How leveraging blockchain data can be a revolutionary act

The legitimacy of cryptocurrencies is under constant threat from bad actors. Wash trading is a huge problem, for example, and is widespread in NFT sales: a high-profile case was revealed in a popular marketplace where 94% of $2 billion transactions turned out to be wash traded.

How did we find out about it? An NFT analysis website examined blockchain data over a period of eight days. Not a small undertaking, but a very valuable service that should become common if the industry is to create trust.

Analytics and data aggregation firms are therefore poised to become mainstays in the area by providing important information about what is really happening on blockchains. In their absence, critics and regulators have been well justified in expressing doubts about the emerging technology.

Business applications will also proliferate, as evidenced by major moves coming out of Chainlink (LINK). Last year, the company announced a partnership with the Associated Press news organization to make its data sets available to leading blockchains, where data can be used to automate key processes that occur on the chain.

Whether you’re informing markets about election campaigns, triggering a chain trade when a company’s quarterly financials are released or even amplifying the appearance of NFTs based on real-world events, there’s significant scope in this one partnership. Applied to the entire business world across several industries, it can be a giant shift in the use of data.

Good information

Properly compiled and well analyzed data has the potential to weed out dubious companies and individuals and stop them from fulfilling nefarious goals. In theory, blockchain data is available to the public. It follows that anyone can do the job themselves. Practically, this is not feasible because your average vigilant or even nascent analytics company lacks the technology to create huge data sets at a pace in a scalable manner.

Knowing exactly what is needed in terms of data is a significant hurdle. So a bespoke platform needs to work with industry players – and more specifically developers – to extract useful data on a scale not yet seen in the blockchain industry. In the early stages, aggregation and analysis will face steep learning curves.

Use data holistically

For business applications, private blockchains dominate. Adapted, structured data can be treated similarly to a private data set. This will be useful commercially. When a company has paid good money to extract data based on very specific requests, they will likely want to protect it, especially considering how these data sets are constantly expanding due to the nature of the blockchain and thus remain highly relevant. Access can also be sold to other companies in a license agreement.

When it comes to entities that want to source data for the public good, there is room to construct datasets that allow for crowdsourced analysis. The crypto industry badly needs this. There is not enough money in exposing laundering and other nefarious activities: we are currently dependent on the actions of a dedicated minority. Proper, universal access to clean data could spur the emergence of public bodies that help cryptocurrency become a self-regulated field.

We have barely scratched the surface. Insurance is a big consumer of data as it informs the entire business model because brokers need to know how to charge competitive yet profitable premiums. And Chainlink is leading the charge again here: last year it struck a deal with insurance startup Arbol, which provides crop insurance for farmers and businesses, to provide decentralized weather data. In this case, smart contracts can trigger payouts depending on weather condition data.

Reconciliation of data

Traditional businesses face a multitude of issues when selling data to third parties, but in crypto this is less of a concern, because everything is transparent. However, most projects in the web3 space are not fully decentralized, leading to decisions to take certain data off-chain.

The beauty of an all-encompassing data aggregation protocol is to unite on-chain data with off-chain data: companies will be able to customize the data links to make it work. Only seeing half the data is fine with most projects because all they need is the chain movement of data to make the decisions they need.

The core technology for a successful data aggregation and cleansing process needs to be compatible across chains, because while Ethereum Virtual Machine (EVM) chains dominate the space, you have chains like Solana that are also creating cutting-edge solutions.

The actual text of the blockchain data needs to be structured in a very specific way for chains like Solana, as the entire technology underlying it is different. Furthermore, the high transaction rate per second offered on Solana means that the database is far larger than most other chains from seed block to real time. There are hundreds of thousands of transactions per second on Solana.

When a database is crammed full of data, it may not necessarily be very useful to other people. For a data cleansing service provider, it becomes very difficult to structure the data to filter out the noise from the clean parts when considering the huge volume of transactions, many of which are meaningless and not at all valuable for analysis.

For centralized chains, data aggregation and subsequent analysis can help build trust in an environment where the entity itself controls validators when they, in turn, can exercise political control over the key players in the entire ecosystem. Once trust is lost, you can’t easily get it back, so cutting through the noise and seeing what’s happening with transactions on the chain can be invaluable. This is one of the reasons why blockchain data is so important and could trigger drastic changes in how we interact with cryptocurrencies.