On-chain data analytics refers to information gleaned from blockchains. There is a gigantic amount of transaction information on blockchains that has not yet been parsed and analyzed by governmental or commercial entities. Yet it contains key insights. 

Similar to how Facebook and Google provide analytics on their traffic, it's important to have a mechanism to turn raw data into meaningful, actionable insights within Web3. Even with free tools that you can use to look up specific transactions (like EtherScan), there is no way to aggregate data points or make sense of the information.  

Issues With On-Chain Data Analytics

Currently, there are two main issues with on-chain data analytics. The first is that there are not many tools you can use that automatically parse blockchain data for meaningful analysis. While there are thousands of analytic toolkits in industries like SEO or finance, there are few similar applications within Web3. It's just a massive amount of raw data yet to be analyzed.  

The second problem is that blockchain has no real means of interacting with the off-chain world - the information existing in isolated servers. It works well to record information on a specific blockchain. And steps are being taken to improve collaboration and communication across blockchains. But there is still no current implementation to improve communication between off-chain and on-chain data. 

The inability to make use of the gigantic amount of information on centralized servers hinders the ability of blockchain to unlock its full potential. It could potentially prevent decentralized applications from wide-scale use because they would be unable to interact with Web2 information, which could streamline compliance, reporting, and technical efficiency. 

The Oracle Solution

Currently, Oracles provide the best solution. Oracles are an additional layer that facilitates a connection with external application programming interfaces (APIs). Once the information is validated, its submission to the blockchain ledger becomes immutable. This process ensures that the data is securely stored as an unchangeable record, allowing for its utilization in on-chain operations. 

To maintain accuracy, the oracle ensures regular updates of the information. It is worth noting that oracles have the capability to work in both directions, enabling the transfer of data from the blockchain to the physical world. Speaking on the importance of Oracles within Web3, CaesarVerse CEO Colin Helm stated:

"Oracles will likely play a key role in Web3 because they assist in communication with external organizations. Large institutions in various industries (healthcare, education, finance, etc) need a way of securely interacting with the burgeoning blockchain sector, and Oracles are the best means of achieving this. They will enable existing Web2 datasets to complement Web3 datasets in the most efficient manner. "

Of course, despite the benefits of data analytics, oracles do come with their own series of problems. The main issue is that if an Oracle feeds incorrect data to a smart contract, it will be placed irreversibly on-chain. This would be disastrous given the immutable nature of blockchain. 

Data Analytics Platforms

There are some providers that offer data analytics in Web3, in specific industries. One example is Crystal Blockchain, which operates in the compliance sector. It helps to achieve compliance by flagging risky transactions and streamlining investigations for compliance officers. 

High-risk transactions can be tied to real-world entities and organizations, providing transparency. Not only does it offer capabilities to track funds, but also provides visualization tools to see related dependencies and get a clearer view of what is going on when there are multiple transactions taking place. So far, they have checked 40,000 service providers and flagged over 6,000,000 risky transactions. They also have their own blockchain explorer.

Another example is DeFy Trends, which provides Web3 with informed decision-making in Web3 trading through data analytics. This application uses both on-chain and off-chain data sources, as well as social sentiment, to derive meaningful insights for traders and investors. But these applications are still at an early stage and the connection between on-chain and off-chain data needs to be more fluid. 

Future of On-Chain Data Analytics

Most certainly, there will be increased integration between on-chain and off-chain data analytics. This will make blockchains and decentralized applications more efficient. The main issue lies in security protocols that protect the integrity of the blockchain and its fundamental principles while facilitating the connection. 

Currently, oracles are perhaps the most viable method through which to achieve this aim.