2024-11-08 12:35:04
Авторка: Inna Svatenko 
What Is On-chain in Cryptocurrency?
When it comes to activities conducted on the blockchain, it is common to say that they occur on-chain. This category includes transactions on decentralized exchanges, tokenization of art, and other transactions that do not require intermediaries.
Let’s find out what on-chain and off-chain are, how to apply blockchain analysis in investing, and what indicators you should pay attention to.
Content
On-chain vs. Off-chain
On-chain is all transactions and information submitted to a distributed database (blockchain). Every action is validated by the network through consensus mechanisms (Proof of Work, Proof of Stake, etc.), which guarantees security.
An on-chain transaction is sending assets directly from one address to another. It can take a long time and requires additional costs for commissions.
Off-chain is data and transactions outside the blockchain. They are faster and cheaper due to the lack of network fees. However, these transactions are considered less secure in terms of data protection.
An off-chain transaction can be referred to as an exchange of cryptocurrencies through a centralized exchange. Data on such transactions is typically stored only on the platforms’ servers and is not displayed on the blockchain.
What Is On-chain Analysis?
If you’re interested in investing in crypto, you’ve probably heard about on-chain research in the crypto market. What is it? It is a method that allows you to make rate forecasts and evaluate investor behavior using blockchain data.
The Significance of On-chain Analysis for the Market
Blockchain network research provides a lot of valuable information for those involved in the crypto market, namely:
- Provides a deeper understanding of supply and demand;
- Helps analyze the behavior of “whales” (large holders of cryptocurrencies) and predict massive selling or buying;
- Gives insight into liquidity, e.g., by studying the number of coins held on exchanges, it is possible to estimate the likelihood of massive sell-offs or asset accumulation;
- Identifies long-term trends and predicts growth and correction cycles;
- Facilitates the identification of suspicious transactions.
How to Use On-chain Analysis?
Investors can reduce risk and increase the success of transactions, whether short-term trading or long-term investments. Popular on-chain metrics include transaction data, crypto wallets, blockchain blocks, and smart contracts. Learning how to operate them can be a step towards a successful strategy.
Key On-chain Indicators
How to recognize signals and what information can they provide? Let’s take a look at the key indicators of on-chain analytics:
HODL Waves
It is a chart that shows how long holders hold their cryptocurrencies. A long-term hold indicates investors’ belief in the value of the asset, which stabilizes the market. If funds begin to move actively, it could signal an imminent increase in volatility.
NVT Ratio
It is the ratio of a cryptocurrency’s market value to its transaction volume in USD. A high NVT Ratio can signal that a coin is “overbought” and overpriced.
MVRV Ratio
The indicator shows the ratio between the current and realized capitalization of an asset, helping determine how much the price differs from a “fair” price. An investor can understand whether an asset is overvalued or undervalued.
Number of Active Addresses
The metric provides insight into the demand for the cryptocurrency and the level of usage.
Bitcoin Inflow to Exchanges
If the volume of the first cryptocurrency on trading platforms is increasing, this may indicate bearish sentiment, and if it decreases — bullish.
Popular Tools for On-chain Analysis
Having figured out what on-chain analysis means for crypto strategy, let’s look at services that make it easier to study blockchains by offering APIs and visualizations:
- Nansen: specializes in the Ethereum network and regularly publishes its independent crypto market research;
- Dune Analytics: allows you to create custom dashboards to visualize various on-chain metrics;
- Glassnode: provides free access to standard charts and indicators.
Conclusion
On-chain analysis shows the dynamics of the crypto market and helps you make more informed decisions. Understanding key indicators is an opportunity to assess supply and demand for the right asset, determine investor sentiment, and anticipate market direction.
FAQ
This method involves examining blockchain data, including transactions, wallet activity, and other activities to determine market trends.
On-chain data allows you to better understand the behavior of market participants by identifying supply and demand levels, as well as potential changes in investor sentiment.
The large amount of data, the need to interpret complex indicators, and the lack of information on less popular blockchains can be challenges for investors.
Using this method, you can identify suspicious activity and track the movement of funds, uncovering fraudulent schemes.
We advise you to take the following steps:
- Study the indicators;
- Choose services that allow access to the blockchain;
- Interpret the data by identifying trends, anomalies, and correlations;
- Use the results of the on-chain analysis in crypto strategy.
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