Up to 66% of transactions have no economic value, Bloomberg reports, citing data from analytics firm Coinmetrics. In short, about two-thirds of the BTC transactions registered on blockchain are not related to trading or paying for goods and services. In reality, the volume indicators are heavily impacted by factors like mining pools disbursing cryptocurrencies to their members, mixers moving coins between their own accounts, and scammers who are manipulating the price. In the case of mixers, they choose to reshuffle their balances to achieve more anonymity.
In other words, there is no economic value in a significant portion of the daily Bitcointransactions. But the situation is somewhat similar to other coins as well. Elementus, another analytics firm, estimated that over 45% of Ethereum transactions on a recent day are non-economic, which include a lot of spam. Coinmetrics said that during one day, 98% of (ADA) transactions had no economic value.
According to Bloomberg, anonymity is one of the key aspects of Bitcoin’s network, but its blockchain also needs more transparency in order for the cryptocurrency to be adopted by investors and regulators.
Charlie Morris, chief investment officer of UK-based $300 million asset manager Newscape Capital Group, said:
“If this space is not a joke but serious, then people need to know more. You’d want to know the facts. If institutional money is going to come into Bitcoin, they’ve got to understand what they are buying.”
Morris backs Cryptocomposite.com and Elementus, which plan to build analytical tools to increase transparency in the blockchain space. Morris revealed that Cryptocomposite.com would be launched this fall.
Elementus CEO Max Galka, a former trader at Credit Suisse (SIX:) andDeutsche Bank (DE:), explained in a phone interview to Bloomberg that watching volume charts online is not enough to understand what’s really happening in the crypto industry.
“You are sort of looking at a tiny piece of the blockchain through a keyhole, and you are not seeing the big picture. It’s really hard to understand the context around it. What we do is we allow you to get the full picture,” he said.
The experts referred to three key factors impacting the volume data:
- Mixers – as mentioned, mixers try to increase anonymity by reshuffling balances. Coinmetrics discovered that one mixer was accountable for about 90% of all transactional value on Ethereum blockchain for the period between February 2017 and February 2018. Sometimes, crypto exchanges, custodians or even criminals can act as mixers.
- Mining Pools – they generate lots of transactions with no economic value, though opinions are mixed when it comes to this factor. For example, Ethereum co-founder Anthony Di Iorio believes that disbursements from mining pools have economic value. When a mining pool earns Ether tokens, for example, they are recorded on blockchain and then distributed to members, resulting in multiple transactions. Thus, 19% of Ethereum transactions can be related to the distribution from mining pools.
- Spam is another factor that misleads everyone on the volume figures. On Ethereum, several obscure coins are demonstrating high trading volumes because of manipulations and scams, such as creating multiple fake orders to simulate high transaction volume.
Elementus uses artificial intelligence (AI) and other tools to pull data from blockchains and data layers about users’ IDs.
Thus, if we consider the mentioned factors, Bitcoin, Ethereum, and many other cryptocurrencies are in reality much smaller than they appear.