We show how dependent and polymorphic types can make smart contract development
safer. This is demonstrated by using the functional language Idris to describe
smart contracts on the Ethereum platform. In particular, we show how one class
of common errors can be captured at compile time using dependent types and algebraic
side effects. We also bring type annotations to the realm of smart contracts,
helping developers to circumvent another class of common errors. To demonstrate
the feasibility of our solutions, we have extended the Idris compiler with a backend
for the Ethereum Virtual Machine. While we find that the functional paradigm
might not be the most suitable for the domain, our approach solves the identified
problems and provides advantages over the languages in current use.
We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining early dynamics of exchange rates among different cryptocurrencies. While Bitcoin eventually dominates this market, our data suggest no evidence of a winner-take-all effect early in the market. Indeed, for a relatively long period, a few other cryptocurrencies competing with Bitcoin (the early industry leader) appreciated much more quickly than Bitcoin. The data in this period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with winner-take-all dynamics. Toward the end of our sample, however, things change dramatically. Bitcoin appreciates against the USD, while other currencies depreciate against the USD. The data in this period are consistent with strong network effects and winner-take-all dynamics. This trend continues as at the time of writing.
We document systematic differences in bitcoin prices across 11 different markets representing 26% of global bitcoin trade volume. These differences must -due to the identical nature of all bitcoin -result from characteristics of markets themselves. We examine differences across the markets and find that those which do not require customer identification for establishing an account are more likely to deviate from representative market prices than those which do. This implies that standard financial regulations, specifically know-your-customer regulations, can have a non-negligible impact on the bitcoin market.
Susan Athey, Ivo Parashkevov, Vishnu Sarukkai, Jing Xia
This paper develops a model of user adoption and use of virtual currency (such as Bitcoin), and focusing on the dynamics of adoption in the presence of frictions arising from exchange rate uncertainty. The theoretical model can be used to analyze how market fundamentals determine the exchange rate of fiat currency to Bitcoin. Empirical evidence from Bitcoin prices and utilization provides mixed evidence about the ability of the model to explain prices. Further analysis of the history of all individual transactions on Bitcoin's public ledger establishes patterns of adoption and utilization across user types, transaction type, and geography. We show that as of mid-2015, active usage was not growing quickly, and that investors and infrequent users held the majority of Bitcoins. We document the extent to which the attributes of the anonymous users of Bitcoin can be inferred through their behavior, and we find that users who engage in illegal activity are more likely to try to protect their financial privacy.
We build on economic theory to discuss how blockchain technology can shape innovation and competition in digital platforms. We identify two key costs affected by the technology: the cost of verification and the cost of networking. The cost of verification relates to the ability to cheaply verify state, including information about past transactions and their attributes, and current ownership in a native digital asset. The cost of networking, instead, relates to the ability to bootstrap and operate a marketplace without assigning control to a centralized intermediary. This is achieved by combining the ability to cheaply verify state with economic incentives targeted at rewarding state transitions that are particularly valuable from a network perspective, such as the contribution of the resources needed to operate, scale, and secure a decentralized network. The resulting digital marketplaces allow participants to make joint investments in shared infrastructure and digital public utilities without assigning market power to a platform operator, and are characterized by increased competition, lower barriers to entry, and a lower privacy risk. Because of their decentralized nature, they also introduce new types of inefficiencies and governance challenges.
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.
In this chapter we will look at two different applications of information-theoretic multiparty computation (MPC), a practical application and a theoretical application. The example of a practical application is the use of MPC to clear a commodity derivative market. The focus will be on the algorithmic tricks used to implement the auction efficiently. The theoretical application is the use of MPC to realize so-called zero-knowledge proofs. A zero-knowledge proof is a way for a prover to convince a verifier about the validity of a statement without leaking any information on why the statement is true. This can be seen as an MPC problem with n = 2 parties. However, since the minimal requirement for information-theoretic MPC is that fewer than n /2 parties are corrupted, information-theoretic MPC does not seem to help in constructing zero-knowledge proofs. However, as we shall see, a technique sometimes called MPC in the head can be used to turn an efficient, secure MPC for a given relation into an efficient zero-knowledge proof for the same relation. A Double Auction In this section we look at a concrete application of MPC, with a main focus on the algorithmic tricks needed to efficiently do a secure auction. Along the way, we will look at how to efficiently and securely compare two integers secret shared among the parties. 9.1.1 Introduction The algorithmic techniques we will look at are fairly general, but it is instructive to view them in a practical context. We will look at how they have been used to clear the Danish market for contracts on sugar beets from 2008 and until the time of this writing. This was the first industrial application of MPC. More historical details on this can be found later and in the Notes section at the end of this chapter. In the economic field of mechanism design, the concept of a trusted third party has been a central assumption since the 1970s. The field has grown in momentum since it was initiated and has turned into a truly cross-disciplinary field. Today, many practical mechanisms require a trusted third party.
Bitcoin is an innovative decentralized cryptocurrency whose core security relies on a “proof of work ” procedure, which requires network participants to repeatedly compute hashes on inputs from a large search space. Finding one of the rare inputs that generates an extremely low hash value is consid-ered a successful attempt, allowing miners to approve new transactions and, in return, to collect rewards in bitcoins. This reward allocation, which provides the incentive for miners to participate, is a random process with a large vari-ance. Miners who desire a steady income thus often par-ticipate in mining pools that divide among their members the earned rewards, and reduce this variance. Mining pools are slightly better at coordinating participants due to lower-latency communication, a fact which implies that they man-age to collect slightly higher rewards. We examine dynamics of pooled mining and the rewards that pools manage to collect, and use cooperative game the-oretic tools to analyze how pool members may share these rewards. We show that for some network parameters, es-pecially under high transaction loads, it is difficult or even impossible to distribute rewards in a stable way: some par-ticipants are always incentivized to switch between pools.
Betfunding es una plataforma de crowdfunding distribuida que usa apuestas en lugar de donaciones para promover la produccion artistica y el trabajo creativo.
A diferencia de otras plataformas de crowdfunding, en Betfunding son los inversores quienes proponen un proyecto y buscan creadores mediante la creacion de una recompensa por su trabajo. Cualquier persona puede convertirse en creador de un proyecto si se compromete con los usuarios mediante una fianza. La evaluacion de exito o fracaso de un proyecto lo determinara un tercero de confianza designado al comienzo del proyecto, quepuede ser una persona o un sistema automatico.
La aplicacion ha sido desarrollada sobre Ethereum, una tecnologia similar a la que usa Bitcoin que permite gestionar dinero mediante criptomonedas y desarrollar aplicaciones descentralizadas. El uso de la tecnologia de la cadena de bloques y criptomonedas evita la necesidad de una autoridad central de confianza que envie y guarde el dinero cobrando comisiones. En su lugar, esta tarea se realiza a traves de una red P2P de forma transparente y segura.
Beim Bitcoin handelt es sich um eine dezentrale virtuelle Wahrung in einem Peer-to-Peer Netzwerk. Die digitalen Munzen wurden 2008 durch Satoshi Nakamoto erfunden und seit 2009 in Umlauf gebracht. Das angestrebte Ziel des Bitcoin sind Transaktionen zum Erwerb virtueller und realer Guter ohne das Einwirken von Finanzintermediaren. Dadurch konnen Transaktionskosten minimiert werden. Das Vertrauen in solche dritte Parteien wird dabei durch ein mathematisches Konzept ersetzt und durch das Bitcoinnetzwerk und all seine Nutzer sichergestellt. Obwohl die digitalen Munzen eigentlich als Tauschmittel konzipiert wurden, ist der aktuelle Anwendungsbereich noch sehr gering. Die Kursentwicklung hingegen erfuhr seit Anfang 2013 mehrere Berg- und Talfahrten auf den Handelsplattformen fur den Bitcoin. Wahrend sich viele wissenschaftliche Arbeiten mit den technischen Aspekten im Bereich der Informatik befassen, klafft im okonomischen Kontext noch eine grose Lucke. Was macht ein Zahlungsmittel eigentlich aus und wie ist der Bitcoin im volkswirtschaftlichen Sinne einzuordnen? Mit diesen Fragestellungen wird sich in dieser Ausarbeitung auseinandergesetzt. Als Vergleichsgrose wurden dabei, auf Basis sorgfaltig ausgewahlter Literatur, die Aspekte realer Wahrungen nach ihren Funktionen, Eigenschaften und Formen untersucht. Anschliesend wurden die technischen Grundlagen der virtuellen Wahrung dargelegt, um ebenfalls den Bitcoin darauf anzuwenden. Dabei hat sich gezeigt, dass die digitalen Munzen als virtuelle Wahrung, gegenuber realen Wahrungen, noch deutliche Defizite aufweisen. Eine besonders gravierende Schwachstelle stellt dabei die hohe Volatilitat des Kurses dar. Sie sorgt dafur, dass der Bitcoin mit einer solchen Instabilitat nicht die Wertaufbewahrungsfunktion gewahrleisten kann. Da dies ein ausschlaggebendes Kriterium zur Erfullung der Geldfunktionen darstellt, kann der Bitcoin ebenfalls nicht die Rolle als Zahlungsmittel erfullen, wie es bei den realen Wahrungen der Fall ist.
When processing transactions in a block, a miner increases his reward but also decreases his probability to earn any reward because the time needed for his block to reach consensus depends on its size. We show that this leads to a game situation between miners. We analytically solve this game for two miners. Then, we show that miners do not play a Nash equilibrium in the current Bitcoin mining environment, instead, they should not process any transaction. Finally, we show that the situation where no transaction is ever processed would stop being a Nash equilibrium if the transaction fee was multiplied or, equivalently, the fixed reward divided by a factor of about 12.
We study the economics of Bitcoin transaction fees in a simple static partial equilibrium model with the specificity that the system security is directly linked to the total computational power of miners. We show that any situation with a fixed fee is equivalent to another situation with a limited block size. In both cases, we give the optimal value of the transaction fee or of the block size. We also show that making the block size a non binding constraint and, in the same time, letting the fee be fixed as the outcome of a decentralized competitive market cannot guarantee the very existence of Bitcoin in the long-term.
Michał Polasik, Anna Piotrowska, Tomasz Piotr Wisniewski, Radosław Kotkowski · 5 authors
Over recent years, interest has been growing in Bitcoin, an innovation that has the potential to play an important role in e-commerce and beyond. The aim of our paper is to provide a comprehensive empirical study of the payment and investment features of Bitcoin, and their implications for the conduct of e-commerce. Since network externality theory suggests that the value of a network and its take-up are interlinked, we investigate both adoption and price formation. We discover that its returns are driven primarily by Bitcoin’s popularity, the sentiment expressed in newspaper reports on cryptocurrency, and total number of transactions. The paper also reports on the first global survey of merchants who have adopted this technology, and we model the share of sales paid for with this alternative currency, using both ordinary and Tobit regressions. Our analysis examines how country-, customer-, and company-specific characteristics interact with the proportion of sales attributed to Bitcoin. We find that company features, use of other payment methods, customers’ knowledge about Bitcoin, and the size of both the official and unofficial economy are significant determinants. The results will be of interest to traders who seek to understand factors driving prices and will help to inform vendors as to the most favorable circumstances for adopting the currency for online transactions.
Marcelo Arenas, Juan L. Reutter, Etienne Toussaint, Martín Ugarte · 6 authors
In the consensus protocols used in most cryptocurrencies, participants called miners must find valid blocks of transactions and append them to a shared tree-like data structure. Ideally, the rules of the protocol should ensure that miners maximize their gains if they follow a default strategy, which consists on appending blocks only to the longest branch of the tree, called the blockchain. Our goal is to understand under which circumstances are miners encouraged to follow the default strategy. Unfortunately, most of the existing models work with simplified payoff functions, without considering the possibility that rewards decrease over time because of the game rules (like in Bitcoin), nor integrating the fact that a miner naturally prefers to be paid earlier than later (the economic concept of discount). In order to integrate these factors, we consider a more general model where issues such as economic discount and decreasing rewards can be set as parameters of an infinite stochastic game. In this model, we study the limit situation in which a miner does not receive a full reward for a block if it stops being in the blockchain. We show that if rewards are not decreasing, then miners do not have incentives to create new branches, no matter how high their computational power is. On the other hand, when working with decreasing rewards similar to those in Bitcoin, we show that miners have an incentive to create such branches. Nevertheless, this incentive only occurs when a miner controls a proportion of the computational power which is close to half of the computational power of the entire network.
Electronic contracts are crucial for future e-Business models due to the increasing importance of Web services and the cloud as a reliable commodity enabling service-based value chains. Negotiation is the prerequisite for establishing a contract between two or more partners. These contracts are usually based on Service Level Agreements (SLAs). In this paper we present the framework of a smart Web service marketplace, which allows for automatic, autonomous, and adaptive negotiation and re-negotiation of Web services based on economic principles. Our approach enables market based service trading following a bazaar style and extends the classical supermarket approach typical for service negotiation today. We extend the WS-Agreement standard by feasible workflows to support auctioning for negotiation and re-negotiation. A specific highlight of our framework is the mapping of business strategies defined by economic goals of the respective organization into an ICT enabled framework. It facilitates autonomic agents acting as organizational representatives stipulating SLAs without human interaction. This allows for business transactions transparently to the environment but adhering to business objectives of the originating organization.
Apr 26, 2013·Digital Access to Libraries (Université catholique de Louvain (UCL), l'Université de Namur (UNamur) and the Université Saint-Louis (USL-B))
Specific supply-chain investments are vital in achieving faster lead-time performance and more competitive costs. In practice, such as in the highly leveraged telecom sector, the coordinating original equipment manufacturers (OEM) often delegate the upstream coordination of suppliers to contract manufacturers. This can be justified by informational advantages or economies of scale. However, the rationale of such schemes has also been challenged by analytical work on three-stage chains, leading to open questions. In this paper, we study the organizational and contractual choice of a supply chain coordinator (say an OEM) to either control or delegate the investment decision of some shared resource (say dedicated machines, information or product standards, etc) to a contract manufacturer (CM) or to an upstream supplier in a three-stage supply chain. The analysis derives closed-form results for the economic performance of three scenarios under asymmetric information on investment cost: direct contracting with an integrated CM-supplier, decentralized contracting to tier-1 suppliers and centralized contracting to tier-1 and tier-2 suppliers. The results show that the observed practice to delegate investments to tier-1 and possibly tier-2 suppliers leads to relatively poor performance due to under-investments. The superior arrangement is the centralized conditional model, where the OEM forces coordination among upstream suppliers by offering conditional financing. We close the paper with an analogy to the Boeing 787 supply chain and some discussion about the assumptions and applicability of the model.
Torsten O. Paulussen, Armin Heinzl, Christian Becker
The health sector is a central domain in every economy. It is challenged by progressing costs and funding issues. Hospitals play a major role for the examination and treatment of patients. The sequence how patients are assigned to hospital units determines the quality of treatment, the resource utilization, as well as the patients’ overall treatment time. Thus, efficient scheduling of patients in hospitals is crucial. Current approaches disregard the decentral organization in hospitals and neglect the varying pathway of patients since they often focus on one single unit solely. We propose an agent-based coordination mechanism that overcomes these limitations. Patients and hospital resources are modeled as autonomous software agents which follow their own objectives. This reflects the decentralized structure in hospitals. Agents are coordinated by a distributed mechanism where software agents improve their situation through negotiations which moves towards an overall pareto-optimum. We show promising evaluations based on experiments.