Datafying Bitcoin: can social media data predict the value of digital currencies?

Datafying, is that a word? Is this guy making up buzzwords just for fun? Well, sometimes yes. But not in this case. I am currently reading a book by Viktor Mayer-Schönberger and Kenneth Cukier called Big Data: A Revolution That Will Transform How We Live, Work, and Think. This book describes how big data will become the basics for everyday life. Datafying is one of the terms they coined and introduce in the book. While I’m not a big fan of the terminology, this term is actually a pretty good construct to grasp what big data and the internet of things are changing about the world:

“To datafy a phenomenon, is to put it in a quantified format so it can be tabulated and analyzed.”

So Twitter, as it’s data firehose is being used for sentiment analyses, is the datafication (Yes, this is the time to get out your buzzwordbingo card) of sentiment: “Twitter enabled the datafication of sentiment by creating an easy way for people to record and share their stray thoughts, which had previously been lost to the winds of time.” (Someone pointed out to me that over at the New Republic they use the same quote to make a different (and also interesting) argument) So we at VINTlabs wrote an entire report (PDF) on the use of social media data to predict consumer/human behavior. Predictive and social analytics have always been about data but we argued that, following the terminology, using big data technologies we entered the era of the ultimate datafication of personalized marketing. Yesterday I came across an interesting post on using social data to predict digital currencies such as Bitcoin. Bitcoin is a decentralized digital currency that is currently a hot topic due to it’s bubble-like state: it has gone up, up, up and a long way down. There already have been projects that use Twitter data to predict the stock exchange, a Happiness Index and more, but letting social data fuel the predictive analytics to digital currencies is a pretty good idea. In a post on the FreshNetworks blog Rick Burgess explains why:

Bitcoin however has several characteristics which make it an ideal market for social data prediction:

• The value of Bitcoins is determined almost solely on market demand, because the number of coins on the market is predictable and are not tied to any physical goods
• Bitcoin traders tend to be in the same demographic as social media users, and so their attitudes, opinions and sentiment towards Bitcoin are well documented
• Bitcoin is predominately traded by individuals rather than large institutions
• Events that affect Bitcoin value are disseminated first and foremost on social media

So yes, if the demographic and context (use, types of content, information flows) of a medium is similar to the userbase of a product, of course it makes sense to use this data to make predictions on how the product, Bitcoin in this case, will ‘act’. Bitcoin is just a string of data, and each bitcoin has a unique code element to set it apart from all the other bitcoins. So in terms of datafying, bitcoin already is the datafication of money in a way. But what can we say about the value of Bitcoin in the future using Twitter? Here are 100.000+ tweets on bitcoin, be sure to let me know what you’d find, than I can make a data driven investment and maybe start stacking up bitcoins. Image credits: Wired, TheUpStart