Blockchain technology has the potential to transform dramatically how a modern economy deals with maintaining and updating records. This innovation has already created lots of turbulence in financial markets and beyond. It will be a challenge to let markets figure out how to best use this technology while ensuring consumer safety and efficiency. Our goal in this paper is to unveil the potential of blockchain technology and guide regulators in how to approach the challenges this technology entails. The most well-known examples of blockchains are found in the area of payments systems and, more generally, in financial markets. It is thus understandable that the financial industry is leading the charge to unearth the potential of this technology in order to find cost efficiencies, but also to recapture above normal profits. The potential application of this technology, however, reaches much further than merely being a currency like bitcoin or a record-keeping system. Early applications of this technology include smart contracts and attempts by governments to build universal online identification systems. Blockchain technology also introduces new concepts such as cryptographic communication protocols and distributed data storage that can increase the safety of electronic networks and offer potential cost efficiency. We do not expect distributed ledgers to completely supplant traditional intermediaries, especially in areas where these intermediaries are of systemic importance or provide services that require a high degree of ad hoc coordination. Still, many elements of this new technology offer a unique opportunity for such intermediaries to modernize their infrastructures and offer their clients safer and cheaper systems. It is not clear, however, how to realize such benefits in a way that makes sure they are passed on to the economy as a whole. This leads us to identify three major challenges and priorities for policymakers and regulators arising from blockchain technology: 1. Design a principle-based regulation regime that achieves high safety standards, legal certainty and a stable environment for transactions based on distributed ledger technology; 2. Ensure that this technology leads to appropriate end-user cost efficiencies rather than simply a redistribution of above-normal profits among intermediaries; and 3. Determine areas where government involvement is advisable, be it in the role of facilitator for a private or public distributed ledger, or as a direct central node that applies elements of the technology but retains the monopoly of managing the ledger entries.
Blockchain has been considered a breakthrough technology-but does your company need it? In this article, the authors discuss the advantages and disadvantages of blockchain technology using examples from the insurance sector, which can be generalized and applied to other sectors.
Cryptocurrencies and blockchains are increasingly used, implemented and adapted for numerous purposes; people and businesses are integrating these technologies into their practices and strategies, creating new political economies and spaces in and of everyday life. This thesis seeks to develop a foundation of geographic theory for the study of spatial production within and surrounding blockchain technologies focusing on acute studies of Bitcoin as cryptocurrency, Ethereum as digital marketplace, and their conditions of possibility as decentralized autonomous organizations. Utilizing concepts from Henri Lefebvre's Production of Space, this thesis situates blockchain technologies within the wider discussion about the political economy of modes of spatial production, dialectical material methods, code/space, and network society through an examination of human and machine relations within their unique and emergent spaces. Combining phenomenological and dialectical material methods with the methodological practice of discourse analysis and systems theory, this thesis explores an understanding of how systemic mechanisms and actant actions driving blockchain technologies are indications of new evolutions in our conceptions of space and place in everyday life of later informational capitalism.
Created in 2009, bitcoin reaches record heights every week, having hit $17,000 on 11 December 2017 - the first day a bitcoin futures contract traded at the CBOE - versus $1,000 in early 2017 and $1 in 2001. Yet there is still no consensus among economists whether bitcoin comprises a new decentralised currency free of central bank influence, or is a purely speculative instrument.
This article analyses the existing institutions and infrastructure for payments. Authoritative settlement based on central bank support is seen as being essential for both large value and retail payment systems; and, in the EU, UK, and US, the importance of regulating for the protection of consumers who use retail payment systems is recognised. In this institutional context, payment innovations (including Bitcoin and distributed ledger or autonomous organisation technologies) are assessed. It is suggested that, while competition at certain levels is likely to bring social benefits through commercial developments, the maintenance of public interest objectives necessarily delineates the scope of competition. While this might limit the disruptive impact of payment innovations, it is argued that, in the light of the public policy needs for a stable and efficient public infrastructure and the social needs of confidence and trust in a predictable and regulated payment system that meets commercial and social expectations such as in consumer protection, this is not necessarily undesirable.
Abstract This paper aims to propound a thorough and circumspect analysis of the implications of blockchain technology in the accounting profession and its broader industry. The analysis begins with a summary of early developments by first movers and how they are harnessing blockchain technology to improve business practices. Concomitantly, the paper will go on to discuss how this technology will streamline accounting processes, specifically as the technology approaches critical mass. Finally, a discussion of its long‐term implications will follow through a more philosophical and conceptual dialogue. Throughout the paper, criticisms will be raised to address concerns regarding blockchain's widespread use.
Christoph Kinkeldey, Jean‐Daniel Fekete, Petra Isenberg
BitConduite is a system we are developing for the visual exploration of financial activity on the Bitcoin network. Bitcoin is the largest digital pseudo-currency worldwide and its study is of increasing interest and importance to economists, bankers, policymakers, and law enforcement authorities. All financial transactions in Bitcoin are available in an openly accessible online ledger-the (Bitcoin) blockchain. Yet, the open data does not lend itself easily to an analysis of how different individuals and institutions-or entities on the network-actually use Bitcoin. Our system BitConduite offers a data transformation back end that gives us an entity-based access to the blockchain data and a visualization front end that supports a novel high-level view on transactions over time. In particular, it facilitates the exploration of activity through filtering and clustering interactions. We are developing our system with experts in economics and will conduct a formal user study to assess our approach of Bitcoin activity analysis.
A blockchain is a distributed ledger for recording transactions, maintained by many nodes without central authority through a distributed cryptographic protocol. All nodes validate the information to be appended to the blockchain, and a consensus protocol ensures that the nodes agree on a unique order in which entries are appended. Consensus protocols for tolerating Byzantine faults have received renewed attention because they also address blockchain systems. This work discusses the process of assessing and gaining confidence in the resilience of a consensus protocols exposed to faults and adversarial nodes. We advocate to follow the established practice in cryptography and computer security, relying on public reviews, detailed models, and formal proofs; the designers of several practical systems appear to be unaware of this. Moreover, we review the consensus protocols in some prominent permissioned blockchain platforms with respect to their fault models and resilience against attacks.
Mining for Bitcoins is a high-risk high-reward activity. Miners, seeking to reduce their variance and earn steadier rewards, collaborate in pooling strategies where they jointly mine for Bitcoins. Whenever some pool participant is successful, the earned rewards are appropriately split among all pool participants. Currently a dozen of different pooling strategies (i.e., methods for distributing the rewards) are in use for Bitcoin mining. We here propose a formal model of utility and social welfare for Bitcoin mining (and analogous mining systems) based on the theory of discounted expected utility, and next study pooling strategies that maximize the social welfare of miners. Our main result shows that one of the pooling strategies actually employed in practice--the so-called geometric pay pool--achieves the optimal steady-state utility for miners when its parameters are set appropriately. Our results apply not only to Bitcoin mining pools, but any other form of pooled mining or crowdsourcing computations where the participants engage in repeated random trials towards a common goal, and where "partial" solutions can be efficiently verified.
Most modern electronic devices can produce a random number. However, it is difficult to see how a group of mutually distrusting entities can have confidence in any such hardware-produced stream of random numbers, since the producer could control the output to their gain. In this work, we use public and immutable cryptocurrency smart contracts, along with a set of potentially malicious randomness providers, to produce a trustworthy stream of timestamped public random numbers. Our contract eliminates the ability of a producer to predict or control the generated random numbers, including the stored history of random numbers. We consider and mitigate the threat of collusion between the randomness providers and miners in a second, more complex contract.
Open access
2 source records
Cryptography and Data Security
Blockchain Technology Applications and Security
Advanced Steganography and Watermarking Techniques
The growth of peer-to-peer exchanges and the blockchain technology has led to a proliferation of cryptocurrencies and to a massive increase in the number of investors who actually negotiate digital money. Cryptocurrencies trade at prices mainly driven by investor sentiment, becoming a potential source of financial bubbles and instabilities. In this work, we apply quantitative models to the study of Bitcoin and Ether, two of the most famous cryptocurrencies. Our bubble detection methodology combines the Log Periodic Power Law (LPPL) model, originally created by Johansen, Ledoit and Sornette (JLS), and the statistical model developed by Phillips, Shi, and Yu (PSY). In particular, we employ three different versions of JLS model, i.e. Ordinary Least Square (OLS), Generalised Least Squares (GLS) and Maximum Likelihood Estimation (MLE), and two PSY statistical tests (BSADF and BSADF*). We find that, during the sample period 1st December 2016 - 16th January 2018, Bitcoin shows typical hallmarks of a bubble phase in mid December 2017 and in the first half of January 2018, anticipating the large crashes observed thereafter. Also the Ether price dynamics reveals bubble evidence in mid June 2017, anticipating the crash observed on 12th June, and a weaker signal around 12th January 2018, anticipating the crash observed in the same days. This paper confirms the high risk of speculative bubbles associated with cryptocurrencies, related to investor exuberance pumping market prices far away from their fundamental values, thus creating critical situations subject to possible crashes. Our methodology is general and can be applied to virtually any financial time series, and may support investing and risk management strategies.
Jonathan Chiu, Thorsten V. Koeppl, Chiu, Jonathan, Koeppl, Thorsten
How well can a cryptocurrency serve as a means of payment? We study the optimal design of cryptocurrencies and assess quantitatively how well such currencies can support bilateral trade. The challenge for cryptocurrencies is to overcome double-spending by relying on competition to update the blockchain (costly mining) and by delaying settlement. We estimate that the current Bitcoin scheme generates a large welfare loss of 1.4% of consumption. This welfare loss can be lowered substantially to 0.08% by adopting an optimal design that reduces mining and relies exclusively on money growth rather than transaction fees to finance mining rewards. We also point out that cryptocurrencies can potentially challenge retail payment systems provided scaling limitations can be addressed.
Conventional public-key infrastructure (PKI) designs using certificate authorities and web-of-trust are not optimal and have security flaws. The properties afforded by the Bitcoin blockchain are a natural solution to some of the problems with PKI - in particular, certificate transparency and elimination of single points-offailure. Proposed blockchain-based PKI designs are built as public ledgers linking identity with public key, providing no privacy. We consider cases requiring privacy-aware PKIs, which do not link identity with public key. We show that blockchain technology can be used to construct a privacy-aware PKI while eliminating some of the problems of conventional PKI, and present PB-PKI, a privacy-aware blockchain-based PKI.