A new paradigm
Data is the new oil in the digital world we live in. The largest companies possess the most amount of data, and their business models are largely predicated on their ability to amass large amounts of data and utilize it well. Users have little control over what data is collected and used and have almost no way to access the sea of data that large institutions keep private for their own benefit. The rise of blockchain technology offers an alternative future – a future where information and data are more open and accessible, not built behind the walled gardens of a few conglomerates, and where the information gap between an individual and an institution is marginal at best. While blockchains are transparent and their data available to anyone, fully utilizing it is challenging for most. Analytics platforms make it more accessible for the masses to gain insights from blockchain data.
What is blockchain analytics?
Let’s begin by explaining what a blockchain is.
Blockchains are digital ledgers that are immutable, distributed, and decentralized. Each transaction and activity on a blockchain is recorded and stored in blocks of data, linked in chronological sequence—hence the name “Blockchain”. Due to their decentralized and transparent nature, data on a public blockchain is accessible to anyone. However, raw data often lacks full context and is not easily deciphered by most people. This is where blockchain analytics platforms, such as Nansen, become essential. These platforms decode, aggregate, and visualize data in an easily understandable format.
The effectiveness of analytics is directly proportional to the amount and transparency of the available data. Blockchain analytics involves inspecting, identifying, understanding, and visualizing data on a blockchain. This process enables users to uncover valuable insights that would remain obscured in traditional systems.
How does blockchain analytics work?
Data stored in the blocks of a blockchain must be extracted and processed into easily readable formats. Ethereum ETL, an open-source project, enables users to convert blockchain data into convenient formats such as CSV. Nansen, whose core team members are principal contributors to Ethereum ETL, utilizes this tool to access onchain data and display it in easily digestible dashboards. Additionally, you have the option to query the data yourself using Google’s BigQuery, if you prefer.
Nansen further enhances data context by labeling crypto wallet addresses. Crypto wallets are digital wallets used to store cryptocurrencies. Each wallet has a unique address, serving as a distinctive identifier for transactions.
Consider the two screenshots below, showcasing transactions from the same wallet address:
Rather than confronting a wall of alphanumeric text and guessing the identities involved, Nansen reveals who is partaking in the transactions, providing more than just transaction visibility. This feature empowers users to track specific entities and stay informed about their transaction activities in real time. Understanding both who is involved and the nature of the transactions grants users enhanced clarity and deeper insights.
Use cases of Blockchain Analytics
The value of blockchain analytics is immense for multiple stakeholders, including regulators, law enforcement, companies, and individual investors.
Regulators & Law Enforcement
Regulators and law enforcement can gain complete visibility into illicit transactions. Unlike fiat currencies, all transactions on a blockchain are recorded, ensuring that transactions tied to illicit activity will always leave a trail. This makes it easier for regulators and law enforcement to track movements and eventually identify criminals. Companies like Chainalysis and Elliptic have assisted major government agencies in tracking such transactions. Beyond illicit activity, regulators are often on the look out for fraudulent activity. Situations like the FTX saga could have been uncovered much earlier and stopped by keeping a keen eye on the onchain activity that Alameda and FTX were doing and requesting more transparency on the intent behind some of the moves.
Crypto Teams
The pseudonymity in crypto means that traditional consumer data points such as age and geographical location are challenging to gather. However, you can leverage onchain data points to develop a comprehensive understanding of your users. By analyzing their onchain activity, transaction patterns, interactions with other protocols, and asset allocations and holdings, you can gain insights that help drive product decisions. Find out how we helped Arbitrum understand their users better.
Investors and Traders
Investors and traders can obtain a deep understanding of what’s happening in the crypto markets. They can monitor what other market participants are doing and analyze capital flows to make more informed investment decisions.
An example of the benefit of tracking entities is tracking centralized exchange holdings. In the traditional finance world, the public has limited visibility on the real-time holdings and assets of the banks that are holding their deposits, leading to massive speculation and fear whenever rumors are spread. On the other hand, crypto exchanges can offer their users ways to verify that their current holdings are backed and give the public a view of the current liquidity that the exchange has. Many exchanges have partnered with Nansen to provide the public with a real-time view of their holdings.
How do crypto traders leverage blockchain analytics?
In the noise-filled crypto markets, the ability to uncover and monitor truly significant data points is crucial. Blockchain analytics aid in uncovering new opportunities, conducting due diligence, and, even giving you real time alerts on activity happening on the chain.
Traders can make more informed investment decisions by having a deeper understanding of capital flows and market activity. For instance, noticing many funds starting to invest in a particular token? It might be an opportune time to buy. Or, seeing a surge in notable NFT holders beginning to sell off a specific project's NFTs? It might be wise to reconsider your exposure.
Analyzing the holdings and activity of whales and institutions
By identifying the wallet addresses of entities and labeling large holders, traders can analyze and track the activity of institutions with ease. This ability is unique to financial markets built on top of public blockchains and ushers in a new age of transparency, accountability and insights.
Simply use CMD + K to search for any entity, ENS, or wallet address and get detailed insights into their activity and holdings. You can switch between individual chains or opt for a multi-chain view using the toggle in the top right corner.
You can find out more about tracking whales in our guide: What are the top crypto whales buying? How to track and find them
Tracking Smart Money Activity
While Institutions and whales have large amounts of capital, they might not always be the most profitable traders. Nansen analyzes the profitability of onchain users and highlights the top performing wallets by labelling them as Smart Money.
You’re able to get a complete overview of the cryptocurrencies top investors are holding, accumulating, or selling, and also identifies wallets with the highest returns over various time periods. For more details on tracking whales and Smart Money addresses, check out our latest guide on the topic.
Analyzing who’s buying or selling any token
Knowing who's buying or selling a particular stock is a trader's dream in traditional markets; in the crypto world, it's a reality. By combining identity labels with transaction data, you gain insight into who’s buying or selling tokens on Decentralized Exchanges (DEXs) as it happens.
For a quick overview of the largest buyers and sellers of a token, the "Who Bought/Who Sold" table provides comprehensive data across various timeframes.
Real time alerts on onchain activity
Staying on top of of key onchain movements is a challenge. It's impractical for most to be online continuously, monitoring every development. Nansen's Smart Alerts enable you to keep informed about onchain activities, even when you're away from your desk
You’re able to set up customized alerts that trigger based on transactions that are important to you. Our users have avoided losses during the UST de-peg by setting alerts on the Curve pool and receiving notifications on large outflows. These alerts are delivered in real-time to your Telegram, Discord or Slack, keeping you informed and allowing you to be early to potential trading opportunities.
Examples of transactions to monitor:
- Large transfers to/from centralized exchanges by relevant entities/addresses
- Holders increasing/reducing their holdings
- Who’s buying/selling on DEXs
Future of blockchain analytics?
At its core, a blockchain-powered future is one that’s transparent and inclusive. Having more data transparency allows for more analysis and experimentation 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 FTX-like situation.
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 onchain 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.
Conclusion
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 onchain. 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 onchain. 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.
