Martina Matta, Maria Ilaria Lunesu, Michele Marchesi
In the last decade, Web 2.0 services such as blogs, tweets, forums, chats, email etc. have been widely used as communication media, with very good results. Sharing knowledge is an important part of learning and enhancing skills. Furthermore, emotions may affect decisionmaking and individual behavior. Bitcoin, a decentralized electronic currency system, represents a radical change in financial systems, attracting a large number of users and a lot of media attention. In this work, we investigated if the spread of the Bitcoinâs price is related to the volumes of tweets or Web Search media results. We compared trends of price with Google Trends data, volume of tweets and particularly with those that express a positive sentiment. We found significant cross correlation values, especially between Bitcoin price and Google Trends data, arguing our initial idea based on studies about trends in stock and goods market.
Cryptocurrency, a form of digital currency that has an open and decentralized system and uses cryptography to enhance security and control the creation of new units, is touted to be the next step from conventional monetary transactions. Many cryptocurrencies exist today, with Bitcoin being the most prominent of them. Cryptocurrencies are generated by mining, as a fee for validating any transaction. The rate of generating hashes, which validate any transaction, has been increased by the use of specialized machines such as FPGAs and ASICs, running complex hashing algorithms like SHA-256 and Scrypt, thereby leading to faster generation of cryptocurrencies. This arms race for cheaper-yet-efficient machines has been on since the day the first cryptocurrency, Bitcoin, was introduced in 2009. However, with more people venturing into the world of virtual currency, generating hashes for this validation has become far more complex over the years, with miners having to invest huge sums of money on employing multiple high performance ASICs. Thus the value of the currency obtained for finding a hash did not justify the amount of money spent on setting up the machines, the cooling facilities to overcome the enormous amount of heat they produce and electricity required to run them. The next logical step in this is to utilize the power of cloud computing. Miners leasing super computers that generate hashes at astonishing rates that have a high probability of profits, with the same machine being leased to more than one person on a time bound basis is a win-win situation to both the miners, as well as the cloud service providers. This paper throws light on the nuances of cryptocurrency mining process, the traditional machines used for mining, their limitations, about how cloud based mining is the logical next step and the advantage that cloud platform offers over the traditional machines.
Cryptocurrency networks have given birth to a diversity of start-ups and attracted a huge influx of venture capital to invest in these start-ups for creating and capturing value within and between such networks. Synthesizing strategic management and information systems (IS) literature, this study advances a unified theoretical framework for identifying and investigating how cryptocurrency companies configure value through digital business models. This framework is then employed, via multiple case studies, to examine digital business models of companies within the bitcoin network. Findings suggest that companies within the bitcoin network exhibits six generic digital business models. These six digital business models are in turn driven by three modes of value configurations with their own distinct logic for value creation and mechanisms for value capturing. A key finding of this study is that value-chain and value-network driven business models commercialize their products and services for each value unit transfer, whereas commercialization for value-shop driven business models is realized through the subsidization of direct users by revenue generating entities. This study contributes to extant literature on value configurations and digital businesses models within the emerging and increasingly pervasive domain of cryptocurrency networks.
Much of the discussion of bitcoin in the popular press has concentrated on its status as a currency. Putting aside a vocal minority of radical libertarians and anarchists, however, many bitcoin enthusiasts are concentrating on how its underlying technology â the blockchain â can be put to use for wide variety of uses. For example, economists at the Fed and other central banks have suggested that they should encourage the evolution of bitcoinâs blockchain protocol which might allow financial transactions to clear much efficiently than under our current systems. As such, it also holds out the possibility of becoming that holy grail of commerce â a payment system that would eliminate or minimize the roles of third party intermediaries. In addition, the NASDAQ and a number of issuers are experimenting with using the blockchain to record the issuing and trading of investments securities.\nIn this Article, I examine the implications for bitcoin under the Uniform Commercial Code (the âU.C.C.â). Specifically, I consider three issues. In Part 1, I discuss the characterization of bitcoin â which I am using generically to refer to any virtual or cryptocurrency â under Article 9. The bad news is that it does not, and cannot be made to fit into, the U.C.C.âs definition of âmoneyâ. If held directly by the owner, bitcoin constitutes a âgeneral intangibleâ. Unfortunately, general intangibles are non-negotiable. This could greatly impinge on bitcoinâs liquidity and, therefore, its utility as a payment system.\nIn Part 2, I show how this may be mitigated by the rules of Article 8 governing investment securities. If the owner of bitcoin were to choose to hold it indirectly through a financial intermediary, then she and the intermediary could elect to have it treated as a âfinancial assetâ which is super-negotiable. Unfortunately, this comes at the cost of eliminating one of the primary attractions of cryptocurrency, namely the ability to engage in financial transactions directly without a third-party intermediary. However, Article 8, may already provide a legal regime for another contemplated use for the blockchain â namely as a readily searchable means of recording the ownership and transfer of property generally.\nIn Part 3, I explain how cryptosecurities fall squarely within Article 8's definition of âuncertificated securities.â Ironically, therefore, the creation of bitcoin securities may finally breathe life to little used provisions that were invented almost 40 years ago in a failed attempt to solve a completely different problem.
This paper aims to identify the likely source(s) of value that cryptocurrencies exhibit in the marketplace using cross sectional empirical data examining 66 of the most used such 'coins'. A regression model was estimated that points to three main drivers of cryptocurrency value: the aggregate computational power employed in mining for units of the cryptocurrency; the rate of unit production; and the cryptologic algorithm used for the protocol. Bitcoin-denominated relative prices were used, avoiding much of the price volatility associated with the dollar price of Bitcoin. The resulting model can be used so better understand the drivers of value observed in cryptocurrencies. These findings may also have implications in understanding other assets such as commodity forms of money.
Digital currencies, virtual currencies, in-game currencies, etc., have gathered a lot of attention, despite the difficulties of definition, from all corners of society for many years. Cryptocurrency has gained unprecedented attention since the birth of Bitcoin in 2009. Bitcoin is an online system of making and receiving payments in bitcoins. The system distinguishes itself by providing an open-source, cryptographically secure, confidentiality-preserving platform for transactions and/or making payments. The number of transactions as well as the number of accounts (held by individuals and businesses) is steadily increasing. A whole industry of service-providers has sprung up alongside. We consider the development of Bitcoin and its sister currencies as an important disruptive financial innovation which is here to stay unless throttled by ill-considered legislative or regulatory actions. Potential problems are analyzed and solutions offered. The overall assessment is that cryptocurrencies and variants of virtual currencies are a welcome development, they will offer competition to the existing modalities of money and governmental regulation, they will provide alternative means to economic agents for their transactions, and their innovative existence should be encouraged so that their beneficial features outperform any deleterious ones.
Bitcoin and Blockchain technology pose a number of novel regulatory and legal issues. This note examines how government agencies and courts have attempted to keep society safe for â and sometimes from â Bitcoin and Blockchain users (with consumers and investors on one end and drug dealers, terrorists, and violent criminals on the other). This note concludes with policy suggestions for changes to disclosure requirements and tax classifications to facilitate the broader adoption of Bitcoin as a currency by the general public.
Kourosh Davarpanah, Dan Kaufman, Ophelie Pubellier
NeuCoin is a decentralized peer-to-peer cryptocurrency derived from Sunny\nKing's Peercoin, which itself was derived from Satoshi Nakamoto's Bitcoin. As\nwith Peercoin, proof-of-stake replaces proof-of-work as NeuCoin's security\nmodel, effectively replacing the operating costs of Bitcoin miners\n(electricity, computers) with the capital costs of holding the currency.\nProof-of-stake also avoids proof-of-work's inherent tendency towards\ncentralization resulting from competition for coinbase rewards among miners\nbased on lowest cost electricity and hash power.\n NeuCoin increases security relative to Peercoin and other existing\nproof-of-stake currencies in numerous ways, including: (1) incentivizing nodes\nto continuously stake coins over time through substantially higher mining\nrewards and lower minimum stake age; (2) abandoning the use of coin age in the\nmining formula; (3) causing the stake modifier parameter to change over time\nfor each stake; and (4) utilizing a client that punishes nodes that attempt to\nmine on multiple branches with duplicate stakes.\n This paper demonstrates how NeuCoin's proof-of-stake implementation addresses\nall commonly raised "nothing at stake" objections to generic proof-of-stake\nsystems. It also reviews many of the flaws of proof-of-work designs to\nhighlight the potential for an alternate cryptocurrency that solves these\nflaws.\n
Digital currencies represent a new method for exchange and investment that differs strongly from any other fiat money seen throughout history. A digital currency makes it possible to perform all financial transactions without the intervention of a third party to act as an arbiter of verification; payments can be made between two people with degrees of anonymity, across continents, at any denomination, and without any transaction fees going to a central authority. The most successful example of this is Bitcoin, introduced in 2008, which has experienced a recent boom of popularity, media attention, and investment. With this surge of attention, we became interested in finding out how people both inside and outside the Bitcoin community perceive Bitcoin -- what do they think of it, how do they feel, and how knowledgeable they are. Towards this end, we conducted the first interview study (N = 20) with participants to discuss Bitcoin and other related financial topics. Some of our major findings include: not understanding how Bitcoin works is not a barrier for entry, although non-user participants claim it would be for them and that user participants are in a state of cognitive dissonance concerning the role of governments in the system. Our findings, overall, contribute to knowledge concerning Bitcoin and attitudes towards digital currencies in general.
Kalliopi N. Kypriotaki, Efpraxia D. Zamani, George M. Giaglis
Inspired by the new technological advancements and the groundbreaking technology at the foundation of cryptocurrencies, organizational structures are expected to evolve and new corporate structures to emerge, based on full decentralization. We posit that the blockchain, i.e., the technology, system and protocol behind and beyond the most popular digital crypto-currencies, will introduce decentralization in many manifestations of our everyday life, especially in cases where an independent trusted third party is needed to ensure and verify operations and transactions. This paper builds upon the blockchain technology and discusses how it could enable fully decentralized forms of business structures to emerge; decentralized autonomous corporations (DACs) are business entities totally based on code; running on the cloud, providing certain services and creating value for their customers. Thus, we argue that DACs could prove a means of decentralizing and automating decision making in organizations.
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical studies suggest that large price jumps cannot be explained by news and are the result of endogenous feedback loops. Although plausible, a clear-cut empirical evidence for such a scenario is still lacking. Here we show how crashes are conditioned by the market liquidity, for which we propose a new measure inspired by recent theories of market impact and based on readily available, public information. Our results open the possibility of a dynamical evaluation of liquidity risk and early warning signs of market instabilities, and could lead to a quantitative description of the mechanisms leading to market crashes.
As bitcoin becomes more important as a worldwide financial phenomenon, it also becomes important to understand its sources of value formation. There are three ways to obtain bitcoins: buy them outright, accept them in exchange, or else produce them by 'mining'. Mining employs computational effort which requires electrical consumption for operation. The cost of electricity per kWh, the efficiency of mining as measured by watts per unit of mining effort, the market price of bitcoin, and the difficulty of mining all matter in making the decision to produce. Bitcoin production seems to resemble a competitive market, so in theory miners will produce until their marginal costs equal their marginal product. Break-even points are modeled for market price, energy cost, efficiency and difficulty to produce. The cost of production price may represent a theoretical value around which market prices tend to gravitate. As the average efficiency increases over time due to competition driving technological progress â as inefficient capital becomes obsolete it is removed while new capital replaces them â the break-even production cost of bitcoins denominated in dollars will fall. Increased efficiency, although necessary to maintain competitive advantage over other miners could serve to drive the value of bitcoin down, however adjustments in the mining difficulty and the regular halving of the block reward throughout time will tend to counteract a decreasing tendency in cost of production.
Gareth W. Peters, Efstathios Panayi, Ariane Chapelle
The internet era has generated a requirement for low cost, anonymous and rapidly verifiable transactions to be used for online barter, and fast settling money have emerged as a consequence. For the most part, e-money has fulfilled this role, but the last few years have seen two new types of money emerge. Centralised virtual currencies, usually for the purpose of transacting in social and gaming economies, and crypto-currencies, which aim to eliminate the need for financial intermediaries by offering direct peer-to-peer online payments. We describe the historical context which led to the development of these currencies and some modern and recent trends in their uptake, in terms of both usage in the real economy and as investment products. As these currencies are purely digital constructs, with no government or local authority backing, we then discuss them in the context of monetary theory, in order to determine how they may be have value under each. Finally, we provide an overview of the state of regulatory readiness in terms of dealing with transactions in these currencies in various regions of the world.
We propose a high level network architecture for an economic system that integrates money, governance and reputation. We introduce a method for issuing, and redeeming a digital coin using a mechanism to create a sustainable global economy and a free market. To maintain a currency's value over time, and therefore be money proper, we claim it must be issued by the buyer and backed for value by the seller, exchanging the products of labour, in a free market. We also claim that a free market and sustainable economy cannot be maintained using economically arbitrary creation and allocation of money. Nakamoto, with Bitcoin, introduced a new technology called the cryptographic blockchain to operate a decentralised and distributed accounts ledger without the need for an untrusted third party. This blockchain technology creates and allocates new digital currency as a reward for "proof-of-work", to secure the network. However, no currency, digital or otherwise, has solved how to create and allocate money in an economically non-arbitrary way, or how to govern and trust a world-scale free enterprise money system. We propose an "Ontologically Networked Exchange" (ONE), with purpose as its highest order domain. Each purpose is defined in a contract, and the entire economy of contracts is structured in a unified ontology. We claim to secure the ONE network using economically non-arbitrary methodologies and economically incented human behaviour. Decisions influenced by reputation help to secure the network without an untrusted third party. The stack of contracts, organised in a unified ontology, functions as a super recursive algorithm, with individual use programming the algorithm, acting as the "oracle". The state of the algorithm becomes the "memory" of a scalable and trustable artificial intelligence (AI). This AI offers a new platform for what we call the "Autonomy-of-Things" (AoT).
Bitcoin (BTC) is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a BTC investment from the standpoint of a US investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, BTC investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that BTC investment offers significant diversification benefits. We show that the inclusion of even a small proportion of BTCs may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior that may not last in the medium or long run.
Feng Mai, Qing Bai, Zhe Shan, Xin Wang ¡ 5 authors
Bitcoinâs emergence has the potential to pave the way for a technological revolution in financial markets. What determines its valuation is an important open question with far-reaching business and policy implications. Building on Information Systems and Finance literature, we examine the dynamic interactions between social media and the monetary value of Bitcoin using textual analysis and vector error correction models. We show that more bullish forum posts are associated with higher future Bitcoin values. Interestingly, social mediaâs effects on Bitcoin are driven primarily by the silent majority, the 95% of users who are less active and whose contributions amount to less than 40% of total messages. In addition, messages on an Internet forum, relative to tweets, have a stronger impact on future Bitcoin value. Overall, our findings reveal that social media sentiment is an important predictor in determining Bitcoinâs valuation, but not all social media messages are of equal impact. This study offers new insights into the digital currency market and the economic impact of social media.
This paper reports on our research towards an economic analysis of money laundering schemes utilizing cryptocurrencies, which are convertible decentralized virtual currencies based on cryptographic operations. They gain ground as means to offer enterprises and its customers new payment methods, investing opportunities and some are even intended as substitutes for centrally controlled government-issued fiat currencies. Our starting point is the observation that their increasing popularity attracts the attention of practitioners and scholars, particularly because of raising anti-money laundering concerns. Consequently, work has already been conducted in this area, mainly focusing on implications on anti-money laundering efforts. However, we argue that the potential benefits for criminal individuals are an important, yet neglected factor in the dissemination of cryptocurrencies as money laundering instrument. Addressing this issue, the paper firstly presents the structure of the money laundering process and introduces prevailing anti money-laundering controls. This forms the basis for the subsequent analysis of contextual and transactional factors with respect to their influence on the incentives of criminals to utilize cryptocurrencies for money laundering. This aims at providing an answer to the open question, whether cryptocurrencies constitute a driver for money laundering.
The advent of Bitcoin in 2009 has not only introduced Cryptocurrencies and lead to a new digitization movement in the financial, especially payments industry but also made way for a new breed of innovative technologies based on decentralized digital currencies. Generally, decentralized consensus systems could change the very nature of how companies, organizations and individuals are built and interact with each other. Decentralized consensus systems, decentralized applications and smart contracts provide the conceptual framework as well as the technological basis to establish predefined, incorruptible protocols and contracts to organize human behavior and interconnectedness. However, the technical protocols and implementations are quite complex and practitioners as well as interdisciplinary researchers not familiar with cryptography, network protocols or decentralized networks are struggling to find access to these concepts and grasp their potential. To fill this gap, we develop a comprehensive taxonomy of decentralized consensus systems in order to provide a tool for researchers and practitioners alike to facilitate classification and analysis of emerging technologies in the field of "Crypto 2.0", the next level of innovation beyond cryptocurrencies.