What is Know Your Transaction (KYT)?
Know Your Transaction (KYT) is the practice of monitoring cryptocurrency transactions in real time to assess their risk, detect suspicious activity, and prevent financial crime. Where know your customer (KYC) verifies who a customer is, KYT analyzes what their money is doing—screening the source and destination of funds on the blockchain to identify exposure to illicit activity such as sanctions evasion, money laundering, fraud, and terrorist financing.
KYT is a core component of crypto anti-money laundering (AML) compliance. Because cryptocurrency transactions are pseudonymous but permanently recorded on public blockchains, it uses blockchain analytics to attribute wallet addresses to real-world entities and assign each transaction a risk score. Crypto exchanges, financial institutions, and other virtual asset service providers (VASPs) use KYT to monitor incoming and outgoing transfers, generate alerts on high-risk activity, and meet their regulatory requirements.
In short: KYT is transaction monitoring built for the blockchain era—the on-chain equivalent of the transaction monitoring systems that banks have used for decades, redesigned to interpret cryptocurrency data that traditional AML software cannot read.
Why does KYT matter for crypto compliance?
Cryptocurrency’s pseudonymity was long perceived as a barrier to compliance. In reality, the transparency of public blockchains makes crypto highly traceable—but only with the right tools. KYT is what turns raw on-chain data into actionable risk intelligence.
The stakes are significant. Illicit actors moved tens of billions of dollars through cryptocurrency in recent years, with the Chainalysis Crypto Crime Report estimating illicit addresses received roughly $40.9 billion in 2024. Without real-time monitoring, exchanges and financial institutions risk processing funds tied to ransomware, darknet markets, sanctioned entities, and scams—exposing themselves to enforcement actions, frozen banking relationships, and reputational damage.
It also protects the integrity of the broader financial system. As stablecoins and tokenized assets move trillions of dollars on-chain, KYT provides the monitoring layer that lets regulated institutions participate in digital assets without becoming conduits for illicit funds. It is both a regulatory obligation and a prerequisite for sustainable growth in crypto.
How does KYT work?
KYT combines blockchain analytics, risk scoring, and real-time monitoring into a continuous compliance workflow. The process generally follows five steps.
Data collection and attribution
The process begins with data: ingesting transaction data across blockchains and attributing wallet addresses to real-world entities—exchanges, mixers, sanctioned wallets, darknet markets, and more. The quality of this attribution determines the quality of every downstream alert, which is why data quality and broad asset coverage are foundational to effective KYT.
Risk scoring
Each transaction is assigned a risk score based on its exposure to known illicit or high-risk entities, feeding the ongoing risk assessment and risk management that compliance teams rely on. It measures both direct exposure (funds sent to or received directly from a risky entity) and indirect exposure (funds connected through intermediary hops), tracing the source and destination of funds back as many hops as needed until an identified service is reached.
Real-time monitoring and alerts
KYT screens incoming and outgoing cryptocurrency transactions continuously, generating alerts the moment activity crosses a defined risk threshold. Real-time monitoring enables compliance teams to act—freezing funds, escalating, or filing reports—before risky transactions settle.
Machine learning and behavioral detection
Modern KYT applies machine learning and artificial intelligence to detect patterns that static rules miss: structuring, layering, peel chains, and other laundering typologies. Behavioral detection helps surface red flags and novel obfuscation techniques, reducing false positives by distinguishing genuinely suspicious activity from benign anomalies.
Investigation and reporting
When KYT flags high-risk activity, compliance analysts investigate the alert, conduct any additional customer due diligence (CDD), and, where warranted, file a suspicious activity report (SAR) with the relevant authority. Strong systems integrate directly into investigation workflows so alerts can be resolved efficiently.
What can KYT detect?
A capable KYT solution identifies a wide range of financial crime typologies in cryptocurrency transactions, including:
- Sanctions exposure — funds connected to OFAC-, EU-, or UN-sanctioned wallets and jurisdictions.
- Money laundering — structuring, layering, and rapid movement of illicit funds through mixers and bridges.
- Ransomware and extortion — payments to wallets linked to known ransomware operators.
- Darknet market activity — transactions tied to illicit marketplaces.
- Stolen funds — proceeds of exchange hacks, DeFi exploits, and wallet compromises.
- Fraud and scams — exposure to pig butchering, romance scams, and investment fraud wallets.
- Terrorist financing — funds linked to entities financing terrorism.
Expanding detection beyond a narrow list of typologies is what separates a basic screening tool from a comprehensive KYT program.
KYT vs. KYC: what’s the difference?
KYT and KYC are complementary pillars of crypto compliance, not alternatives. KYC establishes identity at onboarding; KYT monitors behavior continuously thereafter.
| KYC (Know Your Customer) | KYT (Know Your Transaction) | |
| Core question | Who is this customer? | What is this money doing? |
| Focus | Identity verification and risk profiling | Real-time transaction risk monitoring |
| Timing | Primarily at onboarding | Continuous, every transaction |
| Data | Identity documents, customer information | On-chain transaction data and wallet attribution |
| Output | Verified customer, risk profile | Transaction risk scores and alerts |
KYC answers who; KYT answers what. A complete AML program also pairs KYT with related controls—identity verification (KYC), business verification (KYB), and sanctions screening—so that risk is managed at both the customer and transaction levels. KYT is best understood as the crypto-native form of transaction monitoring within that broader framework.
What are the regulatory requirements behind KYT?
KYT is not a single law but a capability that satisfies multiple AML/CTF obligations across jurisdictions:
- FATF guidance: The Financial Action Task Force (FATF) extends AML obligations to VASPs and, through Recommendation 16 (the Travel Rule), requires VASPs to collect and transmit originator and beneficiary information for qualifying transfers—obligations that depend on transaction-level monitoring.
- United States (FinCEN / BSA): Under the Bank Secrecy Act, money services businesses—including crypto exchanges—must monitor transactions and file suspicious activity reports. KYT provides the monitoring infrastructure to meet these requirements.
- European Union (MiCA / AMLD): The EU’s Markets in Crypto-Assets (MiCA) framework and Anti-Money Laundering Directives impose monitoring and reporting obligations on crypto-asset service providers.
Across all of these regimes, regulators expect a risk-based approach: monitoring calibrated to the institution’s specific exposure, documented, and capable of detecting and reporting suspicious activity. It is how crypto businesses operationalize that expectation.
What are the biggest KYT challenges?
Even with strong tooling, compliance teams face persistent KYT challenges:
- False positives: Poorly tuned systems generate excessive alerts, overwhelming analysts and burying genuine threats. Reducing false positives while maintaining detection is the central operational challenge.
- Evolving obfuscation: Mixers, cross-chain bridges, and privacy techniques continuously evolve, requiring monitoring models to adapt.
- Cross-chain and protocol visibility: Illicit funds move across blockchains and DeFi protocols; the system must maintain attribution throughout to avoid blind spots.
- Scale and data quality: Monitoring millions of cryptocurrency transactions in real time demands accurate attribution data and infrastructure that scales without degrading performance.
How to choose a KYT solution
When evaluating a KYT provider, compliance leaders should weigh:
- Coverage — the number of blockchains, assets, and tokens supported, since gaps in coverage become gaps in monitoring.
- Data quality and attribution — the accuracy and depth of the entity attribution that powers risk scoring.
- Risk customization — control over alert thresholds, typologies, and rules to align with the institution’s risk appetite and regulatory requirements.
- Real-time performance — the speed at which transactions are screened and alerts generated.
- Operational efficiency — false-positive reduction, bulk alert management, and integration with investigation and case-management workflows.
- Court-tested credibility — whether the underlying blockchain intelligence holds up in legal and regulatory proceedings.
How Chainalysis helps with Know Your Transaction (KYT)
Chainalysis KYT is the transaction monitoring engine at the center of crypto compliance programs at leading exchanges, financial institutions, and VASPs worldwide. It operationalizes everything described above—at scale and in real time.
- Comprehensive coverage: KYT monitors transactions across 400+ networks and 50M+ tokens, closing the coverage gaps that create monitoring blind spots.
- Real-time risk scoring: KYT screens incoming and outgoing transactions and generates alerts within seconds of activity occurring on-chain, measuring both direct and indirect exposure across as many hops as needed.
- Fewer false positives: Built to minimize noise and increase signal, KYT reduces false positives by up to 90%, letting analysts focus on genuinely suspicious activity.
- Customizable risk rules: Behavioral alerts, custom address lists, and custom groups let teams tailor monitoring to their specific regulatory obligations and risk appetite.
- Court-tested intelligence: KYT is backed by blockchain analysis validated under the Daubert standard in U.S. courts—a credibility advantage no other provider offers.
The results are measurable: one leading derivatives exchange used Chainalysis KYT to reduce its AML risk exposure by 88%. For deeper investigations, alerts open directly into Chainalysis Reactor, and Chainalysis Academy has certified over 50,000 professionals in the skills behind effective transaction monitoring.
Frequently asked questions about Know Your Transaction (KYT)
Q: What is Know Your Transaction (KYT)?
A: Know Your Transaction (KYT) is the real-time monitoring of cryptocurrency transactions to assess risk and detect financial crime. KYT uses blockchain analytics to screen the source and destination of funds, assign risk scores, and alert compliance teams to suspicious activity such as money laundering, sanctions evasion, and fraud.
Q: How is KYT different from KYC?
A: KYC (Know Your Customer) verifies a customer’s identity at onboarding; KYT (Know Your Transaction) monitors that customer’s transactions continuously thereafter. KYC answers “who is this customer?” while KYT answers “what is this money doing?” Both are essential pillars of a crypto AML program.
Q: Why do crypto businesses need KYT?
A: Crypto exchanges and other VASPs need KYT to detect illicit activity, comply with AML/CTF regulations, and avoid processing funds tied to ransomware, sanctioned entities, darknet markets, and scams. KYT provides the real-time transaction monitoring that traditional AML software cannot perform on blockchain data.
Q: Is KYT required by regulators?
A: Yes—indirectly. Regulators including FinCEN (under the Bank Secrecy Act), the FATF, and EU authorities under MiCA require crypto businesses to monitor transactions, take a risk-based approach, and file suspicious activity reports. KYT is the standard way crypto businesses meet these transaction monitoring obligations.
Q: What activity can KYT detect?
A: KYT can detect sanctions exposure, money laundering patterns (structuring and layering), ransomware payments, darknet market activity, stolen funds from hacks and exploits, fraud and scam exposure, and terrorist financing—by analyzing the on-chain connections of each transaction.
Q: How does KYT reduce false positives?
A: KYT reduces false positives by combining accurate wallet attribution with customizable risk rules and machine learning that distinguishes genuinely suspicious activity from benign anomalies. Well-tuned KYT increases signal and lets analysts focus on the alerts that matter.
Chainalysis enables Know Your Transaction (KYT) by screening every cryptocurrency transaction in real time across 400+ networks and 50M+ tokens, scoring direct and indirect exposure to illicit activity, and alerting compliance teams within seconds—so risk is caught before funds settle.