There are presently over 80 million cryptocurrency wallets that are conducting transactions on the Ethereum (ETH) network, the world’s second-largest blockchain-based platform.

Notably, there are around 100,000 additional crypto wallets being created each day. As confirmed by “Big Four” accounting and professional services firm KPMG, approximately half of firms with over $5 billion in annual revenue are currently using distributed ledger technology (DLT)-based software. Moreover, most of the companies are building solutions using the Ethereum protocol.

As mentioned in a Medium blog post, published on May 27, 2019, by Crystal Blockchain (an “all-in-one” developer of blockchain analytics tools), Ethereum is the preferred blockchain among businesses and non-profits. This, as it provides innovative fundraising mechanisms, smart contract functionality, and an extensive and rapidly expanding services layer.

More Than 500 Ethereum-based dApps Launched in Q1 2019

Although Ethereum-based decentralized applications (dApps) provide a variety of new use cases such as protocols for launching peer-to-peer (P2P) exchanges and prediction markets,

these core technologies “do bring new risks.” This, according to research performed by Crystal Blockchain, which helps firms manage these risks by providing tools to analyze Ethereum wallet “activities, risk scores, and transactions.”

Significantly, Crystal Blockchain’s report confirms that Ethereum remains the dominant smart contract platform, despite increasing competition from EOS and Tron (TRX). Notably, there were over 500 Ethereum-based dApps deployed during Q1 2019.

Blockchain Startups Must Be “Auditable from Day One”

According to Crystal Blockchain’s research and development (R&D) team, the blockchain ecosystem needs a comprehensive regulatory framework for businesses looking to use Ethereum-based products (in addition to other cryptoasset platforms). The organization conducting transactions on Ethereum must be “auditable from day one”, Crystal Blockchain’s blog states.

The New York State Department of Financial Services (NYFDS) has rejected several BitLicense applications due to a lack of “customer due diligence” and adequate “transaction monitoring” services. Crystal Blockchain’s researchers believe that the NYDFS may not have approved certain BitLicense requests due to a “lack of adequate auditing procedures or tools in place.”

In order to contribute to the evolving crypto ecosystem regulations, the Crystal Blockchain team has developed proprietary analytics tools for auditing Ethereum-based transactions. The firm’s tools can also reportedly “compute risk scores” for organizations and individuals using Ethereum protocol-based products.

Differences Between Ethereum And Bitcoin Blockchain Transactions

Unlike the Bitcoin (BTC) blockchain, the Ethereum-based network processes both internal (private) and regular (public) transactions. This, Crystal Blockchain’s blog notes, can potentially “impede analysis” and also “obscure accurate visualizations” of onchain transactions.

Per the blockchain analysis firm, the Ethereum network is more difficult to monitor when compared to this Bitcoin blockchain. This, as ETH transactions “only have one input and one output” and effectively analyzing such transfers requires more sophisticated algorithms, Crystal Blockhain’s blog states.

Ether-based transactions are also more difficult to analyze because there are two different types of Ethereum addresses – including those used for user accounts and user contracts. The different types of Ether addresses are used to execute various kinds of transactions (regular, calls, uncle, among others), Crystal Blockchain’s blog notes.

In Marcy 2019, the Crystal development team launched its full Ethereum analytics tools which reportedly feature the firm’s proprietary algorithms for monitoring and auditing the world’s largest smart contract platform.

Using Traditional KYC Tools and Advanced Crypto Analytics for Auditing

Crystal analytics software provides “risk scoring” for major crypto networks including Bitcoin, Bitcoin Cash, and Ethereum blockchain “transactions, addresses, and entities”, the company’s blog states.

As explained in the blog post, the Crystal software suite offers “transactional and cluster labeling” for new cryptocurrency tokens. This type of auditing, the Crystal team explains, is important to ensure consumer protection and transparency of business operations.

Crystal Blockchain’s management stated:

“We envision a dual verification process that uses the best of traditional know-your-customer (KYC) tools alongside a strong crypto analytics platform like Crystal. In the future, we expect platforms like Crystal to be part of a suite of digital identity protection and verification tools built on blockchain technology.”

The views and opinions expressed in the article Ethereum Blockchain-based Products Must Be “Auditable from Day One” to Ensure Compliance do not reflect that of 48coins, nor of its originally published source. Article does not constitute financial advice. Kindly proceed with caution and always do your own research.

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