Blockchain active users can be misleading metric: Crypto data scientist


Active consumer rely can be a misleading metric for measuring the state of a crypto ecosystem as a small group of users can generate a good portion of exercise throughout a number of wallets, argues the co-founder of a blockchain analytics supplier.

0xScope’s co-founder and chief data scientist, Philip Torres, informed Cointelegraph amid the Bitget EmpowerX Summit that between monopolistic founding entities, bots, exploiters and airdrop hunters — as a lot as 80% of blockchain exercise can be generated by only a small variety of entities — regardless of trying wholesome on the skin.

“These projects make a claim such as ‘we have 10,000 active users’ — well, we find out using the entity model that you have about 10 to 20 different users that are controlling 10,000 different addresses,” he added.

Top 25 tasks based mostly on active users (each day). Source: Token Terminal

“The way they operate on-chain is that one single person can have 10,000 addresses or more, and then it would seem to the outside observer as if those were 10,000 different people,” Torres defined.

The phenomenon isn’t solely current in small-scale ecosystems, Torres claimed — primarily all blockchain ecosystems see various ranges of the exercise.

He discovered the common Ethereum consumer possesses a minimum of 10 addresses, including that “everything that happens on-chain is not what it seems.”

Ethereum Cumulative Unique Addresses. Source: YCharts

Torres famous there are professional the explanation why a consumer would have a number of pockets addresses.

“One of them can be explained easily as ‘privacy concerns.’ People like to have different addresses just to not leave a big enough footprint out there,” he defined.

It may additionally be on account of automated merchants deploying a number of methods on-chain.

“So when we see automatic trading on-chain, usually each address is very focused on a different protocol or different swap, or trading different coins or trading different coins using different strategies.”

However, it has additionally been used for malicious functions comparable to inflating a mission’s active consumer numbers to mislead potential traders, making a Sybil assault often known as a 51% assault or users attempting to sport an upcoming token airdrop.

One instance got here from the anticipated Arbitrum (ARB) airdrop on March 23 which noticed two wallets amass 2.7 million ARB from 1,496 wallets in a technique generally known as “airdrop farming.” In distinction, the median airdrop measurement was solely expected to be 1,250 ARB tokens, in keeping with CoinMarketCap.

“On blockchain, it’s very easy to control multiple public addresses,” Torres famous. 

Related: Shibarium hits 1M wallets amid meteoric growth, SHIB yet to catch up

Torres defined not like e-mail addresses, creating and controlling a number of crypto wallets isn’t too difficult if you realize what you’re doing.

Some use what is named HD wallets — hierarchical deterministic wallets — which generate a brand new key pair from a grasp key pair. Simply put, it is a strategy to generate a number of public addresses by way of a grasp set of mnemonic phrases.

“It’s very easy for one person to control multiple wallet addresses compared to [how], usually, people do not have more than a few emails,” he added.

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