The importance of blockchain analytics increases alongside the increase in real world usage of blockchains. In this article, we explain what blockchain analytics is and how it can help you make better investing decisions.
Data is the new oil in the digital world we live in. The largest companies possess the most amount of data. It wouldn’t be surprising if Facebook and Google know you better than you know yourself. With the amount of power and insights that data can provide, it’s no surprise that these companies keep the data behind their walled gardens. Their business models are largely predicated on their ability to amass large amounts of data and utilize them well.
It’s a similar story when it comes to investing. Large financial institutions are leaning on data to help make decisions. Whoever has the most amount of data and ability to analyze it will be able to make the best investment decisions. Similarly, most of this information is kept private and your common man cannot gain access to it.
The rise of blockchain technology offers an alternative future. A future where information and data is more open and accessible. A future not built behind the walled gardens of a few conglomerates. A future where the information gap between an individual and institution is marginal at best.
Let’s begin by explaining what a blockchain is.
Blockchains are digital ledgers that are immutable, distributed and decentralized. They are made up of blocks of data that are chained together in chronological sequence. Due to their decentralized and open nature, a public blockchain is transparent. Anyone can take a look at the transactions that are occurring in real time and understand what’s happening on the blockchain.
Analytics are only as powerful as the amount and transparency of data available. Blockchain analytics is the act of inspecting, identifying, understanding and visualizing data on a blockchain. Doing so allows users to gain valuable insights that would otherwise be hidden in traditional systems.
This has tremendous value to regulators, law enforcement, companies and even individuals like you and I. Regulators and law enforcement have the ability to have full visibility on illicit transactions and track the movement, allowing them to uncover the identities of the criminals over time. Companies are able to have full visibility over transactions made by vendors or third parties and ensure legitimacy of those claims. Individuals are able to have visibility on what smart money is doing and make better informed decisions, leveling the playing field.
Data that’s stored in the blocks on a blockchain has to be extracted and processed into easily readable formats. Ethereum ETL is an open source project that allows users to convert blockchain data into convenient formats such as CSV. Nansen, whose core team members are the main contributors to Ethereum ETL, leverages it to get on-chain data and displays the data in easily digestible dashboards. You’re able to query the data yourself using Google’s BigQuery should you wish to do so.
Nansen takes it a step further by labeling crypto wallet addresses. Crypto wallets are digital wallets that you can store your cryptocurrencies in. Each wallet has a unique address which acts as a unique identifier when carrying out transactions. Having wallet addresses labeled allows us to know who is carrying out transactions on top of having visibility of the transactions that are occurring. This gives users of the platform the ability to track specific entities and be aware of what transactions they are executing at any given time. Knowing who and what kinds of transactions are happening gives users additional clarity and the ability to gain more insight.
Wallet Label example (Pranksy)
Nansen Smart Money DEX trades dashboard
Nansen Smart Money token holdings dashboard
There’s a ton of noise in the crypto markets, being able to cut through all of that and surface the signal has immense value. Blockchain analytics helps to surface new opportunities, do due diligence and using platforms such as Nansen, you’re able to set up alerts to get real time notifications on certain events. You’re able to make more informed investment decisions by knowing who and what transactions are happening on a blockchain as they happen. Seeing many funds starting to load up on a particular token? Might be a good time to buy some. Noticing an increase in the number of notable NFT holders starting to sell NFTs of a particular project? Might be wise to reduce your exposure.
Here are brief examples on how blockchain analytics can help:
Being early is everything in crypto. It’s the difference between getting 10% gains and 10x gains. However, with the number of new projects appearing everyday, it’s increasingly difficult to keep track of everything that’s happening.
Nansen helps to surface the signal and allow you to focus your time on projects that matter, as early as possible. “Hot contracts” dashboards on the homepage give an overview of the hottest smart contracts that have launched recently, ranked by the number of smart money interacting with the contract. Hot contracts covers all sorts of smart contracts: NFTs, staking pools, liquidity pools, tokens themselves. Smart contracts that have a large number of smart money interacting with it are typically projects worth checking out and reading up on.
Hot contracts dashboard on Nansen homepage
Taking a look at overall volume flow of NFTs and tokens is another way to discover projects that might be worth looking into. These projects have typically been around for awhile and are sorted by the amount of volume they’ve had during the last 24 hours. One thing to note is that “Hot NFTs” reflect the total volume of all transactions and not just smart money transactions.
Hot NFTs & Smart money token holdings dashboard
Smart money token inflow and outflow dashboards
After the discovery phase, you’re able to dive deeper into the on-chain activity to get a fuller understanding of what’s happening behind the scenes. This gives you an added dimension to your due diligence process beyond reading up on the fundamentals of the project.
For example, looking at NuCypher (NU) on the “Token God Mode” dashboard let’s you take a deeper look into the balance changes of notable wallets holding the token. You’ll be able to decipher if the change was due to a single wallet or if it’s possibly the start of a wider trend that’s worth keeping an eye on. Other useful data include the number of unique addresses for tokens and the token seniority distribution which shows the breakdown of the duration that holders have held their tokens for.
NuCypher (NU) “Notable Wallets” dashboard
NuCypher (NU) “Hodlers” dashboard
Using “NFT God Mode” lets you check out the types of buyers buying the NFT over the past few days. This helps you decide if it’s worth “ape-ing in” by checking if smart NFT buyers are buying at the current prices. Taking a look at the “Hodlers” dashboard allows you to get a view of the number of smart money holders over time and the percentage of addresses that only own 1 NFT from the project. Having a high percentage of addresses only holding 1 NFT makes it less likely that current holders will sell their NFT, potentially creating a floor price that’s more sustainable.
Azuki “Individual Transaction” dashboard
Azuki “Hodlers” dashboard
Nansen’s Smart Alerts helps keep an eye on tokens or smart money addresses. Smart alerts can be sent to discord, telegram and even slack. This gives you real time notifications of events that you’ve specified in the alert. Having real time alerts gives you the ability to react quickly and as mentioned earlier, being early is extremely important. It also removes any external noise and lets you focus on getting signals for things that you care about.
Nansen’s Smart Alerts set up
How the alerts look like in Discord
At its core, a blockchain powered future is one that’s transparent and inclusive. Having more data transparency allows for more analysis and experimentations to occur. It democratizes the power that comes along with ownership of data and creates a more inclusive future. Power is no longer limited to institutions or large corporations but instead in the hands of everyone with an internet connection and a computer.
Having business transactions and financial records of a company on an open ledger allows for the same amount of scrutiny in the private markets as the public markets. Analytics can help uncover fraudulent activity and reduce the chance that we get another Theranos like situation.
Transparent transactions allow regulators and law enforcement to crack down on illicit activity with the use of blockchain analytics tools. Better tools give them the ability to trace transactions and figure out the identity of the person behind the transactions. Compliance teams within organizations themselves are also empowered by this. They’re better able to catch any fraudulent or illicit activity that happens within the company.
Blockchain analytics can empower better predictive modeling to be done. By analyzing the transaction data of users of the blockchain, you are able to come up with predictions on future trends. This can have interesting use cases such as using on-chain data in algorithmic trading. Exchanges can analyze users' buying behavior and recommend new tokens that the user has never bought before but might be interested in.
Perhaps the most powerful thing that blockchain analytics enables is that the average person gets more data savvy and is empowered by analytics. Over time, more people will understand that data is now available to them and get more familiar with leveraging it to make better and more informed decisions. Blockchain analytic tools become invaluable in their daily lives.
The importance of blockchain analytics increases alongside the increase in real world usage of blockchains. Blockchain analytics allow you to make full use of the transparency that comes along with the technology. It helps you to see beyond the surface to understand what’s actually happening on-chain. It gives everyone the opportunity to keep up with what smart money is doing and make better investment decisions. Blockchain analytics is a crucial tool that law enforcement leverages on. It allows them to trace transactions and screen for illicit or suspicious activity that’s happening on-chain. While the idea of having access to so much data might be a foreign concept to most people today, it’s only a matter of time before users understand the usefulness of blockchain analytics tools and become smarter money.