December 10 2023

Assessing Risks Using AML Protocols – How Is It Done? What Are The Benefits?

Decentralized economies and blockchain payments are the most trending topics in today’s world of finance. These aspects incorporate advanced technologies with robust financial solutions that serve humanity. 

However, the introduction of these technologies is usually accompanied by security and safety concerns, and the prerequisite for centralized finance to adopt these solutions is to adhere to security measures that ensure integrity and transparency.

Anti-money laundering protocol is a well-known code for traditional finance, ensuring all companies act in good faith and leaving no room for illicit activities to take place. How do AML practices work? Let’s explore.

Introducing AML: Anti-Money Laundering Protocols

Let’s understand how the decentralized economy works. Decentralization refers to the shared control and lack of central control over money transactions and processes. Thus, users share the power over these platforms, and any changes or developments are agreed upon with consensus.

Crypto transactions promote security by concealing the identity of involved parties, whereas only the crypto wallet address and amount are shown and registered in the blockchain without revealing names or locations. 

These features provide unprecedented identity preservation. However, it also opens the door for suspicious activities and illicit businesses to prevail, taking advantage of the lack of observation and unified control.

Therefore, platforms are increasingly adopting security practices that ensure the safety of their applications and users’ funds, especially in light of the increasing number of crypto hacks and cybersecurity threats. 

AML Risk Assessment Steps

Anti-money laundering protocols aim to prevent and not resolve, using observatory software. These practices are usually applied in conjunction with KYC (Know Your Client) procedures to ensure only legitimate entities exist in the system. AML practices usually follow these steps.

Data Collection

AML systems continuously track and collect data about transactions and operations to create a database of benchmarks. Thus, the system can track and identify what is right from wrong in the network. The first step in AML practices is to observe the system and transactions as they happen unstoppably.

Risk Isolation

Advanced algorithms and software are deployed to detect anomalies in the system using created benchmarks and databases. This step includes finding suspicious activities in the network and isolating them for further analyses to assess their risk and implications. 

Risk Assessment

The system then analyses incidents and suspicious transactions, determining their potential impact and seriousness on the network. This step may also include collecting detailed information like locations, wallet addresses, and if such activity happened previously. 

Mitigation & Suspension 

The analysis step can be conducted by humans, automated systems, or a combination of both to take the proper course of action. These mitigation steps may include suspending the activity or delaying it to minimize its impact.

Reporting Events

Documenting and reporting incidents is crucial for many reasons. The algorithm can learn from previous incidents and quickly stop them from happening again if they occur. Moreover, it helps in improving security systems to prevent such activities from repeating.


Anti-money laundering protocols are steps taken to prevent malicious actors from carrying out illicit activities in the system. These steps involve an automated system that tracks and reports suspicious activities and mitigating and isolating them before they happen.


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