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.
According to the classical understanding of the state sovereignty, a state is sovereign when it enjoys full control over its territory, sole authority internally, and independence of outside authority. Those aspects of control and authority will further manifest themselves in law making and law enforcing. Blockchain with its distinctive characteristics can challenge state sovereignty thus seen. Its most salient feature is ability to distribute control and authority over data. Having potential to facilitate transactions without middlemen and render some legal institutions redundant, blockchain carries with itself both great promises and chilling risks for public institutions. Meanwhile, countries implement various policies related to this technology, positioning themselves among passive observers or active regulators; as outsiders or as early adopters. The argument made in this article is that, regardless of the adopted approach, blockchain poses systemic challenges to the sovereignty of states. The article examines fundamental features of blockchain that combined cause the inherent distribution of control within a blockchain environment which, in turn, challenge traditional law making and law enforcement. Finally, I make a point that those features make blockchain equally as ground-breaking as incoherent with the legal and practical functioning of sovereign states and, therefore, some trade-offs are imperative.
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.
In recent years, crimes using bitcoin as a tool have brought severe impacts to the social order. Bitcoin has the characteristics of high anonymity, decentralization, peer-to-peer, and the use of asymmetric encryption. These high tech features make bitcoin a new criminal tool which often used by organized criminal groups. Therefore, analyzing bitcoin flow has become critical for law enforcement to conduct a criminal investigation. However, due to its UTXO (Unspent Transaction Output) transaction pattern, many change wallets are generated in analyzing bitcoin flow, which affects the judgment of actual money flow analysis. In this research, we implement input-output differential and temporary rules to detect change wallets by analyzing bitcoin transaction pattern characteristics. Furthermore, we design web crawlers as a tool to collect and parse transactions of highly suspected criminal bitcoin wallets. Micro and macro perspectives of network analysis are provided by social network analysis (SNA) and visualization technology. The experimental results indicate that the proposed rules can detect both clustered and marginal change wallets. By eliminating the noise information caused by change wallets can provide coherent financial flows of interpretation for criminal investigation.
Blockchain technology enables global mutually trustless participants to reach a consensus on the final state of permissionless distributed and decentralized ledgers. Due to its properties of openness, transparency, irreversibility, and credibility, many systems have been built based on blockchains' structure, such as Bitcoin and Ethereum. With the wide application of blockchains, however, many security problems still exist in blockchains and there have been many malicious attacks against blockchain systems. Although these attacks have been proposed, there lacks a systematic exploration of how these attacks have been conducted and what underlying relationship they have. In this paper, we firstly present and summarize several current attacks on blockchains in three aspects: system deficiency attacks, mining attacks, and network-level attacks. Secondly, we conduct a systematic analysis and evaluation of the possibility of these attacks occurring on major blockchain platforms. Finally, we motivate some research perspectives and challenges for blockchain system security and highlight some potential solutions to these problems.
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.
This chapter explores the drawbacks of conventional centralized share exchange frameworks, like those of higher transaction costs, central and vulnerable regulation to exploitation, and lack of revelation to business behavior and practices by introducing a revolutionary model that utilizes blockchain to establish a decentralized stock exchange and a transparent persistent economy. The suggested model utilizes exclusive contracts to implement the validity of the privileges of the owner and the proper accomplishment and settlement of the transactions, thereby mitigating the need for a centralized authority to ensure the accuracy of the stock exchange mechanism. The experimental findings convincingly demonstrate that the decentralized solution can provide lower transaction costs by progressively replacing brokerage costs and centralized officials' commissions with mining charges, which reward the miners for their backbreaking work in maintaining the system and enforcing the laws.
This chapter sows seeds of scepticism about blockchain governance and liberation narratives. It starts off by locating these narratives within a long standing history of utopian thought on technology and law and the recurrent promises of science-driven, technological replacements of law and the State, on and off since the Enlightenment. The discussion then explores the peculiar features of blockchain technology upon which its utopian credentials are said to be grounded. First, it argues that blockchain utopias are, much like their internet predecessors, guilty of technological essentialism by drawing determinist conclusions from an underlying architectural design, and by failing to allow for the functional and technological latencies within that design. It is in their interactions with social domains that those latencies are ‘resolved’ in favour of certain configurations and not others. Such utopian narratives are not harmless when they generate blindfolds about the actual societal concretisation of the technology and its oppressive rather than emancipatory effects. Second, the discussion problematises the claimed virtue of blockchain applications as trustless systems against various conceptions of trust, and argues that blockchain does not and cannot speak to the trust questions at the interface between information and reality, for which society will continue to require trusted third parties to deliver ‘trusted’ value judgements. Furthermore, it is not a foregone conclusion that a society in which trust becomes redundant or less important would in fact be an ideal society. Third, the chapter questions the virtues that lie behind blockchain’s decentralisation theme by arguing that the corporate structure has rather successfully formalised collective action and invariably opted for centralised decision-making for coordination and functional specialisation. Moreover, the decentralisation that blockchain enables within an organisation does not touch upon economic concentration within a market, but it is the latter that presents the real 21st century challenge to the marketplace and democracy.