Know Your Transaction (KYT)
Know your transaction, or KYT, is the practice of screening individual transactions and the counterparties behind them, particularly on-chain, rather than relying only on what was established about the customer at onboarding. It answers a different question: not who this customer is, but where this particular payment came from.
Also called: transaction screening
A know your transaction check looks at the payment rather than the payer. In crypto that usually means running the counterparty address through blockchain analytics before a deposit is credited or a withdrawal released, and reading what the address is attributed to and what it has been exposed to a few hops back.
Outcomes are graded rather than binary. A clean address passes. Indirect exposure to a flagged cluster may prompt a question to the customer about where the funds came from. A direct hit on a sanctioned address stops the transaction and becomes a reporting matter. The same logic sits behind fiat transaction monitoring. What differs on-chain is that the counterparty’s history is public and can be read before the money moves rather than after.
In practice
KYT screens transactions and counterparties. It supplements customer due diligence rather than replacing it, and a firm running KYT alone has screened its payments without ever establishing who its customer is.
Commonly confused with
| Term | How it differs |
|---|---|
| Customer Due Diligence | Due diligence establishes and periodically refreshes who the customer is; KYT looks at each transaction as it happens and at who is on the other side of it. |
| Transaction Monitoring | Transaction monitoring largely looks for patterns in a customer’s own behavior over time; KYT asks what a specific counterparty or address is, usually before the transaction is allowed to complete. |
See also
- Blockchain AnalyticsBlockchain analytics is software that traces transactions across a public chain and attributes addresses to entities and risk categories — exchanges, mixers, sanctioned parties, darknet markets. Crypto businesses use it to screen counterparties, monitor flows and investigate alerts.
- Transaction MonitoringTransaction monitoring is the ongoing review of customer activity — automated rules and models plus human investigation — against what the firm expected that customer to do and against known laundering patterns. Activity that does not fit produces an alert for someone to work.
- Customer Due DiligenceCustomer due diligence, or CDD, is the baseline set of checks a regulated firm performs on a customer: who they are, who owns and controls them, and what activity to expect. It is done at onboarding and then kept current for as long as the relationship lasts, with risk rather than a fixed calendar setting when it is revisited.
- Travel RuleThe travel rule requires the firm sending a transfer to pass identifying information about the originator and the beneficiary to the firm receiving it, so that the data travels with the money. It began as a banking wire rule and now reaches virtual asset transfers as well.