Smart contracts, self-executing agreements based on blockchain technology, have the capacity to create trust in what we term no-trust contracting environments. We argue that using them in such environments is the path to unleash the full potential of smart contracts. Compared to the contract enforcement mechanisms characterized by traditional contract law or relational contracts, smart contracts can offer a superior solution for facilitating trade.
Several lawyers and economists have debated whether smart contracts might offer the prospect of cheaper, faster and better transactions. As we discuss below, contract law scholars caution that they neither replicate the relational context essential for the day-to-day practice of contracting nor offer a superior solution to problems addressed by traditional contract law, such as contract validity and legality. We clarify and systematize the current thinking on the legal nature and reliability of smart contracts, and address the concerns of contract law scholars. While doing that, we suggest a step forward in characterizing contracting environments, contract enforcement mechanisms and the trust relationship underlying contracts.
In this paper, we propose a novel blockchain‐based contractual routing (BCR) protocol for a network of untrusted IoT devices. In contrast to conventional secure routing protocols in which a central authority (CA) is required to facilitate the identification and authentication of each device, the BCR protocol operates in a distributed manner with no CA. The BCR protocol utilizes smart contracts to discover a route to a destination or data gateway within heterogeneous IoT networks. Any intermediary device can guarantee a route from a source IoT device to a destination device or gateway. We compare the performance of BCR with that of the Ad-hoc On‐Demand Distance Vector (AODV) routing protocol in a network of 14 devices. The results show that the routing overhead of the BCR protocol is 5 times lower compared to AODV at the cost of a slightly lower packet delivery ratio. BCR is fairly resistant to both Blackhole and Greyhole attacks. The results show that the BCR protocol enables distributed routing in heterogeneous IoT networks.
Current shareholder engagement systems face large classical inefficiencies. First, due to the large chains of intermediaries in the current securities models, transaction costs are high and shareholder votes and other information are not always correctly transmitted between shareholders and issuers. Recent cases including DNick Holding and T. Rowe Price show the ‘absurdness’ of the current systems. The Shareholder Rights Directive II addresses these problems and the Implementing Regulation already hints at modern technologies to increase the transparency and verifiability of shareholder engagement. Next, the current shareholder engagement system enables different opportunities for different types of shareholders, creating inequalities and hindering shareholder democracy. The solution to these substantial problems lies in a state-of-the-art technology: in this contribution we argue that blockchain technology can solve these current inefficiencies that shareholders and companies face. Using a permissioned blockchain, information can be stored in a verifiable and immutable way, with a consensus mechanism tailored to its purpose. The large amount of initiatives and prototypes of blockchain proxy voting and trading, including the legislative initiatives that were initiated in the past 2 years, show the merits of using this state-of-the-art technology. The Europe Union should incorporate this technology in its legislation, like the CSD regulation, for remaining technology-proof in this globalized market.
Balázs Bodó, Daniel J. Gervais, João Pedro Quintais
This article offers a normative analysis of key blockchain technology concepts from the perspective of copyright law. Some features of blockchain technologies—scarcity, trust, transparency, decentralized public records and smart contracts—seem to make this technology compatible with the fundamentals of copyright. Authors can publish works on blockchain creating a quasi-immutable record of initial ownership, and encode ‘smart’ contracts to license the use of works. Remuneration may happen on online distribution platforms where the smart contracts reside. In theory, such an automated setup allows for the private ordering of copyright. Blockchain technology, like Digital Rights Management 20 years ago, is thus presented as an opportunity to reduce market friction, and increase both licensing efficiency and the autonomy of creators. Yet, some of the old problems remain. The article examines the differences between new, smart-contract-based private ordering regime and the fundamental components of copyright law, such as exceptions and limitations, the doctrine of exhaustion, restrictions on formalities, the public domain and fair remuneration.
There is an immense need of a proof of delivery (PoD) of today's digital media and content, especially those that are subject to payment. Current PoD systems are mostly centralized and heavily dependent on a trusted third party (TTP) especially for payment. Such existing PoD systems often lack security, transparency, and visibility, and are not highly credible, as the TTP can be subject to failure, manipulation, corruption, compromise, and hacking. In this paper, we propose a decentralized PoD solution for PoD of digital assets. Our solution leverages key features of blockchain and Ethereum smart contracts to provide immutable and tamper-proof logs, accountability, and traceability. Ethereum smart contracts are used to orchestrate and govern all interactions and transactions including automatic payments in Ether cryptocurrency between customers, digital-content provider, and the file server hosting the digital content. All entities are incentivized to act honestly, and our solution has a mechanism to handle dispute if arisen among participants. The solution has an off-chain secure download phase involving the file server and customers. Moreover, our solution leverages the benefits of interplanetary file system to store the agreed upon terms and conditions between the smart contract actors. A security analysis of our proposed system has been provided. The full code of the smart contract has been publicly made available on Github.
Open access
Blockchain Technology Applications and Security
FinTech, Crowdfunding, Digital Finance
Advanced Steganography and Watermarking Techniques
Blockchain-based smart contracts are emerging as a disruptive force that may change the way financial statement audits are performed and delivered. With their potential ability to autonomously execute audit procedures on behalf of the auditor and disclose the results of these audit procedures, blockchain-based smart contracts have the potential to improve audit quality and meet the information demands of various vested parties for more timely and transparent audit reporting. This paper proposes the application of smart contracts to auditing as an enabler for improved audit data analytics and close to real-time audit reporting.
The role-based access control (RBAC) framework is a mechanism that describes the access control principle. As a common interaction, an organization provides a service to a user who owns a certain role that was issued by a different organization. Such trans-organizational RBAC is common in face-toface communication but not in a computer network, because it is difficult to establish both the security that prohibits the malicious impersonation of roles and the flexibility that allows small organizations to participate and users to fully control their own roles. In this paper, we present an RBAC using smart contract (RBAC-SC), a platform that makes use of Ethereum's smart contract technology to realize a trans organizational utilization of roles. Ethereum is an open blockchain platform that is designed to be secure, adaptable, and flexible. It pioneered smart contracts, which are decentralized applications that serve as “autonomous agents”running exactly as programmed and are deployed on a blockchain. The RBAC-SC uses smart contracts and blockchain technology as versatile infrastructures to represent the trust and endorsement relationship that are essential in the RBAC and to realize a challenge-response authentication protocol that verifies a user's ownership of roles. We describe the RBAC-SC framework, which is composed of two main parts, namely, the smart contract and the challenge-response protocol, and present a performance analysis. A prototype of the smart contract is created and deployed on Ethereum's Testnet blockchain, and the source code is publicly available.
A smart contract is hard to patch for bugs once it is deployed, irrespective of the money it holds. A recent bug caused losses worth around $50 million of cryptocurrency. We present ZEUS-a framework to verify the correctness and validate the fairness of smart contracts. We consider correctness as adherence to safe programming practices, while fairness is adherence to agreed upon higher-level business logic. ZEUS leverages both abstract interpretation and symbolic model checking, along with the power of constrained horn clauses to quickly verify contracts for safety. We have built a prototype of ZEUS for Ethereum and Fabric blockchain platforms, and evaluated it with over 22.4K smart contracts. Our evaluation indicates that about 94.6% of contracts (containing cryptocurrency worth more than $0.5 billion) are vulnerable. ZEUS is sound with zero false negatives and has a low false positive rate, with an order of magnitude improvement in analysis time as compared to prior art.
The question of regulation in the domain of cryptocurrencies has been tackled in various ways, exhibiting therein a desire to strike a balance between fostering innovation and promoting oversight. This chapter examines the case of BitLicense, issued by the New York Department of Financial Services (DFS), with the aim of contextualizing the relative merits of regulatory and oversight initiatives in the domain of cryptocurrencies. This includes an examination of the impact and critiques regarding BitLicense since its promulgation, along with the use of perspectives from public value theory (PVT) to contextualize the value creation efforts of the DFS using BitLicense as a regulatory instrument. The findings of the chapter suggest that contrasting views exist on the value creation of cryptocurrency regulations, and this is reflected both in a PVT approach as well as the evolving praxis of virtual currency regulatory and oversight efforts.
Shaen Corbet, Charles Larkin, Brian M. Lucey, Larisa Yarovaya
Eastman Kodak is an American technology company that produces imaging products. In 2018, it announced its intentions to enter the crytpocurrency market, raising concerns that it could be taking advantage of a potential cryptocurrency bubble for short-term gains. We analyse the relationships between Kodak, crytocurrency and stock market index returns. We find evidence of a significant, sustained increase in both the share price and price volatility of Kodak after the KODAKCoin announcement, with an increased correlation between the price of Kodak shares and Bitcoin.
Pedro Bação, António Portugal Duarte, Hélder Sebastião, Srdjan Redžepagić
This paper investigates the information transmission between the most important cryptocurrencies -Bitcoin, Litecoin, Ripple, Ethereum and Bitcoin Cash. We use a VAR modelling approach, upon which the Geweke’s feedback measures and generalized impulse response functions are computed. This methodology allows us to fully characterize the direction, intensity and persistence of information flows between cryptocurrencies. At the availabledata granularity, most of information transmission is contemporaneous, that is, it occurs within a day. However, it seems that there are some lagged feedback effects, mainly from other cryptocurrencies to Bitcoin. The generalized impulse-response functions confirm that there is a strong contemporaneous correlation and that there is not much evidence of lagged effects. The exception appears to be related to the overreaction of Bitcoin returns to contemporaneous shocks
Purpose The purpose of this paper is to examine price overreactions in the case of the following cryptocurrencies: bitcoin, litecoin, ripple and dash. Design/methodology/approach A number of parametric ( t -test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–Whitney U -test) tests confirm the presence of price patterns after overreactions: the next day price changes in both directions are bigger than after “normal” days. A trading robot approach is then used to establish whether these statistical anomalies can be exploited to generate profits. Findings The results suggest that a strategy based on counter-movements after overreactions is not profitable, whilst one based on inertia appears to be profitable but produces outcomes not statistically different from the random ones. Therefore, the overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the efficient market hypothesis (EMH). Originality/value The overreactions detected in the cryptocurrency market do not give rise to exploitable profit opportunities (possibly because of transaction costs) and cannot be seen as evidence against the EMH.
The invention of blockchain technology has radically changed the perception of how monetary systems can be structured and operated. Central banks and state authorities mostly refuse to acknowledge that cryptocurrencies are money, yet the number of payment transactions using cryptocurrencies is increasing and cryptocurrencies form a non-negligible stake of wealth. As with other economic phenomena, cryptocurrencies shall be addressed in the financial statements of the entities using them, albeit without any accounting guidance in current financial reporting standards. This paper fills this void by suggesting, comparing, and assessing potential accounting models under IFRS. Based on evidence from literature review, as well as recent time-series data on the price volatility of cryptocurrencies, the paper shows that fair value accounting is the most relevant source of useful information for users of financial statements when cryptocurrencies are acquired for investment purposes. Furthermore, the paper identifies scenarios under which cryptocurrencies shall be treated as (foreign) currencies, even though financial system regulators do not consider cryptocurrencies as being money (fiat currency).
Leopoldo Catania, Stefano Grassi, Francesco Ravazzolo
Cryptocurrencies have recently gained a lot of interest from investors, central banks and governments worldwide. The lack of any form of political regulation and their market far from being “efficient”, require new forms of regulation in the near future. From an econometric viewpoint, the process underlying the evolution of the cryptocurrencies’ volatility has been found to exhibit at the same time differences and similarities with other financial time-series, e.g. foreign exchanges returns. This short note focuses on predicting the conditional volatility of the four most traded cryptocurrencies: Bitcoin, Ethereum, Litecoin and Ripple. We investigate the effect of accounting for long memory in the volatility process as well as its asymmetric reaction to past values of the series to predict: 1 day, 1 and 2 weeks volatility levels.
This discussion paper examines the recent history of cryptocurrency thefts and exchanges shutdowns, focusing specifically on the largest cryptoinstrument: Bitcoin. The examination of thefts and shutdowns are intended to draw academic attention to the accountability deficits that pervade the cryptocurrency space, and the findings of the paper suggest that a much more robust accountability, transparency, and oversight architecture must be put in place vis-a-vis cryptocurrencies.
Drawing on an empirical study of cryptocurrency white papers, this paper proposes an actor-based taxonomy of cryptocurrency blockchains. First, it describes the evolution of blockchain architecture with reference to the economic services that blockchains supply. Second, it discusses the socio-technical platform of blockchains as proposed in cryptocurrency white papers. Third, it analyses the socio-economic consequences of these technically diverse blockchain platforms, by proposing a taxonomy of their digital architectures in reference to two groups of actors that maintain blockchain infrastructure: transactioners and accountants. Defining cryptocurrency as data money, and locating cryptocurrency ownership as the possession of an exclusive right to move data privately in a public or private space, the paper describes a blockchain as a digital actor-network platform that makes it possible to define and distribute these data transfer rights.
Abstract At a given point in time, bitcoin prices are different on exchanges located in different countries, or against different currencies. While existing literature attributes the largest price differences to frictions, like market segmentation, trading platforms advertize how to execute trades based on this information. We provide a novel risk-based explanation of these price differences for a sample containing the most reputable exchanges and after accounting for all transaction costs and limitations to trade. Bitcoin prices for more expensive pairs are riskier because they depreciate more in bad times for cryptocurrency investors, when aggregate liquidity and investor sentiment are lower. (JEL G12, G14, G15, F31).
We characterize various currencies according to their control structure, focusing on cryptocurrencies such as Bitcoin and government-issued fiat money. We then argue that there is a large unmet demand for a liquid asset that allows households and firms to save outside of the private financial sector. Central banks could offer such an asset by simply allowing households and firms to open accounts with them. Finally, we conclude that a central bank will not issue cryptocurrencies in the sense of a truly decentralized and permissionless asset that allows users to remain anonymous.
The recent evolution of cryptocurrencies has been characterized by bubble-like behavior and extreme volatility. While it is difficult to assess an intrinsic value to a specific cryptocurrency, one can employ recently proposed bubble tests that rely on recursive applications of classical unit root tests. This paper extends this approach to the case where volatility is time varying, assuming a deterministic long-run component that may take into account a decrease of unconditional volatility when the cryptocurrency matures with a higher market dissemination. Volatility also includes a stochastic short-run component to capture volatility clustering. The wild bootstrap is shown to correctly adjust the size properties of the bubble test, which retains good power properties. In an empirical application using eleven of the largest cryptocurrencies and the CRIX index, the general evidence in favor of bubbles is confirmed, but much less pronounced than under constant volatility.
Julio C. Mendoza-Tello, Higinio Mora, Francisco A. Pujol, Miltiadis D. Lytras
The deployment of cryptocurrencies in e-commerce has reached a significant number of transactions and continuous increases in monetary circulation; nevertheless, they face two impediments: a lack of awareness of the technological utility, and a lack of trust among consumers. E-commerce carried out through social networks expands its application to a new paradigm called social commerce. Social commerce uses the content generated within social networks to attract new consumers and influence their behavior. The objective of this paper is to analyze the role played by social media in increasing trust and intention to use cryptocurrencies in making electronic payments. It develops a model that combines constructs from social support theory, social commerce, and the technology acceptance model. This model is evaluated using the partial least square analysis. The obtained results show that social commerce increases the trust and intention to use cryptocurrencies. However, mutual support among participants does not generate sufficient trust to adequately promote the perceived usefulness of cryptocurrencies. This research provides a practical tool for analyzing how collaborative relationships that emerge in social media can influence or enhance the adoption of a new technology in terms of perceived trust and usefulness. Furthermore, it provides a significant contribution to consumer behavior research by applying the social support theory to the adoption of new information technologies. These theoretical and practical contributions are detailed in the final section of the paper.
This article is a short introduction to cryptocurrencies and blockchain technology. The focus of the introduction is on Bitcoin, but many elements are shared by other blockchain implementations and alternative cryptoassets.
This paper aims to select the best model or set of models for modelling volatility of the four most popular cryptocurrencies, i.e. Bitcoin, Ethereum, Ripple and Litecoin. More than 1000 GARCH models are fitted to the log returns of the exchange rates of each of these cryptocurrencies to estimate a one-step ahead prediction of Value-at-Risk (VaR) and Expected Shortfall (ES) on a rolling window basis. The best model or superior set of models is then chosen by backtesting VaR and ES as well as using a Model Confidence Set (MCS) procedure for their loss functions. The results imply that using standard GARCH models may yield incorrect VaR and ES predictions, and hence result in ineffective risk-management, portfolio optimisation, pricing of derivative securities etc. These could be improved by using instead the model specifications allowing for asymmetries and regime switching suggested by our analysis, from which both investors and regulators can benefit.