analytics

What block explorers can tell you about token projects

Continuing with the analytics theme from the last post, today we will introduce the concept of block explorer analysis. 

Public block explorers offer a treasure trove of information about potential blockchain token investments. As every transaction and wallet address created is publicly available on most blockchain projects, we can glean an incredible amount of information on how the project is progressing. 

A few caveats before starting:

1. Multiple wallet addresses can be owned by the same person/persons. In addition many users follow security best practices to create a new address for each transaction. An area of active research is blockchain "deanonymization" where programs such as the Bitcoin Graph Explorer can be used to link wallet addresses together through webs of interlinking transaction history. 

2. Anonymous focused projects like Monero, Zencash, Verge, intentionally obscure transactions to protect user privacy and are thus more difficult to analyze. 

Richlists

One of the first block explorer metrics we look at are the percent ownership by the top wallet addresses. This can be used to estimate a Gini coefficient, or how fairly tokens are distributed among members of the project.

As projects progress, distribution of the tokens will increase as tokens are bought and sold openly in the market. As evidenced by the recent Ethereum flash crash, owners with several percent of the overall tokens in circulation can potentially fill the entire order book, drastically effecting the price.

A more insidious example is when founders with large holdings leave the project and slowly sell their holdings into the market which suppresses the price. An example of this occurred when founder Steven Dai (potentially Patrick Dai) left BitBay and continued to flood the market with his holdings for several years. 

Transactions

Digging deeper into transactions, it becomes more clear how money is moving through the system. 

We can glean several interesting findings from analyzing transactions:

1. We can determine how many address holders are a long term investors. Several accumulation deposits into the same address over a period of time helps indicate long term holders.

2. Multiple wallet addresses becoming inactive shows progress in the project is slowing. There is a difference between an individual investor becoming inactive, and large scale inactivity. Confirmed transactions per day can show this metric, though it is a rough measure of real use as bots can easily generate a large portion of network activity.

Log scale of confirmed transactions per day (source  bitinfocharts.com )

Log scale of confirmed transactions per day (source bitinfocharts.com)

3. We can roughly calculate how many coins have been lost. This is especially interesting as lost funds indirectly boost the price of the remaining tokens as long as development of the project remains active. Analysis done on the Bitcoin blockchain shows hundreds of millions of USD equivalent have potentially been lost. 

New token creation

New token creation is an interesting metric especially when investigating micro cap projects. As an example, the project "Neurocoin" has only one address mining 98% of the entire coin supply.

This illustrates how important block explorer diligence is before making potential investments. While most larger capitalization projects are not as blatant as this example, understanding the flow of capital inside of each system helps make more informed investing decisions. 

Further Reading

Princeton University lecture on de-anonymizing Bitcoin

https://www.coursera.org/learn/cryptocurrency/lecture/qnS76/how-to-de-anonymize-bitcoin

Tracking coin ranking website traffic for user growth

Many investors in the Blockchain space frequently check token tracking websites for quick glance price updates. To gauge the relative growth of new users into the ecosystem, an interesting metric to consider is tracking web traffic analytics for user growth over time.

We like viewing the top token tracking sites in aggregate to filter for change in user preferences over time. Regardless of which token tracking website users prefer, we want to see if the total number of users across sites is increasing or stalling.

As the price of the underlying tokens depends on new money entering the space, this is an excellent place discover more than the basic search interest Google Trends offers.

Let's go one level deeper into users who actively follow the prices and make trades. Statistics from these websites indicate users are either invested in the space, or seriously considering an investment. 

We have used the website SEMrush.com for this analysis. Consider trying their product with a free basic account if you are curious about digging further into the details. 

Coinmarketcap.com

The most trafficked token ranking site shows slower growth since peaking around the price surge in June.

Coingecko.com

The active user count on Coingecko seems to mirror the overall marketcap of the space fairly closely. Dipping during pullbacks, and increasing during pumps.

coingeckoSEMrush

Cryptocompare.com

Growth is in a rapid linear ascent. 

cryptocompareSEMrush

Other interesting findings to explore further in future articles.

News sites

cointelegraph.com

cointelegraph.com

A large news site focused on cryptocurrencies such as cointelegraph.com

Individual projects

nem.io

nem.io

Looking into individual projects to gauge growth is an important metric. NEM.io seems to have peaked in popularity coinciding with the price increase and subsequent fall. 

Exchanges

bittrex.com

bittrex.com

Potentially the most important macro indicator of all to gauge the pulse of new users actively entering the space. GDAX.com shows consistent growth while Bittrex.com has leveled out. Exchanges should also be viewed in aggregate to reduce variation in user preference over time. 

GDAX.com

GDAX.com

Further Reading

fiatleak.com is an interesting real time tool to see how many fiat dollars are being converted into digital currencies.