Application Security & Online Fraud , Cryptocurrency Fraud , Fraud Management & Cybercrime

Chainalysis Expands Fraud Detection With Alterya Acquisition

Chainalysis purchased a fraud detection startup led by a longtime Israeli Military Intelligence commander to address the broader aspects of financial fraud.

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The New York-based blockchain data platform plans to integrate its existing blockchain analytics with Tel Aviv, Israel-based Alterya's advanced AI-driven mechanisms for identifying scams and fraud networks, according to Chainalysis CEO Jonathan Levin. The deal will allow Chainalysis to prevent fraud at various stages of the life cycle, moving upstream to address scams stemming from traditional financial settings.

"By complementing our really deep understanding of fraud networks on-chain, we can combine that with Alterya's collection of both on-chain data but also off-chain financial transaction data relating to banks, Zelle payments, Venmo, etc.," Levin said. "Together, we can actually make a real dent in the types of investment scams and scams writ large that are plaguing the general financial system."

Alterya, founded in 2022, employs 11 people and raised seed funding from Y Combinator, Battery Ventures and others. The company has been led since inception by Elad Fouks, who spent three years as a cybersecurity group leader for Israel's Unit 8200 and nine years as an Israeli Military Intelligence special operations commander (see: How Cybercriminals Are Converting Cryptocurrency to Cash).

The Benefits of Examining Traditional Banking Systems

Historically, Chainalysis focused on blockchain analytics to detect fraudulent activities in the cryptocurrency space, but scams can originate from traditional financial systems before moving to cryptocurrencies, he said. Alterya's core strength lies in mapping the financial infrastructure of scammers using both on-chain and off-chain data, helping Chainalysis provide end-to-end fraud detection for financial institutions.

"How do we scale the prevention of fraud against all individuals?" Levin said. "We started this in the cryptocurrency space by identifying investment scams and fraud that happens on the blockchain. And what Alterya is doing is mapping out all of the scammers' financial infrastructure, applying to not just on-chain information but also off-chain information from traditional real-time payments."

Scams often begin in traditional banking systems via bank transfers or payment apps, and by tracing these upstream activities, Chainalysis can stop victims from falling into scams before their funds reach blockchain networks, Levin said. Alterya's AI agents can identify scam websites that operate fleetingly, shutting down and restarting under new domains, which he said is vital for staying ahead of scammers.

"What this is going to allow us to do is move all the way upstream, so that we're also preventing scams before people fall victim to scams with their traditional bank account - or Venmo or Zelle," Levin told Information Security Media Group. "It allows us to move upstream and start to prevent more of these scams earlier in the scam life cycle, if you will, then all the way downstream on the blockchain."

Alterya's AI agents are adept at collecting real-time intelligence from scammers' interactions, and Levin said Chainalysis plans to leverage its blockchain analytics and clustering technology to enhance Alterya's data collection, ensuring greater fraud detection accuracy. The integration will create a new vertical, and sales teams will offer Alterya's fraud prevention tools alongside Chainalysis' compliance tools, he said.

"What Alterya has been able to do is actually build AI agents and deploy them at scale to be able to interact with scammers and be able to then extract intelligence from that," Levin said. "We'll have much more comprehensive coverage of some of these fraud networks, which will be really useful for our public sector customers that will be looking at some of this data to uncover broader fraud networks."

How Alterya's Data Can Assist Beyond Payment Flows

Fraud often begins with victims being tricked into transferring funds through traditional systems before the money is converted to cryptocurrency, and with Alterya's technology, Chainalysis can now intervene before scams escalate. Alterya's data serves customers in exchanges, traditional financial institutions and the public sector, and Levin envisions an expansion into markets with real-time payment systems.

"You'll see us particularly focus in the U.S., but you'll see us also expand into other markets where there are real-time payment systems in Europe and Latin America and other parts of APAC over time," Levin said.

Alterya's fraud intelligence data has application beyond payment flows, and Levin said CISOs can use this data in fraud detection, access management, onboarding processes and compliance workflows. Alterya's intelligence can be incorporated into data warehouses and monitoring tools, and Levin said this data could be used beyond fraud detection to boost monitoring and security frameworks within banks.

"One of the things that we are thinking about on the Alterya side is making sure these indicators that Alterya is collecting about the scammers' financial infrastructure can definitely go into lots of different places," Levin said. "We are talking to that community about where this data really can be valuable, not just in the payment flow but maybe even in other parts of monitoring the bank's information security."

The Alterya acquisition comes less than a month after Chainalysis purchased web3 security provider Hexagate, and while the company remains open to strategic acquisitions in the risk and fraud detection domain, Levin said "The immediate focus is on integration. Future M&A will target tools that complement Chainalysis' risk management solutions, with a measured approach to integration."

"We're remaining open to looking at transactions in that domain, but these acquisitions will take us some time to digest, and we are going to be very focused this year on making sure that happens," he said.