Blockchain Papers

Kartik Hegadekatti

No abstract is available for this record.

Gerard Ruiz

Distributed ledger technology (DLT) is one of the latest in a long list of digital technologies, which appear to be heading towards a new industrial revolution. DLT has become very popular with the publication of the Bitcoin Blockchain in 2008. However, when we consider its suitability for dynamic networking environments, such as the Internet of Things, issues like transaction fees, scalability, and offline accessibility have not been resolved. The IOTA Foundation has designed the IOTA protocol, which is the data and value transfer layer for the Machine Economy. IOTA protocol uses an alternative blockless Blockchain which claims to solve the previous problems: the Tangle. This thesis first inquires into the theoretical concepts of both technologies Tangleand Blockchain, to understand them and identify the reasons to be compatible or not with the Internet of Things networking environments. After the analysis, the thesis focuses on the proposed implementation as a solution to address the connectivity issue suffered by the IOTA network. The answer to the problem is the development of a Neighbor Discovery algorithm, which has been designed to fulfill the requirements demanded by the IOTA application. Dealing with IOTA network setup can be very interesting for the community that is looking for new improvements at each release. Testing the solution in a peer-to-peer specific protocol (PeerSim), with different networking scenarios, allowed us to get valuable and more realistic information. Thus, after analyzing the results, we were able to determine the appropriate IOTA network configuration to build a more reliable and long-lasting network.

Roberto Cassar

The objective of this article is to merge the growing phenomenon of distributed ledger technology with the airline industry. This article attempts to attain its objective by succinctly clarifying what distributed ledger technology truly is without explaining the minutest of its details. Further, this article seeks to achieve its objective by suggesting potential manners in which this technology could apply to the airline industry; this is an endeavor that, so far, does not seem to have been undertaken in a strict academic sense. Lastly, this article strives to link these potential applications to the empire of the law by shedding light on the legal implications that could arise from them. By attempting to achieve its objective in the manner laid down above, this article intends to both generate a discussion on the applicability of distributed ledger technology to the airline industry and encourage an influx of deeper studies on this innovative theme by lawyers, economists, and engineers alike.

Gustaf Blidholm, Mathias Johnson

Centralized data storage and reconciliation by trusted intermediaries has historically put financial systems in the hands of a single central parties. The emergence of bitcoin and blockchain, combined with the 2008 financial crisis, has shifted the Swedish financial sector’s traditional perspectives on democratization, centralization, transparency and automation. Trade and export finance is one of many sectors investigating how blockchain and distributed ledger technology can be used other than as a digital currency system. Swedish trade and export finance connects importers, exporters, banks, credit providers, customs, and transporters into a fragmented and complex process with many stakeholders. Sweden further has a history of quickly adopting technological innovations. Banks therefore face a dynamic environment and an inconsistent, manual operative process that removes profitability incentives in providing small enterprises with credit. The adoption of DLT could provide efficiency gains and cost savings in administration, communication, reconciliation and accounting. In this thesis, the costs, benefits, and remaining barriers of implementing distributed ledger technology in Swedish trade finance are identified. Further, Swedish contextual factors’ effect on the rate of adoption is addressed. The chosen methodology of deep interviews and thorough studying of literature provides an assessment of the potential transition dynamics, forming a foundation for future investment decisions. The conclusions drawn suggest that the main costs related to adoption lie in research and development and implementation. R&D costs for distributed ledgers in the Swedish financial sector during 2019 were approximated to USD 40 million. The main benefits of automation, efficiency and reduced level of complexity were concluded to likely outweigh the costs within approximately ten to twenty years. Experience will allow companies to optimize governance structures and consensus mechanisms, while learning to expose parts of networks into public space. The innovative, adaptive Swedish market environment presumably enables faster than average diffusion of innovation, while remaining barriers in cooperation, trust, interoperability and regulation may extend the adoption process

Dirk Andreas Zetzsche, Ross P. Buckley, Douglas W. Arner

No abstract is available for this record.

Yunhua He, Hong Li, Xiuzhen Cheng, Yan Liu · 6 authors

In distributed peer-to-peer (P2P) applications, peers self-organize and cooperate to effectively complete certain tasks such as forwarding files, delivering messages, or uploading data. Nevertheless, users are selfish in nature and they may refuse to cooperate due to their concerns on energy and bandwidth consumption. Thus each user should receive a satisfying reward to compensate its resource consumption for cooperation. However, suitable incentive mechanisms that can meet the diverse requirements of users in dynamic and distributed P2P environments are still missing. On the other hand, we observe that Blockchain is a decentralized secure digital ledger of economic transactions that can be programmed to record not just financial transactions and Blockchain-based cryptocurrencies get more and more market capitalization. Therefore in this paper, we propose a Blockchain based truthful incentive mechanism for distributed P2P applications that applies a cryptocurrency such as Bitcoin to incentivize users for cooperation. In this mechanism, users who help with a successful delivery get rewarded. As users and miners in the Blockchain P2P system may exhibit selfish actions or collude with each other, we propose a secure validation method and a pricing strategy, and integrate them into our incentive mechanism. Through a game theoretical analysis and evaluation study, we demonstrate the effectiveness and security strength of our proposed incentive mechanism.

Jianbin Gao, Kwame Omono Asamoah, Emmanuel Boateng Sifah, Abla Smahi · 8 authors

Electricity is the commonest commodity for most businesses in our world today. The use of electricity has been a breakthrough for the discovery of new technologies and has become the main driving force behind several innovations. With the introduction of smart grid systems, there have been improvements in how utility companies interact with their customers with regards to electricity use. However, since the readings are done via the Internet, there is the tendency for the data to be compromised when it gets into the hands of the wrong people. Moreover, customers mostly do not know why they pay huge amounts and which appliances use more electricity, since they are not privy to the readings. The sovereign blockchain technology, which provides transparency and provenance, is utilized in this paper to mitigate these above mentioned problems. A smart contract, which executes laid down procedures to provide a trust-based system between participants on the network is also implemented. Our system proves very efficient as the user can monitor how the electricity is used, and it also provides a platform where there is no manipulation from either party.

Sylve Chevet

This paper offers an analysis of cryptocurrencies and blockchain’s technical underpinnings, specifically of Non-Fungible tokens and “cryptocollectibles”, and the changes these innovations can bring about in the art market and creative industries at large. The paper is based on a resource-based analysis of creative industries, their value chains and the various bargaining powers and revenue sharing of the industries’ agents.

Craig Calcaterra

No abstract is available for this record.

Felix Irresberger, Ruomei Yang

This paper studies the concentration of block production in selected Proof-of-Stake (PoS) blockchains and finds evidence consistent with participants entering and leaving the consensus process, thereby changing the concentration level, but not with disproportionate compounding of wealth for large stakes.

Usman W. Chohan

No abstract is available for this record.

Oleksandr Vashchuk, Roman Shuwar

The consensus algorithm is a mechanism that allows you to protect the network against attacks. The work of the algorithm is to provide rules that act on the network members. Proof of Work is one of the consensus algorithms based on the calculation of a complex algorithmic problem. This algorithm requires significant computing power to maintain its performance and therefore is superfluous. An alternative algorithm -Proof of Stake does not require so many resources to maintain network performance, but has a number of shortcomings.

Christian Catalini, Joshua S. Gans

This paper explores how entrepreneurs can use fungible tokens—whereby they issue digital assets and commit to only accept those tokens as payment for future products or services—to fund venture development. We show that tokens can acquire value through a mechanism where entrepreneurs generate buyer competition by setting divide-the-money prices, despite lacking traditional equity-like cash flow rights. However, we uncover a fundamental tension: when ventures face ongoing operational costs, they must retain tokens to credibly commit to fair pricing, yet this conflicts with their need to sell tokens to raise development capital. We prove this leads to an impossibility result for simple token structures and demonstrate how observed practices such as vesting schedules, multi-stage offerings, and pre-committed buybacks resolve this tension. Our analysis reveals that while venture returns are independent of token supply growth, initial fundraising is maximized by setting that growth to zero. Beyond traditional ICOs, our model applies to various token-based financing mechanisms including layer-1 protocols, DeFi platforms, and Web3 applications, providing insight into how these mechanisms facilitate coordination among stakeholders in digital ecosystems.

Thomas Heine Felix, Henk von Eije

Purpose The purpose of this paper is to analyze underpricing in initial coin offerings (ICO). It bridges the gap between findings in initial public offering (IPO) literature and empirical results from ICOs. Design/methodology/approach The sample set consists of 279 ICOs between April 2013 and January 2018. A regression analysis is performed with data from the ICOs. Findings The results show an average level of underpricing of ICOs of 123 percent in the USA and 97 percent in the other countries. The results for the US ICOs are significantly higher than for US IPOs on average and also higher than US IPOs at the beginning of the dot.com bubble. The authors also study the determinants of ICO underpricing. The authors use proxies based on asymmetric information from the IPO literature as well as ICO-related variables. First-day trading volume and a good sentiment on the ICO market go together with more ICO underpricing. Moreover, hot markets make first-day investors to benefit less. Finally, companies that use a large issue size or a pre-ICO (a sale of cryptocurrencies before the ICO) leave less money on the table. Research limitations/implications A first restriction is that the authors focus on ICOs and not on crowdfunding, though there are similarities in that both of them are novel ways to finance projects. A second restriction is that the authors had to decide on the definition of a listing day. Cryptocurrencies are traded on many exchanges, and if the exchange is tailored to the cryptocurrency itself, the data on, e.g., close prices are not necessarily to be trusted. The authors, therefore, decided to use close price data from coinmarketcap.com, which requires a listing on two exchanges. This choice implies that there may have been trades before the listing day itself. A third restriction arises from the relative newness of the ICO phenomenon. The authors gathered data on underpricing from coinmarketcap.com and combined that with project information from icobench.com. However, the data were not simply matched and they required manual adjustments based on several other sources. The authors hope that in due time data on ICOs will be as adequate as data on IPOs and that they become more readily available. It might help if regulators or the crypto community would institute publication requirements. Adherence to such requirements would also reduce the extent of fraud and of asymmetric information, so that solid issuers with good projects might benefit from less underpricing. Practical implications The research may help in reducing underpricing, as the authors find that issuers can reduce it by holding a pre-ICO and by considering larger issue sizes. If they do so, investors will get fewer opportunities to benefit from underpricing. Investors can, nevertheless, also profit from the knowledge generated in this paper. When market sentiment is positive and first-day trading volume is expected to be high, investing in ICOs is likely to give them higher first-day returns. Finally, the authors hope that this paper will serve as a basis for further research into the exciting and dynamic world of cryptocurrencies. Originality/value There is hardly any research on underpricing of ICOs. The paper is interesting for its table with a brief comparison of ICOs and IPOs. It also searches for variables from the asymmetric information theory behind IPOs to be applied in explaining ICOs. It shows high levels of ICO underpricing in comparison to IPOs. It also gives suggestions for issuers of (and investors in) ICOs.

Laura Alessandretti, Abeer ElBahrawy, Luca Maria Aiello, Andrea Baronchelli

Machine learning and AI-assisted trading have attracted growing interest for the past few years. Here, we use this approach to test the hypothesis that the inefficiency of the cryptocurrency market can be exploited to generate abnormal profits. We analyse daily data for 1,681 cryptocurrencies for the period between Nov. 2015 and Apr. 2018. We show that simple trading strategies assisted by state-of-the-art machine learning algorithms outperform standard benchmarks. Our results show that non-trivial, but ultimately simple, algorithmic mechanisms can help anticipate the short-term evolution of the cryptocurrency market.

Stephen Chan, Jeffrey Chu, Yuanyuan Zhang, Saralees Nadarajah

In financial trading, cryptocurrencies like bitcoin use decentralization, traceability, and anonymity features to perform transactional activities. These digital currencies, using the emerging blockchain technologies, are forming the basis of the largest unregulated markets in the world. This creates various regulatory challenges, including the illicit purchase of drugs and weapons, money laundering, and funding terrorist activities. This chapter analyzes various legal and ethical implications, their effects, and various solutions to overcome the inherent issues that are currently faced by the policymakers and regulators. The authors present the result of an analysis of 30 recently published peer-reviewed scientific publications and suggest various mechanisms that can help in the detection and prevention of illegal activities that currently account for a substantial proportion of cryptocurrency trading. They suggest methods and applications that can also be used to identify the dark marketplaces in the future.

Ayesha Afzal, Aiman Asif

The evolution of money has accompanied the development of civilizations and technological innovations, leading to today’s cryptocurrencies. Cryptocurrencies have become a popular mode of payment globally because of their low cost, high-speed transferability and a decentralized tracking network that provides secure transactions and a high degree of anonymity. However, the decentralized system of cryptocurrencies has made global monetary systems more dynamic and therefore more prone to misuse as well as posing a threat to financial stability. Cryptocurrencies are also gaining popularity in Pakistan: its first cryptocurrency, named ‘Pakcoin’, was launched in 2015. The State Bank of Pakistan does not recognize any digital currency, and the Federal Board of Revenue and Federal Investigation Agency have taken legal action against local and internationally traded cryptocurrencies. This article reviews these risks and provides various regulatory solutions so that methods can be developed to improve the management of financial innovations and create a safer environment in which financial innovation can continue. Furthermore, developing countries such as Pakistan can take advantage of distributed ledger technology (used in cryptocurrencies) in applications including: microfinance to help the unbanked, in data identification systems and in land registries to help enforce property rights.

Κωνσταντίνος Γκίλλας, Stelios Bekiros, Costas Siriopoulos

In this paper, we study the contemporaneous tail dependence structure in a pairwise comparison of the ten largest cryptocurrencies, namely Bitcoin, Dash, Dogecoin, Ethereum, Litecoin, Monero, Namecoin, Novacoin, Peercoin, and Ripple. We apply multivariate extreme value theory and we estimate a bias-corrected extreme correlation coefficient. Our findings reveal clear patterns of significantly high bivariate dependency in the distribution tails of some of the most basic and widespread cryptocurrencies, primarily over various downside constraints. This means that extreme correlation is not related to cryptocurrency market volatility per se, but to the trend of the cryptocurrency market. Therefore, extreme correlation increases in bear markets, but not in bull markets for these pairs. Interestingly, there is also a significant number of pairs which exhibit a weak level of dependency in distribution tails.

Sergi Delgado-Segura, Cristina Pérez‐Solà, Jordi Herrera‐Joancomartí, Guillermo Navarro‐Arribas · 5 authors

P2P networks are the mechanism used by cryptocurrencies to disseminate system information while keeping the whole system as much decentralized as possible. Cryptocurrency P2P networks have new characteristics that propose new challenges and avoid some problems of existing P2P networks. By characterizing the most relevant cryptocurrency network, Bitcoin, we provide details on different properties of cryptocurrency networks and their similarities and differences with standard P2P network paradigms. Our study allows us to conclude that cryptocurrency networks present a new paradigm of P2P networks due to the mechanisms they use to achieve high resilience and security. With this new paradigm, interesting research lines can be further developed, both in the focused field of P2P cryptocurrency networks and also when such networks are combined with other distributed scenarios.

Christian Masiak, Joern Block, Tobias Masiak, Matthias Neuenkirch · 5 authors

No abstract is available for this record.

Hoje Jo, Haehean Park, Hersh Shefrin

Abstract Baker and Wurgler identify high sentiment betas with small startup firms that have great growth potential. On the surface, cryptocurrencies share important features in common with high sentiment beta stocks. This paper investigates the degree to which, during the period July 18, 2010–February 26, 2018, the return to bitcoin displayed the characteristics of a high sentiment beta stock. Using a sentiment‐dependent factor model, the analysis indicates that in large measure, bitcoin returns resembled returns to high sentiment beta stocks. Additionally, we show that bitcoin's expected returns are low when sentiment measured by Volatility Index is high while expected returns are high when sentiment is low.

Yi Liu, Xingtong Liu, Chaojing Tang, Jian Wang · 5 authors

Bitcoin combines a peer-to-peer network and cryptographic algorithm to implement a distributed digital currency system, which keeps all transaction history on a public blockchain. Since all transactions recorded on the blockchain are public to everyone, Bitcoin users face a threat of leaking financial privacy. Many analysis and deanonymization approaches have been proposed to link transaction records to real identities. To eliminate this threat, we present an unlinkable coin mixing scheme that allows users to mix their bitcoins without trusting a third party. This mixing scheme employs a primitive known as ring signature with elliptic curve digital signature algorithm (ECDSA) to conceal the transfer of coins between addresses. The mixing server is only able to check whether the output addresses belong to its customers, but it cannot tell which address owned by which customer. Customers do not have to rely on the reputation of a third party to ensure his money will be returned, and his privacy will not be leaked. This scheme needs no modifications on current Bitcoin system and is convenient to deploy by any communities. We implemented a prototype of our scheme and tested it under the Bitcoin core's regtest mode. Security and privacy of our mixing scheme are ensured through the standard ring signature and ECDSA unforgeability.

Cüneyt Gürcan Akçora, Matthew Dixon, Yulia R. Gel, Murat Kantarcıoğlu

A key challenge for Bitcoin cryptocurrency holders, such as startups using ICOs to raise funding, is managing their FX risk. Specifically, a misinformed decision to convert Bitcoin to fiat currency could, by itself, cost USD millions. In contrast to financial exchanges, Blockchain based crypto-currencies expose the entire transaction history to the public. By processing all transactions, we model the network with a high fidelity graph so that it is possible to characterize how the flow of information in the network evolves over time. We demonstrate how this data representation permits a new form of microstructure modeling - with the emphasis on the topological network structures to study the role of users, entities and their interactions in formation and dynamics of crypto-currency investment risk. In particular, we identify certain sub-graphs ('chainlets') that exhibit predictive influence on Bitcoin price and volatility, and characterize the types of chainlets that signify extreme losses.

Sinan Krueckeberg, Peter Scholz

Using tick-level bitcoin data from February 2013 through April 2018, we show substantial arbitrage spreads between global bitcoin markets. Spreads follow multiple consistent patterns. Minimum and maximum prices show significant clustering. Spreads increase during the early hours of a day (according to coordinated universal time), when new exchanges enter markets, and following bitcoin heists and hacks. The full year 2017 and the first quarter of 2018 each had exploitable net arbitrage profit opportunities of at least USD380 million that smart money failed to capture. Based on long-term analyses, we also found that bitcoin market inefficiency has increased over time.