【Introduction】Five-Minute Overview of The Block's Data Industry Report: The Absolute Necessity for Blockchain

The Block, a well-known blockchain media and research institution, recently released a report on the "Blockchain Data Industry," summarizing key points to highlight that "data analysis and organization" have become an essential and thriving sector in the blockchain industry.

Starting with a $400 Million Acquisition

The data website " CoinMarketCap," which is almost used daily by cryptocurrency retail investors, is one of the most famous brands in the data industry. People use it to check cryptocurrency prices, trading volumes, rankings, and other information. Founded in 2013, this data company has now recorded data for as many as 5,500 cryptocurrencies and ranks 27th globally in website traffic for financial investment sites.

Due to its large active user base, the cryptocurrency exchange Binance acquired the company in the first quarter of 2020 for a rumored amount of up to $400 million, leading to the founder Brandon Chez announcing his retirement. This acquisition not only signifies good news for blockchain data companies but also indicates the growing importance of such data.

The Greater Demand for Data

Why is blockchain data valued? With the development of the blockchain industry, there is already an annual flow of billions of dollars, making it highly reliant on accurate and trustworthy information.

You might wonder why there is a demand for blockchain data when it is already publicly transparent. According to a report by The Block in February of this year, despite the transparency of the data, many companies have invested in customized services based on this data. In simple terms, through these service organizations and analysis, people can easily understand the necessary data.

Data services fall into three categories:
(1) Infrastructure: operating blockchain full nodes (recording network historical data), serving as network infrastructure
(2) On-chain data: referring to and constructing original blockchain data
(3) Market data: collecting, standardizing, and recording data from digital asset exchanges

The CoinMarketCap mentioned in the first paragraph belongs to the third category, mainly serving retail investors. For developers and enterprises, there are many other companies providing a variety of services for them.

Opportunities and Challenges in the Blockchain Data Industry

The Block's public report shows that over half of the operators are concentrated in market data (35%) and on-chain data (31%), with infrastructure accounting for about two-fifths. Most of these operators were established between 2017 and 2018. The report's survey samples are mainly companies from the United States and Europe, with Asian companies, also industry leaders, accounting for only 6%.

(1) Infrastructure
According to the report, infrastructure service providers refer to companies that provide blockchain node services and development tools, with the most famous being Alchemy and Infura. Their clients are decentralized application (DApp) developers and on-chain data analysis companies that require a large stable node data. The high barrier to entry in this field comes mainly from the high cost of operating full nodes. Besides the need for regular updates and expansions of physical equipment, hiring engineers is not easy for most startups. Depending on the scale, the cost can range from $500,000 to $2 million annually, providing opportunities for these service providers. The biggest challenge in this field is finding products that meet market needs and dealing with an immature market.

(2) On-chain Data
The work of on-chain data service providers is easy to understand. Even though on-chain data is publicly transparent, there is a need for someone to make it user-friendly and understandable. Their users include the general public and enterprises. The general public can use blockchain browsers to easily query transactions and view basic information such as block heights and mining difficulties, with the most famous company being Etherscan.

There are also companies like Glassnode and The Graph, providing interesting indicators using on-chain data, such as the number of addresses holding a certain amount of Bitcoin. Companies like the frequently referenced Skew. dominate in derivative market data and have recently launched a derivative trading platform. Many companies provide services to enterprises, mostly related to financial services, including research companies, hedge funds, and institutional investors.

The challenges in this field are similar to infrastructure, revolving around equipment costs and the need for skilled engineers and data analysts. According to interviews in the report, the annual server maintenance cost is at least tens of thousands of dollars. Due to market immaturity, investors behind these companies may also lack confidence.

(3) Market Data
Market data mainly comes from cryptocurrency exchanges. Unlike traditional financial markets, where spot trading comes from a few large stock exchanges, cryptocurrency trading data comes from exchanges worldwide, some global and some regional. The work of market data service providers is to collect real data (prices, trading volumes, etc.) from exchanges worldwide through APIs (application programming interfaces), standardize and analyze it, and present it to the general public and enterprises. The most well-known market data providers for the general public are CoinMarketCap and CoinGecko, while companies providing services to enterprises include Kaiko, CryptoCompare, and CryptoAPIs, among others.

Operators face numerous challenges. Due to different API rate limits imposed by various exchanges, which specify how many times data can be requested from an exchange per minute, data integration can be difficult and real-time presentation challenging. Exchanges often change their API specifications and only provide trade history records, not order book history records. Another challenge is how to eliminate redundant information while meeting efficiency and educating users on the importance of different data.

Market data websites for the general public mainly rely on advertising revenue for survival, while companies providing services to enterprises have seen at least a 50% revenue increase in 2020, as more institutional investors show interest.

Market Expansion as a Niche

The Block believes that in the current industry, only exchanges, token development companies (some blockchain projects), and mining chip manufacturers are truly profitable, with the next stage likely being data and infrastructure providers.

Based on the logic of this report, it is inferred from the historical development of traditional financial markets that once the trading market matures, the data market will follow suit. The report points out that in the past two years, annual spending on data in financial markets has exceeded $30 billion. With rapid fundraising growth for blockchain data and infrastructure companies, the report attempts to present the prospects for the development of the blockchain data industry.