a16z: How many of the 220 million active addresses are actually active crypto users?

Original author: Daren Matsuoka Eddy Lazzarin

Original translation: TechFlow

When writing our 2024 Crypto Industry Report , our team invested a lot of time in assessing the size of the crypto industry. As the industry matures and more applications come online, we want to understand how many people are actually using cryptocurrencies. A complex issue, because the most obvious and easily quantifiable usage metric — active addresses — is easily manipulated. Here are our thoughts.

In the traditional software world, the concept of a “user” is clear. Of course, there are many ways to measure the quality of a user—in fact, there’s an entire field of growth analytics devoted to this question—but at the most basic level, a user can be Statistics include “daily active users” (DAUs), “monthly active users” (MAUs), etc.

In the crypto space, the situation is much more complicated. This is because on the blockchain, user identities are pseudo-anonymous. It is easy for a person to create and manage a so-called sybil on the blockchain - a group of different identities , called a public address. (There are many perfectly valid reasons to do this, such as for privacy, security, or other purposes.) As a result, it is difficult to determine how many addresses a person might use. (The reverse is also true, as multiple Individuals can share a single address through multi-signature, omnibus accounts, and various account abstraction protocols.)

Until recently, the most popular blockchains had very limited capacity, resulting in high transaction fees. This naturally created a barrier that prevented people from creating and using hundreds or thousands of addresses, as it was very costly to do so. But recently, Crypto infrastructure has become more scalable with the advent of L2 rollups and new high-throughput L1s, which have driven transaction costs down to almost zero on many blockchains.

In traditional Internet applications, isn’t the cost of creating multiple identities almost zero? This is true in most cases. For example, it is easy for a person to create and use multiple email addresses. But the key difference is , in the crypto space, there are strong incentives for this kind of behavior.

The crypto industry has long rewarded early adopters of protocols with tokens. Today, new protocols often launch the circulation of their tokens through “airdrops” - a reward activity that provides token incentives to a pre-set set of addresses. The address list is usually traced back from historical on-chain transaction records. Some people may try to manipulate the system by creating multiple different identities and using them to trade. In the industry, this strategy is called airdropping. hair.

Given these behaviors, it is clear that the 220 million unique monthly active addresses we measured in September 2024 do not directly equate to 220 million people or users. (Note that active users on multiple EVM chains The address is counted only once in the 220 million total.)

So, what is the actual number of active users? Is it 10 million, 50 million, or 100 million? That’s the question we set out to explore. Here’s our methodology.

Method 1: Filter active addresses

One approach we took was to filter out addresses that were suspected to be controlled by bots or were part of a sybil attack. Through on-chain analysis and forensics, we explored multiple ways to achieve this:

• Filter out addresses where funds originate from decentralized contracts - decentralized contracts are smart contracts whose sole purpose is to receive funds and automatically distribute them to multiple different addresses. While there may be some false positives, this activity suggests that these The destination addresses all receive funds from the same source and are therefore somewhat related to each other.

• Filter out addresses with close to zero balances at the beginning and end of a time period. For example, if you are looking for real monthly active users in September 2024, you can try to remove addresses with close to zero balances on September 1 and September 30. This criterion indicates that these addresses are temporary in nature. While bots and sybil attackers may attempt to “clean up” balances after an operation, real users typically keep some balance in their wallets to pay for future transaction fees.

• Analyze the distribution of addresses that made one, two, three, four, five or more transactions in a specific time period. Addresses that made only one or two transactions during this period are low-quality users at best and bots at worst. or sybil attacker. This approach works best in aggregate analysis over a longer period of time.

• Filter out addresses that perform a large number of transactions in a very short period of time. Human users using wallets or APIs can only reasonably process a certain number of transactions in a given time, while bots can perform transactions at a much higher frequency.

• On an optimistic note, we can consider including addresses associated with identity protocols, which usually require a certain setup cost. For example, addresses with ENS names, Farcaster IDs, and other associated social identities are likely to be actual Human users.

Method 2: Infer from wallet users

Another way to estimate the number of monthly active users is to look at off-chain data sources, with wallet users being the most obvious starting point.

In February 2024, the popular crypto wallet MetaMask reported that it had 30 million monthly active users. They define a monthly active user as “a user who loads the MetaMask extension or opens the mobile app at least once in any rolling 30-day period.” .

If we want to estimate the number of users who actually transact, the next step is to determine what percentage of MetaMask users actually actually transact. Based on 2019 data, MetaMask reports that on any given day, approximately 30% of active users confirm a chain transaction. (This is the most recent estimate.) If we apply this ratio to monthly active users (MAU), then there are approximately 9 million users transacting monthly through the MetaMask wallet product.

Next, we need to understand MetaMask’s overall wallet market share across all blockchains. Although there is no direct and precise data, we can make some reasonable guesses based on the known information. For example, we can use the mobile analysis company Sensor Tower Based on the data from the CoinMarketCap website, we can better estimate MetaMask’s share of the mobile wallet market. (Due to commercial service agreements, we cannot disclose specific numbers here.)

Once we estimate MetaMask’s market share, we can simply extrapolate the total number of crypto users based on the 9 million monthly active trading users we derived earlier. We can then compare this estimate with the results of method one. See if they are in the same range.

To further refine our estimates, we can analyze data from other wallets and infrastructure providers who are willing to share their proprietary data and cross-validate it with the above data.

Other considerations

It is important to note that some users will use and transact with multiple addresses and wallets. While this is unlikely to significantly increase the total number (since, unlike bots and sybil attacks, there is a limit to the number of wallets a person can reasonably use), it is possible to increase the total number of addresses and wallets based on reasonableness. It may be worthwhile to further deduce the hypothesis.

On the other hand, there is also a situation where one address may be associated with multiple users, such as an omnibus account of an exchange. By the way, this situation will become more common as account abstraction protocols and smart contract wallets become more popular. These factors are not included in our analysis.

Estimate: 30 to 60 million real monthly active trading users

Based on our analysis using multiple methods, we estimate there are currently between 30 and 60 million real monthly active crypto users. While this is a wide range, it is our best estimate based on the available data.

Note that this number only represents 14% to 27% of the 220 million monthly active addresses we measured in September. It also represents only 5% of the 617 million global cryptocurrency holders reported by Crypto.com in June. (Global cryptocurrency holders are people who own cryptocurrencies but do not necessarily transact on-chain.) This gap suggests that it is necessary to expand existing cryptocurrency holders—most of whom are passive holders—to There is huge potential for dormant cryptocurrency holders to become active users. As major infrastructure improvements enable new and compelling applications and user experiences, dormant cryptocurrency holders may re-emerge as on-chain investors. Active users.

It is indeed challenging to accurately measure the number of active crypto users, but by using some of the methods detailed in this article, we can start to come up with a reasonable estimate. This article is our attempt to share our thought process and calculations. These methods will be used as We will continue to share our latest insights as they evolve over time. If you are interested in exploring this topic further, or have suggestions for improving these estimates, we would love to collaborate or hear from you: @DarenMatsuoka @eddylazzarin .

See the a16z crypto 2024 state of crypto report for more data and insights on the latest industry trends.