Bitcoin is widely represented in the popular press, but far less so in serious academic inquiry. Researchers have analyzed Bitcoin from various discipline-specific perspectives using their own sets of theories and jargon. Yet cross-disciplinary research has been muddled by the inaccurate interpretation of terminology across fields of research. This results in polarized assessments. In an effort to examine the Bitcoin phenomenon in a more holistic and multidisciplinary manner, this paper compares Bitcoin with another innovative technology â the World Wide Web â as first envisioned by Tim Berners-Lee. By exploring the early development of the World Wide Web, we seek to compare and contrast its development with that of Bitcoin and blockchain technology. The goal of this study is to show similarities and differences in their historic development, in order to identify key success factors related to the adoption of these technologies. Through identification of these factors we seek to guide both academics and practitioners towards fruitful avenues of research and development.
This paper describes a study to understand what differentiates organization adopters of Bitcoin from nonadopters by comparing their IT-readiness, innovativeness and social media presence. The craze over cryptocurrency such as Bitcoin has been likened to a modern-day gold rush, yet academic research has not caught up. Governments are struggling with the very idea of cryptocurrency systems. After the price of Bitcoin fell from $1,200 to $300 in 2014, consumer interest flagged, leaving the future of Bitcoin adoption uncertain despite a slow and steady increase of organization adopters. Organization adoption is more important than consumer, because consumers canât use cryptocurrency if organizations donât accept them as payment. This research serves as a basis for future research on Bitcoins and Bitcoin adoption by highlighting some important hurdles to its adoption as a new innovation, in the hope that such endeavors move us ever closer to the vision of a true âpeopleâs currency.â
Bit coin, as the foundation for a secure electronic payment system, has drawn broad interests from researchers in recent years. In this paper, we analyze a comprehensive Bit coin transaction dataset and investigate the interrelationship between the flow of Bit coin transactions and its price movement. Using network theory, we examine a few complexity measures of the Bit coin transaction flow networks, and we model the joint dynamic relationship between these complexity measures and Bit coin market variables such as return and volatility. We find that a particular complexity measure of the Bit coin transaction network flow is significantly correlated with the Bit coin market return and volatility. More specifically we document that the residual diversity or freedom of Bit coin network flow scaled by the total system throughput can significantly improve the predictability of Bit coin market return and volatility.
Bitcoin is a new financial system that has the potential to have a big impact on the way the world does business. Its open ledger system and distribution network make it a valuable system. Although it is still in its infancy, as bitcoin becomes larger and more sophisticated, it may very well provide solutions to many of the current financial systemâs problems.
Bitcoin has become the de facto 'gold' standard among cryptocurrencies as it is the most widely accepted in commerce, has the largest mining network, and greatest volume of transactions. Because of this, miners of other SHA-256 cryptocurrencies will tend to convert those altcoins into bitcoin in order to transact in a meaningful way with the real economy. The result is that bitcoin mining regulates that of all other SHA-256 blockchains. Specifically, what matters is the expected number of bitcoins produced per day given a unit of hashing (mining) power, whatever the equivalence in the coin being mined. If mining for a different coin would yield a greater return in bitcoins at the margin (per day) for a miner, an apparent arbitrage opportunity will exist to direct mining effort at that cryptocurrency and subsequently exchange those for bitcoin. These opportunities, once taken, quickly eliminate the profitable arbitrage and appear to operate in a fairly efficient and predictable manner. A model is developed in this paper to formalize this process where cryptocurrency miners seeking to maximize production in terms of bitcoins earned in a day will exploit any such opportunities. If no such opportunities exist, they will simply revert to mining bitcoins directly. There are some important implications to this process, such as a tendency for cryptocurrencies to fall in price relative to bitcoin over time, and for changes in bitcoin mining difficulty to indirectly influence the market prices of altcoins. Finally, it seems that those undertaking this process of miners' arbitrage do so at the expense of speculators and noise traders who make decisions regarding buy and sell trades without the use of fundamental data. These participants generally have poor timing, follow trends, and over-react to good and bad news. Altcoins are produced by miners and subsequently offered for sale in the market in order to obtain bitcoins; meanwhile noise traders serve as the only bid-side to the market, on average.
This paper assesses costs and benefits of regulating Bitcoin. A review of the main justifications for regulating it shows that scope for efficient regulation is limited. Private governance structures and fee-based services have already begun addressing many of the known problems. Furthermore, since a regulation would discourage use, the costsâin terms of technological gains forgoneâare potentially high. Nonetheless, there is scope for regulation, to ensure one has recourse in the event of theft, as long as the following are addressed: 1) provide a clear regulatory framework; 2) supervise transactions to dissuade crime, without compromising the medium; 3) regulate exchanges, rather than users; 4) encourage technological progress by committing to an environment of permissionless innovation.
This paper aims to identify the likely determinants for cryptocurrency value formation, including for that of bitcoin. Due to Bitcoinâs growing popular appeal and merchant acceptance, it has become increasingly important to try to understand the factors that influence its value formation. Presently, the value of all Bitcoins in existence represent approximately $7 billion, and more than $60 million of notional value changes hands each day. Having grown rapidly over the past few years, there is now a developing but vibrant marketplace for bitcoin, and a recognition of digital currencies as an emerging asset class. Not only is there a listed and over-the-counter market for bitcoin and other digital currencies, but also an emergent derivatives market. As such, the ability to value bitcoin and related cryptocurrencies is becoming critical to its establishment as a legitimate financial asset.Using cross-sectional empirical data examining 66 of the most widely used cryptocurrencies, a regression model was estimated that points to three main drivers of cryptocurrency value: the level of competition in the network of producers, the rate of unit production, and the difficulty of algorithm used to âmineâ for the cryptocurrency. These amount to relative differences in the cost of production of one digital currency over another at the margin, pointing to differences in relative cost of production â electricity goes in, cryptocurrency comes out. Using that as a starting point, a no-arbitrage situation is established for Bitcoin-like cryptocurrencies followed by the formalization of a cost of production model to determine the fair value of a bitcoin.
Martina Matta, Maria Ilaria Lunesu, Michele Marchesi
In the last decade, Web 2.0 services such as blogs, tweets, forums, chats, email etc. have been widely used as communication media, with very good results. Sharing knowledge is an important part of learning and enhancing skills. Furthermore, emotions may affect decisionmaking and individual behavior. Bitcoin, a decentralized electronic currency system, represents a radical change in financial systems, attracting a large number of users and a lot of media attention. In this work, we investigated if the spread of the Bitcoinâs price is related to the volumes of tweets or Web Search media results. We compared trends of price with Google Trends data, volume of tweets and particularly with those that express a positive sentiment. We found significant cross correlation values, especially between Bitcoin price and Google Trends data, arguing our initial idea based on studies about trends in stock and goods market.
Cryptocurrency, a form of digital currency that has an open and decentralized system and uses cryptography to enhance security and control the creation of new units, is touted to be the next step from conventional monetary transactions. Many cryptocurrencies exist today, with Bitcoin being the most prominent of them. Cryptocurrencies are generated by mining, as a fee for validating any transaction. The rate of generating hashes, which validate any transaction, has been increased by the use of specialized machines such as FPGAs and ASICs, running complex hashing algorithms like SHA-256 and Scrypt, thereby leading to faster generation of cryptocurrencies. This arms race for cheaper-yet-efficient machines has been on since the day the first cryptocurrency, Bitcoin, was introduced in 2009. However, with more people venturing into the world of virtual currency, generating hashes for this validation has become far more complex over the years, with miners having to invest huge sums of money on employing multiple high performance ASICs. Thus the value of the currency obtained for finding a hash did not justify the amount of money spent on setting up the machines, the cooling facilities to overcome the enormous amount of heat they produce and electricity required to run them. The next logical step in this is to utilize the power of cloud computing. Miners leasing super computers that generate hashes at astonishing rates that have a high probability of profits, with the same machine being leased to more than one person on a time bound basis is a win-win situation to both the miners, as well as the cloud service providers. This paper throws light on the nuances of cryptocurrency mining process, the traditional machines used for mining, their limitations, about how cloud based mining is the logical next step and the advantage that cloud platform offers over the traditional machines.
Cryptocurrency networks have given birth to a diversity of start-ups and attracted a huge influx of venture capital to invest in these start-ups for creating and capturing value within and between such networks. Synthesizing strategic management and information systems (IS) literature, this study advances a unified theoretical framework for identifying and investigating how cryptocurrency companies configure value through digital business models. This framework is then employed, via multiple case studies, to examine digital business models of companies within the bitcoin network. Findings suggest that companies within the bitcoin network exhibits six generic digital business models. These six digital business models are in turn driven by three modes of value configurations with their own distinct logic for value creation and mechanisms for value capturing. A key finding of this study is that value-chain and value-network driven business models commercialize their products and services for each value unit transfer, whereas commercialization for value-shop driven business models is realized through the subsidization of direct users by revenue generating entities. This study contributes to extant literature on value configurations and digital businesses models within the emerging and increasingly pervasive domain of cryptocurrency networks.
Much of the discussion of bitcoin in the popular press has concentrated on its status as a currency. Putting aside a vocal minority of radical libertarians and anarchists, however, many bitcoin enthusiasts are concentrating on how its underlying technology â the blockchain â can be put to use for wide variety of uses. For example, economists at the Fed and other central banks have suggested that they should encourage the evolution of bitcoinâs blockchain protocol which might allow financial transactions to clear much efficiently than under our current systems. As such, it also holds out the possibility of becoming that holy grail of commerce â a payment system that would eliminate or minimize the roles of third party intermediaries. In addition, the NASDAQ and a number of issuers are experimenting with using the blockchain to record the issuing and trading of investments securities.\nIn this Article, I examine the implications for bitcoin under the Uniform Commercial Code (the âU.C.C.â). Specifically, I consider three issues. In Part 1, I discuss the characterization of bitcoin â which I am using generically to refer to any virtual or cryptocurrency â under Article 9. The bad news is that it does not, and cannot be made to fit into, the U.C.C.âs definition of âmoneyâ. If held directly by the owner, bitcoin constitutes a âgeneral intangibleâ. Unfortunately, general intangibles are non-negotiable. This could greatly impinge on bitcoinâs liquidity and, therefore, its utility as a payment system.\nIn Part 2, I show how this may be mitigated by the rules of Article 8 governing investment securities. If the owner of bitcoin were to choose to hold it indirectly through a financial intermediary, then she and the intermediary could elect to have it treated as a âfinancial assetâ which is super-negotiable. Unfortunately, this comes at the cost of eliminating one of the primary attractions of cryptocurrency, namely the ability to engage in financial transactions directly without a third-party intermediary. However, Article 8, may already provide a legal regime for another contemplated use for the blockchain â namely as a readily searchable means of recording the ownership and transfer of property generally.\nIn Part 3, I explain how cryptosecurities fall squarely within Article 8's definition of âuncertificated securities.â Ironically, therefore, the creation of bitcoin securities may finally breathe life to little used provisions that were invented almost 40 years ago in a failed attempt to solve a completely different problem.
This paper aims to identify the likely source(s) of value that cryptocurrencies exhibit in the marketplace using cross sectional empirical data examining 66 of the most used such 'coins'. A regression model was estimated that points to three main drivers of cryptocurrency value: the aggregate computational power employed in mining for units of the cryptocurrency; the rate of unit production; and the cryptologic algorithm used for the protocol. Bitcoin-denominated relative prices were used, avoiding much of the price volatility associated with the dollar price of Bitcoin. The resulting model can be used so better understand the drivers of value observed in cryptocurrencies. These findings may also have implications in understanding other assets such as commodity forms of money.
Digital currencies, virtual currencies, in-game currencies, etc., have gathered a lot of attention, despite the difficulties of definition, from all corners of society for many years. Cryptocurrency has gained unprecedented attention since the birth of Bitcoin in 2009. Bitcoin is an online system of making and receiving payments in bitcoins. The system distinguishes itself by providing an open-source, cryptographically secure, confidentiality-preserving platform for transactions and/or making payments. The number of transactions as well as the number of accounts (held by individuals and businesses) is steadily increasing. A whole industry of service-providers has sprung up alongside. We consider the development of Bitcoin and its sister currencies as an important disruptive financial innovation which is here to stay unless throttled by ill-considered legislative or regulatory actions. Potential problems are analyzed and solutions offered. The overall assessment is that cryptocurrencies and variants of virtual currencies are a welcome development, they will offer competition to the existing modalities of money and governmental regulation, they will provide alternative means to economic agents for their transactions, and their innovative existence should be encouraged so that their beneficial features outperform any deleterious ones.
Bitcoin and Blockchain technology pose a number of novel regulatory and legal issues. This note examines how government agencies and courts have attempted to keep society safe for â and sometimes from â Bitcoin and Blockchain users (with consumers and investors on one end and drug dealers, terrorists, and violent criminals on the other). This note concludes with policy suggestions for changes to disclosure requirements and tax classifications to facilitate the broader adoption of Bitcoin as a currency by the general public.
Bruno Saboia de Albuquerque, Marcelo de Castro Callado
The objective of this work is to do a briefing about the digital currency named Bitcoins, as well as the general concept behind digital currencies and cryptocurrencies. Such currencies usage and public knowledge is increasing hastily on the last few months.
Kourosh Davarpanah, Dan Kaufman, Ophelie Pubellier
NeuCoin is a decentralized peer-to-peer cryptocurrency derived from Sunny\nKing's Peercoin, which itself was derived from Satoshi Nakamoto's Bitcoin. As\nwith Peercoin, proof-of-stake replaces proof-of-work as NeuCoin's security\nmodel, effectively replacing the operating costs of Bitcoin miners\n(electricity, computers) with the capital costs of holding the currency.\nProof-of-stake also avoids proof-of-work's inherent tendency towards\ncentralization resulting from competition for coinbase rewards among miners\nbased on lowest cost electricity and hash power.\n NeuCoin increases security relative to Peercoin and other existing\nproof-of-stake currencies in numerous ways, including: (1) incentivizing nodes\nto continuously stake coins over time through substantially higher mining\nrewards and lower minimum stake age; (2) abandoning the use of coin age in the\nmining formula; (3) causing the stake modifier parameter to change over time\nfor each stake; and (4) utilizing a client that punishes nodes that attempt to\nmine on multiple branches with duplicate stakes.\n This paper demonstrates how NeuCoin's proof-of-stake implementation addresses\nall commonly raised "nothing at stake" objections to generic proof-of-stake\nsystems. It also reviews many of the flaws of proof-of-work designs to\nhighlight the potential for an alternate cryptocurrency that solves these\nflaws.\n
Digital currencies represent a new method for exchange and investment that differs strongly from any other fiat money seen throughout history. A digital currency makes it possible to perform all financial transactions without the intervention of a third party to act as an arbiter of verification; payments can be made between two people with degrees of anonymity, across continents, at any denomination, and without any transaction fees going to a central authority. The most successful example of this is Bitcoin, introduced in 2008, which has experienced a recent boom of popularity, media attention, and investment. With this surge of attention, we became interested in finding out how people both inside and outside the Bitcoin community perceive Bitcoin -- what do they think of it, how do they feel, and how knowledgeable they are. Towards this end, we conducted the first interview study (N = 20) with participants to discuss Bitcoin and other related financial topics. Some of our major findings include: not understanding how Bitcoin works is not a barrier for entry, although non-user participants claim it would be for them and that user participants are in a state of cognitive dissonance concerning the role of governments in the system. Our findings, overall, contribute to knowledge concerning Bitcoin and attitudes towards digital currencies in general.
Kalliopi N. Kypriotaki, Efpraxia D. Zamani, George M. Giaglis
Inspired by the new technological advancements and the groundbreaking technology at the foundation of
cryptocurrencies, organizational structures are expected to evolve and new corporate structures to emerge,
based on full decentralization. We posit that the blockchain, i.e., the technology, system and protocol behind
and beyond the most popular digital crypto-currencies, will introduce decentralization in many manifestations
of our everyday life, especially in cases where an independent trusted third party is needed to ensure and
verify operations and transactions. This paper builds upon the blockchain technology and discusses how it
could enable fully decentralized forms of business structures to emerge; decentralized autonomous
corporations (DACs) are business entities totally based on code; running on the cloud, providing certain
services and creating value for their customers. Thus, we argue that DACs could prove a means of
decentralizing and automating decision making in organizations.
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical studies suggest that large price jumps cannot be explained by news and are the result of endogenous feedback loops. Although plausible, a clear-cut empirical evidence for such a scenario is still lacking. Here we show how crashes are conditioned by the market liquidity, for which we propose a new measure inspired by recent theories of market impact and based on readily available, public information. Our results open the possibility of a dynamical evaluation of liquidity risk and early warning signs of market instabilities, and could lead to a quantitative description of the mechanisms leading to market crashes.
As bitcoin becomes more important as a worldwide financial phenomenon, it also becomes important to understand its sources of value formation. There are three ways to obtain bitcoins: buy them outright, accept them in exchange, or else produce them by 'mining'. Mining employs computational effort which requires electrical consumption for operation. The cost of electricity per kWh, the efficiency of mining as measured by watts per unit of mining effort, the market price of bitcoin, and the difficulty of mining all matter in making the decision to produce. Bitcoin production seems to resemble a competitive market, so in theory miners will produce until their marginal costs equal their marginal product. Break-even points are modeled for market price, energy cost, efficiency and difficulty to produce. The cost of production price may represent a theoretical value around which market prices tend to gravitate. As the average efficiency increases over time due to competition driving technological progress â as inefficient capital becomes obsolete it is removed while new capital replaces them â the break-even production cost of bitcoins denominated in dollars will fall. Increased efficiency, although necessary to maintain competitive advantage over other miners could serve to drive the value of bitcoin down, however adjustments in the mining difficulty and the regular halving of the block reward throughout time will tend to counteract a decreasing tendency in cost of production.