Financial compliance has long centered on Know Your Customer (KYC) – verifying customer identities and backgrounds to prevent fraud and money laundering. But today, as cryptocurrency and blockchain redefine finance, a new paradigm is emerging: Know Your Transaction (KYT). Instead of focusing solely on who a customer is, KYT emphasizes understanding what they are doing – monitoring the actual flow of funds. This shift is vital because savvy bad actors have learned to bypass KYC controls (fake IDs and stolen identities abound), whereas blockchain transactions leave an indelible trail that’s far harder to forge or hide. In this post, we explore why KYT is becoming the cornerstone of modern compliance and how Elementus serves as the bridge between opaque blockchain data and traditional finance compliance needs. The goal is an authoritative yet accessible look at how KYT, powered by blockchain intelligence, is empowering compliance officers, regulators, and executives in both crypto and TradFi.

In this article, we’ll explore:

• The limits of traditional KYC in a digital world
• Enter KYT: Know Your Transaction for deeper insight
• Immutable history vs. forged identities: The power of blockchain transparency
• KYT in action: Practical scenarios of stopping financial crime
• Elementus: Bridging blockchain data and compliance as the source of truth
• A new compliance paradigm for a new era

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The limits of traditional KYC in a digital world

KYC procedures – providing passports, driver’s licenses, and other documents – have been the frontline of AML (Anti-Money Laundering) compliance for decades. KYC helps institutions verify who they’re dealing with. However, in practice, KYC has glaring weaknesses that criminals are exploiting:

• Fake Documents Are Easy to Obtain: It’s alarmingly simple to acquire high-quality fraudulent IDs. For example, in 2024 investigators found a service selling AI-generated fake IDs for as little as $15 that successfully passed crypto exchange KYC checks. In another case, a robust black market offers “verified” crypto exchange accounts (complete with passed KYC) for as low as $150 per account. These accounts are often created with stolen personal data and forged documents that sail through routine KYC screening. In short, if someone can simply buy a fake passport or a pre-verified account, relying solely on document checks becomes a flimsy defense.
  
  
• Static Snapshot vs. Dynamic Behavior: KYC is typically a one-time or periodic process – a snapshot of identity at onboarding. It doesn’t continually update in real-time. A customer who appeared low-risk when they signed up can later engage in illicit transactions that KYC alone won’t flag. Traditional KYC offers limited insight into ongoing behavior. Once the initial checks are done, a bank or exchange might not closely watch what that customer does with their account, beyond basic fraud triggers. This creates a gap where suspicious activities (e.g. sudden large transfers, rapid moves through multiple accounts) can go unnoticed if they don’t trigger other alarms.
  
  
• False Sense of Security: Passing KYC might give institutions confidence that “we know our client,” but as we’ve seen, that identity could be entirely fabricated. Meanwhile, regulators are increasingly aware of these loopholes. In fact, global guidelines now require ongoing monitoring of customer activity – not just one-and-done identity verification – to ensure transactions align with the customer’s profile. In other words, knowing your customer isn’t enough; you must continuously know their transactions as well.
  
  

Bottom line: KYC remains essential (it does keep out many bad actors), but by itself it’s no longer sufficient. In the crypto era, where users can be pseudonymous and accounts global, focusing only on identities means too many “unwanted elements” slip through. We need a stronger net.

Enter KYT: Know Your Transaction for deeper insight

Know Your Transaction (KYT) is the proactive answer to KYC’s blind spots. KYT refers to the process of monitoring and analyzing financial transactions in real-time to detect suspicious or illicit behavior. Instead of just vetting the customer at onboarding, KYT asks: Are this customer’s funds and transactions clean? Do their activities raise any red flags? This approach brings a dynamic, continuous vigilance to compliance:

• Focus on What’s Happening, Not Just Who: KYT flips the lens from the customer’s identity to their money’s behavior. It continuously examines the origin, destination, and patterns of transactions. For example, KYT systems look at factors like transaction amounts, frequency, counterparties, and whether those patterns make sense for that customer. If something looks off – say a series of small deposits followed by one large withdrawal to a new address – the system flags it for review. In essence, KYT “understands the nature and purpose of transactions” in real time, flagging suspicious activities immediately.
  
  
• Real-Time Monitoring and Alerts: Unlike static KYC, KYT operates live. Every transaction can be screened the moment it occurs. If a user suddenly sends funds to a known darknet market or mixer service, a KYT-enabled platform can catch it on the spot. This real-time surveillance is crucial, especially in crypto where money moves at internet speed 24/7. Modern KYT tools will automatically generate alerts for any transaction that deviates from normal patterns or hits certain risk indicators (e.g. interacting with a blacklisted address). This enables compliance teams to respond in minutes, not months.
  
  
• Pattern Analysis and Risk Scoring: KYT doesn’t just look at transactions in isolation; it assesses them in context. Over time, a KYT platform can build a behavioral profile for each customer or address, establishing a baseline of “normal” activity. Using data science, it can then assign risk scores to transactions or accounts. For instance, a score might spike if an account that usually transacts locally suddenly starts wiring money overseas to high-risk jurisdictions. By linking transactions and spotting patterns, KYT provides a comprehensive view of potential risks, far beyond what manual review could achieve.
  
  

Importantly, KYT is complementary to KYC, not a replacement. Think of KYC as the castle gate (verifying who you let in) and KYT as the castle guards (watching everything happening inside and around the castle in real-time). Even the Financial Action Task Force (FATF) has highlighted that ongoing transaction monitoring should be part of customer due diligence. Together, KYC + KYT form a holistic defense: KYC establishes a customer’s bona fides up front, and KYT continuously validates that their behavior matches those credentials. If KYC alone was a sieve, adding KYT turns it into a fine net that catches what the sieve would miss.

Immutable history vs. forged identities: The power of blockchain transparency

One of the biggest reasons KYT has gained traction is the nature of blockchain data itself. Crypto transactions occur on public, tamper-proof ledgers. This has profound implications for compliance:

Immutability and Trustworthy Data: Once a transaction is recorded on a blockchain, it’s effectively set in stone – it “cannot be altered” or falsified after the fact. Every transaction comes with a timestamp and is linked in sequence on a chain of blocks, secured by cryptography and consensus. This means the transaction history for a given crypto address is permanent and verifiable. For compliance officers and investigators, this is a goldmine. Unlike a scanned ID document which could be Photoshopped or a database entry which could be tampered with by an insider, blockchain records are tamper-proof and impossible to alter. In legal terms, it’s a solid chain of custody: the data itself can be treated as high-integrity evidence of who transacted with whom.

In contrast, any paper or digital ID can be forged or purchased, as we saw with $15 fakes. You can lie about who you are, but you can’t easily lie about where your money went on a public ledger. If $5 million in Bitcoin was sent from a wallet linked to ransomware, that fact is visible to anyone with the right analytical tools; no amount of cover-up can delete or forge that transaction. KYT leverages this transparency. It treats the blockchain as the source of truth: a complete, unfalsifiable record of financial activity. This is why KYT is sometimes described as turning the blockchain into a “digital paper trail” that auditors dream of.

Evidentiary Strength: Because of its immutable nature, blockchain transaction data is increasingly used in investigations and court cases. Regulators and law enforcement have come to realize that on-chain analysis can provide concrete evidence of wrongdoing. Every step funds take can be traced, often in great detail, across multiple hops and even across different cryptocurrency assets (with the right tools). For compliance teams, this means that when they flag suspicious activity via KYT, they’re often looking at a clear audit trail that can back up a decision to freeze funds or file a suspicious activity report (SAR). In short, KYT turns the tables on criminals. Fake identities may fool KYC, but an immutable ledger means their transactions will eventually reveal the truth. As a saying in crypto compliance goes, “On the blockchain, there is nowhere to hide.”

KYT in action: Practical scenarios of stopping financial crime

To illustrate the strengths of KYT, let’s consider a few real-world scenarios where KYT, especially with advanced blockchain analytics, makes all the difference:

• Scenario 1: Catching a Money Launderer at an Exchange. A cryptocurrency exchange has a new user who passed KYC with a driver’s license (which, unbeknownst to the exchange, was bought on the dark web). The user deposits 10 BTC into their account. With traditional methods, the exchange might simply record the deposit and move on. However, a KYT-equipped compliance system immediately analyzes the source of those funds. It finds that the 10 BTC originated from a cluster of addresses associated with a known darknet marketplace. Alert! The exchange’s KYT platform flags the deposit as high-risk. Compliance officers are notified instantly that although the user’s identity seems fine, their money’s history is tainted. The exchange freezes the funds and launches an investigation. Thanks to KYT, the launderer’s activities are stopped before they convert or withdraw those illicit funds – a step that wouldn’t have been possible by KYC checks alone.
  
  
• Scenario 2: Unraveling a Hack through Blockchain Forensics. A crypto lending platform suffers a hack, losing millions in various tokens. Investigators turn to Elementus (and its KYT analytics capabilities) to trace the stolen assets. Using the immutable ledger, Elementus software follows the hackers’ money trail as it snakes through thousands of addresses. It identifies patterns: the hackers break the funds into smaller pieces and funnel them through a series of intermediary wallets. Despite the complexity, the heuristics and algorithms cluster these addresses by common owner, revealing that the funds ultimately coalesced into two large wallets at an exchange. In fact, Elementus was able to trace about $16 million from the 2019 Cryptopia exchange hack in exactly this way, mapping how the stolen tokens moved and grouping the thief’s addresses into a clear cluster. With this insight, law enforcement knows which exchange (and thus which account) the hacker eventually used, enabling them to work backwards to an identity. This scenario shows KYT as an investigative superpower: turning a seemingly anonymous crime into a trackable series of events. The phrase “follow the money” now has literal, actionable meaning on blockchain.
  
  
• Scenario 3: Proactive Risk Management for a Crypto-Friendly Bank. Imagine a traditional bank that has begun offering cryptocurrency services to its clients. Management is justifiably concerned about the reputational and regulatory risks of handling crypto – what if clients inadvertently facilitate sanctions breaches or terrorist financing via crypto transfers? To address this, the bank integrates Elementus’s KYT platform into its compliance program. Now, whenever a client wants to send crypto from their bank-hosted wallet, the transaction is screened against a vast database of risky entities. One day, a corporate client attempts to send 250 ETH to a business partner. The KYT system instantly checks the destination address and finds it’s associated with an Iranian exchange on the OFAC sanctions list. The system blocks the transfer on the spot, sparing the bank from a potential sanctions violation. The compliance officer receives a detailed report: the address was flagged due to ties with a sanctioned entity, and thus the transaction was stopped automatically. In the past, the bank might have only known the customer’s info (via KYC) and maybe a vague idea of the transfer’s purpose, but now KYT gives them concrete intelligence about the transaction’s context. This empowers the bank to proactively manage risk, satisfying regulators and keeping them out of headlines.
  
  

These scenarios highlight a common theme: KYT turns blockchain’s transparency into actionable intelligence. Whether it’s an exchange, an investigation, or a bank, knowing your transactions means you’re not taking customers at their word; you’re verifying through evidence. And when that KYT capability is powered by a platform like Elementus, which enriches raw blockchain data with meaningful attribution, compliance teams gain a sort of X-ray vision into the flow of funds.

Elementus: Bridging blockchain data and compliance as the source of truth

Implementing KYT effectively requires sophisticated analytics – this is where Elementus shines as the bridge between the blockchain’s raw, opaque data and the compliance insights institutions need. Elementus positions itself as a “source of truth” for blockchain activity, providing an authoritative view that compliance officers and investigators can rely on with confidence. Here’s how Elementus delivers unique value in the KYT paradigm:

• Identity Attribution – Unmasking Blockchain’s Pseudonymity: On-chain, every account is just an alphanumeric address (e.g., 0xABC123...); by itself, that doesn’t tell a compliance officer much. Elementus solves this by maintaining a continuously growing identity database that maps blockchain addresses to real-world entities. In other words, Elementus adds an “identity layer” on top of blockchain data. Exchanges, DeFi protocols, darknet markets, sanctioned actors, scam wallets, you name it – the platform labels and clusters addresses so you know who is behind a transaction. The result is a digestible view of activity: instead of a spaghetti tangle of random addresses, you see a network of named actors and entity clusters. Elementus essentially de-anonymizes the blockchain (within legal and ethical bounds), turning pseudonymous addresses into recognizable names. For compliance teams, this is game-changing. It’s like switching from a black-and-white image to full color – suddenly the patterns and connections are clear.
  
  
• Comprehensive Data and “Source of Truth” Analytics: Elementus boasts one of the most comprehensive blockchain datasets in the industry, covering many different blockchains and tokens, all unified in one platform. This breadth matters because bad actors often hop between chains to obscure their trail. With Elementus, a compliance officer doesn’t need to manually chase data on Ethereum, then Bitcoin, then some obscure altcoin chain – the platform aggregates and connects all this data. Every transaction is mapped with context about where the funds came from and where they went. By mapping transactions at each step in a chain of transfers, Elementus leaves no blind spots behind. Because the data is both extensive and meticulously vetted, institutions can treat Elementus as a single source of truth. When an Elementus dashboard says an address is linked to illicit activity, compliance teams trust that attribution. This trust is one reason Elementus was selected as the blockchain intelligence and forensics advisor in high-profile cases like the Celsius and BlockFi bankruptcies. Courts and creditors needed an authoritative source of blockchain truth, and they chose Elementus.
  
  
• Real-Time Risk Scoring and Alerts: The Elementus platform doesn’t just show raw data, it provides actionable intelligence like risk scores. Every address or transaction can be evaluated based on exposure to various risk factors: is there interaction with known darknet markets, terror financing, ransomware wallets, or sanctioned entities? Elementus bakes these insights into an instant risk score with a detailed breakdown. A compliance officer viewing a transaction can immediately see why it’s risky (e.g., “10% of this wallet’s funds came from a darknet source, 5% from a sanctioned address”). Additionally, Elementus can generate real-time alerts for incoming or outgoing transactions that hit predefined risk criteria, much like a credit card fraud alert but for blockchain flows. This means even if compliance staff are not watching a screen 24/7, the system will proactively notify them of urgent issues. It’s an automated watchdog for KYT.
  
  
• Powerful Visualization and Ease of Use: Data is only useful if humans can interpret it. Elementus recognizes this and provides intuitive dashboards and visualizations. Users can literally see where funds originate and where they go, and who is behind them, in an easy-to-understand interface. Complex transaction paths are displayed as simple flow charts or graphs of linked entities. This visual clarity is crucial when explaining findings to stakeholders who may not be crypto-native, whether it’s a boardroom of TradFi executives or a team of regulators. By making on-chain activity “human-readable” and even friendly to non-technical users, Elementus ensures KYT isn’t just the domain of data scientists, but accessible to everyday compliance officers and investigators. After all, an insight that can’t be explained is an insight that likely won’t be acted upon. Elementus’s design prevents that problem.
  
  
• Integrating with Traditional Workflows: Elementus also serves as a bridge in a literal sense via integration. The platform offers APIs that can slot into banks’ or exchanges’ existing compliance systems. This means a compliance officer in a traditional bank can get the benefit of KYT on blockchain transactions within the tools they already use for AML, rather than having to learn a whole new system in isolation. For example, an alert from Elementus can feed into the same case management software where other AML alerts reside. This seamless integration underscores Elementus’s role as a translator between the new world of crypto data and the established world of financial compliance operations.
  
  

By combining these capabilities, Elementus empowers its users to do what was previously arduous or impossible: truly know what’s happening on-chain in real time, with confidence in the data’s accuracy. A compliance analyst using Elementus can pivot from a flagged transaction to a full profile of the addresses involved, see historical relationships, and even drill into which real-world entities are connected – all in a matter of clicks. This dramatically reduces the time it takes to investigate suspicious activity and improves the effectiveness of compliance decisions. It’s not an exaggeration to say that Elementus provides “unmatched visibility into who is transacting with whom on-chain,” fulfilling the promise of KYT for the crypto age.

A new compliance paradigm for a new era

The shift from KYC to KYT represents more than just another compliance requirement. It’s a fundamental change in how we safeguard the financial system. In a world where digital assets move in the blink of an eye and bad actors can spin up fake identities with disturbingly low effort, focusing only on “knowing your customer” is no longer enough. “Knowing your transactions” provides a level of integrity and insight that static IDs never could. KYT leverages the very features that make blockchains unique (transparency, immutability, global reach) and turns them into compliance strengths. Instead of fearing that crypto’s openness empowers criminals, KYT flips the script: that openness becomes law enforcement and compliance’s greatest asset, turning transparency into knowledge and risk mitigation.

Elementus stands at the forefront of this new paradigm. By bridging the gap between raw blockchain data and the practical needs of compliance and risk management, Elementus serves as the source of truth that organizations can depend on. Their identity attribution technology and comprehensive analytics ensure that every transaction’s story can be told: who was involved, what the context was, and whether it poses a threat. This empowers compliance officers to make informed decisions, regulators to get the oversight they require, and traditional financial executives to engage with crypto confidently and responsibly. When you have clarity into the flow of funds, you can proactively prevent illicit finance, swiftly investigate incidents, and manage risk in real-time.

From KYC to KYT is indeed a journey – one that reflects the maturing of both the crypto industry and compliance practices. Those financial institutions that embrace KYT (with capable partners like Elementus) will not only better protect themselves against fraud and penalties, but will also help elevate the overall trust and legitimacy of the crypto ecosystem. In the end, the new paradigm isn’t about choosing KYC or KYT, but uniting them. KYC gives us the who, KYT gives us the what, and together (with the help of advanced blockchain intelligence) we get the full picture needed to keep the financial system safe and transparent in the digital age.