Proof-of-burn has been used as a mechanism to destroy cryptocurrency in a verifiable manner. Despite its well known use, the mechanism has not been previously formally studied as a primitive. In this paper, we put forth the first cryptographic definition of what a proof-of-burn protocol is. It consists of two functions: First, a function which generates a cryptocurrency address. When a user sends money to this address, the money is irrevocably destroyed. Second, a verification function which checks that an address is really unspendable. We propose the following properties for burn protocols. Unspendability, which mandates that an address which verifies correctly as a burn address cannot be used for spending; binding, which allows associating metadata with a particular burn; and uncensorability, which mandates that a burn address is indistinguishable from a regular cryptocurrency address. Our definition captures all previously known proof-of-burn protocols. Next, we design a novel construction for burning which is simple and flexible, making it compatible with all existing popular cryptocurrencies. We prove our scheme is secure in the Random Oracle model. We explore the application of destroying value in a legacy cryptocurrency to bootstrap a new one. The user burns coins in the source blockchain and subsequently creates a proof-of-burn, a short string proving that the burn took place, which she then submits to the destination blockchain to be rewarded with a corresponding amount. The user can use a standard wallet to conduct the burn without requiring specialized software, making our scheme user friendly. We propose burn verification mechanisms with different security guarantees, noting that the target blockchain miners do not necessarily need to monitor the source blockchain. Finally, we implement the verification of Bitcoin burns as an Ethereum smart contract and experimentally measure that the gas costs needed for verification are as low as standard Bitcoin transaction fees, illustrating that our scheme is practical.
Carlos Molina-Jiménez, Ioannis Sfyrakis, Linmao Song, Danny, Hazem · 5 authors
The hype about Bitcoin has overrated the potential of smart contracts deployed on-blockchains (on-chains) and underrated the potential of smart contracts deployed on-Trusted Third Parties (on-TTPs). As a result, current research and development in this field is focused mainly on smart contract applications that use on-chain smart contracts. We argue that there is a large class of smart contract applications where on-TTP smart contracts are a better alternative. The problem with on-chain smart contracts is that the fully decentralised model and indelible append-only data model followed by blockchains introduces several engineering problems that are hard to solve. In these situations, the inclusion of a TTP (assuming that the application can tolerate its inconveniences) instead of a blockchain to host the smart contract simplifies the problems and offers pragmatic solutions. The intention and contribution of this paper is to shed some light on this issue. We use a hypothetical use case of a car insurance application to illustrate technical problems that are easier to solve with on-TTP smart contracts than with on-chain smart contracts.
W hat are the long-run prospects of Bitcoin as an investment?The bullish case is that Bitcoin will appreciate indefinitely due to its capped supply and an ever-growing demand.The bearish case is that Bitcoin's price will fall to zero, as it's an intrinsically worthless asset.We think the future price path is more likely to remain bounded between these two extremes.Consider first the bullish case for Bitcoin.We think this idea is too optimistic even if one grants that its supply is fixed and its demand is likely to grow. 1 The U.S. dollar price of Bitcoin will also depend on how its exchange rate relative to other cryptocurrencies evolves over time in the face of an ever-expanding supply of alternative cryptocurrencies, which we refer to as Altcoin. 2 The bullish case assumes that the nominal exchange rate between Bitcoin vis-à-vis other cryptocurrencies will adjust in proportion to their relative supplies.That is, Bitcoin is expected to appreciate relative to its competitors or, equivalently, its market-capitalization share will stay constant over time.But must this necessarily be the case?Consider the following thought experiment.
With the appearance of Bitcoin, the blockchain technology behind it has attracted attention from banks, companies, and entrepreneurs from different fields. Many new blockchain technology related projects and companies are started in financial service and others , such as data storage, supply chain, internet of things (IoT) and copyright protection as the valuable features including decentralization, transparency, security, and immutability. The work of blockchain technology can be used to reduce the costs associated with making decision and improve the efficiency of implementation by means of decentralized autonomous organizations (DAOs) which are the products of decentralization management. This paper is to analyze the pros and cons of decentralization management based on blockchain technology with an empirical study of blockchain projects and companies in different industries for a better understanding of decentralization management, and find better ways of decentralization management in blockchain projects and managing decentralized autonomous organizations.
This paper explores whether asset market equilibria in cryptocurrency markets do exist. In doing so, it distinguishes between privacy and non-privacy coins. Most recently, privacy coins have attracted increasing attention in the public debate as non-privacy cryptocurrencies, such as Bitcoin, do not satisfy some users’ demands for anonymity. Analyzing ten cryptocurrencies with the highest market capitalization in each submarket in the 2016–2018 periods, we find that privacy coins exhibit a distinct market equilibrium. Contributing to the current debate on the market efficiency of cryptocurrency markets, our findings provide evidence of market inefficiency. Moreover, the asset market equilibrium of privacy coins appears to originate from non-privacy coins with highest market capitalizations. We argue that the reason for this finding could be that non-privacy coins may be the first choice for criminals who might prefer cryptocurrencies exhibiting both a high level of anonymity and liquidity.
Rui Song, Yubo Song, Ziming Liu, Min Tan · 5 authors
The birth of blockchain has promoted the development of electronic currencies such as Bitcoin and Ethereum. Blockchain builds a financial system based on cryptology instead of credit, which allows parties to complete the tran... | Find, read and cite all the research you need on Tech Science Press
Integration patterns between five leading conventional currencies after the US dollar and Bitcoin boost the investment potential of the latter relative to its hedging potential. We document that conditional Bitcoin volatility does not influence its dynamic pairwise correlations whereas the change in volatility of conventional currencies do affect the forex market integration patterns.
This paper proposes a bitcoin-based triangular arbitrage, combining foreign exchanges in the bitcoin market and reverse foreign exchange spot transactions. An FX futures contract is used to reduce exposure to risk as a hedging instrument. The returns of the portfolio are jointly modeled using a bivariate DCC-GARCH model with multivariate standardized student's t disturbances due to the presence of leptokurtosis and fat tails observed. Based on the time-dependent covariance matrix, a dynamic optimal hedge ratio is formed, with a conditional correlation series as a by-product. Empirical results are obtained using Euros and U.S. dollars over the period from 21 April 2014 to 21 September 2018. Multiple rolling one-step-ahead forecasts are generated. The empirical results present bitcoin-based currency strategies dominate bitcoin trading in terms of risk management.
This paper examines whether it is advisable to include some portion of Bitcoin in a portfolio of traditional financial assets. The goal is to explore whether Bitcoin could be a good source of diversification from the perspective of a global investor. Two portfolios have been created for this purpose: a portfolio aimed at minimizing risk and a portfolio designated as "aggressive" that offers higher rates of daily return but also a higher risk. Portfolios were created using Markowitz's optimization theory and included traditional instruments (stocks, bonds, gold) and Bitcoin. In portfolio optimization, high-frequency data (daily data) were used. The analysed period is from the end of July 2010 to the end of June 2019, which is the period of active Bitcoin trading. The results show that Bitcoin could be a good source of diversification for a portfolio that consists of traditional financial instruments, for investors trading daily. It could be a good source of diversification for the risk-averse investor and those investors who have a higher risk appetite. Considering the high volatility of Bitcoin, the investors should be very careful when they decide to include Bitcoin in a portfolio.
Roy Bar-Haim, Dalia Krieger, Orith Toledo‐Ronen, Lilach Edelstein · 10 authors
Roy Bar-Haim, Dalia Krieger, Orith Toledo-Ronen, Lilach Edelstein, Yonatan Bilu, Alon Halfon, Yoav Katz, Amir Menczel, Ranit Aharonov, Noam Slonim. Proceedings of the 57th Annual Meeting of the Association for Computational Linguistics. 2019.
Bitcoin, with its market value among cryptocurrenciesand being the biggest in terms of its processing volume, carries greatpotential in terms of low cost, speedy processing and low-level risk while alsobringing with it important global-level change and transformation. On the otherhand, the fact that cryptocurrencies and Bitcoin specifically are new, ofunclear legal status, and carry the risk of being involved in illegal activity,there is the potential for their use as an extremely volatile and speculativeinvestment tool and have environmental effects. This study examines Bitcoinmining and blockchain technology and investigates the high amounts of energyconsumed by Bitcoin and its environmental effects. It is argued that the energyconsumed as a result of increased Bitcoin mining will have environmental andsocial consequences, such as global warming and climate change.
Célestin Coquidé, José Lages, Dima L. Shepelyansky
We construct the Google matrices of bitcoin transactions for all year quarters during the period of January 11, 2009 till April 10, 2013. During the last quarters the network size contains about 6 million users (nodes) with about 150 million transactions. From PageRank and CheiRank probabilities, analogous to trade import and export, we determine the dimensionless trade balance of each user and model the contagion propagation on the network assuming that a user goes bankrupt if its balance exceeds a certain dimensionless threshold $\kappa$. We find that the phase transition takes place for $\kappa 0.55$ almost all users remain safe. We find that even on a distance from the critical threshold $\kappa_c$ the top PageRank and CheiRank users, as a house of cards, rapidly drop to the bankruptcy. We attribute this effect to strong interconnections between these top users which we determine with the reduced Google matrix algorithm. This algorithm allows to establish efficiently the direct and indirect interactions between top PageRank users. We argue that this study models the contagion on real financial networks.
Cryptocurrencies have emerged about ten years ago as a new form of currency and have attracted much attention since they depend on a fully decentralized system, and so their transactions are very fast and have zero transaction cost. Therefore, character of cryptocurrencies and their volatility have been discussed widely by investors, policymakers and economists in recent years. From this point of view, this study aims to explain the price volatility of cryptocurrencies with macro-financial indicators, and thereby, the effects of S&P 500 stock market index, gold price, oil price, 2-year benchmark US Bond interest rate and US Dollar index on the prices of four major cryptocurrencies, Bitcoin, Litecoin, Ethereum, and Ripple, are investigated. The study comprises a panel data analysis applied to daily data over the period of August 2016 – April 2019, and analysis results show that increases in gold price, oil price and S&P 500 index raise the prices of cryptocurrencies, while increases in 2-year benchmark US Bond interest rate and US Dollar index cause to a fall. This adverse effects of the US Dollar index and US Bond interest rate on the prices of cryptocurrencies indicates that when the value of US Dollar and US Bond yield decrease investors prefer to invest in cryptocurrencies as alternative investment instruments. On the other hand, cryptocurrencies move with a similar trend of stock market index, gold price and oil price which are overall market indicators. Thereby, findings of this study show that cryptocurrencies behave more like an investment instrument than a currency, and prices of these financial assets interact with significant macro-financial indicators.
US President Donald J. Trump says he is not “a fan of Bitcoin and other cryptocurrencies”, and he does not have to be, but using this premature reason (like a bully) to rage a war against Bitcoin and Libra is ludicrous. Will Trump (or the United States government) try to destroy everything that he dislikes or is not a fan of? Satoshi Nakamoto (pseudonym) designed Bitcoin as public good in mind, but the US dollar serves totally the opposite as it has been increasingly used as a weapon of mass economic destruction. The real issue is, President Trump feels agitated and concerned because Bitcoin and Libra create an undesired situation of diminishing US power. The anonymity aspect of Bitcoin limits Trump’s (the US government’s) role as the global policeman (i.e. succeeded the UK in 1945). Just to curb Bitcoin’s popularity, politicians produce lies, make short-sighted assertions, and publicly share ill-advised thoughts; regardless, Bitcoin mania is nothing like the tulip mania or the dot.com mania, it is with us now and it will continue to forge ahead unabated in spite of doubters, pessimists, doomsayers, skeptics, and disbelievers. At the backdrop of US-China trade war and the regulatory backlash to force Facebook to halt its Libra project, one is compelled to wonder till when the United States will exploit the world’s scarce resources and how many more lives will be perished for petrodollar so that the U.S. can continue enjoying the “exorbitant privilege” of dollar hegemony.
The global crypto marketplace has an impact on the functioning of financial markets and has huge implications for entire economies. The article discusses the functioning of the global cryptocurrency market, and based on the analysis of the history of the most popular cryptocurrency, bitcoin, an attempt was made to determine possible development prospects. The aim of the article is to assess the development of the current crypto marketplace in the world and to present possible development prospects. The foresight method was used to implement the research objective, in particular trend analysis (quantitative data) and discrete event system (qualitative and expert data). This allows us to learn about the regularity of the cryptocurrencies in the sphere of investment management from the investors' point of view and the creation of an appropriate legal framework by the supervisory authorities and ensuring the social security of the financial system.
Can social movements mobilize market devices to challenge the political–economic order? Focusing on Bitcoin, we argue that an effective anti-state market device needs to be durably ‘counterearmarked’, to use Viviana Zelizer’s term, with radical meaning. This durability, however, requires that the movement build alliances with holders of political and economic power who also embrace the device’s radical meaning, lest those actors reformat the device to suit their purposes. To make this case, we locate Bitcoin’s radical origins in a performative project built on elements of Austrian monetary theory. We then track Bitcoin’s dual transformation between 2009 and 2014: the anti-state movement gave way to a market featuring big financial players, and the Internal Revenue Service officially redefined the bitcoin currency as property. Understanding this dual transformation requires joining Zelizerian conceptions of money with theories of markets-and-movements on the one hand, and symbolic-cultural conceptions of the classificatory state on the other.
In recent years, deep learning has been widely used for time series prediction. Deep learning model that is most often used for time series prediction is LSTM. LSTM is widely used because of its excellence in remembering very long sequences. However, doing training on models that use LSTM requires a long time. Trying from one model to another model that use LSTM will take a very long time, thus a method is needed for optimizing hyperparameter to get a model with a small RMSE. This research proposed Artificial Bee Colony (ABC) as a method in optimizing hyperparameter for models that use LSTM. ABC is a metaheuristic method that mimics the behavior of bee colonies in foraging. Optimized hyperparameter in this research consisted of sliding window size, number of LSTM units, dropout rate, regularizer, regularizer rate, optimizer and learning rate. In this research the proposed method called as ABC-LSTM. Bitcoin prices historical data was used as the dataset for evaluating the prediction of the models. The best ABC-LSTM model resulted best RMSE of 189.61 compared to model that use LSTM without optimization resulted best RMSE of 236.17. This result showed that ABC-LSTM model outperformed models that use LSTM without optimization.