Blockchain’s Active Users: A Deceptive Metric Reveals Crypto Data Scientist

Title: Crypto Ecosystem Active User Count Can Be Misleading, Says Expert

Subtitle: Small Group of Users Generates a Significant Portion of Blockchain Activity

In the world of cryptocurrencies, measuring the state of a crypto ecosystem based on active user count can be misleading, according to Philip Torres, the co-founder and chief data scientist of blockchain analytics provider, 0xScope. Torres argues that a small group of entities, including monopolistic founding entities, bots, exploiters, and airdrop hunters, can generate as much as 80% of blockchain activity, despite the appearance of a healthy ecosystem.

“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,” Torres explained.

Torres further highlighted that this phenomenon is not exclusive to small-scale ecosystems, but is present across all blockchain ecosystems. He revealed that the average Ethereum user possesses at least 10 addresses, emphasizing that everything happening on-chain is not what it seems.

The presence of multiple wallet addresses can be attributed to various reasons. Torres pointed out that privacy concerns motivate individuals to have different addresses to avoid leaving a large footprint. Additionally, automated traders deploy multiple strategies on-chain, which require different addresses for different protocols or swapping coins.

However, multiple wallet addresses have also been misused for malicious purposes, such as inflating a project’s active user numbers to mislead investors or executing Sybil attacks. A recent example of this manipulation was witnessed during the anticipated Arbitrum (ARB) airdrop, where two wallets consolidated 2.7 million ARB from 1,496 wallets in a strategy known as “airdrop farming.” This significantly deviated from the median airdrop size of 1,250 ARB tokens.

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

Unlike email addresses, creating and controlling multiple crypto wallets is relatively uncomplicated for those who are familiar with the process. Some users employ hierarchical deterministic wallets, also known as HD wallets, which generate multiple public addresses using a master set of mnemonic words.

“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,” Torres added.

Understanding the true state of a crypto ecosystem requires delving beyond the surface and considering the nuances of user activity. Active user counts can often obscure the reality of who is truly driving the activity within the blockchain space.

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J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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