The data can be broadly classified into three distinct categories: Transaction data e. This is in sharp contrast with on-chain transactions where the transfer of value occurs on the Blockchain network and therefore gets recorded. Alternatively, you might prefer to settle the debt through other practices such as funding coupons and sharing the code with X or simply exchanging your PayPal password with X.

While in the first case the bank or third-party provider typically charges its customers a fee for their services, the alternative practices permit individuals to dodge transaction costs. Similarly, in a Blockchain ecosystem, off-chain transactions can occur in various ways. Now, this prompts us to ponder over possible reasons for a party to opt for an off-chain transaction over an on-chain transaction. One key factor concerns the high transaction costs for exchanging cryptocurrencies such as Bitcoin.

Especially for small transactions the miner fee might exceed the amount to be transferred, consequently making such a transaction economically unfeasible when executed on-chain. Performance is another crucial factor: On-chain transactions are not only limited in terms of speed but also regarding size. As a result, it can become very expensive to store a larger amount of data on-chain. Moreover, certain actors on public Blockchains may favor off-chain over on-chain transactions due to privacy concerns.

On-chain analysis and metrics On-chain analysis is an emerging field aiming at extracting and scrutinizing the plethora of available data about public Blockchain transactions to facilitate a better decision making. Its tools and techniques are often applied for trading and investment purposes.

One of the first popular on-chain metrics was Coin Days Destroyed , introduced in to track the activity on the Bitcoin network. Today, a vast number of similar and often more sophisticated on-chain indicators exist. In the next section of this article I will present different on-chain data and analytics tools that let users play around with and learn more about on-chain indicators. Popular providers of on-chain data and analytics tools The amount of energy, time, and money required to run a node, store, and maintain a copy of an entire Blockchain is not within the reach of every individual or organization.

To logically gather, structure and analyze the captured Blockchain data is an even more difficult task. Luckily, different companies have emerged over the past few years that offer dissected on- and off-chain data to users. Here I briefly summarize the solutions of eight popular Blockchain data providers: The mission of Coin Metrics, founded in , is to provide investors with in-depth market knowledge regarding all major cryptocurrencies.

They offer four products: 1 Network data e. Source: Glassnode In the report, Glassnode also compared the monthly average of new addresses on the BTC network against the yearly average to understand the shift in sentiment. It found that when the price of BTC plummeted from the April all-time high ATH , the 30d moving average of new address had also fallen sharply below the d moving average.

Thus, establishing a correlation between a decline in network activity and a bear run. After a long period of market consolidation, the 30d moving average went above the d moving average. It indicated that new buyers had entered the market, forcing the price of BTC to go up. In the current market, Glassnode concluded that the recent spot price bounce above realized price indicates that the monthly average of new addresses was still lower than the yearly average. Hence, the bears were still in control of the market.

Source: Glassnode Read the best crypto stories of the day in less than 5 minutes Subscribe to get it daily in your inbox.

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And if you have just started following this emerging technology, then gaining an insight into the concepts of on-chain data or on-chain analysis might get a bit tricky. By the end of this article, hopefully, you will walk away with a decent understanding of this crucial Blockchain topic. Recap: What is a Blockchain? However, before entering the world of on-chain data, let us have a quick recap regarding what Blockchain is: Even though the breakthrough of Blockchain, in popular culture, is often accredited to Satoshi Nakamoto for his revolutionary invention of Bitcoin , the original minds behind the idea of a cryptographically secured chain happen to be Stuart Haber and W.

Scott Stornetta. The two academic researchers proposed in the development and implementation of a timestamp-based digital tool that was intended to make valuable documents published on the web both permanent and tamper-proof. A «proof protocol» would support and verify that a document existed at a certain point of time in a certain definite version. In layman terms, a public Blockchain might be defined as a digital chain consisting of blocks where each block contains tranches of valuable information and a unique alphanumeric code known as a hash.

A block is not only marked with its own unique hash but also with the hash of the previous block — a system through which Blockchains become almost impossible to be hacked once they have reached a certain length. Conceptually, a Blockchain is defined as a digital public ledger consisting of records distributed over a wide network of nodes where a single node i.

Blockchain technology lays the foundation for a potential shift from centralized financial and information systems to decentralized public networks that enable a «trustless» transfer of value and information. What is on-chain data? On-chain data includes the information of all occurred transactions on a certain Blockchain network — or put differently — all information written on the blocks of a Blockchain.

In case of a public Blockchain, this information is available for everyone to see. The data can be broadly classified into three distinct categories: Transaction data e. This is in sharp contrast with on-chain transactions where the transfer of value occurs on the Blockchain network and therefore gets recorded.

Alternatively, you might prefer to settle the debt through other practices such as funding coupons and sharing the code with X or simply exchanging your PayPal password with X. While in the first case the bank or third-party provider typically charges its customers a fee for their services, the alternative practices permit individuals to dodge transaction costs. Similarly, in a Blockchain ecosystem, off-chain transactions can occur in various ways. Now, this prompts us to ponder over possible reasons for a party to opt for an off-chain transaction over an on-chain transaction.

One key factor concerns the high transaction costs for exchanging cryptocurrencies such as Bitcoin. We can determine the time between mining new coins and unloading them into the market. As well as the number of fees collected in each block. And going one step further, you can analyze differences in behavior between retail and institutional participants by tracking wallets with the highest and lowest amounts.

Anyone can use this data to get a clearer picture of the overall market sentiment at a given time. On-Chain Analytics: Top Indicators to Follow With on-chain indicators, you can start to look at BTC more like a publicly traded company to gauge whether it is over or under-valued at a given time. Those figures can be paired against network usage and actual exchange rates to determine when bitcoin is at a relatively good price to buy at.

RHODL Ratio The RHODL ratio compares the amount of bitcoin that has been held in wallets for one week or less, against the total amount of bitcoin that has been held in wallets for more than two years. When the RHODL ratio gets too high and reaches the red box, the short-term holders own a relatively larger slice of the pie.

That is generally a sign that the market is getting frothy and may be headed for a correction. In this case, realized value is represented as the average USD value of each bitcoin every time BTC is transferred, over a specified time frame. When the market value is significantly higher than the realized value, the MVRV score reaches the red panel at the top.

Another sign that the market has overheated and needs to cool down. The SOPR gives us a sense of whether the network as a whole is making or losing money as a result of changes in the price of bitcoin. When this ratio is high, the average buyer or seller of bitcoin is in profit. When the ratio falls, the average participant is losing value relative to USD.

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Both the difficulty and hash ribbons show values that have historically been associated with bottoms. In addition, the Puell multiple suggests that the bull run has not yet reached a high. Bitcoin difficulty ribbon compression The Difficulty ribbon is an indicator that creates a band of moving averages MA of the Bitcoin mining difficulty. This metric is the estimated number of hashes for mining a block.

Difficulty ribbon compression uses a normalized standard deviation in order to quantify the values given by the difficulty ribbon. Low values those between 0. The three most notable dips inside this area occurred in January , August , and April , preceding significant BTC price increases. With the exception of two short-lived periods above 0.

This amounts to an adjustment roughly every two weeks. This value is based on the number of blocks found by miners each day. Therefore, the difficulty lags the hash rate by two weeks, since the latter is calculated daily, while the former is adjusted once every two weeks.

The hash ribbon is an indicator that uses the hash rate in order to determine miner capitulation, meaning that the cost of mining is higher than the rewards. It does that by using a day and day MAs of the hash rate. In the chart below, a cross between the MAs is represented by a shift from light to dark red. On-Chain Analytics: Top Indicators to Follow With on-chain indicators, you can start to look at BTC more like a publicly traded company to gauge whether it is over or under-valued at a given time.

Those figures can be paired against network usage and actual exchange rates to determine when bitcoin is at a relatively good price to buy at. RHODL Ratio The RHODL ratio compares the amount of bitcoin that has been held in wallets for one week or less, against the total amount of bitcoin that has been held in wallets for more than two years. When the RHODL ratio gets too high and reaches the red box, the short-term holders own a relatively larger slice of the pie. That is generally a sign that the market is getting frothy and may be headed for a correction.

In this case, realized value is represented as the average USD value of each bitcoin every time BTC is transferred, over a specified time frame. When the market value is significantly higher than the realized value, the MVRV score reaches the red panel at the top. Another sign that the market has overheated and needs to cool down. The SOPR gives us a sense of whether the network as a whole is making or losing money as a result of changes in the price of bitcoin.

When this ratio is high, the average buyer or seller of bitcoin is in profit. When the ratio falls, the average participant is losing value relative to USD. Unlike traditional markets like stocks and bonds, we can utilize the blockchain to follow the exact moves of the whales. We can leverage on-chain analysis to keep an eye on them and track whether they are accumulating bitcoin or distributing it back into the market, at any given time.

Long-Term Vs. Exchange Transfers Determining the amounts of bitcoin that is moving into or out of cryptocurrency exchanges can tell us more about the broader sentiment at any given time.

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