Blockchain Papers

Grzegorz Sobiecki

No abstract is available for this record.

QingChun ShenTu, Jianping Yu

The anonymity of the Bitcoin system has some shortcomings. Analysis of Transaction Chain (ATC) and Analysis of Bitcoin Protocol and Network (ABPN) are two important methods of deanonymizing bitcoin transactions. Nowadays, there are some anonymization methods to combat ATC but there has been little research into ways to counter ABPN. This paper proposes a new anonymization technology called Transaction Remote Release (TRR). Inspired by The Onion Router (TOR), TRR is able to render several typical attacking methods of ABPN ineffective. Furthermore, the performance of encryption and decryption of TRR is good and the growth rate of the cipher is very limited. Hence, TRR is suited for practical applications.

Kinga Kądziołka

The aim of the article was to evaluate the risks of investing in Bitcoin cryptocurrency. Particular attention was paid to the risk of investment on the Polish exchanges: Bitcurex, BitBay, BitMarket.pl and LocalBitcoins. To evaluate the risk there was used VaR measure. There were compared the risk of investing in Bitcoin cryptocurrency and the risk of investing in the selected "traditional" currencies. There was also paid attention to the effect of day of the week on the Bitcoin’s exchanges. The investment in cryptocurrency was characterized by higher risk than investing in “traditional” currencies. The Polish Bitcoin exchange LocalBitcoins was characterized by the highest risk and highest average daily rate of return.

Saifedean Ammous

Bitcoin is the first technology for the final transfer of digital goods online, facilitating instant global payments without intermediation. Bitcoin’s operation is based on a distributed, decentralized, and transparent asset ledger that acts as an ongoing chain record of all transactions. The system issues coins to reward those who contribute processing power to the network’s operation. The possibilities created by this innovation are significant for the world’s poor, who could skip traditional political and financial institutions and move to digital currencies in the same way they have gone straight to using mobile phones and skipped landline telephones.

Peggy Valcke, Niels Vandezande, Nathan Van de Velde

The research looked at which third party payment providers (TPP’s) are covered by the PSD2 and AMLD4 directives, the consequences thereof, as well as to what extent such coverage goes; and sought to analyse the potential for the regulation of cryptocurrency in terms of combatting money laundering and terrorist financing. TPP’s gain possession of a significant amount of sensitive information, for instance by providing a gateway from which consumers log in to their bank accounts using their unique identifiers and credentials. As a result, these entities are drawing increasingly more attention from legislators and regulators.Under the framework of the PSD2, TPP’s will be subject to stringent regulatory standards similar to those placed on traditional payment service providers under the PSD. In the US, regulation of TPP’s must be assessed on a state-by-state basis. In Florida, for instance, they can be considered as money transmitters, thus putting them under that regulation, as well as the federal Bank Secrecy Act. In Asia, the number of TPP’s has grown significantly over the past years. In China, these actors are regulated by the People’s Bank of China, and are subjected to a number of requirements similar to those found in the EU, such as minimum capital requirements and anti-money laundering rules.Another notable development is that of alternative payment methods – a prime example here are cryptocurrencies such as bitcoin. The bitcoin ecosystem is decentralized, meaning that no single entity controls the system. Currently, there exists no convincing arguments to consider virtual currencies as regulated under the EU’s Payment Services Directive or the Second E-money Directive. While the PSD2 does introduce new terminology and significantly amended scope exemptions compared to the original Payment Services Directive, there is no wider inclusion of virtual currencies under its scope. A similar argument can be made for the recently adopted AMLD4, where virtual currencies have been omitted from its scope despite earlier signs that this development may be included. The researchers conclude their paper with several public and private sector recommendations.

Andrew Barber

The rhetoric in Satoshi Nakamoto's "White Paper" on the origins of Bitcoin suggests that the digital currency was envisioned as an entirely autonomous money. Due to the increase in popularity and circulation of Bitcoin and other digital currencies, an intense regulatory debate has been sparked at the global level. These debates reveal a fundamental tension regarding the role of the state in establishing money. While the digital currency community insists that Bitcoin is money, states and monetary authorities have declared Bitcoin a commodity, a declaration that can be traced back to Georg Friedrich Knapp's foundational text The State Theory of Money and reinforced by A. Mitchell Innes' The Credit Theory of Money. Circulating alongside state monies, Bitcoin is then neaccessory money,' unable to satisfy tax obligations and behaving as a commodity. This chartalist account of Bitcoin is refuted by what I identify as a libertarian/von Misean understanding of money motivating the circulation of digital currencies. I argue that the circulation of digital currencies is better explained by the chartalist narrative. I then prescribe Georg Simmel's Philosophy of Money, a broader understanding of money in which more abstract monies might create a supranational economic society, as an ideological alternative to digital currency advocates -- one that better conforms to the nature of money gestured to in Nakamoto's "White Paper". However, even through the lens of Simmel, the limitations imposed by domestic authorities and taxation prevent digital currencies from reaching the envisioned state of autonomy. Synthesizing these understandings of money, Bitcoin may exist as a compromise, a means of international money transfer that weakens the abstract, international economic borders created by state monies.

Pavel Ciaian, Miroslava Rajčániová, d’Artis Kancs

Abstract This paper identifies and analyzes BitCoin features which may facilitate BitCoin to become a global currency, as well as characteristics which may impede the use of BitCoin as a medium of exchange, a unit of account and a store of value, and compares BitCoin with standard currencies with respect to the main functions of money. Among all analyzed BitCoin features, the extreme price volatility stands out most clearly compared to standard currencies. In order to understand the reasons for such extreme price volatility, we attempt to identify drivers of BitCoin price formation and estimate their importance econometrically. We apply time-series analytical mechanisms to daily data for the 2009–2014 period. Our estimation results suggest that BitCoin attractiveness indicators are the strongest drivers of BitCoin price followed by market forces. In contrast, macro-financial developments do not determine BitCoin price in the long-run. Our findings suggest that as long as BitCoin price will be mainly driven by speculative investments, BitCoin will not be able to compete with standard currencies.

Annamart Nieman

This article is aimed at augmenting current awareness of virtual currencies ("VCs") in the South African legal community. To this end, it introduces the reader to VCs in general and decentralised convertible VCs ("DCVCs") in particular. Due to their design and interaction with the real economy and currency, DCVCs are on the radar of many financial regulators worldwide. As Bitcoin is considered the leading type of DCVC in terms of value and volume, its early beginnings in South Africa are probed. Although regulation should follow innovation, awareness of the VC ecosystem will not only warrant appropriate regulatory intervention when the time comes, but will also enable the growth and development opportunities associated with VCs. South Africa has not promulgated any legislation pertaining to VCs. The potential applicability of all current legislation and regulations relevant to VCs calls for in-depth research. This article aspires to serve as an appetiser to do so.

Azhar Iqbal, James M. Chappell, Derek Abbott

The interaction of competing agents is described by classical game theory. It is now well known that this can be extended to the quantum domain, where agents obey the rules of quantum mechanics. This is of emerging interest for exploring quantum foundations, quantum protocols, quantum auctions, quantum cryptography, and the dynamics of quantum cryptocurrency, for example. In this paper, we investigate two-player games in which a strategy pair can exist as a Nash equilibrium when the games obey the rules of quantum mechanics. Using a generalized Einstein-Podolsky-Rosen (EPR) setting for two-player quantum games, and considering a particular strategy pair, we identify sets of games for which the pair can exist as a Nash equilibrium only when Bell's inequality is violated. We thus determine specific games for which the Nash inequality becomes equivalent to Bell's inequality for the considered strategy pair.

Ayelet Sapirshtein, Yonatan Sompolinsky, Aviv Zohar

Bitcoin is a decentralized crypto-currency, and an accompanying protocol, created in 2008. Bitcoin nodes continuously generate and propagate blocks---collections of newly approved transactions that are added to Bitcoin's ledger. Block creation requires nodes to invest computational resources, but also carries a reward in the form of bitcoins that are paid to the creator. While the protocol requires nodes to quickly distribute newly created blocks, strong nodes can in fact gain higher payoffs by withholding blocks they create and selectively postponing their publication. The existence of such selfish mining attacks was first reported by Eyal and Sirer, who have demonstrated a specific deviation from the standard protocol (a strategy that we name SM1). In this paper we extend the underlying model for selfish mining attacks, and provide an algorithm to find $ε$-optimal policies for attackers within the model, as well as tight upper bounds on the revenue of optimal policies. As a consequence, we are able to provide lower bounds on the computational power an attacker needs in order to benefit from selfish mining. We find that the profit threshold -- the minimal fraction of resources required for a profitable attack -- is strictly lower than the one induced by the SM1 scheme. Indeed, the policies given by our algorithm dominate SM1, by better regulating attack-withdrawals. Using our algorithm, we show that Eyal and Sirer's suggested countermeasure to selfish mining is slightly less effective than previously conjectured. Next, we gain insight into selfish mining in the presence of communication delays, and show that, under a model that accounts for delays, the profit threshold vanishes, and even small attackers have incentive to occasionally deviate from the protocol. We conclude with observations regarding the combined power of selfish mining and double spending attacks.

Chris Richter, Sascha Kraus, Ricarda B. Bouncken

Virtual currencies have been well-cited and well-discussed in the near past. Due to the loss of trust in the banking sector and the fear of loss of capital, low interest rates and uncertainty of existing currencies, the ground for a virtual currency was given. Virtual currencies and the money flows are controlled only online by the anonymous group of volunteers (also called peer); every single transaction is documented. Approximately 10,000 businesses worldwide accept payments with virtual currencies already, and the number is increasing steadily. This article analyzes the advantages and disadvantages of virtual currencies in comparison to real money and gives an outlook to a new banking system with high transparency and the chance to lead to a paradigm shift in the world of transactions and banking.

Chris Rose

Bitcoin was not the first attempt at a digital currency, but it has been the most successful and it is now being accepted by a number of major retailers. Bitcoin is a cryptocurrency and operates as a peer-to-peer network. Its security is guaranteed by cryptographic algorithms instead of governments and has the potential to become a major means of payment for e-commerce and may even materialize as a viable challenge to traditional money-transfer providers. Instead of serving one country or some countries, Bitcoin serves the entire world.

Thomas Redshaw

The emergence of Bitcoin as a means to make electronic transactions directly across a peer-to-peer network has sparked interest from many fields, mostly due to its capability to handle such transactions on a large scale, with no recourse to centralised structures of management. This is achieved through its underlying technical architecture, the ‘block chain’: an impressively robust system of recording transactions on a network that’s security is guaranteed via the distribution of all transaction data (in blocks) to every node in the system on an ever-increasing chain. Last year saw the emergence of ‘Bitcoin 2.0’ applications, where vast amounts of investment capital flowed into projects that proposed to develop systems that offer a diverse range of applications beyond crypto-currencies, such as voting systems, electronic contracts, financial services, and identification recognition. What unifies these projects is the desire to replace centralised, human-run organisations, with cryptographically secure, automated peer-to-peer systems. Within this desire is a political vision, a vision that is not at all homogenous, nor harmonious, but nonetheless contains central elements that can be traced in the formation of Bitcoin. This paper seeks to explore this vision, drawing on primary research data to examine the technical politics of crypto-currencies.  Bitcoin first appeared as a white paper published on The Cryptography Mailing List at metzdowd.com, an open mailing list associated with the internet subculture of cypherpunks – a subculture that fused concerns over increasing state intrusion into everyday life through rapidly growing electronic surveillance, with the open source principles that challenge proprietary software, declare digital technology to be a public good, and thus endeavour to provide alternatives. These values are indeed reflected in Bitcoin’s white paper, and through its public release as an open source project. In the wake of the 2008 financial crisis, and ongoing revelations about coordinated programs of mass state surveillance, many have begun to see Bitcoin as a potentially important public tool. But how exactly, can radical values be embedded in technology? And how does its diffusion among different contexts, and development for different purposes, affect this radical potential? In these respects, I believe it is important to consider the work of Andrew Feenberg. At the crux of Feenberg’s critical theory is the concept of hegemonic technological rationality which, through a dominant form of reasoning, enframes how we understand technology; and through dominant systems of production, entails the exclusion of the interests of marginal social groups. This has the effect of reproducing dominant hegemonic social values through the practices that consequently prosper in this system, practices that structure much of social life and impinge on environments. Feenberg does however, identify two means for subverting this process: democratic intervention on the part of social groups campaigning for alternative technologies; and tactical practices in which marginal groups can reveal alternative potentialities for technology by finding new ways of appropriating the technologies around them. In the collective and voluntary efforts of disparate developers unified by the conviction that digital technologies are and should be a public good – and not proprietary tools of corporate profiteering and state surveillance – we see this latter form of tactical resistance embodied in the origins of Bitcoin. Bitcoin thus opens up alternative possibilities for technological progress, both in ideological and material ways. Materially, Bitcoin opens up further potentialities for tactical practices, as we are seeing with the various ways in which block chain technology is being adapted. Ideologically, Bitcoin introduces its users to systems of thought that challenge dominant understandings of financial technologies and the social structures they support. In this latter sense, Bitcoin has the potential to be a counter-hegemonic force. In this paper however, I will present data that suggests this is not the case, and that in fact Bitcoin is reinforcing the dominant ideals of neoliberalism. In presenting the details of this process, I aim to demonstrate the importance of understanding the development of ‘cultures of knowledge’ that emerge around contemporary technological practices. References and Notes Feenberg, A. (1991) A Critical Theory of Technology . Oxford: University Press Feenberg, A. (1999) Questioning Technology. London: Routledge

Mircea Ploteanu, Oleg Stratulat

Actuality and purpose of work. Bitcoin is a currency that exists only virtually and has appeared due to the global financial crisis and development of technologiesof technologies. Cashless payments become more popular and in this context e-commerce has improved. There were Aanalized the ysis of bitcoin perspectives in the banking system, by emphasizing analyzing the strengths and weaknesses of this currency and the point of view of investors, central banks and commercial banks. The methods used. The methodological approaches used bymentioned in special literature were used. The results of the work. Analysis can be used to improve electronic commerce and cashless payments in Moldova, where cash is still very widely used.

Brian P. Hanley

To the knowledge of the author, this is the first time it has been shown that interest rates that are extremely high by modern standards (100% and higher) are necessary within a zero-sum monetary system, and not just driven by greed. Extreme interest rates that appeared in various places and times reinforce the idea that hard money may have contributed to high rates of interest. Here a model is presented that examines the interest rate required to succeed as an investor in a zero-sum fixed quantity hard-money system. Even when the playing field is significantly tilted toward the investor, interest rates need to be much higher than expected. In a completely fair zero-sum system, an investor cannot break even without charging 100% interest. Even with a 5% advantage, an investor won't break even at 15% interest. From this it is concluded that what we consider usurious rates today are, within a hard-money system, driven by necessity. Cryptocurrency is a novel form of hard-currency. The inability to virtualize the money creates a system close to zero-sum because of the limited supply design. Therefore, within the bounds of a cryptocurrency system that limits money creation, interest rates must rise to levels that the modern world considers usury. It is impossible, therefore, that a cryptocurrency that is not expandable could take over a modern economy and replace modern fiat currency.

Jakub Bartoš

Bitcoin has emerged as phenomenon of the financial markets as the currency without any central authority. Recent events of Bitcoin has risen question about its behavior and there is crucial question if the price of Bitcoin follows hypothesis of efficient markets. In this paper, there are introduced the main features of Bitcoin and analyzed its price behavior. We found out that price of the most famous cryptocurrency Bitcoin follows the hypothesis of efficient markets and it immediately react on publicly announce information. Furthermore, Bitcoin can be seen as standard economic good that is priced by interaction of supply and demand on the market. These factors can be driven by macro financial development or by speculative investors, but there weren’t found any significant impact of these factors on price of Bitcoin.

Ivan Pustogarov

This thesis is devoted to low-resource off-path deanonymisation techniques for two popular systems, Tor and Bitcoin. Tor is a software and an anonymity network which in order to confuse an observer encrypts and re-routes traffic over random pathways through several relays before it reaches the destination. Bitcoin is a distributed payment system in which payers and payees can hide their identities behind pseudonyms (public keys) of their choice. The estimated number of daily Tor users is 2,000,000 which makes it arguable the most used anonymity network. Bitcoin is the most popular cryptocurrency with market capitalization about 3.5 billion USD. In the first part of the thesis we study the Tor network. At the beginning we show how to remotely find out which Tor relays are connected. This effectively allows for an attacker to reduce Tor users' anonymity by ruling out impossible paths in the network. Later we analyze the security of Tor Hidden Services. We look at them from different attack perspectives and provide a systematic picture of what information can be obtained with very inexpensive means. We expose flaws both in the design and implementation of Tor Hidden Services that allow an attacker to measure the popularity of arbitrary hidden services, efficiently collect hidden service descriptors (and thus get a global picture of all hidden services in Tor), take down hidden services and deanonymize hidden services. In the second part we study Bitcoin anonymity. We describe a generic method to deanonymize a significant fraction of Bitcoin users and correlate their pseudonyms with their public IP addresses. We discover that using Bitcoin through Tor not only provides limited level of anonymity but also exposes the user to man-in-the middle attacks in which an attacker controls which Bitcoin blocks and transactions the user is aware of. We show how to fingerprint Bitcoin users by setting an "address cookie" on their computers. This can be used to correlate the same user across different sessions, even if he uses Tor, hidden-services or multiple proxies. Finally, we describe a new anonymous decentralized micropayments scheme in which clients do not pay services with electronic cash directly but submit proof of work shares which the services can resubmit to a crypto-currency mining pool. Services credit users with tickets that can later be used to purchases enhanced services.

David García, Frank Schweitzer

The availability of data on digital traces is growing to unprecedented sizes, but inferring actionable knowledge from large-scale data is far from being trivial. This is especially important for computational finance, where digital traces of human behavior offer a great potential to drive trading strategies. We contribute to this by providing a consistent approach that integrates various datasources in the design of algorithmic traders. This allows us to derive insights into the principles behind the profitability of our trading strategies. We illustrate our approach through the analysis of Bitcoin, a cryptocurrency known for its large price fluctuations. In our analysis, we include economic signals of volume and price of exchange for USD, adoption of the Bitcoin technology, and transaction volume of Bitcoin. We add social signals related to information search, word of mouth volume, emotional valence, and opinion polarization as expressed in tweets related to Bitcoin for more than 3 years. Our analysis reveals that increases in opinion polarization and exchange volume precede rising Bitcoin prices, and that emotional valence precedes opinion polarization and rising exchange volumes. We apply these insights to design algorithmic trading strategies for Bitcoin, reaching very high profits in less than a year. We verify this high profitability with robust statistical methods that take into account risk and trading costs, confirming the long-standing hypothesis that trading based social media sentiment has the potential to yield positive returns on investment.

Anna Wiśniewska

The aim of this article is to show the position of Bitcoin among virtual currencies. On the basis of the reports published by the European Central Bank and The Financial Action Task Force, as well as the available Internet and primary sources, there have been presented the types and the history of virtual currencies, the way in which Bitcoin functions and the methods of acquiring it. The article is based on the assumption that an in-depth knowledge of virtual currencies, their classification and their functioning will make it possible to regulate their legal status. It is necessary not only for tax purposes, but also in order to avoid the risk of using this payment method for terrorist or criminal purposes. The knowledge of the history of virtual currencies also makes it possible to foresee the problems that may hinder the functioning of Bitcoin and other virtual currencies. The growing popularity of virtual currencies and cryptocurrencies is linked with the increase of importance of non-cash payments on global scale. Thus, Bitcoin may be considered a next step in the evolution of digital money.

Victor Ranieri Bomfim Sampaio de Araújo, Márcia Reis Machado Machado

Bitcoins are in use today to do transitions. There are companies that accept Bitcoins as payment whem supply goods and services. However there isn’t currency status. It’s made of mathematics equations that its transactions are validated through encryption, hash function, p2p network and proof-of-work. Like a currency that just exists in the virtual form it needs the user’s confidence for have a valour. Although the large growth since your creation, in 2008, and be considered for many a big evolution, in the informatic and business fields, some entities and researchers say the Bitcoins are a ponzi scheme. This research aims to describe the transitions that envolve cripto-currency and the suitable accounting treatment in Brazil, based on the current standards. For this was done a general analysis that shows the best classifications as Contingent Asset, because their uncertainty value and their uncertainty existence too. The second section of the analysis was done hypothetical situations. The first was the mining situation, then the receive bitcoins as payment and finished with the company had bought that. Because it’s a Contingent Asset was generated a conflict on the two last situations. But for that was suggested an account on the current asset that represent the expectative to generate future cash flows when liquidate the Bitcoins without excluding the disclosure in the notes as Contingent Asset. Lastly was concluded that the risks associated with property losses and the association with illicit activity, beyond that there are so many indications that is a ponzi scheme and even it isn’t, there are not perspective for their operation.

Hanna Hałaburda, Miklós Sárváry

In this chapter, we discuss economic aspects of cryptocurrencies. 4.1. The double spending problem 4.2. How does Bitcoin work? Brief overview 4.3. Not the first one – predecessors of Bitcoin 4.4. Problems with Bitcoin (new challenges) 4.5. Competition against other crypto-currencies 4.6. Non-currency use of blockchain technology 4.7. Trading cryptocurrencies 4.8. How do crypto-currencies’s attributes compare to earlier money? For Chapter 1 (Introduction), see https://ssrn.com/abstract=3135021. For Chapter 2 (Means of Exchange: Ever-present Competition), see https://ssrn.com/abstract=3135028. For Chapter 3 (Platform-based Currencies), see https://ssrn.com/abstract=3135030. For Chapter 5 (Conclusions), see https://ssrn.com/abstract=3135057.

Vincent Van Mieghem, Johan Pouwelse

This paper describes the process of remaining anonymous online and its concurrent operational security that has to be performed. It focusses particularly on remaining anonymous while purchasing online goods, resulting in anonymously bought items. Different aspects of the operational security process as well as anonymously funding with cryptocurrencies are described. Eventually it is shown how to anonymously purchase items and services from the hidden web, as well as the delivery. It is shown that, while becoming increasingly difficult, it is still possible to make anonymous purchases. Our presented work combines existing best-practices and deliberately avoids untested novel approaches when possible.

George Danezis, Sarah Meiklejohn

Current cryptocurrencies, starting with Bitcoin, build a decentralized blockchain-based transaction ledger, maintained through proofs-of-work that also serve to generate a monetary supply. Such decentralization has benefits, such as independence from national political control, but also significant limitations in terms of computational costs and scalability. We introduce RSCoin, a cryptocurrency framework in which central banks maintain complete control over the monetary supply, but rely on a distributed set of authorities, or mintettes, to prevent double-spending. While monetary policy is centralized, RSCoin still provides strong transparency and auditability guarantees. We demonstrate, both theoretically and experimentally, the benefits of a modest degree of centralization, such as the elimination of wasteful hashing and a scalable system for avoiding doublespending attacks.

Ekaterina Mikhailovna Taran, Irina Pavlovna Salmanova, Elena Viktorovna Dokukina, Margarita Arkadevna Menshikova · 5 authors

The article highlights the issues of emergence and existence of cryptocurrency. Exploring online space, you canselect the most popular existing electronic currency which is bitcoin (Bitcoin). The article analyzed the pros andcons and the legality of these