Read the blockchain data market panorama and great future.
Each blockchain venture capital fund is looking for one thing: the next unicorn, a company with a valuation of more than $1 billion. Mining hardware manufacturers such as Bitcoin and Coinbase are the first blockchain companies to be among the unicorn clubs.
At a higher level, the current unicorns of the cryptocurrency world can be clearly divided into two categories: financial services , such as Coinbase, Kraken, Circle, and Coin, or mining hardware departments , such as Bitland and Bitfury et al. In these two industries, some promising companies are expected to gain unicorn status, including Bakkt and China's Innosilicon.
However, there is another category that needs attention. I anticipate that the field of multiple cryptocurrencies in the future will be the blockchain data industry .
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Blockchain data is hidden in conspicuous places
In the current information age, investment companies need data to gain a competitive advantage. This view is not new. More freshly, in the blockchain world, almost all data is public. Every transaction that takes place on the network will always be recorded in a common blockchain, including the transaction amount and the address involved. However, in a sense, the data is still hidden. It is difficult to extract useful insights from the data stored in the blockchain.
As Raul Jordan, the core developer of the Ethereum 2.0 Prysm client, the database model for Bitcoin and Ethereum and many other blockchains (LevelDB) is optimized for the integrity of consistent transactions. It is not a relationship store or retrieval. LevelDB has no relational model and does not support SQL queries. This makes extracting any insight from this data format a daunting task. In addition, research has shown that LevelDB is prone to data corruption problems, making it more difficult to process blockchain data.
Blockchain data is hidden in a conspicuous place. A typical example is that during the merger of Zclassic/Bitcoin in March 2018, Bitcoin Private secretly minted the tokens until Coinmetrics released an analysis report in December 2018, which revealed the secret coinage. the behavior of.
It took about 9 months for a public blockchain activity to get noticed! This may be because Bitcoin Private is not a sought-after project. However, this situation also shows that even “open” blockchain data needs special processing to synthesize meaningful information.
Where is the opportunity?
The complexity of processing and analyzing blockchain data provides an excellent opportunity for data scientists and engineers to engage in the blockchain industry and create companies that can solve these problems. Accurate data synthesis and analysis has numerous applications in cryptography.
In the next few sections, I will explore these applications, the main data providers, and their path to becoming a unicorn.
But before delving into it, let's ask a simple question: Who needs to query blockchain data, and why?
The simple answer is: everyone.
This answer may be too general and inaccurate, but it is. Each encrypted user needs to periodically query the blockchain data. For example, when the user needs to know if the transaction has been confirmed, she simply connects to the blockchain resource manager website and searches using the address or transaction ID. This is actually a blockchain query where the user "searches" the entire blockchain to get information about a particular address or transaction. The Block Browser Company performed the task on behalf of the user and delivered the results. In the background, the company did not actually query the blockchain, but instead queryed a relational database derived from the blockchain data created by the company.
To make up for the costs that have already occurred, the company needs to get a source of income. For example, Etherscan, the most popular Ethereum blockchain browser, displays ads to users to generate revenue. Almost all other companies that provide blockchain data use a similar revenue model, regardless of whether they provide DApp activity data (such as Dappradar) or price information for different tokens and their market value (such as CoinMarketCap). In many cases, this pattern of income has had a negative impact, especially in the case of advertising for illegal or fraudulent projects.
Blockchain Analysis Market Overview
The previous example shows the Block Address Data Company's Total Addressable Market. This number is tens of billions of dollars because everyone in the field needs access to encrypted data.
Although in the case of the block browser, the user's cost is zero and the advertiser provides funding, this is not the case for meaningful data query requests.
For a variety of reasons, investors, funds, and even blockchain companies need much more complex data collection and analysis. For example, cryptocurrency exchanges require intensive blockchain data analysis to comply with anti-money laundering AML regulations and to ensure that their users do not use the exchange to engage in illegal activities such as clearing stolen cryptocurrencies or ransomware payments. This demand is particularly acute in the United States and Europe.
These companies are also obligated to ensure that their users do not transfer password money to sanctioned entities or provide financial support for illegal operations. Several companies, such as Chainanalysis, Elliptic, etc., provide blockchain analysis tools that are being used by governments and exchanges to combat the illegal use of cryptocurrencies. While most exchanges are more willing to sign up with professional data analytics providers, Coinbase decided not to go the extra mile and implement these features internally by acquiring the controversial data analytics company Neutrino.
Chain smell note: Chainalysis just received an additional $6 million investment on April 17, Japan's Mitsubishi UFJ and Silicon Valley venture capital fund Sozo Ventures
Another area in which blockchain data is of fundamental importance is the extraction of economic signals. Investors, funds and research institutions need strong and clear data to drive their investment decisions.
For this use case, there are three types of data that stand out: network data, offline activity data, and exchange data.
From an economic perspective, exchange data is the most relevant. Given that cryptocurrencies are traded on multiple exchanges, and these exchanges are reluctant to share too much trading activity information on their platforms, this is also the hardest data to obtain. In addition, many exchanges use fraudulent means such as "single bills" to portray a false picture of rising user usage.
Similarly, the activity data under the chain is decentralized because it contains almost everything that happens outside the transaction, and these activities are not stored in the blockchain. In addition, it is the most difficult category to monetize because it is essentially public information. Much of the work in this category comes from community or niche sites that rely on donations, such as Coin Dance , which provides historical data on the number of nodes/client distribution running on the Bitcoin network and its forks. Electric Capital 's developer activity report is a good example of community contributions, and the fund is responsible for measuring activities under the chain.
Economic data provider
The growing demand for clean and standardized data has spawned more and more companies that aggregate, standardize and sell these types of data. However, it is worth noting that most of these companies focus first on the exchange data category, followed by the network data category. The under-activity category has not yet attracted a large amount of business needs.
Currently, a significant number of companies are dealing with exchange data and network data categories, which has been reflected in the quality of existing information compared to a year ago. It is almost impossible to list all of these companies. However, notable platforms include Kaiko, Coinmetrics and Messari. These companies have made significant contributions to the data ecosystem and are likely to gain greater investment returns in the future.
Kaiko is one of the leading data providers for exchange historical data. Since 2014, they have been engaged in the business of aggregating exchange data. They collect data on more than 1,000 cryptocurrencies from more than 30 exchanges. Kaiko offers both monthly access to its exchange data and subscription-based services for unlimited API calls for up to €2,500 per month. Interested customers can also purchase historical price and volume data as well as order book data. They also plan to expand their products to OTC data for over-the-counter trading. Recently, they provided data to Bitwise and created a groundbreaking report on the actual volume of the cryptocurrency. The conclusion is that about 95% of the reported transaction volume is the amount of false transactions that are brushed out. One of the main results of these data and analyses was the creation of the “Real 10” volume index, which aggregates the volume of transactions on 10 exchanges that have been shown to provide reliable trading volume information.
CoinMetrics is primarily known for its network data products, which include data on the chain and many of their own developed metrics such as "Realized Capitalization". Investment companies are actively trying to use these indicators to set valuation standards for cryptocurrencies. I will talk later that these efforts often fail due to some major challenges. CoinMetrics is also widely recognized for revealing the secret casting of an additional 2 million Bitcoin Private tokens in December 2018. The company is currently considering expanding its range of services and will also include exchange data.
Messari's original vision was to bring transparency to the cryptocurrency ecosystem by encouraging blockchain projects to disclose important information about the project and its founders, such as relevant developers, early investors, ICO and Pre-ICO. Its Agora database is public and free. In addition, Messari's OnChainFx provides an improved data stream for the main cryptocurrency, including several innovative metrics such as the fully diluted "2050" market capitalization and the "Real 10" volume of all listed cryptocurrencies. Although Messari does not charge for these public data and services, they charge for their well-written data insights and proprietary tools developed to analyze the data. In addition to multiple chain activity data, Messari also plans to provide historical price and volume data to customers.
Challenges in the data field
Although there are many high-quality companies in the blockchain data field, the main problem that these companies need to solve is how to unlock their true potential.
1. Exchange data may be misleading as it does not include trading volume in the over-the-counter market. Many OTC trading trays negotiate and trade prices through direct transfers outside the trading order book. Most of the over-the-counter trading activities are confidential, and data companies need to sign up with multiple OTC providers to obtain this data.
2. In many cases, activities from chain blockchain data do not represent real economic activity. An example is that an entity can move tokens between different wallets under its control, such as moving tokens from the exchange's hot wallet to a cold store, and vice versa. To clear the data in these events, you need to maintain a list of the different addresses used by each transaction, which are usually part of the data analysis company's scope of work.
These issues can affect the integrity of the data and lead to errors or inaccurate insights and conclusions.
How far are these companies from the status of being a unicorn?
Due to the nature of the business and customers, blockchain data analytics companies are now closer to achieving a $1 billion valuation. The customers of these companies are governments, legislatures and exchanges that must comply with KYC regulations. They are all well-funded and financially strong entities that in turn benefit data analysis companies.
Another advantage of these companies is the high barriers to entry and reduced competition. Early participation in the blockchain data analysis field can obtain rich historical information, such as ransomware attacks and legal prosecution information, which is not easily obtained by new entrants (or arguably traditional software giants).
Exchange data companies that provide detailed order books and transaction information also have the same advantages. Their early involvement allowed them to aggregate early exchange data that was not available to new competitors. On the other hand, network data can always be extracted from blockchain data. Innovation in this area is focused on how to improve data quality and how to create unique insights or indicators to interpret this data.
Decentralized data provider: The Graph
So the question becomes: After the world is more decentralized through the blockchain, will we be satisfied with the centralized data provider seeking rent?
Well, although this is still a possibility, decentralized fans may not fall without a fight. For example, the team behind The Graph considered this issue and answered it by building a decentralized protocol that indexes and queries data for Web 3.0 in a decentralized manner.
For the Graph, its goals, its model, and its potential energy, you need to write a separate article. However, if their vision is met, we can end up with a multi-billion dollar global data sharing agreement that can still be driven by powerful and independent data companies.
What will happen in the future?
Overall, I am convinced that the blockchain data industry will see significant growth in the coming years and will bring a large number of robust unicorn companies.
As mentioned earlier, if different data providers are integrated into a larger entity, the major challenges facing the industry can be significantly addressed. In this way, economic analysts can combine market and network data to gain a clearer understanding of market activity. Based on insights from data analysis, these economic data are even more reliable after cleaning.
Therefore, I hope that the current company can expand its business to other areas of the industry. I also anticipate some mergers and acquisitions, integrating smaller players into large entities to gain greater market share and provide more sophisticated services.
Written by: Mohamed Fouda
Compile: Zhan Wei
Source: Chain smell