The Biggest Nightmare in Blockchain Analytics

I was asked that question on stage at a recent conference. My answer was a single word: deanonymization. I firmly believe that identifying and understanding relevant groups of actors is a pivotal challenge to unlock the potential of blockchain analytics. At IntoTheBlock, we spend quite a bit of time thinking about this problem and identifying the right boundaries that don’t conflict with the ethos of the crypto movement. Today, I would like to explore this idea a bit further.

The architecture of most blockchains in the market relies on anonymity of pseudonymity as a mechanism to protect the privacy of its nodes and enable decentralization. Those data obfuscation mechanisms enable crypto-asset transaction data to be recorded in public ledgers and available to everyone but also make their analysis extremely difficult. Without identity, it is hard to develop meaningful semantics and layers of interpretation of blockchain datasets and, without that, blockchain analytics will remain relatively basic. However, it is important to understand that deanonymizing blockchain datasets does not imply knowing the identity of every address in the ledger. That approach is nearly impossible to scale. Instead, we can settle for identifying and understanding the behavior of known actors like exchanges, OTC desks, miners and other parties that constitute key elements of a blockchain…