Despite more than a decade of sustained growth, the concept of cryptocurrencies still seems alien to many around the world. There’s a lot of appeal for leading digital coins like Bitcoin, Ethereum and the many others that populate the market, but for large swathes of populations, the currencies still appear to be mysterious compared to more traditional fiat currencies.
In the world of cryptocurrencies, we’re starting to see the emergence of both crypto and big data analytics. In a market that’s total capitalization has grown to almost $750 billion – a rise of 10,000% on its market size just five years ago, the application of big data can be a money-spinner for countless investors. This dramatic rise has also increased the interest of many traders particularly from multi-asset brokerages like eToro which has over 20 million users.
As the chart above shows, the cryptocurrency market is well on its way to recapturing the huge market cap of around $800 billion back at the turn of 2018, and a driving force behind the latest rallies within the market is down to the application of intuitive data analytics. Let’s take a deeper look into the symbiotic relationship that big data and cryptocurrencies can play in the future of finance:
Big Data to Implement Greater Security
One of the most significant perceived drawbacks for users wary of investing in crypto stems from security issues. Fears over the security of cryptocurrencies can be understandable in some respects. The decentralized nature of assets means that there’s a distinct lack of regulation on the market, however, utilizing cryptocurrency wallets and using crypto exchanges has been made considerably safer thanks to big data.
While some may associate big data with the notion of spotting trends to boost engagement or generate more profit, it can also be used effectively to combat cybercrime. Analysing heavy datasets can allow specialists to spot emerging trends in hacking and anticipate future security breaches. This, in turn, could be used by exchanges and wallet issuers to keep large quantities of users safe from threats online.
The technology has already gone some way in creating a more accommodating environment for newer and safer cryptocurrency exchanges that have used data to steer away from the vulnerabilities of the past.
Identifying Market Volatility
Cryptocurrency markets are characterized by volatility. It’s the drastic changes in the value of coins that has the potential to turn investors into millionaires overnight or spark panicked sell-offs of assets. Bitcoin is the most well-known example of market volatility, having ranged from values of around $5,000 to $25,000 in the space of a year in 2020.
While many crypto investors are well aware of the huge volatility that takes place on crypto exchanges, it’s fair to say that many of them would certainly appreciate being able to receive long-term data that can signal an incoming rise or crash.
In a similar way to how people associate crypto with volatility, they often link big data to the ability to sift through scores of information. It’s this level of trend analysis that big data analytics is capable of producing which has the potential to accurately predict emerging trends in the world of cryptocurrencies.
Much like how extraneous factors like visual appeal, creation data and the seller’s opinion of a coin can influence the value of fiat currency, there are scores of factors that determine the value of cryptocurrencies.
Factors such as perceptions surrounding limited or excess supply, social sentiments, and merchant acceptance among many, many other indicators can influence the value of digital coins.
Big data can play a key role in analyzing all those aspects and much more to deliver information that would be impossible for humans to draw on single-handedly. When big data gets to work on interpreting price movements, it can be effective in enabling investors to cash out ahead of falling markets or buy into appreciating trends.
Exposing Illegal Operations
Although big data analytics can be a money-spinning tool for investors, one of the most beneficial links between crypto and big data works by combatting the criminal space. The decentralized nature of crypto means that it can be difficult to trace where money is going, and what it’s being spent on. This makes big banks hesitant to embrace crypto through fear of being caught up in improper operations.
However, with big data analytics, organizations can build out continuous auditing and monitoring of transactions that are taking place. This, in turn, can help to build holistic views of emerging patterns that could be indicative of criminal activity.
Today, fraud is still a big issue across the cryptocurrency landscape. Looking for instances of heavy usage could shine the light on illegal operations taking place. As these become clear it can harm the development of crypto. As the cryptocurrency market grows, it attracts the attention of hackers who will look for ways to exploit investors through malware and other underhanded practices.
Big data, however, can help users to uncover emerging patterns and detect suspicious activity before it has the chance to cause real damage.