Blockchain Analytics: The Ultimate Tool for Understanding Crypto

A new paradigm

Data is the new oil in the digital world we live in. The biggest companies own the most data, and their business models are largely based on their ability to collect large amounts of data and put it to good use. Users have little control over what data is collected and used and 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 at most is marginal. Although blockchains are transparent and their data is available to anyone, it is challenging for most to take full advantage of it. Analytics platforms make it more accessible to the masses to gain insights from blockchain data.

What is blockchain analytics?

Let’s start by explaining what a blockchain is.

Blockchains are digital ledgers that are immutable, distributed and decentralized. Every transaction and activity on a blockchain is recorded and stored in blocks of data, linked in chronological order – hence the name “Blockchain”. Due to their decentralized and transparent nature, data on a public blockchain is accessible to everyone. 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, collect and visualize data in an easy-to-understand format.

The effectiveness of analysis 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 discover 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 in easily readable formats. Ethereum ETL, an open source project, allows users to convert blockchain data into convenient formats such as CSV. Nansen, whose core team members are main contributors to Ethereum ETL, uses 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 improves data context by naming crypto-wallet addresses. Crypto wallets are digital wallets used to store cryptocurrencies. Each wallet has a unique address, which serves as a unique identifier for transactions.

Consider the two screenshots below, which show transactions from the same wallet address:

Rather than confronting a wall of alphanumeric text and guessing the identities involved, Nansen reveals who is participating 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 gives users greater 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 and law enforcement

Regulators and law enforcement can gain complete visibility into illegal transactions. Unlike fiat currencies, all transactions are recorded on a blockchain, ensuring that transactions linked to illegal activity will always leave a trail. This makes it easier for regulators and law enforcement to track movements and ultimately identify criminals. Companies such as Chainalysis and Elliptic have assisted major government agencies in tracking such transactions. In addition to illegal activity, regulators are often on the lookout for fraudulent activity. Situations like the FTX saga could have been uncovered and stopped much earlier by keeping a sharp eye on the onchain activity that Alameda and FTX were doing and asking for more transparency about the intent behind some of the moves.

Crypto Teams

The pseudonymity in crypto means that traditional consumer data points like age and geographic location are challenging to collect. However, you can use 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 ownership, you can gain insights that help drive product decisions. Find out how we helped Arbitrum better understand their users.

Investors and Traders

Investors and traders can get a deep understanding of what is 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 stock holdings. In the traditional financial world, the public has limited visibility into the real-time holdings and assets of the banks holding their deposits, leading to massive speculation and fear when rumors spread. On the other hand, crypto exchanges can provide their users with ways to verify that their current holdings are backed up and give the public an overview of the current liquidity that the exchange has. Many exchanges have partnered with Nansen to give the public a real-time view of their holdings.

How do crypto traders use blockchain analytics?

In the noise-filled crypto markets, the ability to uncover and monitor truly significant data points is crucial. Blockchain analytics help uncover new opportunities, perform due diligence, and even give you real-time alerts about activities happening on the chain.

Traders can make more informed investment decisions by having a deeper understanding of capital flows and market activity. For example, do you notice that many funds start investing in a particular token? This may be an opportune time to buy. Or do you see a surge in notable NFT holders starting to sell a specific project’s NFTs? It might be wise to reconsider your exposure.

Analyze the holdings and activities of whales and institutions

By identifying the wallet addresses of entities and tagging large containers, traders can analyze and track the activities of institutions with ease. This capability is unique to financial markets built on top of public blockchains and ushers in a new era of transparency, accountability and insights.

Simply use CMD + K to search for any entity, ETC or wallet address and get detailed insights about their activities and holdings. You can switch between individual chains or opt for a multi-chain view with the switch in the upper right corner.

You can find out more about whale tracking in our guide: What are the best crypto whales to buy? How to track and find them

Track Smart Money Activity

While institutions and whales have large amounts of capital, they may not always be the most profitable traders. Nansen analyzes the profitability of onchain users and highlights the top performing wallets by labeling them as Smart Money.

You can get a complete overview of the cryptocurrencies that top investors hold, accumulate or sell, and also identify wallets with the highest returns over different time periods. For more details on tracking whales and Smart Money addresses, check out our latest guide on the subject.

Analyze who is buying or selling any token

Knowing who is buying or selling a particular stock is a trader’s dream in traditional markets; in the crypto world it is a reality. By combining identity tags with transaction data, you gain insight into who is buying or selling tokens on Decentralized Exchanges (DEXs) as they happen.

For a quick overview of the biggest buyers and sellers of a token, the “Who Bought/Who Sold” table provides comprehensive data over various time frames.

Real-time alerts about onchain activity

Keeping up with key onchain movements is a challenge. It is impractical for most to be constantly online and monitor every development. Nansen’s Smart Alerts enable you to stay informed of onchain activity even when you’re away from your desk

You can set up custom alerts that trigger based on transactions that are important to you. Our users avoided losses during the UST disconnect by setting alerts on the Curve pool and receiving notifications about large outflows. These alerts are delivered to your Telegram, Discord or Slack in real time, keeping you informed and allowing you to be early on potential trading opportunities.

Examples of transactions to monitor:

Large transfers to/from centralized exchanges by relevant entities/addresses. Holders increasing/decreasing their holdings Who buys/sells on DEXs

Future of blockchain analytics?

At its core, a blockchain-powered future is one that is transparent and inclusive. With more data transparency, more analysis and experimentation can take place. It democratizes the power that comes with ownership of data and creates a more inclusive future. Power is no longer confined to institutions or large corporations, but rather in the hands of anyone with an internet connection and a computer.

Having business transactions and financial records of a company on an open ledger allows for the same degree of scrutiny in the private markets as the public markets. Analytics can help uncover fraudulent activity and reduce the chance of us having another FTX-like situation.

Blockchain analytics can empower predictive modeling to do better. By analyzing the transaction data of users of the blockchain, you can get predictions about future trends. This could 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 becomes more data savvy and empowered by analytics. Over time, more people will understand that data is now available to them and become more familiar with using it to make better and more informed decisions. Blockchain analytics tools become invaluable in their daily lives.

Closure

The importance of blockchain analytics is increasing along with the increase in the actual use of blockchains. Blockchain analytics allows you to take full advantage of the transparency that comes with the technology. It helps you see beyond the surface to understand what is actually happening on the chain. This gives everyone the opportunity to keep track of what smart money is doing and make better investment decisions. Blockchain analytics is an important tool used by law enforcement. This allows them to track transactions and check for illegal or suspicious activity taking place on the chain. While the idea of ​​having access to so much data may be a foreign concept to most people today, it is only a matter of time before users understand the utility of blockchain analytics tools and become money smarter.

Start exploring the blockchain world today!