The majority of transactions that take on cryptocurrency blockchains like bitcoin and ethereum don’t involve actual trading or purchase of commodities.
A Bloomberg report citing data from Coinmetrics claims that as much as two-thirds of bitcoin transactions on a given day had no direct economic value. Coinmetrics, a data analytics provider, also revealed that as much as 98 percent of non-economic transactions were recorded on Cardano on a particular day.
What Factors Affect Transaction Volumes?
The report listed a number of factors which falsely increased the volume of cryptocurrency transactions. One is the activity of bitcoin mixers which reshuffle coins between member accounts to hide the trace of bitcoin transactions. Some mixers allow bitcoins to be split into several different addresses. According to Coinmetrics’ founder, up to 90 percent of all transactional value on Ethereum between February 2017 and February 2018 came from a cryptocurrency mixer.
Mining pools, when they disburse coins to their members also increase the number of non-economic trading volumes. As the pool earns a coin, it distributes a fraction of the coin to its members which creates multiple transactions on the blockchain.
More worrisome, however, is the problem of spamming and the out-and-out manipulation of cryptocurrency markets. In March, Sylvain Ribes, a cryptocurrency trader and researcher published a study which claims that cryptocurrency exchanges falsified trading volumes. He reviewed data from order books of various exchanges to conclude that there was up to $3B worth of faked cryptocurrency volumes. In his report, he said that up to 93 percent of the trade volumes on OKEx exchange was falsified.
Why Non-Economic Transactions Thrive
Trying to explain the false transactions that fill cryptocurrency blockchains, Lucas Nuzzi, the director of technology research at Digital Asset Research attributed them to the ease of creating accounts and transactions. He said:
“Creating addresses in these networks is free, and transaction fees at this point are sufficiently low to enable a single user to send small balance through hundreds of transactions,”
Furthermore, participants in blockchain transactions are anonymous, making it hard to pinpoint real the identities of the persons carrying out these false transactions. Notably, Coinmarketcap, a cryptocurrency ranking site adjusted its system to checkmate the problem of false trading volumes.