In its press release earlier today, Chainalysis has announced to the general public that it aims to leverage L2 lightning Network protocol for its next round of system upgrades, which it will deploy by February 2022.
The upgrade will provide corporate access gateways to Chainalysis’ compliance software for companies and firms that process bitcoin, using the lightning protocol. The compliance software which the intelligence firm christened ‘know your transaction’ will allow service providers in the industry like exchanges, insurance companies and fin-techs to be able to process Bitcoin transactions in the regulated way that is compliant with the set standards.
The Lighting enabled utility software will solve many redundant problems that hinder the usage of Bitcoin for packet payments, and other transactions that model financial inclusion.
The L2 Lightning Network Protocol
The layer 2 network protocol, Lightning network is one of the available scaling solutions to Bitcoin’s scaling problems. Similar blockchain leveraged scaling protocols include Polygon’s newly acquired Mir, a zero-knowledge proof protocol, the Hermetz network, another zero knowledge proof protocol, while general decentralized layer 2 protocols include Ethernet, Token Ring and Frame Relay amongst many others.
The Protocol which was first launched in 2018, utilizes web3 blockchain layered technology to offer a range alternative solutions to scaling problems, on the applicable blockchain network. The adoption of the protocol has seen a significant rise this year, setting new precedents for other scaling solutions. In this year the network protocol has recorded 128% increase in the number of its active junctions which is 60% more than last year’s recorded 68% usage.
In the United States, it isn’t uncommon for prosecutive action to be undertaken against cryptocurrency companies and firms without the issuance of prior rules and guidelines to be followed. This has been a major bone of contention for U.S lawmakers, as this is perceived to be a sensitive discussion that can make or mar the country’s cryptocurrency climate. When it comes to regulation, it has a very small margin for error, because if it is too relaxed, financial crime and criminal activities will creep in and if it is too rigorous, it will discourage investors and cripple the country’s crypto-economic growth.
The know your transaction utility software was developed in consideration of this complex balance of regulations, it adheres to global regulations put in place for Financial Action Task Force (FATF). The FATF, while it lacks the power to issue sanctions for non-compliance, it can add erring entities to its watchlist and then subsequently, to its blacklist. This will in turn prompt other members of the international body, like the U.S to sanction said entities.
Whilst not having a comprehensive unified regulations and compliance act, the U.S regulatory bodies have various implements to work with, to determine compliance. Digital assets firms will be prosecuted if determined to be non compliant even if they feel it is ‘unfair’. In view of this, Chainalysis’ chief product officer urges service providers and other firms in the industry to make sure to acquire their copy of the utility software.