Blockchain Papers

Piotr J. Piasecki

This paper discusses the game theory behind self-contained smart contract provably fair casinos, how they can be gamed by attackers with a large amount of money and computing power, as well as what are the necessary conditions to assure the system cannot be taken advantage of under various configurations.

Ujan Mukhopadhyay, Anthony Skjellum, Oluwakemi Hambolu, Jon Oakley · 6 authors

Cryptocurrencies have emerged as important financial software systems. They rely on a secure distributed ledger data structure; mining is an integral part of such systems. Mining adds records of past transactions to the distributed ledger known as Blockchain, allowing users to reach secure, robust consensus for each transaction. Mining also introduces wealth in the form of new units of currency. Cryptocurrencies lack a central authority to mediate transactions because they were designed as peer-to-peer systems. They rely on miners to validate transactions. Cryptocurrencies require strong, secure mining algorithms. In this paper we survey and compare and contrast current mining techniques as used by major Cryptocurrencies. We evaluate the strengths, weaknesses, and possible threats to each mining strategy. Overall, a perspective on how Cryptocurrencies mine, where they have comparable performance and assurance, and where they have unique threats and strengths are outlined.

Ayushi Bajaj, Tai-Wei Hu, Guillaume Rocheteau, Mario Rafael Silva

No abstract is available for this record.

Rodney Garratt, Neil Wallace

The value of bitcoin depends upon self‐fulfilling beliefs that are hard to pin down. We demonstrate this for the case where bitcoin is the only form of money in the economy and then generalize the message to the case of multiple bitcoin clones and/or a competing fiat currency. Some aspects of the indeterminacy we describe would no longer hold if bitcoin were an interest‐bearing object. ( JEL D50, E42)

Raymond C. W. Leung

This dissertation is a compilation of three papers that investigate the role of optimal contracting in a delegated portfolio management setting. While the study of optimal contracts in classical principal-agent setup has been extensively studied, relatively few have been studied in the context of delegated portfolio management in finance. And even delegated portfolio management papers in finance, there are still several open questions and unresolved issues that are beyond the scope of a standard principal-agent problem. In Chapter 1, I study a continuous-time principal-agent problem with drift and stochastic volatility control. While the problem with drift-only control by an agent has been extensively studied recently, very few existing papers allow an agent to endogenously influence volatility. Endogenous volatility control is particularly important in delegated portfolio management settings as volatility is one of the defining aspects of modern financial portfolio management. In Chapter 2, I study a model that encompasses dynamic agency, delegated portfolio management and asset pricing. Traditionally, the fields of ``asset pricing'' and ``corporate finance'' are studied independently of each other. However, as the modern portfolio management industry blooms in size and influence, the role of the portfolio manager and the contracts that are extended to them arguably has a role in the securities that they invest in, and hence in equilibrium, the asset pricing implications of the market overall. This paper is an attempt to bridge ``asset pricing'' and ``corporate finance'' (specifically interpreted to mean delegated portfolio management contracting) into one. In Chapter 3, I study whether a principal investor is better off delegating most of his money to a single portfolio manager (centralized delegation), as opposed to multiple portfolio managers (decentralized delegation), especially when there is the possible presence of moral hazard. With the size of the hedge fund industry and growing empirical support that moral hazard is a growing risk among hedge fund managers, it becomes imperative to understand when an investor decides to delegate his money, should it be delegated in a more centralized or decentralized fashion.

Kartik Hegadekatti, S G Yatish

In this paper, we analyse the workings of commercial banks in a scenario where crypto-currencies are the mainstream bills of exchange. We start by explaining the concept of cryptocurrencies (also referred to as cryptocoins in this paper). Then we discuss the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs). Later on, we envisage a scenario where cryptocoins are the main media of exchange. The banking aspects of Paper money, Bitcoins and RSBCs are then deliberated. We analyse the interplays between Banking and various currency formats. Finally, the paper concludes as to which currency is best suited to be the mainstream bill of exchange.

Kartik Hegadekatti, S G Yatish

No abstract is available for this record.

Josef Kokeš, Michal Bejček

The paper deals with cryptocurrencies and trading. Main goal of this article is to introduce strategy for automated trading on cryptocurrency exchange market. For this purpose we will use algorithm based of Floyd-Warshall algorithm. Article is introductory and can this method can be developed in the future. First, a general introduction to cryptocurrencies is given from the programmer's point of view, some statistics data and figure representing volatility of exchange. Then the article describes some basic strategies for automated trading. Also explained is the algorithm Floyd-Warshall and its modifications for automation arbitrage. An illustrative example is given and a trading algorithm is listed.

Jesús Fernández‐Villaverde, Daniel R. Sanches

Can competition among privately issued fiat currencies such as Bitcoin or Ethereum work? Only sometimes. To show this, we build a model of competition among privately issued fiat currencies. We modify the current workhorse of monetary economics, the Lagos-Wright environment, by including entrepreneurs who can issue their own fiat currencies in order to maximize their utility. Otherwise, the model is standard. We show that there exists an equilibrium in which price stability is consistent with competing private monies, but also that there exists a continuum of equilibrium trajectories with the property that the value of private currencies monotonically converges to zero. These latter equilibria disappear, however, when we introduce productive capital. We also investigate the properties of hybrid monetary arrangements with private and government monies, of automata issuing money, and the role of network effects.

Matteo Ortisi

In this paper we propose to use the Grand Canonical Minority Game (GCMG, a highly simplified financial market model) as a model of bitcoin market to show how the lack of an income for “miners”, similar to yield earned by bond holders, could be a structural reason for high volatility of bitcoin price in a reference currency. Coherently with present analysis, the introduction of future contracts on bitcoin would have the effect of reducing the overall market volatility.

Karen Elliott, Fabio Massacci, Chan-Nam Ngo, Julian Williams

No abstract is available for this record.

Christian Catalini, Joshua S. Gans

We build on economic theory to discuss how blockchain technology can shape innovation and competition in digital platforms. We identify two key costs affected by the technology: the cost of verification and the cost of networking. The cost of verification relates to the ability to cheaply verify state, including information about past transactions and their attributes, and current ownership in a native digital asset. The cost of networking, instead, relates to the ability to bootstrap and operate a marketplace without assigning control to a centralized intermediary. This is achieved by combining the ability to cheaply verify state with economic incentives targeted at rewarding state transitions that are particularly valuable from a network perspective, such as the contribution of the resources needed to operate, scale, and secure a decentralized network. The resulting digital marketplaces allow participants to make joint investments in shared infrastructure and digital public utilities without assigning market power to a platform operator, and are characterized by increased competition, lower barriers to entry, and a lower privacy risk. Because of their decentralized nature, they also introduce new types of inefficiencies and governance challenges.

Xun Yi, Xuechao Yang, Andrei Kelarev, Kwok‐Yan Lam · 5 authors

Kriptovalute su digitalni novac utemeljen na kriptografiji i decentraliziranom sustavu. Postoje samo u elektroničkom obliku kao jedinstveni digitalni novčići ("tokeni"). Iza njih ne stoji autoritet države niti ih je moguće svojevoljno proizvesti. Rad se fokusira na značajkama, postavkama, razvoju i svim međuodnosima važnih ekonomskih faktora koji utječu na kriptovalute. U prvom poglavlju navedena su obilježja kriptovaluta. Drugo poglavlje daje primjere i govori o primjeni kriptovaluta u svakodnevnom životu. U trećem poglavlju je raspravljano o trenutnim i budućim regulacijama najmoćnijih zemalja svijeta (G20) , kao i njihovoj zajedničkoj suradnji u želji za jedinstvenim i standardiziranim pravilima, a sve u svrhu što kvalitetnijeg nadzora nad kriptovalutama kako bi se spriječile malverzacije i zaštitili potrošači. Četvrto poglavlje govori o inicijalnoj ponudi kovanica, a peto poglavlje je namijenjeno sigurnosti kriptovaluta. Cilj istraživanja je utvrditi koliko je studentska populacija upoznata i usmjerena prema novim oblicima digitalnog novca, koje značajke kriptovaluta smatraju pozitivnima, a koje negativnima i u kojoj su mjeri investirali ili su spremni investirati dio svojih ulaganja u kriptovalute i sl. Metode istraživanja korištene u radu su kompilacija na temelju proučavanja postojeće literature o temi rada, prikupljanje i analiza podataka vezanih uz kriptovalute, ponajprije podataka vezanih uz cijene i tržišnu kapitalizaciju, anketiranje studenata Ekonomskog fakulteta u Rijeci i metoda dedukcije putem koje su pokazane sve važne karakteristike i obilježja kriptovaluta. Na temelju provedene ankete u kojoj je sudjelovalo 90 studenata Ekonomskog fakulteta u Rijeci zaključak toga dijela istraživanja je da je mlada populacija dobro upoznata s kriptovalutama i njenim glavnim značajkama, ali i određenim nedostatkom informiranosti o tehnologiji (trećina studenata nije čula za pojam "blockchain") i nedovoljnoj odlučnosti oko investiranja i trgovanja u kriptovalute. Povrh toga, dokazan je i negativan utjecaj hakerskih napada i određenih kriminalnih radnji, kao i nestabilnost tržišne cijene na povjerenje studenata, ali i ukupne populacije vezane uz globalni financijski sustav u kriptovalute. Ishod istraživanja omogućio je da zaključimo kako su kriptovalute trenutno u ranoj fazi razvoja i nisu se dovoljno implementirale za široku primjenu u trgovini roba i usluga ili općenito kao sredstvo razmjene. Faktor koji je uključen u istraživanje kako bi opisao veličinu, odnosno obujam neke kriptovalute je tržišna kapitalizacija u dolarima. Temeljna ideja ovog rada je informirati čitatelja o pozitivnim i negativnim značajkama koje se se vežu uz kriptovalute. Na taj način čitatelji će biti bolje informirani i educirani o potencijalnom riziku ulaganja u kriptovalute, kao i većoj razini zaštite prilikom posjedovanja neke digitalne valute.

Saifedean Ammous

Bitcoin is the first technology for the final transfer of digital goods online, facilitating instant global payments without intermediation. Bitcoin’s operation is based on a distributed, decentralized, and transparent asset ledger that acts as an ongoing chain record of all transactions. The system issues coins to reward those who contribute processing power to the network’s operation. The possibilities created by this innovation are significant for the world’s poor, who could skip traditional political and financial institutions and move to digital currencies in the same way they have gone straight to using mobile phones and skipped landline telephones.

Koichi Miyazaki

This paper considers an overlapping-generations model with pay-as-you-go social security and retirement decision making by an old agent. In addition, the paper assumes that labor productivity depreciates. Under this setting, socially optimal allocations are examined. The first-best allocation is an
\nallocation that maximizes welfare when a social planner
\ndistributes resources and forces an old agent to work and
\nretire as she wants. The second-best allocation is an allocation that maximizes welfare when she can use only pay-as-you-go social security in a decentralized economy. The paper finds a range of an old agent’s labor productivity such
\nthat the first-best allocation is achieved in the decentralized economy. This differs from the finding in Micheland Pestieau [“Social security and early retirement in an overlapping-generations growth model”, Annals of Economics & Finance, 2013] that the first-best allocation cannot be achieved in the decentralized economy.

Jakub Bartoš

Bitcoin has emerged as phenomenon of the financial markets as the currency without any central authority. Recent events of Bitcoin has risen question about its behavior and there is crucial question if the price of Bitcoin follows hypothesis of efficient markets. In this paper, there are introduced the main features of Bitcoin and analyzed its price behavior. We found out that price of the most famous cryptocurrency Bitcoin follows the hypothesis of efficient markets and it immediately react on publicly announce information. Furthermore, Bitcoin can be seen as standard economic good that is priced by interaction of supply and demand on the market. These factors can be driven by macro financial development or by speculative investors, but there weren’t found any significant impact of these factors on price of Bitcoin.

Morten Brandvold, Péter Molnár, Kristian Vagstad, Ole Christian Andreas Valstad

No abstract is available for this record.

Ferdinando M. Ametrano

Bitcoin extreme deflationary price instability has hampered its usability, making it impractical for spot transactions and unserviceable for deferred payments. Ametrano (2014) has proposed as Hayek Money a cryptocurrency price stability paradigm of elastic non-discretionary monetary policy. An implementation using a dual asset ledger for stable coins and seigniorage shares is presented here. A DeCentralized Reserve Bank (as Decentralized Autonomous Organization) is introduced as active market agent using bitcoin as reserve asset to preserve price parity. The socially inefficient over-investment of seigniorage revenues in transaction verification can be avoided using proof-of-payment.This schema frees coins from any speculative value, thus favoring money velocity and increasing the number of transactions. Seigniorage shares are effectively to be considered as a participation in a distributed central bank: as such the owners are entitled to seigniorage revenues in exchange for being subjected to the losses associated to coin price stability defense, obliged to validation task duties, and in charge of price index observation.

Amanda Faig, Faig, Amanda

Ecologists warn that the rapid evolution occurring as a result of high-intensity commercial fishing could have significant economic and ecological effects. So far, fishery managers do not take this rapid evolution (called fisheries-induced evolution or FIE) into consideration when determining fishery policy. I model the interactions between the genetics, population structure, and economics of the fishery in order to determine how beneficial altering the fishery managers decision framework to include fisheries induced evolution would be to fishery profit and yield. My model is based on North-East Arctic Cod, which are long lived and for which an abundance of information exists, including proof of FIE. I compare the steady state reached by a `myopic' fishery manager who sets effort and mesh size policy while ignoring evolution, to the steady state reached by a fishery manager who dynamically optimizes his strategy with the knowledge of how evolution will respond. This paper shows that accounting for evolution can increase steady state profits by 29-34%, however this benefit decreases and is eventually eliminated as the discount rate increases from zero. An important auxiliary benefit to accounting for evolution is the effect optimal management has on fishery biomass, maturation rates, and yield.

Sharan Bathija

No abstract is available for this record.

Pablo Ottonello

This dissertation contains three essays on Macroeconomics and Finance. The first chapter has been motivated by the fact that recoveries from financial crises are characterized by low investment rates and declines in capital stocks. The paper constructs an equilibrium framework in which financial shocks have a persistent effect on aggregate investment. The key assumption is that physical capital is traded in a decentralized market with search frictions, generating ``capital unemployment.'' After a negative financial shock, the share of unemployed capital is high, and the economy dedicates more resources to absorbing existing unemployed capital into production, and less to accumulating new capital. An estimation of the model for the U.S. economy using Bayesian techniques shows that the model can generate the investment persistence and half of the output persistence observed in the Great Recession. Investment search frictions also lead to a different interpretation of the sources of business-cycle fluctuations, with a larger role for financial shocks, which account for 33 percent of output fluctuations. Extending the model to allow for heterogeneity in match productivity, the framework also provides a mechanism for procyclical capital reallocation, as observed in the data. The second and third chapters focus on labor unemployment during financial crises. The second chapter uses a sample of 116 recession episodes in developed and emerging market economies to compare the labor-market recovery during financial crises with that of other recession episodes. It documents two new stylized facts. First, labor-market recovery from financial crises is characterized by either higher unemployment (``jobless recovery'') or a lower real wage (``wageless recovery''). Second, inflation determines the type of recovery: low inflation (below 30 percent annual rate) is associated with jobless recovery, while high inflation is associated with wageless recovery. The paper shows that this pattern of labor recovery from financial crises is consistent with a simple model in which collateral requirements are higher (lower) when a larger share of labor costs (physical capital expenditure) is involved in a loan contract. The third chapter paper conducts a quantitative study of the optimal exchange-rate policy in a small open economy that faces the ``credit access-unemployment'' trade-off: In the presence of nominal wage rigidity, exchange-rate depreciation reduces unemployment; in the presence of collateral constraints linking external debt to the value of income, exchange-rate depreciation tightens the collateral constraint and leads to higher consumption adjustment. It is shown that the optimal policy during financial crises generally features large currency depreciation, since welfare costs related to higher unemployment and lower consumption typically outweigh welfare costs associated with intertemporal misallocation of consumption. The optimal policy also implies a lower currency depreciation than that necessary to achieve full employment, which is consistent with a managed-floating exchange-rate policy, frequently observed during financial crises in emerging market economies. Sudden stops (or large current-account adjustments) are part of the endogenous response to large negative shocks under the optimal exchange-rate policy.

Boon Seng Tan, Kin‐Yew Low

There is yet any official guidance on the financial reporting of Bitcoin transaction from the standard setters as the crypto-currency become increasingly popular and tax accounting guidance begin to appear in 2014. Designed as a decentralized currency, Bitcoin will not become a reporting currency and will instead complement fiat money. We argue that the accounting principle of faithful representation requires interpreting the economic substance for financial reporting that varies with reporting entity: trading firms recognize Bitcoin like a foreign currency and measure the revenue, or expense, at the equivalent amount of the reporting currency; digital currency exchanges recognize Bitcoin as goods in line with tax accounting treatment. An Economica paper by Radford (1945) describing cigarette being used as commodity money in a POW camp has alluded to this economic basis. This paper applies accounting principle to a practical issue and contributes to the thinking process which may help standard setter issue an interpretation.

Yunyoung Hur, Seongmin Jeon, Byungjoon Yoo

No abstract is available for this record.

Aleksey Bragin

Derivatives are financial instruments whose value depend on the values of other, more basic underlying variables. One of the most common and simple derivatives is a futures contract. This manuscript introduces the new kind of futures contracts called non-linear inverse futures contracts (inverse futures in short) firstly introduced by ICBIT trading platform specifically for Bitcoin trading and later picked up by major bitcoin trading platforms.