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Bitcoin value transfer occurring primarily between exchanges: Chainalysis’ Gradwell

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Recently, Philip Gradwell, Chief Economist at Chainalysis, a blockchain data analytics company, spoke at a Meetup in London about token economics in on-chain analytics. During his talk, Gradwell spoke about both on and off-chain data, how they can be linked together, and gave some insights based on their analysis of Bitcoin and other cryptocurrencies’ data.

With regard to on-chain data and the ability to see the flow of value on the blockchain, Gradwell explained how such a data set doesn’t exist for any other kind of payment network. “If you look at fiat transactions,” he said, “you’ll only see the transactions in [that] payment network, but once it goes over the line, you lose sight.”

“In cryptocurrencies, you have a complete transparent record of all of the transfers, so that’s what makes it a really exciting data science problem.”

He also spoke about off-chain data, the trading data from different exchange platforms for that cryptocurrency, explaining how most centralized exchanges hold custody of cryptocurrencies in omnibus wallets. Gradwell also stated that it can be hard to understand whether the Bitcoin belongs to a single person, or if it is being mixed up with all the Bitcoin on that exchange.

“It can also be hard to understand which address belong to an exchange versus which belong to a person interacting with an exchange.”

Subsequently, he said that the exchange’s custody model should be accounted for when modeling exchanges and the addresses that belong to them. Gradwell also pointed out the vastness of off-chain data as it includes terabytes of data from both spot and derivatives markets.


According to Chainalysis’ Chief Economist, while on-chain can be used to verify some off-chain data, it can also be used to make predictions about what might happen in the market, using the web on week percentage change between trading volumes and on-chain volumes.

“When we’re doing data science around cryptocurrencies, it’s important to understand that they’re being used by people to do things, which is what is generating the data set.”

He also provided some insights based on the company’s analysis of their data sets, including how everything follows a power law.

Gradwell also claimed that several data sets on the blockchain follow a distribution where a small number of nodes control a large amount of activity, including wealth distribution among addresses, number of transactions, and even the businesses in the space.

“The reason why this is important is because often something might happen in the long tail that is driving events like a price change that can affect the cluster on the [other] side. The key point is there’s a few nodes that are very highly connected, but they’re connected through millions of smaller nodes that don’t have so much volume going through them.”

Gradwell also noted how different protocols produce different data, comparing the UTXO model of Bitcoin to the account-based system used on Ethereum. Further, he spoke about how services are really key to understanding activity, and how despite being a decentralized system, so much activity actually flows through centralized services.

He also demonstrated how at least half of the value flowing between services in Bitcoin over the last decade is either going to or coming from exchanges, and that the majority of value transfer occurred between exchanges themselves.


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Manu is a full-time journalist at AMBCrypto covering the US and Indian markets. A graduate in engineering, he writes mainly about regulations and its impact with a focus on technological advancements in the crypto space.
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