On December 10, the blockchain intelligence firm Chainalysis revealed that the company has added support for Bitcoin’s second-layer protocol the Lightning Network (LN). According to Chainalysis, firms like exchanges and virtual asset service providers (VASPs) can leverage the company’s Know-Your-Transaction (KYT) real-time transaction monitoring software in order to access compliant bitcoin deposits and withdrawals from a LN node.
Compliant Lightning Transactions
Blockchain monitoring and intelligence firm Chainalysis announced on Friday that the company has added Lightning Network (LN) support to its list of blockchain and crypto-asset networks, which the company is currently monitoring. For years, Chainalysis has been monitoring the Bitcoin (BTC) blockchain, and these days the company is monitoring not only BTC, but a myriad of crypto networks and decentralized finance (challenge) protocols as well.
Essentially, the LN is an offchain routed “layer 2” (L2) payment channel network that helps facilitate bitcoin (BTC) transfers faster and cheaper than onchain transactions. The Chainalysis LN support will provide VASPs with “Chainalysis KYT (Know-Your-Transaction) for real-time transaction monitoring will now be able to compliantly allow deposits and withdrawals of Bitcoin from a Lightning node.”
As of December 1, 2021, Chainalysis estimates that there is “just under 3,600 BTC worth over $ 205 million stranded in the public channels of the Lightning Network.” This has increased a lot since the total value locked in the LN was around 468 BTC on January 1, 2021. Chainalysis also mentions that the LN L2 system is operated by countries like El Salvador and big companies like Twitter. Pratima Arora, product manager at Chainalysis, explains that the company hopes that compliant LN transfers will help the LN to mature.
“Chainalysis exists to build trust in cryptocurrency in order to promote more financial freedom with less risk,” Arora said in a statement. “The Lightning Network solves many of the challenges that prevent the Bitcoin protocol from being used for micropayments and other transaction types that bolster financial inclusion. By enabling our customers to compliantly support Lightning transactions, we hope to grow the network’s popularity and help it scale.”
Lightning Network support for Chainalysis KYT customers to launch in February
Chainalysis has significantly expanded its resources and faces dozens of competitors in blockchain intelligence and oversight. The company raised $ 100 million in its Series E funding round in late June, and previous rounds C and D also saw capital injections of $ 100 million. The company’s valuation after Series E was $ 4.2 billion according to the company’s announcement at the time.
Speaking about the LN support, Chainalysis claims that for the first time, “VASPs can now offer support for Lightning transactions aligned with global regulatory best practices.” The product Chainalysis offers called Chainalysis KYT supports “pre-screening for Lightning withdrawals and behavioral alerts.” The blockchain surveillance and intelligence company further says that the LN support will be available for Chainalysis KYT customers in February.
