Know Your Transaction, popularly known as KYT, is a regulatory requirement that allows banks and other financial institutions to monitor transactions and check for possible fraudulent activities. The idea behind the Know Your Transaction process is to detect irregular transactions by a customer, such as extremely large amounts and the frequency of such transactions, as well as any suspicious send or receive wallet addresses involved in the transaction.
KYT is an offshoot of Know Your Customer (KYC), which lets banks and crypto exchanges learn more about their customers in order to prevent any money laundering or terrorist financing activity.Centralized cryptocurrency exchanges are required to have a KYT mechanism in place to check for potential fraud. General models for an effective KYT process involve learning about both parties of the transaction and flagging irregularly high amounts of asset transfers and illegal entities such as sanctioned individuals or countries.
For better KYT services, crypto exchanges usually outsource it by deploying specialized solutions to detect the unusual behavior of users. This is usually done by utilizing blockchain technology to track sanctioned addresses or dark markets. KYT is also in the interest of users to be protected from potential scammers.