> For the complete documentation index, see [llms.txt](https://docs.ospree.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.ospree.io/learn/glossary.md).

# Glossary

| Term                                               | Description                                                                                                                                                                         |
| -------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| AML (Anti-Money Laundering)                        | The overarching framework of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.                         |
| Blockchain Analytics                               | The use of specialized software to trace cryptocurrency transactions across the ledger to identify illicit activity, map wallet networks, and risk-score entities.                  |
| CASP (Crypto-Asset Service Provider)               | The regulatory classification used within the EU's MiCA framework to describe businesses providing crypto services (analogous to the FATF term "VASP").                             |
| CDD (Customer Due Diligence)                       | The foundational process of verifying a customer's identity and assessing the risks associated with doing business with them.                                                       |
| CFT (Combating the Financing of Terrorism)         | Policies and regulations specifically aimed at investigating, preventing, and cutting off funding to terrorist organizations.                                                       |
| Chain Hopping                                      | The money laundering tactic of rapidly moving funds across different blockchains, often using cross-chain bridges, to obfuscate the money trail.                                    |
| Counterparty VASP Due Diligence                    | The process of evaluating the regulatory status, security, and compliance posture of a partner exchange before transmitting Travel Rule data or user funds to them.                 |
| Custodial Wallet                                   | A cryptocurrency wallet setup where a third-party business (like an exchange) manages the private keys and secures the user's digital assets.                                       |
| Darknet Market (DNM)                               | Illegal commercial websites on the dark web where illicit goods (drugs, stolen data) are bought and sold, heavily reliant on cryptocurrencies for untraceable payments.             |
| DeFi Compliance                                    | The emerging, complex challenge of applying regulatory requirements (like KYC/AML) to decentralized, smart contract-driven protocols that lack central intermediaries.              |
| Dusting Attack                                     | A tactic where microscopic amounts of crypto ("dust") are sent to thousands of wallets. The goal is to track the subsequent flow of those funds to de-anonymize wallet owners.      |
| EDD (Enhanced Due Diligence)                       | A stricter level of background checks, source-of-wealth requests, and ongoing monitoring applied specifically to high-risk customers.                                               |
| FATF (Financial Action Task Force)                 | The inter-governmental body that sets global standards for combating money laundering and terrorist financing (creators of the VASP designation and Travel Rule).                   |
| FinCEN (Financial Crimes Enforcement Network)      | A bureau of the U.S. Treasury Department that collects and analyzes information about financial transactions to combat domestic and international financial crimes.                 |
| FIU (Financial Intelligence Unit)                  | A national agency responsible for receiving, analyzing, and disseminating financial intelligence gathered from suspicious activity reports submitted by businesses.                 |
| Heuristics                                         | In blockchain analytics, algorithms or rules of thumb used to cluster wallet addresses and identify behavioral patterns that indicate the true owner or risk level of an entity.    |
| IVMS 101 (InterVASP Messaging Standard)            | A universal data model standard developed by the crypto industry to format and exchange Travel Rule information smoothly between different businesses.                              |
| KYB (Know Your Business)                           | The due diligence procedures used to verify the legal existence, structure, licensing, and ownership of a corporate entity before doing business with them.                         |
| KYC (Know Your Customer)                           | The mandatory process of identifying and verifying the real-world identity of an individual client when opening an account.                                                         |
| KYT (Know Your Transaction)                        | The continuous monitoring of a user's financial transactions—specifically on-chain—to detect suspicious activity, trace fund flows, and assess real-time risk.                      |
| Layering                                           | The second stage of money laundering, involving complex financial maneuvers (like moving crypto through mixers or multiple wallets) to distance funds from their illicit origin.    |
| MiCA (Markets in Crypto-Assets)                    | The European Union's comprehensive, unified regulatory framework for crypto-assets, defining licensing, operational, and consumer protection rules.                                 |
| Mixer / Tumbler                                    | A service or smart contract that pools various cryptocurrency deposits together and redistributes them at random times and amounts to intentionally break the trail of funds.       |
| OFAC (Office of Foreign Assets Control)            | The U.S. Treasury agency that administers and enforces economic and trade sanctions based on U.S. foreign policy, frequently maintaining lists of sanctioned crypto addresses.      |
| PEP (Politically Exposed Person)                   | An individual entrusted with a prominent public function (or their close associates), making them a higher risk for potential involvement in bribery and corruption.                |
| Placement                                          | The initial stage of money laundering, where illicitly obtained funds (e.g., stolen crypto or fiat) are first introduced into the legitimate financial system.                      |
| Privacy Coin                                       | Cryptocurrencies (e.g., Monero, Zcash) built with advanced cryptographic techniques to intentionally hide transaction details (sender, receiver, amount) from public ledgers.       |
| Proof of Reserves (PoR)                            | An independent audit or cryptographic proof demonstrating that a custodian holds sufficient on-chain assets to 1:1 cover all of its customers' fiat or crypto balances.             |
| Risk Score                                         | A numerical rating assigned by compliance software to a blockchain transaction, wallet address, or user profile indicating the likelihood of involvement in illicit activity.       |
| Risk-Based Approach (RBA)                          | A core compliance methodology where a business assesses the specific risks it faces and allocates its compliance resources proportionately to mitigate the highest threats.         |
| Sanctions Screening                                | The process of checking customers, business partners, and blockchain addresses against national or international watchlists to ensure they are not legally restricted.              |
| SAR / STR (Suspicious Activity/Transaction Report) | A formal document filed by compliance officers to regulatory authorities (like FinCEN) when they detect user behavior that indicates potential criminal activity.                   |
| Smart Contract Audit                               | A rigorous, independent review of the code underpinning a crypto token or application to identify security vulnerabilities and ensure compliant execution.                          |
| Smurfing                                           | A money laundering technique where a large sum of illicit money is broken down into many smaller transactions, carried out by multiple individuals ("smurfs").                      |
| Source of Funds (SoF)                              | The requirement to provide documentation showing the exact origin of the money or crypto being used in a specific transaction (e.g., a bank statement or trading receipt).          |
| Source of Wealth (SoW)                             | A deeper compliance check requiring documentation that explains how a customer acquired their total net worth, usually required during Enhanced Due Diligence.                      |
| Structuring                                        | The act of deliberately breaking up large transactions into smaller ones specifically to remain under the legal threshold that triggers mandatory regulatory reporting.             |
| Sunrise Issue                                      | The major compliance bottleneck caused by the Travel Rule taking effect at different times in different countries, creating a mismatch between regulated and unregulated exchanges. |
| Transaction Monitoring                             | The real-time or retroactive algorithmic screening of a customer's fiat and crypto transfers to flag anomalies, velocity breaches, or sanction hits.                                |
| Travel Rule Protocol (TRP)                         | An open standard messaging protocol created to allow VASPs to securely communicate and exchange required compliance data without a central intermediary.                            |
| UBO (Ultimate Beneficial Owner)                    | The natural person(s) who ultimately owns or controls a corporate entity, typically defined by crossing a specific percentage threshold of equity or voting rights.                 |
| Unhosted Wallet / Self-Hosted Wallet               | A non-custodial cryptocurrency wallet (like MetaMask or Ledger) where the user retains complete, sole control over their private keys, heavily scrutinized by modern regulators.    |
| VASP (Virtual Asset Service Provider)              | FATF's global regulatory term for any business that conducts exchanges, transfers, safekeeping, or administration of virtual assets on behalf of customers.                         |