Chainalysis Embraces Lightning Network Integration within Their Blockchain System
In a move aimed at enhancing the compliance of Bitcoin transactions, Chainalysis, a leading blockchain analysis firm, has announced its support for the Lightning Network. This second-layer protocol, built on the bitcoin blockchain, is designed for quick, high-volume micropayments without relying on third parties.
Since its launch in 2018, the Lightning Network has seen significant growth. According to data, the number of active nodes on the network has increased by 128 percent since January 2021. As of December 1, 2021, approximately 3,600 BTC worth over $205 million was locked in public Lightning Network channels.
The integration of Chainalysis' Know Your Transaction (KYT) compliance software with the Lightning Network is a significant step towards making Bitcoin transactions compliant with international standards. This integration will pre-screen Lightning Network withdrawals and behavioural alarms, allowing companies handling Bitcoin payments through Lightning nodes to meet their regulatory obligations.
Pratima Arora, Chainalysis' chief product officer, stated that the Lightning Network solves challenges preventing Bitcoin's use for micropayments and other transaction types that promote financial inclusion. She further added that this integration will enable virtual asset service providers (VASPs), such as exchanges, to process Bitcoin transactions in accordance with international standards.
One such VASP expected to benefit from this integration is Square (now Block, Inc.). The company, known for its Bitcoin-friendly stance, is expected to start processing Bitcoin transactions according to international standards by integrating Chainalysis software for the Lightning Network in February 2022.
The increased adoption of the Lightning Network in 2021 can be attributed to several factors. The Salvadoran government's adoption of Bitcoin as legal cash and Twitter's integration of Bitcoin for its tipping feature have significantly contributed to its growth. The network is now commonly used for sending and receiving smaller payments like tips and remittances using Bitcoin.
In conclusion, the integration of Chainalysis' KYT software with the Lightning Network marks a significant milestone in the compliance of Bitcoin transactions. This move is expected to foster greater adoption of Bitcoin for micropayments and other transaction types, promoting financial inclusion.
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