On-chain metrics are those that can be observed by looking at data provided by the blockchain. We could do this ourselves by running a
node for the desired network and then exporting the data, but that can be time-consuming and expensive. Particularly if we’re only considering the investment, and don’t want to waste time or resources on the endeavor.
Transaction count
Transaction count is a good measure of activity taking place on a network. By plotting the number for set periods (or by using
moving averages), we can see how activity changes over time.
Note that this metric should be treated with caution. As with active addresses, we can’t be sure that there isn’t just one party transferring funds between their own wallets to inflate the on-chain activity.
Transaction value
Not to be confused with the transaction count, the transaction value tells us how much value has been transacted within a period. For instance, if a total of ten
Ethereum transactions, worth $50 each, were sent on the same day, we would say that the daily transaction volume was $500. We could measure this in a fiat currency like USD, or we could measure it in the protocol’s native unit (ETH).
Active addresses
Active addresses are the blockchain addresses that are active in a given period. Approaches to calculating this vary, but a popular method is to count both the sender and receivers of each transaction over set periods (e.g., days, weeks, or months). Some also examine the number of unique addresses cumulatively, meaning that they track the total over time.
Fees paid
Perhaps more important for some crypto assets than others, the fees paid can tell us about the demand for block space. We could think of them as bids at an auction: users compete with each other to have their transactions included in a timely manner. Those bidding higher will see their transactions confirmed (
mined) sooner, while those bidding lower will need to wait longer.
For cryptocurrencies with decreasing emission schedules, this is an interesting metric to study. The major
Proof of Work (PoW) blockchains provide a
block reward. In some, it’s made up of a block subsidy and transaction fees. The
block subsidy decreases periodically (in events such as the
Bitcoin halving).
Because the cost to mine tends to increase over time, but the block subsidy is slowly reduced, it makes sense that transaction fees would need to rise. Otherwise, miners would operate at a loss and begin to drop off the network. This has a knock-on effect on the security of the chain.
Hash rate and the amount staked
Blockchains today use many different consensus algorithms, each with its own mechanisms. Given that these play such an integral role in securing the network, diving into the data surrounding them could prove valuable for fundamental analysis.
Hash rate is often used as a measure of network health in Proof of Work cryptocurrencies. The higher the hash rate, the more difficult it is to successfully
mount a 51% attack. But an increase over time can also point to growing interest in mining, likely as a result of cheap overheads and higher profits. Conversely, a decrease in hash rate points to miners going offline (“miner capitulation”) as it’s no longer profitable for them to secure the network.
Factors that can influence the overall costs of mining include the current price of the asset, the number of transactions processed, and fees being paid, to name a few. Of course, the direct costs of mining (electricity, computing power) are also important considerations.
Staking (in
Proof of Stake, for example) is another related concept with similar
game theory to PoW mining. Insofar as the mechanisms, though, it works differently. The basic idea is that users stake their own holdings to participate in block validation. As such, we could look to the amount staked at a given time to gauge interest (or lack of it).
