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On the Relationship of Cryptocurrency Price with US Stock and Gold Price Using Copula Models
mathematics Article On the Relationship of Cryptocurrency Price with US Stock and Gold Price Using Copula Models Jong-Min Kim 1 , Seong-Tae Kim 2 and Sangjin Kim 3,* 1 Statistics Discipline, University of Minnesota at Morris, Morris, MN 56267, USA; [email protected] 2 Department of Mathematics, North Carolina A&T State University, Greensboro, NC 27411, USA; [email protected] 3 Department of Management and Information Systems, Dong-A University, Busan 49236, Korea * Correspondence: [email protected] Received: 15 September 2020; Accepted: 20 October 2020; Published: 23 October 2020 Abstract: This paper examines the relationship of the leading financial assets, Bitcoin, Gold, and S&P 500 with GARCH-Dynamic Conditional Correlation (DCC), Nonlinear Asymmetric GARCH DCC (NA-DCC), Gaussian copula-based GARCH-DCC (GC-DCC), and Gaussian copula-based Nonlinear Asymmetric-DCC (GCNA-DCC). Under the high volatility financial situation such as the COVID-19 pandemic occurrence, there exist a computation difficulty to use the traditional DCC method to the selected cryptocurrencies. To solve this limitation, GC-DCC and GCNA-DCC are applied to investigate the time-varying relationship among Bitcoin, Gold, and S&P 500. In terms of log-likelihood, we show that GC-DCC and GCNA-DCC are better models than DCC and NA-DCC to show relationship of Bitcoin with Gold and S&P 500. We also consider the relationships among time-varying conditional correlation with Bitcoin volatility, and S&P 500 volatility by a Gaussian Copula Marginal Regression (GCMR) model. The empirical findings show that S&P 500 and Gold price are statistically significant to Bitcoin in terms of log-return and volatility. -
Vulnerability of Blockchain Technologies to Quantum Attacks
Vulnerability of Blockchain Technologies to Quantum Attacks Joseph J. Kearneya, Carlos A. Perez-Delgado a,∗ aSchool of Computing, University of Kent, Canterbury, Kent CT2 7NF United Kingdom Abstract Quantum computation represents a threat to many cryptographic protocols in operation today. It has been estimated that by 2035, there will exist a quantum computer capable of breaking the vital cryptographic scheme RSA2048. Blockchain technologies rely on cryptographic protocols for many of their essential sub- routines. Some of these protocols, but not all, are open to quantum attacks. Here we analyze the major blockchain-based cryptocurrencies deployed today—including Bitcoin, Ethereum, Litecoin and ZCash, and determine their risk exposure to quantum attacks. We finish with a comparative analysis of the studied cryptocurrencies and their underlying blockchain technologies and their relative levels of vulnerability to quantum attacks. Introduction exist to allow the legitimate owner to recover this account. Blockchain systems are unlike other cryptosys- tems in that they are not just meant to protect an By contrast, in a blockchain system, there is no information asset. A blockchain is a ledger, and as central authority to manage users’ access keys. The such it is the asset. owner of a resource is by definition the one hold- A blockchain is secured through the use of cryp- ing the private encryption keys. There are no of- tographic techniques. Notably, asymmetric encryp- fline backups. The blockchain, an always online tion schemes such as RSA or Elliptic Curve (EC) cryptographic system, is considered the resource— cryptography are used to generate private/public or at least the authoritative description of it. -
A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets
Journal of Risk and Financial Management Review A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets Nikolaos A. Kyriazis Department of Economics, University of Thessaly, 38333 Volos, Greece; [email protected] Abstract: This study is an integrated survey of GARCH methodologies applications on 67 empirical papers that focus on cryptocurrencies. More sophisticated GARCH models are found to better explain the fluctuations in the volatility of cryptocurrencies. The main characteristics and the optimal approaches for modeling returns and volatility of cryptocurrencies are under scrutiny. Moreover, emphasis is placed on interconnectedness and hedging and/or diversifying abilities, measurement of profit-making and risk, efficiency and herding behavior. This leads to fruitful results and sheds light on a broad spectrum of aspects. In-depth analysis is provided of the speculative character of digital currencies and the possibility of improvement of the risk–return trade-off in investors’ portfolios. Overall, it is found that the inclusion of Bitcoin in portfolios with conventional assets could significantly improve the risk–return trade-off of investors’ decisions. Results on whether Bitcoin resembles gold are split. The same is true about whether Bitcoins volatility presents larger reactions to positive or negative shocks. Cryptocurrency markets are found not to be efficient. This study provides a roadmap for researchers and investors as well as authorities. Keywords: decentralized cryptocurrency; Bitcoin; survey; volatility modelling Citation: Kyriazis, Nikolaos A. 2021. A Survey on Volatility Fluctuations in the Decentralized Cryptocurrency Financial Assets. Journal of Risk and 1. Introduction Financial Management 14: 293. The continuing evolution of cryptocurrency markets and exchanges during the last few https://doi.org/10.3390/jrfm years has aroused sparkling interest amid academic researchers, monetary policymakers, 14070293 regulators, investors and the financial press. -
Arxiv:1907.02434V1 [Cs.CY] 4 Jul 2019 1 Introduction
Cryptocurrency Egalitarianism: A Quantitative Approach Dimitris Karakostas1,3, Aggelos Kiayias1,3, Christos Nasikas2,4, and Dionysis Zindros2,3 1 University of Edinburgh 2 University of Athens 3 IOHK 4 “ATHENA” Research Center Abstract. Since the invention of Bitcoin one decade ago, numerous cryptocurrencies have sprung into existence. Among these, proof-of-work is the most common mechanism for achieving consensus, whilst a num- ber of coins have adopted “ASIC-resistance” as a desirable property, claiming to be more “egalitarian,” where egalitarianism refers to the power of each coin to participate in the creation of new coins. While proof-of-work consensus dominates the space, several new cryptocurren- cies employ alternative consensus, such as proof-of-stake in which block minting opportunities are based on monetary ownership. A core criti- cism of proof-of-stake revolves around it being less egalitarian by making the rich richer, as opposed to proof-of-work in which everyone can con- tribute equally according to their computational power. In this paper, we give the first quantitative definition of a cryptocurrency’s egalitarian- ism. Based on our definition, we measure the egalitarianism of popular cryptocurrencies that (may or may not) employ ASIC-resistance, among them Bitcoin, Ethereum, Litecoin, and Monero. Our simulations show, as expected, that ASIC-resistance increases a cryptocurrency’s egalitar- ianism. We also measure the egalitarianism of a stake-based protocol, Ouroboros, and a hybrid proof-of-stake/proof-of-work cryptocurrency, Decred. We show that stake-based cryptocurrencies, under correctly se- lected parameters, can be perfectly egalitarian, perhaps contradicting folklore belief. arXiv:1907.02434v1 [cs.CY] 4 Jul 2019 1 Introduction In 2008, Satoshi Nakamoto proposed Bitcoin [25], the first and most suc- cessful cryptocurrency to date. -
Exploring the Interconnectedness of Cryptocurrencies Using Correlation Networks
Exploring the Interconnectedness of Cryptocurrencies using Correlation Networks Andrew Burnie UCL Computer Science Doctoral Student at The Alan Turing Institute [email protected] Conference Paper presented at The Cryptocurrency Research Conference 2018, 24 May 2018, Anglia Ruskin University Lord Ashcroft International Business School Centre for Financial Research, Cambridge, UK. Abstract Correlation networks were used to detect characteristics which, although fixed over time, have an important influence on the evolution of prices over time. Potentially important features were identified using the websites and whitepapers of cryptocurrencies with the largest userbases. These were assessed using two datasets to enhance robustness: one with fourteen cryptocurrencies beginning from 9 November 2017, and a subset with nine cryptocurrencies starting 9 September 2016, both ending 6 March 2018. Separately analysing the subset of cryptocurrencies raised the number of data points from 115 to 537, and improved robustness to changes in relationships over time. Excluding USD Tether, the results showed a positive association between different cryptocurrencies that was statistically significant. Robust, strong positive associations were observed for six cryptocurrencies where one was a fork of the other; Bitcoin / Bitcoin Cash was an exception. There was evidence for the existence of a group of cryptocurrencies particularly associated with Cardano, and a separate group correlated with Ethereum. The data was not consistent with a token’s functionality or creation mechanism being the dominant determinants of the evolution of prices over time but did suggest that factors other than speculation contributed to the price. Keywords: Correlation Networks; Interconnectedness; Contagion; Speculation 1 1. Introduction The year 2017 saw the start of a rapid diversification in cryptocurrencies. -
A Regulatory System for Optimal Legal Transaction Throughput in Cryptocurrency Blockchains
A Regulatory System for Optimal Legal Transaction Throughput in Cryptocurrency Blockchains Aditya Ahuja Vinay J. Ribeiro Ranjan Pal Indian Institute of Technology Indian Institute of Technology University of Michigan Delhi Bombay Ann Arbor, USA New Delhi, India Mumbai, India [email protected] [email protected] [email protected] ABSTRACT correctness of the underlying computational principles, which are a Permissionless blockchain consensus protocols have been designed basis of the efficacy of these economies. More specifically, in order primarily for defining decentralized economies for the commercial to sustain these cryptocurrency based decentralized economies, trade of assets, both virtual and physical, using cryptocurrencies. blockchain consensus protocols serve as a technical foundation. In most instances, the assets being traded are regulated, which man- Existing blockchain protocols for cryptocurrencies address one dates that the legal right to their trade and their trade value are of (or any combination of) the following system goals: speed, se- determined by the governmental regulator of the jurisdiction in curity and decentralization. Unfortunately, these system goals are which the trade occurs. Unfortunately, existing blockchains do not necessary but insufficient. Illegal activities propelled through the formally recognise proposal of legal cryptocurrency transactions, as strategic use of blockchain based cryptocurrencies, is a serious part of the execution of their respective consensus protocols, result- problem staring at the face of many world governments today ing in rampant illegal activities in the associated crypto-economies. [47]. These illegal activities exploit the permissionless nature of In this contribution, we motivate the need for regulated blockchain the blockchain networks for illegal trade, to strategically defeat consensus protocols with a case study of the illegal, cryptocurrency regulation by obfuscating the jurisdictions of the blockchain users based, Silk Road darknet market. -
Incentives in Ethereum's Hybrid Casper Protocol
Incentives in Ethereum’s Hybrid Casper Protocol Vitalik Buterin∗, Daniel¨ Reijsbergeny, Stefanos Leonardosy, Georgios Piliourasy ∗Ethereum Foundation ySingapore University of Technology and Design Abstract We present an overview of hybrid Casper the Friendly Finality Gadget (FFG): a Proof-of-Stake checkpointing protocol overlaid onto Ethereum’s Proof-of-Work blockchain. We describe its core functionalities and reward scheme, and explore its properties. Our findings indicate that Casper’s implemented incentives mechanism ensures liveness, while providing safety guarantees that improve over standard Proof-of-Work protocols. Based on a minimal-impact implementation of the protocol as a smart contract on the blockchain, we discuss additional issues related to parametrisation, funding, throughput and network overhead and detect potential limitations. Index Terms Proof of Stake, Ethereum, Consensus I. INTRODUCTION In 2008, the seminal Bitcoin paper by Satoshi Nakamoto [50] introduced the blockchain as a means for an open network to extend and reach consensus about a distributed ledger of digital token transfers. The main innovation of Ethereum [16] was to use the blockchain to maintain a history of code creation and execution. As such, Ethereum functions as a global computer that executes code uploaded by users in the form of smart contracts. Like Bitcoin [31], [32], Ethereum’s block proposal mechanism is based on the concept of Proof-of-Work (PoW). In PoW, network participants utilise computational power to win the right to add blocks to the blockchain. However, the alarming global energy consumption of PoW-based blockchains has made the concept increasingly controversial [22], [45], [65]. One of the main alternatives to PoW is virtual mining or Proof-of-Stake (PoS) [1], [5], [46], [55]. -
Building Applications on the Ethereum Blockchain
Building Applications on the Ethereum Blockchain Eoin Woods Endava @eoinwoodz licensed under a Creative Commons Attribution-ShareAlike 4.0 International License 1 Agenda • Blockchain Recap • Ethereum • Application Design • Development • (Solidity – Ethereum’s Language) • Summary 3 Blockchain Recap 4 What is Blockchain? • Enabling technology of Bitcoin, Ethereum, … • Distributed database without a controlling authority • Auditable database with provable lineage • A way to collaborate with parties without direct trust • Architectural component for highly distributed Internet-scale systems 5 Architectural Characteristics of a Blockchain • P2P distributed • (Very) eventual consistency • Append only “ledger” • Computationally expensive • Cryptographic security • Limited query model (key only) (integrity & non-repudiation) • Lack of privacy (often) • Eventual consistency • low throughput scalability • Smart contracts (generally – 10s txn/sec) • Fault tolerant reliability 6 What Makes a Good Blockchain Application? • Multi-organisational • No complex query requirement • No trusted intermediary • Multiple untrusted writers • Need shared source of state • Latency insensitive (e.g. transactions, identity) • Relatively low throughput • Need for immutability (e.g. proof • Need for resiliency of existence) • Transaction interactions • Fairly small data size “If your requirements are fulfilled by today’s relational databases, you’d be insane to use a blockchain” – Gideon Greenspan 7 What is Blockchain being Used For? digital ledger that tracks and derivatives post- verifiable supply chains supply chain efficiency protects valuable assets trade processing Keybase Georgia government Identity management verified data post-trade processing records 8 Public and Permissioned Blockchains Public Permissioned Throughput Low Medium Latency High Medium # Readers High High # Writers High Low Centrally Managed No Yes Transaction Cost High “Free” Based on: Do you need a Blockchain? Karl Wüst, Arthur Gervaisy IACR Cryptology ePrint Archive, 2017, p.375. -
Algorand: Scaling Byzantine Agreements for Cryptocurrencies Yossi Gilad, Rotem Hemo, Silvio Micali, Georgios Vlachos, Nickolai Zeldovich MIT CSAIL
Algorand: Scaling Byzantine Agreements for Cryptocurrencies Yossi Gilad, Rotem Hemo, Silvio Micali, Georgios Vlachos, Nickolai Zeldovich MIT CSAIL ABSTRACT open setting: since anyone can participate, an adversary can create an arbitrary number of pseudonyms (“Sybils”) [21], Algorand is a new cryptocurrency that confirms transactions making it infeasible to rely on traditional consensus proto- with latency on the order of a minute while scaling to many cols [15] that require a fraction of honest users. users. Algorand ensures that users never have divergent views of confirmed transactions, even if some of the users Bitcoin [41] and other cryptocurrencies [23, 53] address are malicious and the network is temporarily partitioned. this problem using proof-of-work (PoW), where users must In contrast, existing cryptocurrencies allow for temporary repeatedly compute hashes to grow the blockchain, and forks and therefore require a long time, on the order of an the longest chain is considered authoritative. PoW ensures hour, to confirm transactions with high confidence. that an adversary does not gain any advantage by creating Algorand uses a new Byzantine Agreement (BA) protocol pseudonyms. However, PoW allows the possibility of forks, to reach consensus among users on the next set of trans- where two different blockchains have the same length, and actions. To scale the consensus to many users, Algorand neither one supersedes the other. Mitigating forks requires uses a novel mechanism based on Verifiable Random Func- two unfortunate sacrifices: the time to grow the chain byone tions that allows users to privately check whether they are block must be reasonably high (e.g., 10 minutes in Bitcoin), selected to participate in the BA to agree on the next set and applications must wait for several blocks in order to of transactions, and to include a proof of their selection in ensure their transaction remains on the authoritative chain their network messages. -
Blockchain Consensus: an Analysis of Proof-Of-Work and Its Applications. Amitai Porat1, Avneesh Pratap2, Parth Shah3, and Vinit Adkar4
Blockchain Consensus: An analysis of Proof-of-Work and its applications. Amitai Porat1, Avneesh Pratap2, Parth Shah3, and Vinit Adkar4 [email protected] [email protected] [email protected] [email protected] ABSTRACT Blockchain Technology, having been around since 2008, has recently taken the world by storm. Industries are beginning to implement blockchain solutions for real world services. In our project, we build a Proof of Work based Blockchain consensus protocol and evauluate how major applications can run on the underlying platform. We also explore how varying network conditions vary the outcome of consensus among nodes. Furthermore, to demonstrate some of its capabilities we created our own application built on the Ethereum blockchain platform. While Bitcoin is by and far the first major cryptocurrency, it is limited in the capabilities of its blockchain as a peer-to-peer currency exchange. Therefore, Ethereum blockchain was the right choice for application development since it caters itself specifically to building decentralized applications that seek rapid deployment and security. 1 Introduction Blockchain technology challenges traditional shared architectures which require forms of centralized governance to assure the integrity of internet applications. It is the first truly democratized, universally accessible, shared and secure asset control architecture. The first blockchain technology was founded shortly after the US financial collapse in 2008, the idea was a decentralized peer-to-peer currency transfer network that people can rely on when the traditional financial system fails. As a result, blockchain largely took off and made its way into large public interest. We chose to investigate the power of blockchain consensus algorithms, primarily Proof of Work. -
Survey on Surging Technology: Cryptocurrency
International Journal of Engineering &Technology, 7 (3.12) (2018) 296-299 International Journal of Engineering & Technology Website: www.sciencepubco.com/index.php/IJET Research paper Survey on Surging Technology: Cryptocurrency Swathi Singh1, Suguna R2, Divya Satish3, Ranjith Kumar MV4 1Research Scholar, 2, 3Professor, 4Assistant Professor 1,2,3,4Department of Computer Science and Engineering, 1,3SKR Engineering College, Chennai, India, 2Vel Tech Rangarajan Dr.Sagunthala Institute of Science and Technology, Chennai, India 4SRM Institute of Science and Technology, Kattankulathur, Chennai. *Corresponding Author Email: [email protected] Abstract The paper gives an insight on cryptography within digital money used in electronic commerce. The combination of digital currencies with cryptography is named as cryptocurrencies or cryptocoins. Though this technique came into existence years ago, it is bound to have a great future due to its flexibility and very less or nil transaction costs. The concept of cryptocurrency is not new in digital world and is already gaining subtle importance in electronic commerce market. This technology can bring down various risks that may have occurred in usage of physical currencies. The transaction of cryptocurrencies are protected with strong cryptographic hash functions that ensure the safe sending and receiving of assets within the transaction chain or blockchain in a Peer-to-Peer network. The paper discusses the merits and demerits of this technology with a wide range of applications that use cryptocurrency. Index Terms: Blockchain, Cryptocurrency. However, the first implementation of Bitcoin protocol routed 1. Introduction many other cryptocurrencies to exist. Bitcoin is a self-regulatory system that is not supported by government or any organization. -
Robust Proof of Stake: a New Consensus Protocol for Sustainable Blockchain Systems
sustainability Article Robust Proof of Stake: A New Consensus Protocol for Sustainable Blockchain Systems Aiya Li 1, Xianhua Wei 1 and Zhou He 1,2,* 1 School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China; [email protected] (A.L.); [email protected] (X.W.) 2 Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Beijing 100190, China * Correspondence: [email protected] Received: 1 March 2020; Accepted: 31 March 2020; Published: 2 April 2020 Abstract: In the digital economy era, the development of a distributed robust economy system has become increasingly important. The blockchain technology can be used to build such a system, but current mainstream consensus protocols are vulnerable to attack, making blockchain systems unsustainable. In this paper, we propose a new Robust Proof of Stake (RPoS) consensus protocol, which uses the amount of coins to select miners and limits the maximum value of the coin age to effectively avoid coin age accumulation attack and Nothing-at-Stake (N@S) attack. Under a comparison framework, we show that the RPoS equals or outperforms Proof of Work (PoW) protocol and Proof of Stake (PoS) protocol in three dimensions: energy consumption, robustness, and transaction processing speed. To compare the three consensus protocols in terms of trade efficiency, we built an agent-based model and find that RPoS protocol has greater or similar trade request-satisfied ratio than PoW and PoS. Hence, we suggest that RPoS is very suitable for building a robust digital economy distributed system. Keywords: distributed digital economy system; blockchain; robust; consensus protocol; agent-based model 1.