Close
On-Chain Analysis (On-Chain Analysis) is an emerging type of analysis in the digital currency market, which includes the examination of investment principles, transaction activity of a token and its blockchain data. Analysts in the cryptocurrency world try to enhance their understanding of a network through the analysis of various metrics; This makes it possible to predict the price movements of a digital currency and investors can make a more profitable choice. In simple words, On-chain Analysis is considered a powerful and efficient tool to achieve more profit in the near and distant future.
On-chain information typically includes information about all transactions that occur on a public blockchain network. For example, transaction details such as fees, miners’ fees, rewards, and smart contract codes are on-chain data. In-chain data checking is usually based on and operates on three main criteria.
It conveys the concept of whether this digital currency has the ability to grow or not; on-chain analysis will minimize the risk of investment. Also, checking the input and output of tokens can provide analysts with their acceptance status and consider it as a warning signal.
Many of the indicators that we will mention have been added to On-chain Analysis during the last 3-4 years. Of course, the history of the creation of the first On-Chain analysis criteria dates back to more than a decade ago, in 2011. The first benchmark was established by a user with the username ByteCoin who was active on the Bitcoin Talk platform. In 2011, based on this criterion, he tried to find a way to measure the health and participation of the digital currency market. Eventually, he was able to create the CDD metric by looking at the age of bitcoins transferred in a day.
Years passed and passed until in 2017, in collaboration with Jack Tatar, a person named Chris Burniske designed a new model called NVT (Network Value to Transaction Index). This new criterion specified the utility value of a digital currency and it is used as a tool to evaluate the usefulness of the exchange capability of a blockchain network.
In early 2018, Dnitry Kalichkin introduced another version of the NVT model using average transaction volume, known as NVM. This model was obtained based on the ratio of network value to Metcalfe’s law and was more recent. Also, in the same year, Dhruv Bansal introduced a new and updated version of the HODL wave model. The evolution of On-chain Analysis was so fast this year that in the second half, Nic Carter and Antoine Le Calvex from Coin Metrics introduced the Realized cap index.
Since 2018, it has led to the entry of many analysts and useful information to traders and investors. It is useful to use On-chain Analysis criteria to evaluate and analyze the health of blockchain networks; Even though many of these criteria have been developed for the Bitcoin network.
The concept of on-chain analysis is closely related to on-chain transactions or intra-chain transactions. In general, there are 2 types of transactions, on-chain and off-chain, which take place according to different agreements. In Offchain transactions, the agreement of the 2 parties to the contract will be based on the fact that there is a third party that will receive or provide the desired digital asset. These types of transactions are done using digital wallets or special codes and are not registered in the network.
On-chain analysis is precisely similar to a fundamental analysis of a company’s information, which provides fundamental and critical data about a blockchain network. Analysts use on-chain data to try to gain an accurate view of the value and utility of a network or cryptocurrency. Rather than using balance sheets, cash flows, income statements, etc., they examine on-chain analytical criteria to achieve their goals in evaluating various valuations.
