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- Chainalysis integrates support for the Bitcoin Lightning Network
- The Chainalysis Know Your Transaction compliance software is now available to firms that process BTC payments through the sidechain
- Since the beginning of this year we have observed that the adoption of the sidechain has surged at a tremendous pace
Chainalysis, the blockchain data platform has integrated the Bitcoin sidechain, the Lightning Network. The latest integration of the Layer-2 protocol on the Bitcoin blockchain will make the Chainalysis Know Your Transaction compliance software available to firms that process BTC payments through the sidechain. Ultimately, all the virtual assets service providers (VASPs) like exchanges platforms will be able to handle BTC transactions in a way that’s compliant with the global standards. According to a spokesperson from Chainalysis, there won’t be any change from the user experience of the Lightning Network.
Chainalysis aims to boost the network’s popularity
Financial Action Task Force (FATF) is an international body that maintains best practices for anti-money laundering. As Chainalysis used the term VASP in its press release, it has come directly from the agency’s updated guidance. Although the authority has no power to issue fines, it does maintain a gray list for nations that it feels warrant increased scrutiny. Moreover, FATF also maintains a black list for ones that have been uncooperative with it. While following one of those lists of the authority that tends to economic sanctions from the other participating FATF nations, like the United States, and it can take years to get off the lists.
The most recent changes alter the organization’s definition of a VASP that has excluded ancillary participants that do not give or actively facilitate any of covered activities. Such participants include entities which provide Internet or cloud services. Notably, such measures would leave out developers who contribute to open source projects and crypto miners.
Furthermore, the other change, which updates the “travel rule,” pertains more to the kind of data that institutions will be able to collect with the Know Your Transaction compliance software. The travel rule requires financial platforms to share data with other institutions when transacting. The international organization specified that information for cryptocurrency transactions of $3k or more between VASPs, but not private parties, will all fall under the umbrella of the travel rule.
According to Pratima Arora, CPO at Chainalysis, the Bitcoin sidechain solves many challenges that prevent the protocol from being used for micropayments. Moreover, the Lightning Network also helps make transactions that bolster financial inclusion. Hence, while enabling users to compliantly support the sidechain, Chainalysis hopes to grow the network’s popularity and help that scale.
Lightning Network adoption has been soaring
Since its establishment, Lightning Network has shown its potential for micropayments on the BTC blockchain. Since the beginning of this year we have observed that the adoption of the sidechain has surged at a tremendous pace.
According to Bitcoin Visuals, the count of nodes on the network had grown by more than 68% in 2020. However, this year the network became part of the Salvadoran government’s rollout of BTC as legal tender. Moreover, Twitter also integrated the network for its tipping feature. Following the facts, this year the node count has surged by more than 128%.
Chainalysis’s compliance don’t cover new tax reporting
According to the spokesperson from Chainalysis, the compliance capabilities of their Know Your Transaction don’t cover new tax reporting provisions. Notably, he talked about the provisions in the $1.2 trillion infrastructure package that was signed by President Biden last month. Furthermore, the other provision that categorizes any individuals or firm in a crypto transaction as a broker would require the collection and filing of tax information to the Internal Revenue Service (IRS).
