Blockchain Papers

Ahmed E. Kosba, Zhichao Zhao, Andrew Miller, Yi Qian · 9 authors

No abstract is available for this record.

Alec D. Walen

The standard of proof in criminal trials in many liberal democracies is proof beyond a reasonable doubt, the BARD standard. It is customary to describe it, when putting a number on it, as requiring that the fact finder be at least 90% certain, after considering the evidence, that the defendant is guilty. Strikingly, no good reason has yet been offered in defense of using that standard. A number of non-consequentialist justifications that aim to support an even higher standard have been offered; all are morally unsound. Meanwhile, consequentialist arguments plausibly support a substantially lower standard — in some cases so low as to undermine the idea that punishment is what is at stake. In this paper, I offer a new retributive justification that supports excluding the instrumental benefits of punishment from the balance that sets the standard. The resulting balance supports a standard arguably in the ballpark of the customary understanding of BARD: a standard requiring that the fact finder have a high, though not maximally high, degree of confidence that the defendant is guilty.

Jeff Herbert, Alan Litchfield

Protecting software copyright has been an issue since the late 1970’s, and software license validation has been a primary method employed in an attempt to minimise software piracy and protect software copyright. This paper presents a novel method for decentralised peer-topeer software license validation using cryptocurrency blockchain technology to ameliorate software piracy, and to provide a mechanism for all software developers to protect their copyrighted works.

Syed Taha Ali, Dylan Clarke, Patrick McCorry

No abstract is available for this record.

Jamal Bouoiyour, Refk Selmi

To the mass public, Bitcoin is well known since its creation by its extreme volatility. However, Bitcoin’s declining fluctuations since the start 2015 has revived our attention to assess whether there is a coming Bitcoin market phase. Using an optimal GARCH model on daily data, we show that the volatility of Bitcoin price decreases notably when comparing the periods [December 2010-June 2015] and [January 2015-June 2015]. During the first interval, the Threshold- GARCH estimates reveal that there is a great duration of persistence and thus tends to follow a long memory process. For the second period, the chosen specification (Exponential-GARCH) displays less volatility persistence. Despite this remarkable volatility’s decrease, we cannot argue that Bitcoin market is mature, since the degree of asymmetry remains strong; Specifically, Bitcoin is likely to be driven by negative rather than positive shocks.

Jonathan Donier, Jean‐Philippe Bouchaud

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.

Adam Hayes

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 – as inefficient capital becomes obsolete it is removed while new capital replaces them – 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.

Nicholas Roth

Bitcoin is an emerging crypto-currency, which is wrapped in mystery and controversy. The goal is to transform how we transfer payments. The current approach for sending money from one remote party to another is via bank deposit and transfer by check or bank transfer. PayPal and other services were developed to provide faster payments to verified individuals, but each layer in the transaction adds time, cost, and/or risk to the transaction. Users of this new digital currency proclaim the benefits of security, anonymity, and efficiency for making transactions. The functionality and structure of the Bitcoin Network is complex and often attacked for not being a suitable replacement for currency. An independent understanding can be developed of the composite Bitcoin Financial Systems of Systems architecture by considering the challenges any System of System would face. A functional analysis, employing the Systems Modeling Language (SysML), is performed on the Bitcoin System of Systems architecture to help gain an understanding of the structure and functionality, and how that relates to the key actors and use cases, for determining if the users’ expectations are aligned with the architecture.

Gareth W. Peters, Efstathios Panayi, Ariane Chapelle

The internet era has generated a requirement for low cost, anonymous and rapidly verifiable transactions to be used for online barter, and fast settling money have emerged as a consequence. For the most part, e-money has fulfilled this role, but the last few years have seen two new types of money emerge. Centralised virtual currencies, usually for the purpose of transacting in social and gaming economies, and crypto-currencies, which aim to eliminate the need for financial intermediaries by offering direct peer-to-peer online payments. We describe the historical context which led to the development of these currencies and some modern and recent trends in their uptake, in terms of both usage in the real economy and as investment products. As these currencies are purely digital constructs, with no government or local authority backing, we then discuss them in the context of monetary theory, in order to determine how they may be have value under each. Finally, we provide an overview of the state of regulatory readiness in terms of dealing with transactions in these currencies in various regions of the world.

Benjamin Munro, Julia McLachlan

We propose a high level network architecture for an economic system that integrates money, governance and reputation. We introduce a method for issuing, and redeeming a digital coin using a mechanism to create a sustainable global economy and a free market. To maintain a currency's value over time, and therefore be money proper, we claim it must be issued by the buyer and backed for value by the seller, exchanging the products of labour, in a free market. We also claim that a free market and sustainable economy cannot be maintained using economically arbitrary creation and allocation of money. Nakamoto, with Bitcoin, introduced a new technology called the cryptographic blockchain to operate a decentralised and distributed accounts ledger without the need for an untrusted third party. This blockchain technology creates and allocates new digital currency as a reward for "proof-of-work", to secure the network. However, no currency, digital or otherwise, has solved how to create and allocate money in an economically non-arbitrary way, or how to govern and trust a world-scale free enterprise money system. We propose an "Ontologically Networked Exchange" (ONE), with purpose as its highest order domain. Each purpose is defined in a contract, and the entire economy of contracts is structured in a unified ontology. We claim to secure the ONE network using economically non-arbitrary methodologies and economically incented human behaviour. Decisions influenced by reputation help to secure the network without an untrusted third party. The stack of contracts, organised in a unified ontology, functions as a super recursive algorithm, with individual use programming the algorithm, acting as the "oracle". The state of the algorithm becomes the "memory" of a scalable and trustable artificial intelligence (AI). This AI offers a new platform for what we call the "Autonomy-of-Things" (AoT).

Thibault Darcillon

This article focuses on the impact of the process of financialization on two central labor market institutions, workers' bargaining power and employment protection legislation, in 16 OECD countries from 1970 to 2009. Financialization is described as a finance-led regime of accumulation and as the emergence of a shareholder value maximization strategy. Using various mechanisms at the micro and macro levels, empirical work has investigated the relationship between the type of financial relations and the agents' capacities of maintaining strong encompassing labor market institutions. I argue that the process of financialization will exert strong pressures on labor markets toward more eroded/decentralized bargaining institutions and more flexible employment relations. This article proposes an updated indicator of workers' bargaining power and various measures of financialization. Using panel data models, our main results point out that increased financialization is clearly associated with a reduction in workers' bargaining power and in the strictness of employment protection.

Zareh Asatryan, Lars P. Feld, Benny Geys

Recent theoretical research suggests that financing sub-national governments’ expenditure out of own revenue sources is linked to more responsible budgeting, because the financial implications of spending decisions then are internalized within a jurisdiction. We test this proposition empirically on a sample of 23 OECD countries over the 1975-2000 period, and find evidence in line with the hypothesis that greater revenue decentralization (measured as sub-national governments’ share of own source tax revenues in general government tax revenue) is associated with improved sub-national government budget deficits/surpluses. This finding is cross-validated with a novel, independent dataset consisting of all 34 OECD member states from 2002 to 2008.

Antonio Bellofatto, Martín Besfamille

We study the optimal degree of fiscal decentralization in a federation. Regional governments are characterized by their abilities to deliver public goods (administrative capacity) and to raise tax revenues (fiscal capacity). Two regimes are compared on efficiency grounds. Under partial decentralization, regional governments rely on central bailouts to complete local projects in financing needs. Under full decentralization, marginal financing is achieved via local capital taxes. We show that the presence of sufficiently low levels of administrative capacity is a necessary condition for full decentralization dominance. This condition may also be sufficient, depending on the projects' characteristics. Some extensions are presented.

Marcel Morisse

This systematic literature review examines cryptocurrencies (CCs) and Bitcoin. Because cryptocurrency research has not gained much attention from Information Systems (IS) researchers and needs a more vivid discussion, this review summarizes the main concepts of 42 papers and aligns them to IS Research. Although, cryptocurrency research has not reached IS mainstream yet, there is massive potential for multifaceted research ranging from protocol development to designing alternative digital currency schemes. Cryptocurrencies entail a core digital artifact and present a rich phenomenon based on the intertwining of technological artifacts and social contexts. We argue that cryptocurrencies are an alternative payment method that may replace intermediaries with cryptographic methods and should be embedded in the research areas of SIGeBIZ and SIGSEC. At the end of this literature review, we discuss some open research gaps like new business models based on cryptocurrencies or the influence of culture on cryptocurrencies and Bitcoin.

Bobby Ong, Teik Ming Lee, Li Guo, David Lee Kuo Chuen

No abstract is available for this record.

Syed Taha Ali, Patrick McCorry, Peter Hyun-Jeen Lee, Feng Hao

No abstract is available for this record.

Marie Brière, Kim Oosterlinck, Ariane Szafarz

Bitcoin (BTC) is a major virtual currency. Using weekly data over the 2010-2013 period, we analyze a BTC investment from the standpoint of a US investor with a diversified portfolio including both traditional assets (worldwide stocks, bonds, hard currencies) and alternative investments (commodities, hedge funds, real estate). Over the period under consideration, BTC investment had highly distinctive features, including exceptionally high average return and volatility. Its correlation with other assets was remarkably low. Spanning tests confirm that BTC investment offers significant diversification benefits. We show that the inclusion of even a small proportion of BTCs may dramatically improve the risk-return trade-off of well-diversified portfolios. Results should however be taken with caution as the data may reflect early-stage behavior that may not last in the medium or long run.

Martin Haferkorn, Josué Manuel Quintana Diaz

No abstract is available for this record.

Philip Godsiff

No abstract is available for this record.

David Golumbia

No abstract is available for this record.

Feng Mai, Qing Bai, Zhe Shan, Xin Wang · 5 authors

Bitcoin’s emergence has the potential to pave the way for a technological revolution in financial markets. What determines its valuation is an important open question with far-reaching business and policy implications. Building on Information Systems and Finance literature, we examine the dynamic interactions between social media and the monetary value of Bitcoin using textual analysis and vector error correction models. We show that more bullish forum posts are associated with higher future Bitcoin values. Interestingly, social media’s effects on Bitcoin are driven primarily by the silent majority, the 95% of users who are less active and whose contributions amount to less than 40% of total messages. In addition, messages on an Internet forum, relative to tweets, have a stronger impact on future Bitcoin value. Overall, our findings reveal that social media sentiment is an important predictor in determining Bitcoin’s valuation, but not all social media messages are of equal impact. This study offers new insights into the digital currency market and the economic impact of social media.

Martijn Bastiaan

The security of Bitcoin (a relatively new form of a distributed ledger) is threatened by the formation of large public pools, which form naturally in order to reduce reward variance for individual miners. By introducing a second cryptographic challenge (two phase proof-of-work or 2P-PoW for short), pool operators are forced to either give up their private keys or provide a substantial part of their pool’s mining hashrate which potentially forces pools to become smaller. This document provides a stochastic analysis of the Bitcoin mining protocol extended with 2PPoW, modelled using CTMCs (continuous-time Markov chains). 2P-PoW indeed holds its promises, according to these models. A plot is provided for dierent strengths of the second cryptographic challenge, which can be used to select proper values for future implementers.

Jamal Bouoiyour, Refk Selmi

International audience

Chen Zhao, Yong Guan

No abstract is available for this record.