Bitcoin is a digital asset that was first mined in January 2009 after the global financial crisis of 2007–2008. Over a decade later, there is still no consensus across different market regulations on the classification, use cases, policies, and economic implications of bitcoin. However, there is an increasing demand for digital currency, as an alternative to fiat currency which would spur financial innovation and inclusion. This study reviews regulations on digital assets across countries. It further discusses some use cases for bitcoin to reduce financial risk and facilitate cross border transactions. The study also discusses challenges related to bitcoin such as: cryptocurrencies substitution, cross border financing, cyber risk and security, and benefits in terms of the effect of coronavirus on the speed of capital market innovation and hence bitcoin usage. The study concludes by examining the economic effect of bitcoin halving events on the U.S. capital market to better understand the influence of bitcoin on financial markets and key drivers of its intrinsic value. The empirical evidence from this study suggests that bitcoin halving events are associated with significant negative stock market reaction, signaling a trading tradeoff between cryptocurrencies and U.S. stock markets.
Suprateek Sarker, Stefan Henningsson, Thomas Wiben Jensen, Jonas Hedman
Corruption is one of the most troubling societal challenges facing businesses today. Businesses have been combating corruption in fragmented ways, sometimes by creating anti-corruption policies applicable to certain stakeholders and, at other times, by harnessing digital technologies. Recently, the power of blockchain, with its capacity to provide full transactional disclosure and thereby reduce uncertainty, insecurity, and ambiguity in transactions, has been touted as being a game changer in the fight against corruption. Based on a study of the global shipping industry, we find that blockchain mitigates both process and document-related corruption. Based on these findings, we develop an understanding of how corruption may be combated using both social and digital/informational resources, including blockchain technology. Our model, drawing on past work on corruption, shows the complex interplay between identity, institutional actors, technical and other resources, and practices, and we develop conditions that could be effective in fighting corruption by using technologies such as blockchain.
Objective: creating the corporate governance structure and legal regulation mechanism of blockchain protocols.Methods: dialectical approach to cognition of social phenomena, allowing to analyze them in historical development and functioning in the context of the totality of objective and subjective factors, which predetermined the following research methods: formal-logical, comparative-legal, and sociological.Results: Blockchain technology was born out of a Cypherpunk vision for regulation without sacrificing privacy. This vision feeds a call by some in the blockchain technology ecosystem to view computer code as the only law applicable to blockchain protocols, transactions conducted on the protocols, and DAOs. The code of certain protocols, such as the Bitcoin blockchain and Ethereum, currently embody their Cypherpunk cultural origins, placing a premium on privacy and governance mechanisms that preserve privacy. But that code can change. In fact, laws enacted and enforced by governments may act as the stimuli for such change. Indeed, such stimuli, for better or worse, are already in play, with coders ceasing work for fear of legal repercussions. Adopting a contract-based governance system in which the rules and expectations are clearly defined empowers blockchain protocol communities to preserve as much of their cultures and visions as possible. Adopting these contracts also requires blockchain communities to engage in open, active, and thoughtful conversation about their collective culture and vision. Further, basing blockchain governance structures in contracts that loosely resemble corporate governance structures allows such communities to tap into centuries of scholarship and experimentation in a functionally equivalent governance arena. Scientific novelty: the work proves that the biggest cultural impact of (un)corporate crypto-governance may be on the culture of traditional corporations. Indeed, one significant lesson of a corporate governance model for off-chain governance may be a sharpened recognition that “code as law” is a subsystem of regulatory norms within the greater legal system. Viewed through systems analysis, the result is a two-way recognition of the interconnected roles of code and law in limiting behavior within the blockchain ecosystem. In other words, the code informs the law and its application to a blockchain ecosystem. Meanwhile, law informs behavior and activities undertaken through the code. The result is that the intersection of code and law can impact our understanding of how to apply the law in more traditional scenarios as well.Practical significance: the main provisions and conclusions of the article can be used in scientific, pedagogical and law enforcement activities when considering issues related to (un)corporate crypto-governance.
Escuela Superior Politécnica de Chimborazo, Riobamba, Ecuador., Edwin Fernando Viteri Núñez, Edilberto Antonio Llanes Cedeño, Universidad Internacional SEK, Quito, Ecuador.
El presente artículo tiene el objetivo de analizar la seguridad en las transacciones del protocolo Bitcoin, sus ataques y contramedidas. En cuanto a la metodología se exhibe una investigación documental basada en la importancia de la seguridad en las transacciones del protocolo entre iguales (P2P) Bitcoin entre nodos de la red que conforman el ecosistema de monedas digitales. La revolución actual en cuanto al mercado de las criptomonedas ha impulsado el desarrollo de transacciones sin fronteras y sin intermediarios, lo que ha roto paradigmas en cuanto a libertad económica. Se estudia las características técnicas de las transacciones entre nodos P2P, se identifican los ataques en las transacciones y se describen las contramedidas que mitiguen posibles brechas de seguridad en el sistema. Como conclusión se menciona que, con la masificación actual del bitcoin es conveniente implementar mejoras en cuanto a los ajustes de la propagación de la información entre los nodos de la red, la gestión de las comunicaciones y los tiempos de propagación de la información entre ellos. Se pudo conocer que un adversario tiene por objetivo apropiarse de la red ofuscando a los nodos honestos para ganar tiempo de cómputo y energía para provechar estos recursos y apoderarse de las transacciones, teniendo un comportamiento de minado egoísta (selfishmining). Para evitar este comportamiento, es importante aplicar técnicas que mitiguen ataques de denegación de servicios que afecten a la red previniendo la entrega deliberada de bloques maliciosos en el sistema.
As the title provocatively suggests, in this article we explore empirically and question on the basis of research outcomes the implications of one of the most distinctive features of Bitcoin as a digital currency: the positively advertised de-centralization of its network and the often derived claim of egalitarianism alleged to the peer-to-peer system. In order to assess degrees and trends of network de-centralization we follow two tracks. First, we analyze a snapshot of BTC transactions taken in October 2020, basing our explorations on a subset of the “crypto_bitcoin” dataset publicly available on Google Cloud Platform and applying some of the more relevant network analysis tools, like degrees and prestige. Then we extend the analysis to the overall Bitcoin system, tracing the structural transformations it has witnessed over time with regard to the hash-rate distribution. Through a longitudinal comparison, we come to show that the number of competitors in the network have decreased over time, reducing the initial outright pluralism of the actors in the system, and gradually melting down into “special nodes”, whose power has grown over time. Such centralization trends, together with the China-centered geographical distribution of the major mining pools, might have had important implications for Bitcoin success as well as they might for its future.
The bitcoin, one of the most discussed topics in recent years, is a virtual currency with enormous potential and can be used almost immediately with no intervention from financial institutions. It has spread rapidly over the last few years, and all financial and governmental institutions have warned of the risk of its use for money laundering. The paper focuses on this aspect in order to understand if any purchases of bitcoins, using illicit money, can come under the anti-money laundering criminal law. Keywords: Bitcoin; Money laundering; Italian law; Cryptocurrency.
In 2008, a global financial crisis happened. It led to strong currency price volatility. Because of that, discussions on the need for an alternative, institution-independent currency occurred. Due to this reason the first decentralized cryptocurrency Bitcoin was created. The new and not yet explored concept of cryptocurrency changed the previously strictly defined role of money. Currently, with the growth of the cryptocurrency market, the most important regional institutions (e.g. FED, EBA) provide regulatory guidelines of a recommendatory nature. The regulations of these institutions remain significant, reflecting the dominant approach to digital money. Because of this reason, the aim of the study is to identify the factors that determine the difficulties in the legalization process of cryptocurrencies and to investigate the features of the European Union's cryptocurrency regulatory policy. Methods used: analysis of scientific literature and legal documents, systematization, comparison, interpretation and generalization of information. The results of the study show that the European Union has taken active regulatory action with the growing importance of cryptocurrencies in the world. To date, a document regulating the definition of cryptocurrencies has not yet been adopted at Union level, but the adoption of the cryptocurrency regulation proposal presented in 2020 would mean greater clarity and security for cryptocurrency issuers, intermediaries and users.
Guglielmo Maria Caporale, Woo-Young Kang, Fabio Spagnolo, Nicola Spagnolo
This paper provides comprehensive evidence on the effects of cyber-attacks (cyber-crime, cyber espionage, cyber warfare and hacktivism) and cyber security on the risk-adjusted returns, realised volatilities and trading volumes of the three main cryptocurrencies (Bitcoin, Ethereum and Litecoin).We find that stronger cyber security is generally effective in increasing the riskadjusted returns of cryptocurrencies and trading activity even in the presence of cyber-attacks.Hacktivism appears to be the most significant threat to cryptocurrency investors.Further, cyberattackers hitting the cryptocurrency exchanges are most likely to attack other sectors (government, industry and finance) as well.In addition, in the case of the US they target the government and industry sectors in preference to the cryptocurrency exchanges given the corresponding potential benefits and costs.In all cases appropriate strategies should be designed to enhance cyber security.
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.
Ana Fernández Vilas, Rebeca P. Dı́az Redondo, Daniel Couto Cancela, Alejandro Torrado Pazos
Cryptocurrencies are a type of digital money meant to provide security and anonymity while using cryptography techniques. Although cryptocurrencies represent a breakthrough and provide some important benefits, their usage poses some risks that are a result of the lack of supervising institutions and transparency. Because disinformation and volatility is discouraging for personal investors, cryptocurrencies emerged hand-in-hand with the proliferation of online users’ communities and forums as places to share information that can alleviate users’ mistrust. This research focuses on the study of the interplay between these cryptocurrency forums and fluctuations in cryptocurrency values. In particular, the most popular cryptocurrency Bitcoin (BTC) and a related active discussion community, Bitcointalk, are analyzed. This study shows that the activity of Bitcointalk forum keeps a direct relationship with the trend in the values of BTC, therefore analysis of this interaction would be a perfect base to support personal investments in a non-regulated market and, to confirm whether cryptocurrency forums show evidences to detect abnormal behaviors in BTC values as well as to predict or estimate these values. The experiment highlights that forum data can explain specific events in the financial field. It also underlines the relevance of quotes (regular mechanism to response a post) at periods: (1) when there is a high concentration of posts around certain topics; (2) when peaks in the BTC price are observed; and, (3) when the BTC price gradually shifts downwards and users intend to sell.
Catarina Oliveira, João Torres, Maria Inês Silva, David Aparício · 6 authors
Money laundering is a global phenomenon with wide-reaching social and economic consequences. Cryptocurrencies are particularly susceptible due to the lack of control by authorities and their anonymity. Thus, it is important to develop new techniques to detect and prevent illicit cryptocurrency transactions. In our work, we propose new features based on the structure of the graph and past labels to boost the performance of machine learning methods to detect money laundering. Our method, GuiltyWalker, performs random walks on the bitcoin transaction graph and computes features based on the distance to illicit transactions. We combine these new features with features proposed by Weber et al. and observe an improvement of about 5pp regarding illicit classification. Namely, we observe that our proposed features are particularly helpful during a black market shutdown, where the algorithm by Weber et al. was low performing.
Bitcoin, a primeira criptomoeda e a primeira aplicação conhecida do Blockchain, está relacionada de perto com o movimento contracultural chamado Cypherpunks. O ativismo dos Cypherpunks, como consta em seu manifesto, foi - e ainda é – dedicado ao desenvolvimento de ferramentas para proporcionar um ambiente onde a privacidade seja protegida. Para eles, privacidade não é sigilo; privacidade é o poder de se revelar seletivamente para o mundo. Bitcoin é um resultado direto dessa aspiração, já que Satoshi Nakamoto – enquanto desenvolvia a Bitcoin – empenhou seus esforços para criar um software que refletisse essa ambição e foi bem sucedido no desenvolvimento de um que, de uma só vez: (i) abrigou a privacidade através do pseudoanonimato, (ii) forneceu um registro público inalterável de todas as transações concluídas com Bitcoin e (iii) desafiou a política monetária estadocêntrica e o sistema bancário tradicional através de uma rede descentralizada de nós operacionais que funcionam como validadores das informações contidas no registro público. Neste artigo, por meio do estabelecimento de relações entre a ideologia Cypherpunk e Bitcoin, eu defendo que a conveniência do uso do Bitcoin em atividades criminosas é, originalmente, um efeito não intencional da ideologia que lastreou o desenvolvimento das criptomoedas mas, provavelmente, um risco colateral que o criador estava disposto a correr.
Paolo Zappalà, Marianna Belotti, Maria Potop-Butucaru, Stefano Secci
In this paper we propose a game theoretical framework in order to formally characterize the robustness of blockchains systems in terms of resilience to rational deviations and immunity to Byzantine behaviors. Our framework includes necessary and sufficient conditions for checking the immunity and resilience of games and an original technique for composing games that preserves the robustness of individual games. We prove the practical interest of our formal framework by characterizing the robustness of various blockchain protocols: Bitcoin (the most popular permissionless blockchain), Tendermint (the first permissioned blockchain used by the practitioners), Lightning Network, a side-chain protocol and a cross-chain swap protocol. For each one of the studied protocols we identify upper and lower bounds with respect to their resilience and immunity (expressed as no worse payoff than the initial state) face to rational and Byzantine behaviors.
We present a prototype decentralized transactional platform designed to improve the transparency of homeless serving organizations and facilitate their accountability and oversight. In the proposed system, the complete history of transactions between organizations offering homelessness services (e.g., shelters, transitional housing) and individuals seeking such services is stored in a distributed ledger. Using smart contracts, the proposed tamper-proof framework can automate the exchange of information between clients, organizations and government agencies, and allow government agencies audit organizations without violating the privacy of homeless individuals. We begin by describing the goals and concepts, the stakeholders’ requirements and the corresponding desirable system properties, and identified challenges. We continue with an in-depth description of the overall architecture of the proposed system designed to achieve these goals, and lessons learned towards transitioning this system to the real-world.
One of the agendas of those who want to establish the New World Order through the “Great Reset” is to have cryptocurrency as the medium of exchange for goods and services or as a reward for obedience and submission is cryptocurrency, stated in a “leak” communication from a Canadian Member of Parliament. The problem with cryptocurrency is that it is not a physical money, but only represents numbers in the database or a blockchain. Rather, it is an e-money or a virtual money stored in databases. It does not have tangible values, has no legal status and by definition, it is unconstitutional. But it allows the owner to exchange it for a real physical money from the financial institution as an exchange. It is illegal and a fraud. Cryptocurrency is based on a computer software that helps you to mine cryptocurrency and allows you to make payment for goods and services electronically, but only for the institutions or commercial organizations that participate in the scheme of cryptocurrency. This paper discusses the politics of cryptocurrency, the policy proposed, the risk associated with its implementation, and that it may lead to the collapse of financial markets and fosters the rational men to declare “The world is mine.”
The advantages and disadvantages of blockchain technology in cryptocurrency attacks will be explained in this article. Digital currency has been widely used around the world. The soaring value of digital currencies has also led to an increase in the use of cryptocurrency. Cryptocurrency is a form of payment that can be exchanged online for goods and services. The increasingly popular use of cryptocurrency around the world is causing criminals, and hackers are starting to attack cryptocurrency on an ongoing basis. With the advent of blockchain technology, it managed to save the digital currency system with the availability of a decentralized database. Each block has many transactions, and for new transactions will be recorded and added to a decentralized database with a cryptographic signature that does not change making it difficult for abuse and theft. The authors have examined the strengths and weaknesses of the blockchain in cryptocurrency attacks. As a result, the authors support that this blockchain technology can help deal with cryptocurrency attacks that occur.
Maike Rafael, Jorge Renato Verschoore, Jefferson Marlon Monticelli
Bitcoin is a social movement, which promises free and decentralized money, absent from the traditional regulatory institutions, but it can be challenging for financial industry regulators and other players in the financial markets. Thus, our study aims to analyze how the institutional voids manifest in the bitcoin institutionalization process as a currency. We adopt the institutional theory, from the perspective of institutional voids, in order to observe the concepts in emerging markets that show the difficulty or the beginning of the institutionalization of bitcoin as a currency. The institutional theory provides an opportunity to understand the reasons for using particular practices, actions, or manifestations. Our method is based on a qualitative exploratory approach with semi-structured interviews to understand how financial market experts perceive this phenomenon. Our results show that it is possible to identify how institutional voids manifest themselves, reinforcing the debate on whether bitcoin is, in fact, a currency.
This paper aims to analyze the consequences of adding Bitcoin to an investment portfolio. The main methodology used is the Mean-Variance model combined with the Monte Carlo Simulation. Results show that Bitcoin can improve the Sharpe Ratio of an already diversified portfolio, however the inclusion of Bitcoin has to be done in proportions averaging 3.83 percent of the portfolio's weight. This paper also found that Bitcoin does not seem to behave as a safe haven/hedge asset during the Covid-19 pandemic.