Cryptocurrency has become a new venue for money laundering. Bitcoin mixing services deliberately obfuscate the relationship between senders and recipients, making it difficult to trace suspicious money flow. We believe that the key to demystifying the bitcoin mixing services is to discover agents’ roles in the money laundering process. We propose a goal-oriented approach to modeling, discovering, and analyzing different types of roles in the agent-based business process of the bitcoin mixing scenario using historical bitcoin transaction data. It adopts the agents’ goal perspective to study the roles in the bitcoin money laundering process. Moreover, it provides a foundation to discover real-world agents’ roles in bitcoin money laundering scenarios.
P Bhanupriya, Sabitha Gauni, K Kalimuthu, C. T. Manimegalai
Abstract Blockchain has recently become an essential tool which enables sensitive cloud services without the need for central confidence. For example, several different cryptocurrencies were permitted with public blockchains. Unfortunately, confidential details may be exposed on current public blockchain and smart contracts implemented there. Whilst some continuous work is under way to resolve these insecure knowledge leakage problems using advanced cryptography, they need major improvements on current and common Blockchain technology such as Ethereum and are typically costly in computing. On the other hand, blockchain applications were proposed to allow the data exchange among the pre accepted nodes/participants to be more efficient and privacy-preserving. While private blockchains respond to certain challenges of privacy by allowing only the particular community of participants to view sensitive data, they do not allow public transparency for communications because businesses are accepted by a known number of users also cannot be freely viewed. One natural problem is whether we should use public and private Blockchain networks in order to allow effective, improve privacy and accountable applications in view of these findings? In this work, we try in connection with digital auctions to face this challenge. In specific, we provide a newly designed blockchain architecture combined with private and open blockchains which enables sensitive offers to be opened up on a secluded blockchain so solitary the merchant can study the offers, and none of others. We also use shared blockchains to report the public sale winner and to make transfers responsible. Moreover, we demonstrate how we can promote sincere activity among auction participants by using intelligent contracts on public blockchains. Our detailed analytical findings suggest that it’s more cost effective compared to pure public auction implementations based on blockchain.
Emanuel Palm, Olov Schelén, Ulf Bodin, Christian Lagerkvist
Industry 4.0 will require unprecedented degrees of integration across organizational boundaries, which will put new demands on infrastructure for managing agreements between industrial stakeholders. In this paper, we present a system-of-systems architecture for cross-organizational negotiation of Ricardian contracts. We also describe our implementation of it, based on Eclipse Arrowhead, and how it can produce non-repudiable contracts between local clouds, potentially owned by distinct parties. We discuss how our architecture could impact current business paradigms, as well as arguing that our design, in contrast to most solutions based on smart contracts, avoids to deviate significantly from contemporary legal praxis, which should create better opportunity for industry adoption.
Does the proof-of-work consensus protocol serve its intended purpose of supporting decentralized cryptocurrency mining? To address this question, we develop a game-theoretical model in which miners first invest in hardware to improve the efficiency of their operations and then compete for mining rewards in a rent-seeking game. We show that centralization grows with heterogeneity in mining costs, but hardware capacity constraints prevent the most efficient miners from monopolizing the mining process. Investment leads to a more decentralized network unless larger miners have a significant comparative advantage in acquiring new hardware. Our model generates empirically supported implications: (i) mining centralization is countercyclical with respect to mining reward, and (ii) a change in mining reward leads to a less-than-proportional change in hash rates. This paper was accepted by David Simchi-Levi, Special Section of Management Science: Blockchains and Crypto Economics. Supplemental Material: The data file is available at https://doi.org/10.1287/mnsc.2023.4840 .
Kaihua Qin, Liyi Zhou, Pablo Gamito, Philipp Jovanovic · 5 authors
Financial speculators often seek to increase their potential gains with leverage. Debt is a popular form of leverage, and with over 39.88B USD of total value locked (TVL), the Decentralized Finance (DeFi) lending markets are thriving. Debts, however, entail the risks of liquidation, the process of selling the debt collateral at a discount to liquidators. Nevertheless, few quantitative insights are known about the existing liquidation mechanisms. In this paper, to the best of our knowledge, we are the first to study the breadth of the borrowing and lending markets of the Ethereum DeFi ecosystem. We focus on Aave, Compound, MakerDAO, and dYdX, which collectively represent over 85% of the lending market on Ethereum. Given extensive liquidation data measurements and insights, we systematize the prevalent liquidation mechanisms and are the first to provide a methodology to compare them objectively. We find that the existing liquidation designs well incentivize liquidators but sell excessive amounts of discounted collateral at the borrowers' expenses. We measure various risks that liquidation participants are exposed to and quantify the instabilities of existing lending protocols. Moreover, we propose an optimal strategy that allows liquidators to increase their liquidation profit, which may aggravate the loss of borrowers.
Manuel M. T. Chakravarty, Nikos Karayannidis, Aggelos Kiayias, Michael Peyton Jones · 5 authors
Custom currencies (ERC-20) on Ethereum are wildly popular, but they are second class to the primary currency Ether. Custom currencies are more complex and more expensive to handle than the primary currency as their accounting is not natively performed by the underlying ledger, but instead in user-defined contract code. Furthermore, and quite importantly, transaction fees can only be paid in Ether. In this paper, we focus on being able to pay transaction fees in custom currencies. We achieve this by way of a mechanism permitting short term liabilities to pay transaction fees in conjunction with offers of custom currencies to compensate for those liabilities. This enables block producers to accept custom currencies in exchange for settling liabilities of transactions that they process. We present formal ledger rules to handle liabilities together with the concept of babel fees to pay transaction fees in custom currencies. We also discuss how clients can determine what fees they have to pay, and we present a solution to the knapsack problem variant that block producers have to solve in the presence of babel fees to optimise their profits.
<div>In cross-chain scenarios, there are different blockchains, which need to cooperate. Cooperation among different blockchains is done by smart contracts that work together to complete cross-chain tasks. When numerous cooperative smart contracts are involved, smart contracts form a complex interaction network, which makes it difficult to evaluate the cooperation. It needs a common model to quantitatively analyze the cross-chain cooperation of associated smart contracts. In this paper, we model the cooperation among smart contracts as conditions and their corresponding actions, the condition-trigger model. Then we propose the method to calculate the cooperation probabilities by the graph weight. As the edge weight lacks the information of interaction probabilities, we introduce the dimension of the edge weight to calculate the probabilities. Finally, we verify the proposed condition-trigger model and its different types. It demonstrates that our proposed methods can effectively analyze the cross-chain cooperation among smart contracts.</div>
Igor Struchkov, Alexey Lukashin, Bogdan Kuznetsov, Igor Mikhalev · 5 authors
Decentralized financial applications running on blockchains using smart contracts have attracted a lot of attention recently. One important class of such applications is decentralized digital asset exchanges. In this paper we present an agent-based modeling approach for decentralized exchanges that allowed us to achieve realistic results both in normal and stress market conditions and also investigate the impact of front runners on the distribution of profits. We also compare the results of the two exchanges - Uniswap and Liquifi - to evaluate the effect of the proposed solution for the price slippage and front running problems.
In this paper, a novel Byzantine consensus protocol among $n$ players is proposed for the partially synchronous model. In particular, by assuming that standard cryptography is unbreakable, and that $n>\max\bigl(\frac{3}{2}k+3t,2(k+t)\bigr)$, this protocol is an equilibrium where no coalition of $k$ rational players can coordinate to increase their expected utility regardless of the arbitrary behavior of up to $t$ Byzantine players. We show that a baiting strategy is necessary and sufficient to solve this, so-called rational agreement problem. First, we show that it is impossible to solve this rational agreement problem without implementing a baiting strategy, a strategy that rewards rational players for betraying its coalition, by exposing undeniable proofs of fraud. Second, we propose the Huntsman protocol that solves the rational agreement problem by building recent advances in the context of accountable Byzantine agreement in partial synchrony. This protocol finds applications in distributed ledgers where players are incentivized to steal assets by leading other players to a disagreement on two distinct decisions where they ``double spend''.
Youssef Faqir-Rhazoui, Miller-Janny Ariza-Garzón, Javier Arroyo, Samer Hassan
Blockchain technology has enabled a thriving emergent ecosystem of tools and communities actively using decentralized systems. However, most blockchain infrastructure (e.g. Ethereum) requires users to pay some fees to execute their desired actions in these novel online services. To which extent an increase in the price of such fees negatively affects user activity? Would significant price surges deter users from using blockchain-enabled online services? In this work, we study the 2020 surge of transaction fee price in the Ethereum network, and analyze how that affected user activities. Our use cases are the blockchain-enabled Decentralized Autonomous Organizations (DAOs) from the platforms DAOstack and DAOhaus. Thus, we analyzed 5,580 transactions from 7,825 users grouped in 191 DAO communities, using a VAR model with a daily time series of the average fee value and the DAO operations. Our results show just a minor influence of the fee (gas) price and the activity of DAO users. The insensitivity of the activity to the fee price is an anomaly in a supposedly self-regulated market, and we consider this should be tackled in future implementations.
Natkamon Tovanich, Nicolas Soulié, Nicolas Heulot, Petra Isenberg
We provide an empirical analysis of pool hopping behavior among 15 mining pools throughout Bitcoin's history. Mining pools have emerged as major players to ensure that the Bitcoin system stays secure, valid, and stable. Individual miners join mining pools to benefit from a more predictable income. Many questions remain open regarding how mining pools have evolved throughout Bitcoin's history and when and why miners join or leave mining pools. We propose a heuristic algorithm to extract the payout flow from mining pools and detect the pools' migration of miners. Our results showed that payout schemes and pool fees influence miners' decisions to join, change, or exit from a mining pool, thus affecting the dynamics of mining pool market shares. Our analysis provides evidence that mining activity becomes an industry as miners' decisions follow classical economic rationale.
Since its advent in 2009, Bitcoin, a cryptography-enabled peer-to-peer digital payment system, has been gaining increasing attention from both academia and industry. An effort designed to overcome a cluster of bottlenecks inherent in existing centralized financial systems, Bitcoin has always been championed by the crypto community as an example of the spirit of decentralization. While the decentralized nature of Bitcoin's Proof-of-Work consensus algorithm has often been discussed in great detail, no systematic study has so far been conducted to quantitatively measure the degree of decentralization of Bitcoin from an asset perspective -- How decentralized is Bitcoin as a financial asset? We present in this paper the first systematic investigation of the degree of decentralization for Bitcoin based on its entire transaction history. We proposed both static and dynamic analysis of Bitcoin transaction network with quantifiable decentralization measures developed based on network analysis and market efficiency study. Case studies are also conducted to demonstrate the effectiveness of our proposed metrics.
A DAO is a blockchain-based system that enables people to coordinate and govern themselves mediated by a set of self-executing rules deployed on a public blockchain, and whose governance is decentralised (i.e., independent from central control).
We propose a new way to share licensed spectrum bandwidth capacity in mobile\nnetworks between operators, service providers and consumers using\nblockchain-based smart contracts. We discuss the foundational building blocks\nin the contract as well as various extensions to support more advanced features\nsuch as bulk purchases, future reservations, and various auction mechanisms.\nFurthermore, we demonstrate how the system can be implemented with an\nopen-source, permissioned Enterprise blockchain, Hyperledger Sawtooth. We show\nthat our smart contract implementation can improve blockchain transaction\nperformance, by approximately four orders of magnitude compared to serial\ntransactions and one order of magnitude compared to parallell transactions,\nusing PKI-driven bulk purchases of mobile access grants, paving the way for\nfully automated, efficient, and fine-grained roaming agreements.\n
The tick rule is one of the most popular trade classification algorithms used when an order initiator in market data is not signed. Using 11.9 million trades of Bitcoin/USD on Bitstamp, this article tests the accuracy of the tick rule in the Bitcoin market. Evidence indicates that the overall success rate of the tick rule is 76.87%. It is also shown that the tick rule is inclined to fail in discerning trade intentions when there is a long period of time between trades. Furthermore, order imbalances computed using the tick rule lack sufficient accuracy in the Bitcoin market.
Matheus V. X. Ferreira, Daniel J. Moroz, David C. Parkes, Mitchell Stern
In recent years, prominent blockchain systems such as Bitcoin and Ethereum have experienced explosive growth in transaction volume, leading to frequent surges in demand for limited block space and causing transaction fees to fluctuate by orders of magnitude. Existing systems sell space using first-price auctions; however, users find it difficult to estimate how much they need to bid in order to get their transactions accepted onto the chain. If they bid too low, their transactions can have long confirmation times. If they bid too high, they pay larger fees than necessary. In light of these issues, new transaction fee mechanisms have been proposed, most notably EIP-1559, aiming to provide better usability. EIP-1559 is a history-dependent mechanism that relies on block utilization to adjust a base fee. We propose an alternative design -- a {\em dynamic posted-price mechanism} -- which uses not only block utilization but also observable bids from past blocks to compute a posted price for subsequent blocks. We show its potential to reduce price volatility by providing examples for which the prices of EIP-1559 are unstable while the prices of the proposed mechanism are stable. More generally, whenever the demand for the blockchain stabilizes, we ask if our mechanism is able to converge to a stable state. Our main result provides sufficient conditions in a probabilistic setting for which the proposed mechanism is approximately welfare optimal and the prices are stable. Our main technical contribution towards establishing stability is an iterative algorithm that, given oracle access to a Lipschitz continuous and strictly concave function $f$, converges to a fixed point of $f$.
Jiahua Xu, Krzysztof Paruch, Simon Cousaert, Yebo Feng
As an integral part of the decentralized finance (DeFi) ecosystem, decentralized exchanges (DEXs) with automated market maker (AMM) protocols have gained massive traction with the recently revived interest in blockchain and distributed ledger technology (DLT) in general. Instead of matching the buy and sell sides, automated market makers (AMMs) employ a peer-to-pool method and determine asset price algorithmically through a so-called conservation function. To facilitate the improvement and development of automated market maker (AMM)-based decentralized exchanges (DEXs), we create the first systematization of knowledge in this area. We first establish a general automated market maker (AMM) framework describing the economics and formalizing the system's state-space representation. We then employ our framework to systematically compare the top automated market maker (AMM) protocols' mechanics, illustrating their conservation functions, as well as slippage and divergence loss functions. We further discuss security and privacy concerns, how they are enabled by automated market maker (AMM)-based decentralized exchanges (DEXs)' inherent properties, and explore mitigating solutions. Finally, we conduct a comprehensive literature review on related work covering both decentralized finance (DeFi) and conventional market microstructure.
As the most popular blockchain that supports smart contracts, there are already more than 296 thousand kinds of cryptocurrencies built on Ethereum. However, not all cryptocurrencies can be controlled by users. For example, some money is permanently locked in wallets' accounts due to attacks. In this paper, we conduct the first systematic investigation on locked cryptocurrencies in Ethereum. In particular, we define three categories of accounts with locked cryptocurrencies and develop a novel tool named Clue to discover them. Results show that there are more than 216 million dollars value of cryptocurrencies locked in Ethereum. We also analyze the reasons (i.e., attacks/behaviors) why cryptocurrencies are locked. Because the locked cryptocurrencies can never be controlled by users, avoid interacting with the accounts discovered by Clue and repeating the same mistakes again can help users to save money.
In recent years, the digital economy has experienced a growing number of transactions. Traditional dispute resolution methods such as court and international arbitration are ineffective for handling a large volume of small value claims across national borders. Decentralized justice is a new approach to online dispute resolution that combines blockchain, crowdsourcing and game theory in order to produce resolution systems which are radically more efficient than existing methods. This article offers a review of the decentralized justice industry and of the key players participating in it. It presents a number of key dimensions of the industry and reviews the mechanism design choices made by these different platforms. Finally, it discusses a growth hypothesis for the industry and how it may grow in the future.
The current electricity networks were not initially designed for the high integration of variable generation technologies. They suffer significant losses due to the combustion of fossil fuels, the long-distance transmission, and distribution of the power to the network. Recently, \emph{prosumers}, both consumers and producers, emerge with the increasing affordability to invest in domestic solar systems. Prosumers may trade within their communities to better manage their demand and supply as well as providing social and economic benefits. In this paper, we explore the use of Blockchain technologies and auction mechanisms to facilitate autonomous peer-to-peer energy trading within microgrids. We design two frameworks that utilize the smart contract functionality in Ethereum and employ the continuous double auction and uniform-price double-sided auction mechanisms, respectively. We validate our design by conducting A/B tests to compare the performance of different frameworks on a real-world dataset. The key characteristics of the two frameworks and several cost analyses are presented for comparison. Our results demonstrate that a P2P trading platform that integrates the blockchain technologies and agent-based systems is promising to complement the current centralized energy grid. We also identify a number of limitations, alternative solutions, and directions for future work.
Kontinuiranim razvojem informatičkih tehnologija i interneta intenzivirao se rad na postojećim idejama digitalnog novca. Kao rezultat toga, računalni program Bitcoin protokola je pušten u javnost 9. siječnja 2009. godine čime se kreira infrastruktura za prvu kriptovalutu s licencom otvorenog programskog koda koji je slobodan za javnost. To znači da svatko tko ima interes može replicirati postojeći protokol, kreirati novu kriptovalutu i pustiti u javnost. Ovo posljednje je omogućilo stvaranju niza novih kriptovaluta s različitim svojstvima i širenju njihove upotrebe prvo u platnom prometu, a zatim i u kontekstu njihovog trgovanja na novom sekundarnom tržištu. Cilj ovog rada je formalno identificirati i opisati mogućnost konstrukcije portfelja kreiranih prema različitim optimizacijskim ciljevima, a čije sastavnice predstavljaju kriptovalute kao nova vrsta utržive imovine. Prva skupina portfelja je formirana i modelirana kroz vrijednost bitcoin kriptovalute, a druga skupina kroz dolarsku novčanu jedinicu. U tu svrhu je provedeno pet različitih optimizacijskih strategija, te su i prezentirani rezultati strategije s jednakim udjelima u portfelju. Inicijalne sastavnice portfelja su definirane prema razvoju programskog koda i veličini zajednice. Rezultati portfelja izraženog kroz jedinice bitcoin kriptovalute sugeriraju da dinamika povijesnih prinosa kriptovaluta pruža mogućnost modeliranja portfelja u bitcoin valuti. Takvi rezultati su opravdani s obzirom da je dinamika prinosa optimizacijske strategije ostvarila kumulativni prinos viši od kumulativnog prinosa najuspješnije sastavnice portfelja. S druge strane, rezultati portfelja izraženog u dolarskoj vrijednosti nisu ostvarili kumulativni prinos viši od kumulativnog prinosa odabranog standarda usporedbe, pa se zaključuje da primijenjeni fundamentalni indikatori ne predstavljaju dobar pokazatelj za inicijalan odabir sastavnica portfelja.
Liyi Zhou, Kaihua Qin, Antoine Cully, Benjamin Livshits · 5 authors
Decentralized Finance (DeFi) is a blockchain-asset-enabled finance ecosystem with millions of daily USD transaction volume, billions of locked up USD, as well as a plethora of newly emerging protocols (for lending, staking, and exchanges). Because all transactions, user balances, and total value locked in DeFi are publicly readable, a natural question that arises is: how can we automatically craft profitable transactions across the intertwined DeFi platforms?In this paper, we investigate two methods that allow us to automatically create profitable DeFi trades, one well-suited to arbitrage and the other applicable to more complicated settings. We first adopt the Bellman-Ford-Moore algorithm with DeFiPoser-ARB and then create logical DeFi protocol models for a theorem prover in DeFiPoser-SMT. While DeFiPoser-ARB focuses on DeFi transactions that form a cycle and performs very well for arbitrage, DeFiPoser-SMT can detect more complicated profitable transactions. We estimate that DeFiPoser-ARB and DeFiPoser-SMT can generate an average weekly revenue of 191.48 ETH (76,592 USD) and 72.44 ETH (28,976 USD) respectively, with the highest transaction revenue being 81.31 ETH (32,524 USD) and 22.40 ETH (8,960 USD) respectively. We further show that DeFiPoser-SMT finds the known economic bZx attack from February 2020, which yields 0.48M USD. Our forensic investigations show that this opportunity existed for 69 days and could have yielded more revenue if exploited one day earlier. Our evaluation spans 150 days, given 96 DeFi protocol actions, and 25 assets.Looking beyond the financial gains mentioned above, forks deteriorate the blockchain consensus security, as they increase the risks of double-spending and selfish mining. We explore the implications of DeFiPoser-ARB and DeFiPoser-SMT on blockchain consensus. Specifically, we show that the trades identified by our tools exceed the Ethereum block reward by up to 874×. Given optimal adversarial strategies provided by a Markov Decision Process (MDP), we quantify the value threshold at which a profitable transaction qualifies as Miner Extractable Value (MEV) and would incentivize MEV-aware miners to fork the blockchain. For instance, we find that on Ethereum, a miner with a hash rate of 10% would fork the blockchain if an MEV opportunity exceeds 4× the block reward.
The Ethereum blockchain enables executing and recording smart contracts. The smart contracts can facilitate, verify, and implement the negotiation between multiple parties, also guaranteeing transactions without a traditional legal entity. Many tools supporting the smart contracts development in different areas are flourishing because in Ethereum blockchain valuable assets are often involved. Some of the tools help the developer to find security vulnerabilities via static and/or dynamic analysis or to reduce the Gas fees consumption. Despite the plethora of such tools, there is no tool supporting smart contracts evaluation and analysis via a graphical representation for expert developers.The paper embraces this way to facilitate the developers’ analysis activity, by proposing a graphical representation model to visualize smart contract source code. The paper makes available a tool via a web interface, which accepts the smart contract address as an input and produces a graphical representation of the smart contract as an output. The graphical representation can help developers to better understand the structure of smart contracts and share it with other developers. Moreover, some metrics, such as the relations among smart contracts, are easier to be understood via "spatial" than "tabular" representation. Indeed, representing smart contracts’ metrics via visual representation facilitates the developers, who are used to analyse the source code by directly inspecting it or using other tools that provide the metrics in a table format. Finally, the paper provides detailed data regarding a smart contract to the developers and proposes a graphical representation of the smart contracts without obscuration of details, also highlighting areas of the code that are possibly too big in size and/or too complex via a diagram displaying their connections.
Participation in permissionless blockchains results in competition over system resources, which needs to be controlled with fees. Ethereum's current fee mechanism is implemented via a first-price auction that results in unpredictable fees as well as other inefficiencies. EIP-1559 is a recent, improved proposal that introduces a number of innovative features such as a dynamically adaptive base fee that is burned, instead of being paid to the miners. Despite intense interest in understanding its properties, several basic questions such as whether and under what conditions does this protocol self-stabilize have remained elusive thus far. We perform a thorough analysis of the resulting fee market dynamic mechanism via a combination of tools from game theory and dynamical systems. We start by providing bounds on the step-size of the base fee update rule that suffice for global convergence to equilibrium via Lyapunov arguments. In the negative direction, we show that for larger step-sizes instability and even formally chaotic behavior are possible under a wide range of settings. We complement these qualitative results with quantitative bounds on the resulting range of base fees. We conclude our analysis with a thorough experimental case study that corroborates our theoretical findings.