Analyzing Crypto Transactions on and off the Blockchain
If you’re trading cryptocurrencies — or if you’re just crypto-curious — you need to know the difference between on-chain and off-chain transactions.
On-Chain Cryptocurrency Transactions
On-chain literally means that the transaction took place on the blockchain. On-chain transactions are essentially the thing that makes blockchain technologies unique. When you transfer a cryptocurrency to another person on the chain, the transaction is registered and verified by all other participants on that blockchain.
Off-Chain Cryptocurrency Transactions
Off-chain transactions take place anywhere off the blockchain. The most common type of off-chain transactions occurs on crypto trading platforms, like Coinbase and Binance. Trading platforms do not necessarily have to own the crypto they “sell” to the user; instead, they keep a private record of what the user bought, if the user wants to convert to cash, or if they want to move the crypto off of the platform.
The platform keeps a record of ownership, but the vast majority of transactions through these platforms do not involve a user-wallet and are not recorded on the blockchain. This helps a trading platform maintain higher levels of liquidity and allows users to avoid the fees (most notably gas fees) associated with making crypto transactions. Think of it like a bank account: a bank doesn’t move any physical cash when a customer transfers money from their checking to their savings account.
On-Chain and Off-Chain Cryptocurrency Analysis
Understanding the difference between on-chain and off-chain transactions isn’t all you need to know. If you want to know where cryptocurrency markets are heading, you’ll need to know the difference between on-chain and off-chain analysis as well.
On-chain analysis entails looking at the transactions that took place on the blockchain. All wallets that sync with the blockchain maintain an identical record of every transaction that has happened on that blockchain. This includes data on transaction size, source and destination wallets, time and date, difficulty level (for applicable crypto like Bitcoin), and whatever else a particular blockchain records in its hashes.
A major difference between on-chain and off-chain analysis concerns (a) the type of data available, and(b) the metrics that can be used to evaluate that data.
On-chain analysis allows you to look at the number of transactions, the sum total of participants, the activity of miners on a particular blockchain. Off the chain analysis, by comparison, represents a much broader potential pool of variables, many of which may not be available or accessible to the public. Coinbase, for example, has personal information on the buying and selling habits of each user, the types of crypto they own, and the size of their account. This type of data opens the door to relational and predictive models that have an adequate level of certainty.
Why Defy? Using Off-Chain Data Analytics to Help You Make the Right Crypto Investing Decisions
When you are making a choice about which cryptocurrency to buy or sell based on what you read on Twitter or what a friend told you about the next big altcoin, you’re doing a rudimentary form of off-chain analysis.
With a limited amount of information and time to analyze a seemingly limitless pool of off-chain information, however, you’re in the same position as an amateur investor competing with the biggest banks and hedge funds. You can make the right choices, but the big players have the resources and tools needed to make the most well-informed decisions consistently over time.
This is where Defy Trends comes in. When hundreds of thousands of people are posting on Reddit, Twitter, or elsewhere on the web about the cryptocurrency that they think is about to sink or explode, it’s impossible for an individual to understand the broader trends and shifts in public opinion that are happening 24 hours a day, 7 days a week, across countless social media platforms and chat rooms.
Defy Trends’ proprietary platform scrapes billions of data points from social media, using cutting-edge data science methodologies to analyze public sentiment and provide you with the analytics and metrics needed to know where markets are going. This information allows you to make the best possible decision about your cryptocurrency investments, letting you ride the wave of public sentiment and outperform the competition.
Investing in crypto can be confusing, but it doesn’t have to be. Try Defy and let us help you take your crypto portfolio to the moon.
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Disclaimer: The above post is for educational purposes only, and must not be construed as investment advice. Please do your own research and manage your risks, accordingly.