How the scoring works
Blockchain analytics firms spend years building a map. Addresses get grouped into clusters that belong to the same operator, clusters get labelled by what they are, and every transfer between them is recorded.
When a payment arrives, the screening service traces its path backwards through the recent hops and checks what it touched. Each source category carries a weight, and the result comes back as a risk score with a breakdown.
Categories that push a score up include sanctioned entities, darknet marketplaces, known ransomware addresses, and mixing services designed to break the trail. Categories that pull it down include large regulated exchanges and long-established merchant services.
The main vendors are Chainalysis, TRM Labs and Elliptic. A payment provider licenses one and runs every transfer through it.
What happens when a payment scores high
Depends on how high and on the provider’s policy.
A moderate score usually means the transfer proceeds and is logged for review. A high score triggers a hold and manual examination. A direct hit on a sanctions list stops the payment and creates a reporting obligation.
Nothing about this is visible to the customer in the ordinary case. A transfer that scores clean is credited in the normal way, and the screening added a second to the process.
Why KYT is what makes payer verification unnecessary
This is the connection worth understanding, because it explains an arrangement that otherwise looks like a loophole.
A payment provider has two ways to manage risk on incoming funds. It can identify every person who sends money, which is KYC and requires documents from strangers who have no relationship with it. Or it can evaluate the money itself, which is KYT and requires nothing from anyone.
For a merchant’s customers the second approach is both less intrusive and, in crypto, more informative. A passport tells you who someone claims to be. A traced transaction history tells you where the funds have actually been, and it cannot be faked.
That is why a gateway can verify the merchant through KYB, screen every payment through KYT, and never ask the payer for anything, while remaining inside its obligations.
What KYT cannot do
Two limitations worth stating, because a score presented without them reads as more definitive than it is.
It describes the path, not the person
A wallet that received clean funds from someone who received tainted funds inherits part of that history. The current holder may have no connection to any of it.
It depends on labelling
Analytics firms identify clusters by observing behaviour, and a service nobody has labelled yet returns as unknown rather than as clean. New exchanges and small regional platforms sit in that gap for a while.
Scores are therefore an input to a decision and not the decision itself. Providers combine them with volume patterns, merchant category and history before acting.