since the emergence of the internet. The majority of people are aware that blockchain technology is the cornerstone for all the cryptocurrency transactions that are happening worldwide. Even though blockchain promises security, immutability, and transparency, cryptocurrency transactions are still vulnerable to hacks/fraudulent activities. Blockchain Analysis is a lifesaver for individuals/organizations to identify such scams, frauds, and suspicious transactions.

This blog brings out all the ins and outs of blockchain analysis to make you understand it better – Keep reading!

What is Blockchain Analysis?

Blockchain analysis is a one-of-a-kind process of inspecting, categorizing, supervising and interpreting the transactions that take place on blockchain to clearly trace back the activities and gain actionable insights. It is mandatory for crypto-based entities to deploy blockchain analysis solutions as these tools stand as regulatory compliant as well as safeguards against the vulnerability of illicit funds to their businesses.

Functions of Blockchain Analysis

Blockchain analysis offers an assorted range of solutions, including tracking of transactions, evaluations of risks, investigation tools, etc. The primary objective is to relate the addresses of the transaction with real-time identities and bestow tools to analyze the transaction activities. The various functions of blockchain analysis tools include:


Categorization of Transaction Addresses: As discussed, one of the very first functions is to identify the identity behind a transaction. Only identifying the real-time identity will solve the rest of the problems. So the tools utilize a plethora of methodologies to figure out the right person who is responsible for the fraudulent activities.

Tracking of Transactions & Evaluations of Risks: It tracks all the transactions that relate to the business and examines the risks based on the source of the funds, the flow of the funds, and the history of sender or beneficiary wallets.

Investigation Tools: It offers visualization tools to manually scrutinize transactions and their addresses.

How Law Enforcement Agencies Use Blockchain Analysis

It will be really helpful for law enforcement entities when they utilize blockchain analysis to track the bad actors in these activities. They can easily trace the transactions from the public ledgers and understand if it has occurred between two different exchanges or within the same exchanges. Also, the high-tech tools and KYC information submitted in the exchanges will provide utmost transparency to these activities.

To be specific, a blockchain analysis tool will help law enforcement agencies in searching based on an identifier, understanding real-time activities, following the funds, tracing transactions across blockchain networks, and presenting cases.

The use of these tools will provide law enforcement agencies with dedicated resources and splendid techniques for blockchain intelligence. The tools will be really helpful in identifying tainted wallets, assessing risk scores to wallet addresses, analyzing transactions, artificial intelligence-based strategies to mark strange and mysterious behaviors of actors, etc. All these methods can easily break down the crypto crime into smaller parts and greatly contribute to figuring out the victim.

Also, law enforcement agencies should be ready to join hands with data-attributing services. This is because these services attribute addresses to the clusters, which is the entity that controls them. Therefore, these clusters may behave in relation to nefarious activities and their cash-out points.

FAQs Related to Blockchain Analysis

Q. Why is blockchain analysis important?

All blockchain platforms, cryptocurrency exchanges, cryptocurrency wallets, and other crypto-based transactions can be compromised from anywhere at any time and are vulnerable to hacks. This is why blockchain analysis and blockchain forensics are required. It is only these tools that can predict the reasons for the loss as well as identify the victim who is responsible for the incident.

Q. What are the challenges to blockchain analysis?

Even though these tools help in identifying scams or fraudulent activities, experienced crypto holders outsmart the tools by using various techniques and strategies. Some of the tactics include,

Creating Mixers: It amalgamates the inputs of multifarious senders and keeps their unique addresses in disguise. These mixed inputs will be delivered from a single source, and it makes all other addresses anonymous.

Creating Multiple Wallets: It is really difficult to trace the transactions when there exist many transactions from multiple wallets.

Non-Custodial Services: People prefer decentralized exchanges or exchanges where KYC regulations are not mandatory.

Q. Does real-time crypto exchanges make use of this tool?

Yes, reputed exchanges like Binance and Coinbase make use of blockchain analysis tools. They do this to examine crypto transactions and comply with AML (Anti-Money Laundering) enforcement. And this is one of the primary reasons for these exchanges to present themselves as the most secure exchanges.

Wrapping Up

When blockchain analysis is the savior for financial entities, the same is the case for individuals as well. If you are new to the crypto realm, it is very important to stay proactive. Most importantly, you shouldn't lose control. Whenever you think about investing, it is better to seek guidance from experts in the domain. Also, you must spend some quality time in research before coming to a conclusion. Never get excited about seeing a huge return on investment plans or their professional-looking landing pages; it may be a trap. No legitimate organization will force you to quickly invest to get high returns. So, think twice before you act.

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Gaurav Sharma

As an editor, Gaurav ensures the delivery of quality-rich, detailed, and accurate content tailored to the right audience. His three years of experience as a reviewer allow him to provide comprehensive evaluations of various consumer gadgets. On the video front, Gaurav serves as a video production manager for both long and short formats and anchors short videos at GadgetsToUse.