New York-based Chainalysis will provide anti-money laundering and transaction-monitoring services to BITBOX, said Jonathan Levin, co-founder and chief operating officer of Chainalysis.

Singapore-based BITBOX is a unit of LINE Corp, operator of LINE, Japan's largest social networking company, with more than 700 million users. LINE is a subsidiary of South Korean internet search giant Naver Corp.

LINE's and BITBOX's foray into cryptocurrencies highlights a trend by social networking companies to enter this red-hot sector. Facebook Inc on Tuesday unveiled a proposed cryptocurrency called Libra.

Telegram, a messaging service founded by Russia-born entrepreneurs Pavel and Nikolai Durov in 2013, last year launched a digital currency offering.

"We're seeing interest from social network firms like LINE, like Telegram to really enter into payments and into the cryptocurrency industry," Levin told Reuters in an interview.

"LINE is providing the ability to go in and out between normal and traditional currencies ... and they need to be able to mitigate the risk of money laundering at the exchange point because that is the regulated entity," he added.

The social networks' vast user bases serve as a powerful foundation for expansion into cryptocurrency, Chainalysis said. But it added that as these companies become more involved in the space, further compliance procedures will be necessary in line with what regulators want for this industry.

(Reporting by Gertrude Chavez-Dreyfuss)

By Gertrude Chavez-Dreyfuss