{"id":276,"date":"2014-05-13T00:30:00","date_gmt":"2014-05-13T00:30:00","guid":{"rendered":"http:\/\/blog.holytransaction.com\/a-network-analysts-view-of-blockchain\/"},"modified":"2022-01-27T18:10:05","modified_gmt":"2022-01-27T16:10:05","slug":"a-network-analysts-view-of-blockchain","status":"publish","type":"post","link":"https:\/\/holytransaction.com\/blog\/2014\/05\/a-network-analysts-view-of-blockchain.html","title":{"rendered":"A Network analyst\u2019s view of the Blockchain"},"content":{"rendered":"
\n
\n
\n

\nMartin Harrigan is a computer scientist and software developer. He is the founder of QuantaBytes, an Irish startup developing a suite of tools for analyzing and visualising bitcoin\u2019s block chain. He is also the co-author of one of the earliest academic papers<\/a> to study the network properties of the block chain and its implications for anonymity.<\/h4>\n<\/div>\n<\/blockquote>\n<\/div>\n
\n\"abstract<\/a><\/div>\n
\n<\/div>\n
\n(CoinDesk<\/a>) The
\n block chain is a decentraliced, consensus-driven ledger of every
\nsuccessful bitcoin transaction to date. As of the 300,000th block, the
\nledger includes over 38 million transactions.<\/div>\n
\nAside from being a
\nmonumental technical achievement, the block chain is a fascinating
\ndataset. We can use it to create a transaction network that models the
\nflow of bitcoins from the creation of the genesis block to the present
\nday.<\/div>\n
\nIn this network, every node represents a transaction, and
\nevery (directed) edge represents a flow of bitcoins from an output of
\none transaction to an input of another. This large, complex network has
\nover 38 million nodes and 85 million edges.<\/div>\n\n\n\n\n
\"transaction<\/a><\/td>\n<\/tr>\n
The transaction network represents the flow of bitcoins between transactions over time.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nNetwork science<\/div>\n
\nNetwork
\n science is the study of complex networks. It provides theories,
\ntechniques and tools that help us understand the structure and evolution of a network<\/a>.
\n The bitcoin transaction network is a prime example. Its basic building
\nblock, the transaction, can be combined to produce complex transfers of
\nvalue. This is reflected in the topological structure of the transaction
\n network.<\/div>\n
\nThe network as a whole is too large and complex for most
\n network visualisation tools. However, we can measure various structural
\n properties of the network. For example, transactions can be
\ncharacterised by their varying numbers of inputs and outputs. But how
\nare these numbers distributed in practice? In the transaction network,
\nwe can analyse the in- and out-degrees of the nodes. We can plot the in-
\n and out-degree distributions. They show, for each possible degree, the
\nnumber of times they occur in the network.<\/div>\n\n\n\n\n
\"The<\/a><\/td>\n<\/tr>\n
The in-degree distribution of the transaction network.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\n<\/div>\n\n\n\n\n
\"The<\/a><\/td>\n<\/tr>\n
The out-degree distribution of the transaction network.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nIn
\n both cases, we observe inverse relationships between these numbers. The
\n lower the degree, the more frequently the nodes with that degree occur;
\n the higher the degree, the less frequently they occur. There are many
\noutliers. The outlier in the out-degree distribution with out-degree
\nequal to two is due to an abundance of transactions with exactly two
\noutputs.<\/div>\n

\nGiant connected component<\/h2>\n
\nSuppose we were able to
\n visualise the entire bitcoin transaction network. It would probably
\nresemble a \u201chairball\u201d. These visualisations suffer from cluttering and
\nover-plotting to an extreme that makes them unusable for any practical
\npurposes. However, they do provide one key piece of information. Are we
\ndealing with one large connected component or several smaller connected
\ncomponents?<\/div>\n\n\n\n\n
\"Many<\/a><\/td>\n<\/tr>\n
Many visualizations of large networks are \u201chairballs\u201d.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nA
\n connected component is a group of nodes and edges that are all
\nconnected to each other, either directly or indirectly. If a network has
\n a giant connected component, this means that almost every node is
\nreachable from almost every other node. If we ignore the direction of
\nthe edges in the bitcoin transaction network, then it does indeed
\ncontain a giant connected component covering over 99.9% of all nodes.
\nThe second largest connected component has just 71 nodes.<\/div>\n

\nFourteen degrees of separation<\/h2>\n
\nSix
\n degrees of separation is the theory that everyone on the planet is
\nconnected to everyone else through a chain of acquaintances with no more than six hops<\/a>.
\n In network science terminology, this translates to the theory that the
\nsocial network of the human race has diameter six. Facebook reported<\/a> that the effective diameter (covering 90% of all pairs of users) of its social network is five and is decreasing with time.<\/div>\n
\nThe
\n equivalent number for the bitcoin transaction network is fourteen and
\nis increasing with time. That is, across 90% of all pairs of
\ntransactions, the shortest path between them in the transaction network,
\n ignoring directionality, is at most fourteen hops. The increasing value
\n is likely due to the fact that, unlike the Facebook social network,
\nthere is no preferential attachment<\/a>.
\n New nodes are connected to existing nodes whose corresponding
\ntransactions are not yet fully redeemed. In other words, the transaction
\n network is growing at the frontier only.<\/div>\n

\nThe first currency with a ledger<\/h2>\n
\nSurprisingly,
\n bitcoin is not the first currency with a ledger from which we can model
\n the transfer of value. The Tomamae-cho community currency was
\nintroduced into the Hokkaido Prefecture in Japan for a three-month
\nperiod during 2004-05 in a bid to revitalise the local economy. The
\nTomamae-cho system involved gift certificates that were reusable and
\nlegally redeemable into yen. There was an entry space on the reverse of
\neach certificate for recipients to record transaction dates, their names
\n and addresses, and the purposes of use, up to a maximum of five
\nrecipients.<\/div>\n
\nResearchers collected these certificates in order to
\nderive a network structure that represented the flow of currency during
\nthe period. They showed, for example, that the network had small world<\/a> properties.<\/div>\n\n\n\n\n
\"A<\/a><\/td>\n<\/tr>\n
A network representation of the transfer of value with a community currency.
\nSource: Network Analyses of the Circulation Flow of Community Currency<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nThe
\n block chain is a digital equivalent to the Tomamae-cho certificates. It
\n does not contain information such as names and addresses or the
\npurposes of use. However, it has other properties that make it suitable
\nfor analysing the transfer of value including its accuracy, size, and
\ncompleteness.<\/div>\n
\n<\/div>\n
\nThe application of network analysis to the block
\nchain is an under-explored, yet fascinating area. There are a handful of
\n academic studies but very little in the way of software and tools to
\nopen it up to a wider audience. QuantaBytes<\/a>  is an Irish startup, founded by the author<\/a>,
\n developing a suite of tools for analysing and visualising bitcoin\u2019s
\nblock chain. By understanding the structure and evolution of the block
\nchain, we can better understand bitcoin\u2019s usage patterns, economy, and
\nthe growth of the system as a whole.<\/div>\n
\n<\/div>\n
\nNetwork<\/a> image via Shutterstock<\/i><\/div>\n

Open your free digital wallet here<\/a> to store your cryptocurrencies in a safe place.<\/p>\n","protected":false},"excerpt":{"rendered":"

Martin Harrigan is a computer scientist and software developer. He is the founder of QuantaBytes, an Irish startup developing a suite of tools for analyzing and visualising bitcoin\u2019s block chain. He is also the co-author of one of the earliest academic papers to study the network properties of the block chain and its implications for […]<\/p>\n","protected":false},"author":1,"featured_media":866,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[37,76,101,678],"tags":[764,793,1331],"yoast_head":"\nA Network analyst\u2019s view of the Blockchain -<\/title>\n<meta name=\"description\" content=\"The block-chain is a decentraliced, consensus driven ledger of every successful bitcoin transaction to date.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/holytransaction.com\/blog\/2014\/05\/a-network-analysts-view-of-blockchain.html\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Network 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