According to the co-founder of a blockchain analytics provider, the active user count may not accurately reflect the state of a cryptocurrency ecosystem. This is because a small group of users can generate a significant portion of activity across multiple wallets. Philip Torres, the co-founder and chief data scientist of 0xScope, explained that entities such as monopolistic founding entities, bots, exploiters, and airdrop hunters can generate as much as 80% of blockchain activity. Despite appearing healthy, these projects often have a small number of entities behind them who control multiple addresses. For example, a project claiming to have 10,000 active users may actually have 10 to 20 individuals controlling 10,000 different addresses. Torres emphasized that the activity on-chain may not be what it seems, as one person can have multiple addresses, giving the illusion of a larger user base.
Furthermore, Torres pointed out that this phenomenon is not exclusive to small-scale ecosystems. All blockchain ecosystems experience varying levels of this activity. For example, the average Ethereum user possesses at least 10 addresses. Torres acknowledged that there can be legitimate reasons for having multiple wallet addresses, such as privacy concerns or automated traders using different strategies. However, this practice has also been used maliciously to inflate a project’s active user numbers, deceive investors, or engage in sybil attacks and gaming token airdrops. He provided an example of how two wallets accumulated a significant number of tokens from multiple wallets in an airdrop farming strategy, manipulating the median airdrop size. Torres stated that controlling multiple public addresses on the blockchain is relatively easy compared to managing multiple email addresses. This is done through hierarchical deterministic wallets, which generate multiple public addresses using a master set of mnemonic words.
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We found 2 super airdrop hunters of $ARB.
0xe1e2 received 1.4M $ARB($1.92M) via 866 addresses and added all 1.4M $ARB to #Uniswap to provide liquidity.https://t.co/sncsZTHrP2
0xbd4e received 933,375 $ARB($1.28M) via 630 addresses. pic.twitter.com/yK3LzbeC8t
— Lookonchain (@lookonchain) March 24, 2023
