Why do you need to verify blockchain addresses? We'll tell you with real examples.
In this article we will tell you why to check blockchain addresses using two real examples from our practice. Both examples are very unpleasant and do not be sure that this cannot happen to you.
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Introduction
Our company AML Crypto is engaged in investigating incidents related to cryptocurrencies, as well as developing solutions for independent analysis of blockchain transactions.
According to our research, less than 5% of crypto users check the blockchain addresses of their counterparties for risk factors. Some believe that personal acquaintance with the counterparty is enough, others believe that this is an unnecessary expense, and still others are mistaken in thinking that cryptocurrency is completely anonymous and verification is not needed, and still others simply did not think about it and did not pay attention to the constantly tightening regulatory requirements obliging crypto exchanges and other professional participants to check their clients and the history of the formation of their assets.
We will tell you two real stories that will help readers expand their views on this issue and try the situation on themselves.
According to our research, less than 5% of crypto users check the blockchain addresses of their counterparties for risk factors. Some believe that personal acquaintance with the counterparty is enough, others believe that this is an unnecessary expense, and still others are mistaken in thinking that cryptocurrency is completely anonymous and verification is not needed, and still others simply did not think about it and did not pay attention to the constantly tightening regulatory requirements obliging crypto exchanges and other professional participants to check their clients and the history of the formation of their assets.
We will tell you two real stories that will help readers expand their views on this issue and try the situation on themselves.
Story №1
A user who purchased USDT from an exchange without KYC and encountered Tether blocking all of his USDT.
John (name changed) has significant assets in cryptocurrency. He regularly buys, trades, and uses cryptocurrencies to transact in the real world. Some time ago, he needed to make a payment to a counterparty in USDT. John logged into his Trust Wallet, where he had USDT on his blockchain address, but was unable to transfer funds. It turned out that Tether blocked his funds.
An analysis of the situation showed that John exchanged tokens for USDT through an exchanger without the mandatory [KYC] procedure (Know Your Customer). To increase anonymity, he used disposable mail and did not save transaction confirmations. The crypto exchanger sent John tokens, which, through a chain of transactions, turned out to be associated with the blockchain address involved in the fraud. As a result, suspicions of illegal activities spread to John. Now he is forced, with the help of lawyers and blockchain investigation specialists from AML Crypto, to prove to Tether that he is not involved in the “dirty” cryptocurrency and to achieve the unlocking of all his assets on the blockchain address.
John (name changed) has significant assets in cryptocurrency. He regularly buys, trades, and uses cryptocurrencies to transact in the real world. Some time ago, he needed to make a payment to a counterparty in USDT. John logged into his Trust Wallet, where he had USDT on his blockchain address, but was unable to transfer funds. It turned out that Tether blocked his funds.
An analysis of the situation showed that John exchanged tokens for USDT through an exchanger without the mandatory [KYC] procedure (Know Your Customer). To increase anonymity, he used disposable mail and did not save transaction confirmations. The crypto exchanger sent John tokens, which, through a chain of transactions, turned out to be associated with the blockchain address involved in the fraud. As a result, suspicions of illegal activities spread to John. Now he is forced, with the help of lawyers and blockchain investigation specialists from AML Crypto, to prove to Tether that he is not involved in the “dirty” cryptocurrency and to achieve the unlocking of all his assets on the blockchain address.
Story №2
A user who used the exchange's deposit address to accept payments and encountered account blocking.
Helen (name changed) actively uses one of the largest exchanges - Binance. For convenience, when receiving funds from other people, she immediately provided her deposit address to the exchange in order to avoid unnecessary commissions for transfers.
After receiving funds from a counterparty again, her entire account was frozen. Binance technical support noted that the sent bitcoins were high-risk funds and demanded clarification of their origin. Even an explanation that a third-party contractor sent the funds as part of payment for work turned out to be insufficient to unblock the account.
Specialists from AML Crypto found that the source of funds was associated with blockchain addresses associated with illegal activities and included in the criminal case. The saddest thing for Ilona was that the problem was not even with the direct sender of the funds, but with their origin. The “dirty” tokens passed through 7 intermediate addresses before ending up at Helen’s deposit address, but due to the transit nature of the intermediate addresses, they retained their toxicity.
Helen (name changed) actively uses one of the largest exchanges - Binance. For convenience, when receiving funds from other people, she immediately provided her deposit address to the exchange in order to avoid unnecessary commissions for transfers.
After receiving funds from a counterparty again, her entire account was frozen. Binance technical support noted that the sent bitcoins were high-risk funds and demanded clarification of their origin. Even an explanation that a third-party contractor sent the funds as part of payment for work turned out to be insufficient to unblock the account.
Specialists from AML Crypto found that the source of funds was associated with blockchain addresses associated with illegal activities and included in the criminal case. The saddest thing for Ilona was that the problem was not even with the direct sender of the funds, but with their origin. The “dirty” tokens passed through 7 intermediate addresses before ending up at Helen’s deposit address, but due to the transit nature of the intermediate addresses, they retained their toxicity.
Conclusion
Such blockings are no longer uncommon in the modern crypto world. This is the result of the development of analytical tools and tightening regulatory requirements, which force crypto exchanges and exchangers to check the history of the origin of funds and identify clients. The blocking can be either temporary or permanent, and the unblocking process, even with the client’s full openness, can take many months, or even years.
The key point in determining risk factors is not the sender of funds, but the source of these funds! In other words, if Olya received funds from the exchange and then sent them to Vasya, Vasya’s funds will be considered to be of “Exchange” origin, and not “funds of a user unknown to the exchange,” until he proves otherwise.
Always check your counterparties. To verify blockchain addresses, you can use specialized services such as Btrace. We wish you safe counterparties and successful transactions!
The key point in determining risk factors is not the sender of funds, but the source of these funds! In other words, if Olya received funds from the exchange and then sent them to Vasya, Vasya’s funds will be considered to be of “Exchange” origin, and not “funds of a user unknown to the exchange,” until he proves otherwise.
Always check your counterparties. To verify blockchain addresses, you can use specialized services such as Btrace. We wish you safe counterparties and successful transactions!
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Check blockchain address using Btrace
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