Blockchain active users can be misleading metric: Crypto data scientist

Active user count may not accurately represent the true state of a cryptocurrency ecosystem, according to Philip Torres, the co-founder and chief data scientist of blockchain analytics provider 0xScope. Torres argues that a small group of users can generate a significant portion of activity across multiple wallets, making it seem like there are more active users than there actually are.

Not as it seems

Torres points out that many projects claim to have a large number of active users, when in reality, they may have a small number of entities controlling a multitude of addresses. This is because one person can have multiple addresses on a blockchain, and it may appear as if there are many different users when there actually aren't.

Even in larger blockchain ecosystems, this phenomenon is present. Torres studied the Ethereum network and found that on average, each user possesses at least 10 addresses. He emphasizes that "everything that happens on-chain is not what it seems."

Multiple addresses, multiple reasons

While there are legitimate reasons for users to have multiple wallet addresses, such as privacy concerns and deploying multiple strategies for automated trading, there are also malicious purposes. Some users may inflate a project's active user numbers to deceive investors or carry out a Sybil attack, also known as a 51% attack. Additionally, users may try to game an upcoming token airdrop by controlling multiple addresses.

An example of this was seen during the Arbitrum (ARB) airdrop, where two wallets collected 2.7 million ARB tokens from 1,496 wallets in a strategy known as "airdrop farming." In contrast, the expected median airdrop size was only 1,250 ARB tokens.

Easy control, multiple addresses

Torres explains that controlling multiple public addresses on a blockchain is relatively easy compared to managing multiple email addresses. Users can use hierarchical deterministic wallets to generate multiple public addresses using a master set of mnemonic words.

"It's very easy for one person to control multiple wallet addresses compared to [how], usually, people do not have more than a few emails," Torres adds.