The Anti-Social System Properties: Bitcoin Network Data Analysis Israa Alqassem, Iyad Rahwan, and Davor Svetinovic , Senior Member, IEEE
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IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICS: SYSTEMS, VOL. 50, NO. 1, JANUARY 2020 21 The Anti-Social System Properties: Bitcoin Network Data Analysis Israa Alqassem, Iyad Rahwan, and Davor Svetinovic , Senior Member, IEEE Abstract—Bitcoin is a cryptocurrency and a decentralized public and private keys [2]. The process of creating new coins semi-anonymous peer-to-peer payment system in which the trans- in the system is called mining. The mining process is computa- actions are verified by network nodes and recorded in a public tionally expensive. Any node connected to the Bitcoin network massively replicated ledger called the blockchain. Bitcoin is cur- rently considered as one of the most disruptive technologies. can participate in Bitcoin mining either as a part of a group Bitcoin represents a paradox of opposing forces. On one hand, it of miners (called mining pool) or individually. In pooled min- is fundamentally social, allowing people to transact in a peer-to- ing, the generated coins are shared based on each member’s peer manner to create and exchange value. On the other hand, contributed computational power. Bitcoin’s core design philosophy and user base contain strong Many commentators liken Bitcoin’s present state to the early anti-social elements and constraints, emphasizing anonymity, pri- vacy, and subversion of traditional centralized financial systems. days of the Internet, and suggest that its technology will tran- We believe that the success of Bitcoin, and the financial ecosystem scend financial transactions to encompass all kinds of new built around it, will likely rely on achieving an optimal balance social transactions. between these social and anti-social forces. To elucidate the role The structure and evolution dynamics of various social of these forces, we analyze the evolution of the entire Bitcoin networks are well-studied [3]–[8]. However, the Bitcoin trans- transaction graph from its inception, and quantify the evolu- tion of its key structural properties. We observe that despite action graph represents a novel kind of network that consists its different nature, the Bitcoin transaction graph exhibits many of global financial transactions carried out by users hidden universal dynamics typical of social networks. However, we also behind pseudonyms represented by public keys (accounts, find that Bitcoin deviates in important ways due to anonymity- addresses, or public keys are used interchangeably to refer seeking behavioral patterns of its users. As a result, the network to users’ unique identifiers used in Bitcoin system). These exhibits a two-orders-of-magnitude larger diameter, sparse tree- like communities, and an overwhelming majority of transitional transactions are continually validated by Bitcoin computational or intermediate accounts with incoming and outgoing edges but nodes; running on users’ computers and other specialized min- zero cumulative balances. These results illuminate the evolution- ing hardware, added to blocks, and newly generated blocks ary dynamics of the most popular cryptocurrency, and provide appended to the blockchain, which serves as a key innovation us with initial understanding of social networks rooted in and of the Bitcoin network [2]. driven by anti-social constraints. One of the main driving forces behind the creation of Index Terms—Bitcoin, cryptocurrency, social networks. Bitcoin was to counter the systematic move toward more transparency (i.e., reduction of privacy) and centralization. The original cash-based financial system got replaced with credit cards, audited transactions, automatic reporting to gov- I. INTRODUCTION ernmental entities, etc. As a reaction to such increased lack ITCOIN is a complex socio-cyber-physical system, of privacy, centralization of control, and extensive monitoring, B e.g., [1], consisting of a decentralized peer-to-peer pay- there appeared a need to develop a system that re-establishes ment network, a currency unit, publicly preserved transaction and protects the financial privacy. The second driving force history kept in a massively replicated public ledger, i.e., the behind the creation of Bitcoin was to develop a currency with blockchain, an algorithm that controls money generation, and a predictable, algorithm-controlled inflation rate, as opposed an ownership verification mechanism using public-key cryp- to the unpredictable, human-controlled inflation rate of fiat tography, where each Bitcoin address consists of a pair of currencies. Manuscript received September 1, 2018; accepted November 17, 2018. Date As such, Bitcoin presents a paradox of social and anti-social of publication December 13, 2018; date of current version December 31, 2019. forces. On one hand, Bitcoin’s main function is to facilitate This paper was recommended by Associate Editor Y. Yuan. (Corresponding economic transactions among individuals, which is a highly author: Davor Svetinovic.) I. Alqassem is with the Department of Computer Science, Purdue social function. Indeed, by eliminating expensive, trustworthy University, West Lafayette, IN 47907 USA (e-mail: [email protected]). intermediaries, Bitcoin reduces the cost of transactions, thus I. Rahwan is with the MIT Media Lab, Massachusetts Institute of facilitating more open economic transactions, transcending Technology, Cambridge, MA 02139 USA (e-mail: [email protected]). D. Svetinovic is with the Center on Cyber-Physical Systems, Department of geographical, and social boundaries. Computer Science, Khalifa University of Science and Technology, Abu Dhabi, On the other hand, at the core of the Bitcoin design phi- UAE (e-mail: [email protected]). losophy are strong anti-social elements. Among Bitcoin’s Color versions of one or more of the figures in this paper are available online at http://ieeexplore.ieee.org. user community, there is a strong emphasis on privacy and Digital Object Identifier 10.1109/TSMC.2018.2883678 anonymity, manifested in the fact that transactions only require 2168-2216 c 2018 IEEE. Personal use is permitted, but republication/redistribution requires IEEE permission. See http://www.ieee.org/publications_standards/publications/rights/index.html for more information. Authorized licensed use limited to: Anhui Normal University. Downloaded on March 15,2020 at 02:39:07 UTC from IEEE Xplore. Restrictions apply. 22 IEEE TRANSACTIONS ON SYSTEMS, MAN, AND CYBERNETICS: SYSTEMS, VOL. 50, NO. 1, JANUARY 2020 cryptographic public keys in order to take place. Furthermore, which there was no real-world value associated with a Bitcoin. the Bitcoin system embodies greater trust in algorithmic, rather Then MtGox, the previously popular Bitcoin exchange, went than human, control of the money supply. In addition, Bitcoin’s online and the Bitcoin trading phase has begun, through which key distinguishing feature is its ability to process and verify Bitcoins have gained market value. They examined the degree transactions without transaction intermediaries that hold privi- distribution, degree correlation, and clustering coefficients, leged positions in the network. As such, Bitcoin is distrustful, and wealth distribution. They showed that preferential attach- and arguably subversive, of centralized financial institutions ment was shaping both the degree of Bitcoin addresses and or intermediaries that may abuse their power. the wealth distributions among these addresses which are These seemingly contradictory social and anti-social ele- fundamentally related in Bitcoin transaction network. In our ments of Bitcoin are, in fact, the key features behind its analysis, we examine various network characteristics that were disruptive proliferation. However, we still lack a deep quan- not covered here. We also repeat our analysis on the approx- titative understanding of Bitcoin’s adoption, use and growth imation of Bitcoin user graph based on a heuristic, that we dynamics. In order to acquire such understanding, we need discuss later, and was built based on the fact that all input to quantify the way in which Bitcoin’s transaction network addresses of a transaction must belong to a single entity that evolves over time, and to characterize the structural proper- holds the private keys of these addresses. ties produced by the social and anti-social forces and their Ron and Shamir [10] examined different statistical proper- interactions. This will pave the way toward more complex ties of Bitcoin transaction graph and analyzed the graph of the analyses and may facilitate the development of scalable algo- largest transaction that took place at the time of their analysis, rithms and online services that provide real-time insights into May 13, 2012, where an entity sent 90 000 Bitcoins to itself the blockchain and its vulnerabilities. multiple times. Instead of looking at global network properties In this paper, we inspect the Bitcoin transaction network’s over time such as market price of Bitcoins, number of daily evolution dynamics. Our findings indicate that despite the dis- transactions, etc. they examined the typical behavior of Bitcoin tinction in the nature of Bitcoin’s transaction network when users, e.g., the balances kept in their accounts, addresses asso- compared to other social networks, the Bitcoin transaction ciated with the largest balances, the size distribution of Bitcoin network follows the common normal evolution patterns, i.e., transactions, and the percentage of micropayments. One of the densification power law and shrinking diameter (although their interesting findings was that the majority of Bitcoins