Know Your Transaction, or KYT, is the ongoing assessment of cryptocurrency transfers for indicators of financial crime and other compliance risks. It combines blockchain transaction analysis with customer information and defined risk policies to help exchanges identify activity requiring review, escalation, restrictions, or reporting under applicable law.
How transaction monitoring works
An exchange connects wallet activity to a monitoring process that evaluates deposits, withdrawals, addresses, and transaction patterns. Blockchain analytics services may associate addresses with identified services, sanctions exposure, or suspected illicit activity. These associations depend on available evidence and should not be treated as definitive proof of misconduct.
Monitoring can happen before a withdrawal is released and after a deposit arrives. Alerts are routed to analysts who examine the transaction context, customer profile, and supporting records. A policy determines whether activity can proceed, requires additional information, or must be escalated to an authorized decision maker.
Why context and governance matter
KYT differs from customer identification. Knowing who opened an account does not establish whether every subsequent transfer is consistent with that customer’s activity. Conversely, a blockchain risk signal does not automatically establish the customer’s intent. Operators need documented procedures that distinguish automated signals from conclusions reached through investigation.
Effective oversight includes reviewing alert rules, recording decisions, and checking whether monitoring covers the assets and networks the exchange supports. Staff should understand the limitations of address attribution and indirect exposure. Access controls and retention policies also matter because investigations may combine public blockchain records with sensitive customer information.
What operators should evaluate
When assessing a provider, operators should examine supported chains, evidence transparency, case management, integration behavior, and the ability to explain alerts. They should also define responsibility for outages and unresolved cases. Technology supports the compliance process; it does not replace accountable staff, jurisdiction-specific legal analysis, or a documented risk assessment.
