In blockchains, “transparency” is a relative term

The “transparency” of blockchains is probably the most often cited pro in the case of cryptocurrencies. This in part enables “trust”, the ability to remove central administrators from the world of finance.

But the transparency is a relative term.

  • Why is this important: Bitcoin, and almost all of its imitators, make all data about their operations public, but it’s not easy for a normal person or even a sophisticated business to make sense of this ocean of information.

Parts Metricsone of the companies that gives meaning, sees the elegance in this transparency.

  • “With a blockchain, I know where my five bitcoins are today. I don’t need a financial institution to do that,” Coin Metrics CEO Tim Rice told Axios.
  • On Bitcoin, anyone can simply see which address contains each bitcoin. “The on-chain dataset is the best part of working on public blockchains,” Rice said.

Yes, but: Companies like Coin Metrics can see a lot more in the public ledger than would be obvious to newcomers.

  • Making sense of data is not easy. Pulling it off is tricky enough, but knowing what kind of patterns to look for takes expertise.
  • Interpreters are needed, and besides Coin Metrics, there are plenty of them, including: Dune Analytics, Delphi Digital, Messari, Chainalysis, and others.

Details: Experienced blockchain sleuths can examine sets of transactions and see patterns that are not obvious to the uninitiated.

  • A bitcoin address is like a bank account. Addresses with few bitcoins and few transactions are almost certainly just a normal person, Rice explained.
  • Addresses of large institutions contain very large amounts, although not all addresses have been associated with individuals or organizations.
  • Harmful activities usually have a certain pattern, Rice explained. It can perform many small transactions from a wallet or a few possibly linked wallets.

And after: As institutions move into investing in crypto, they need a very deep understanding of how this technology is used.

  • “Developing a robust risk management framework is critical to our roadmap as we work to launch digital asset services,” Katey Neate of BNY Mellon’s risk team said in a statement.

To note : Parts Metrics just closed a $35 million Series C round, led by Acrew Capital and BNY Mellon, to fund new advances in blockchain intelligence and expand into international markets.

The bottom line: “We’re sort of the Rosetta Stone,” Rice said.

Michael J. Chiaramonte