The reliability of the public blockchain dataset has led to a new era of “on-chain analytics”, with analysts all over the globe checking in to the constantly flowing data. With this data, analysts build public or proprietary indicators for determining whether public blockchain-based monies are overvalued/undervalued, are being accumulated/distributed, and everything in between. Indicators can be generally broken down into two primary categories:
(1) User-Based: Takes user-oriented data to identify patterns / fractals
(2) Network-Based: Takes network-oriented data to identify patterns / fractals
Most on-chain data indicators fall into the User-Based category, as they are derived directly from the many ways the global userbase are interacting with blockchains, be it payments, speculation or storing wealth. On the other hand, ways in which the blockchain leaves a footprint of its own are substantially more limited. A quick list of data categories that eventually trickle into User-Based and Network-Based indicators are as follows:
(1) User-Based: Transactional data (coin age, transaction volume, realized value), Staking data (ticket buying volume in the case of Decred, as an example), and Mining data (hashrate)
(2) Network-Based: Issuance of new coins, Difficulty, Ticket Price (in the case of Decred)
The User-Based list dwarfs the Network-Based list. As the regulators of the incentive structure, Network-Based indicators do not need to be plentiful — just effective and consistent, as is the case with coin issuance:
Coin issuance within these networks is predictable and the issuance schedule will not change at any point up until maturity (at least in the case of Bitcoin and Decred). This is not user dependent, it is prescribed and defined as an emblematic characteristic from genesis.
New coins will be issued with a predetermined schedule for decay until the full supply (21 million coins) is rewarded to network contributors. It doesn’t matter if users are panic selling coins, miners are capitulating, the price is at an all time high, etc. — the coin issuance schedule remains the same.
These two datasets behave differently and thus on-chain analytics must account for User-Based metrics fluctuating as human needs change under varying circumstances, whereas Network-Based metrics hum along even under the most chaotic of environments. Network-Based metrics transcend humans with their epicly robotic consistency, which might provide us with even higher signal data than we see in the User-Based camp. Or at a minimum, with data that can be looked at through a different lens, which is where our discussion surrounding Decred begins…