Glossary
Our team has prepared a glossary dictionary that will help you understand the basic terms and concepts related to cryptocurrencies; crypto addresses; risks in the blockchain, methods for identifying and calculating them.
In this glossary, we focused on risk scoring of cryptocurrencies, transactions and addresses. If you have often seen the words AML/CFT and wondered what AML check is in cryptocurrency, then our glossary will help you understand the terminology and understand the basic principles.
In general, meet the dictionary of a young (and not only young) compliance officer!
In this glossary, we focused on risk scoring of cryptocurrencies, transactions and addresses. If you have often seen the words AML/CFT and wondered what AML check is in cryptocurrency, then our glossary will help you understand the terminology and understand the basic principles.
In general, meet the dictionary of a young (and not only young) compliance officer!
Address
A blockchain address is an unique sequence of letters and numbers that is used to represent one participant in the blockchain network.
In simple terms, a blockchain address (not to be confused with the term "blockchain wallet") can be thought of as similar to a bank account: it allows other people to send you cryptocurrency, or, conversely, you can send cryptocurrency to other people using their address.
Blockchain — network
A blockchain network is a decentralized and distributed system of records or database consisting of a chain of blocks, each containing a set of transactions.
In simple terms, a Blockchain network is like a ledger where all transactions are recorded. Only this accounting book is kept by many people at the same time, and everyone sees all the entries.
When someone wants to add a new entry (for example, transfer cryptocurrency), this transaction is verified and entered into the ledger. After this, all other participants update their books and the record becomes unchanged. That is, once an entry is added, it can no longer be erased or changed.
Thus, blockchain is like a publicly accessible, yet reliable and secure ledger on many computers.
When someone wants to add a new entry (for example, transfer cryptocurrency), this transaction is verified and entered into the ledger. After this, all other participants update their books and the record becomes unchanged. That is, once an entry is added, it can no longer be erased or changed.
Thus, blockchain is like a publicly accessible, yet reliable and secure ledger on many computers.
EXAMPLES OF BLOCKCHAIN NETWORKS
- Bitcoin
- Ethereum
- BSC
- Tron
- Everscale
Anonymity of blockchain addresses
Initially, the owner of a specific address is unknown.
However, over time, in the context of a number of blockchain addresses, based on the analysis of information in the public domain, analysis of behavior algorithms, it is possible to build an assumption about the owner.
Address types
The type of address is its functional affiliation.
It is not always possible to accurately determine the type. Set automatically based on behavior patterns or entered manually/automatically based on collected information.
EXAMPLES
- address of a centralized exchange
- user address
- bridge smart contract address, etc.
Markup
Tagging (creating markup) is the process of assigning labels, types, and a name to a cryptocurrency address as a result of partial or complete de-anonymization.
In some cases, the markup involves assigning a fixed risk score to one or another address (for example, addresses included in the entity "CEX Binance" may have a fixed risk score of 10% regardless of the funds that come to the exchange).
The risk-score assigned to a specific entity takes precedence over the risk-score of the address type.
The risk-score assigned to a specific entity takes precedence over the risk-score of the address type.
Label
A label is a significant note in the context of a specific address, which allows you to make assumptions about the owner, his behavior, and helps to find patterns of behavior and affiliates.
Source of funds
The source of funds for a cryptocurrency address finds out where the funds to that address came from. Given the different types of addresses, it is important to understand that not every sender of money is actually the source of money.
For example, other users' addresses and transit addresses do not create funds. Instead, you need to look for the first known address of a specific type, such as an exchange, ATM, exchanger, miner or scam.
Determining the source of funds is important to comply with anti-money laundering (AML) and customer recognition (KYC) laws, especially for services that deal with cryptocurrencies. This helps combat illegal activities such as money laundering and terrorist financing in the cryptocurrency space.
Determining the source of funds is important to comply with anti-money laundering (AML) and customer recognition (KYC) laws, especially for services that deal with cryptocurrencies. This helps combat illegal activities such as money laundering and terrorist financing in the cryptocurrency space.
Risk score addresses
Risk-score is an indicator of the risk of interaction with a particular blockchain address based on the source of its funds, its behavior on the network, as well as known information about the owner.
Risk-score allows you to quickly answer questions:
How likely it is that a given address may be associated with illegal or risky activity
(based on collected public information or analysis of address behavior patterns)
(based on collected public information or analysis of address behavior patterns)
Whether the address under study received high-risk products
Risk-score is expressed as a digital indicator from 0 to 100. The higher this value, the more risk factors there are during interaction.
The basis for calculating the risk-score of an address is the history of the formation of funds on it (where the funds came from) and what types of addresses the address interacted with (recipients and senders).
To calculate the risk-score address, the risk-score of all incoming transactions is analyzed. This will allow us to understand the sources of funds. Further, increasing or decreasing coefficients are applied to this data depending on known information about the user or counterparties.
In order to check an address for risk, that is, to obtain its Risk Score, you you can use our Btrace tool.
*not to be confused with the term "wallet verification", since wallet verification is carried out by audit firms that check the security of instruments, including DeFi wallets
Entity
A set of addresses belonging to an individual or legal entity, which are characterized by a set of known information about it, for example, phone number, github, etc. Can include from one to many addresses under the control of that entity.
EXAMPLES
- Entity "Exchange Binance" — all hot, deposit, service addresses of Binance are part of this entity.
- "Hacker group" entity (for example, Hezbollah or Lazarus Group) — all addresses that hackers create for hacking, money laundering, hodling are addresses of one entity.
- User — all user addresses.
The essence is when only one owner or a group of affiliated owners CONTROLS the movement of funds from the group’s addresses (they have access to sending funds from these addresses, to seed phrases and private keys).
Cluster
A group of addresses united by one event and having an affiliation sign, belonging to one or more entities.
EXAMPLES
- The "Hack" cluster, which contains both the hacker’s and the victim’s addresses, but not all the addresses of the hacker and the victim, but only those who participated in this hack.
- Cluster "Company Employees". These are addresses belonging to employees of the same company.
Transaction risk score
Risk-score of a transaction is an indicator of the risk of funds received from a certain counterparty, which is determined based on the history of the appearance of these funds at the address and the risk-score influence coefficient of the sending address. Accepts values from 0 to 100.
The Risk-score of a transaction may not match the Risk-score of the sender’s address. The risk-score of a transaction is usually assessed based on parameters of the transaction itself, such as the size of the transaction, the time of day and the speed of movement of funds. On the other hand, the Risk-score of an address takes into account the history and behavior associated with that address, including associated transactions and addresses.
You can track transaction, blockchain address or track the transaction using our Btrace tool. Our service supports major networks, so if you want to chexk a Bitcoin transaction or Ethereum, Binance Smart Chain or TRON transaction or address, you can make your first wallet check for free.
Risk score levels
We use a color indication of the risk score, which is correlated with digital values. Analogue color speedometer.
"GREEN" risk score
- Numerical analogue: the range of values between 0 and 39
- Interpretation: interaction with the address carries minimal risk. Addresses in this block, as a rule, do not raise questions for VASPs.
"YELLOW" risk score
- Numerical analogue: the range of values between 40 and 69
- Interpretation: interaction with an address carries the risk of blocking funds by centralized exchanges. If possible, try to collect more information about the history of the origin of funds at this address, about its owner, because… There are risk factors that you should pay attention to. If you carry out a transaction with this user, we recommend that you save information about the circumstances of this exchange, so that if something happens you can attach comprehensive information. Keep uncertainty to a minimum.
"RED" risk score
- Numerical analogue: the range of values between 70 and 100
- Interpretation: Interaction with the address carries a high risk of blocking funds by any VASPs that comply with AML regulations. It is not recommended to interact with this address.
Composition of funds at the address
Composition of funds at the address — these are formed assets, detailed to the level of the sources of their formation.
The address can contain various tokens. The history of the formation of funds is considered for each token separately. And only then is it reduced to a single equivalent.
EXAMPLES
The address contains 100 USDT. Of these, 50 came from the exchange, 30 from the mixer and 20 from mining. The composition of the means at the address will be a dictionary/type-value mapping. For the current example: "exchange — 50, mixer 30, mining — 20".
The address contains 100 USDT. Of these, 50 came from the exchange, 30 from the mixer and 20 from mining. The composition of the means at the address will be a dictionary/type-value mapping. For the current example: "exchange — 50, mixer 30, mining — 20".
Impact of address type on risk score
According to the nature of their influence on risk-score, addresses are divided into three types:
- Formators of sources of fundsFormators of sources of funds are addresses that set the risk-rate for funds coming out of such addresses.
EXAMPLE- There is an address for the centralized exchange Binance. We believe that all funds received from this address have a risk rate of 5%.
- Also, there is the scammer’s address. We consider all funds sent from this address to be 100% risky.
List of shaper types →1 - Transit addresses of fundsTransit addresses of funds are addresses through which funds do not change their risk-speed.
EXAMPLE
The address by which we know that this address participated in the airdrop did nft trades on OpenSea.
We believe this is the user’s address.
However, we do not know which user this is. He can pass both legal and illegal funds through his address. Therefore, we do not assign funds leaving this address one static risk soon. Instead, we calculate this risk-rate based on incoming transactions.
Exchange funds entered, which means exchange funds came out.
Funds from the exchange and mixer entered, and the output was a mixture of exchange funds and mixer funds.
How these mixed funds will be determined depends on the model.2 - Mirror addressesMirror addresses are addresses that “return back” the risk of speed.
EXAMPLES
Address A sent 100 tokens to Address B, and after some time Address B sent 110 tokens to Address A. We believe that 110 tokens have the same risk-rate as a transaction for 100 tokens.
Client addresses cannot be mirrored.
Example of mirror addresses:- staking
- farming
- dex (mirror with nuances)
3
List of shaper types
- merchantservice
- miningpool
- seized
- cex
- cexkyc
- cexlicensed
- cexkycpartial
- cexnokyc
- exchanger
- exchangerlicensed
- exchangerkyc
- exchangerkycpartial
- exchangernokyc
- p2p
- p2plicensed
- p2pkyc
- p2pkycpartial
- p2pnokyc
- atm
- mixer
- gambling
- illicit
- enforcementaction
- childexplotation
- fraudlentexchange
- Phishing
- stolen
- hack
- terrorism
- ransom
- malware
- sanctions
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