November list
If you feel a paper should belong to another category, or that we missed a relevant paper just let us know. Participation is most welcome!
Categories:
- Attacks and defenses
- Blockchain-general
- Blockchain-noncrypto uses
- Ethereum
- Financial
- Internet of Things (IoT)
- Mathematical
- Proof of Work (PoW) alternatives
Attacks and defenses
Game-Theoretic Analysis of Mining Strategy in Bitcoin-NG Blockchain Protocol
Authors: Taotao Wang, Xiaoqian Bai, Hao Wang, Chang Soung Liew, Shengli Zhang
Abstract: Bitcoin-NG, a scalable blockchain protocol, divides each block into a key block and many micro blocks to effectively improve the transaction processing capacity. Bitcoin-NG has a special incentive mechanism (i.e. splitting the transaction fee to the current and the next leader) to maintain its security. However, the design of the incentive mechanism ignores the joint effect of the transaction fee, the mint coin and the mining duration length on its expected mining reward. In this paper, we identify the advanced mining attack that deliberately ignores micro blocks to enlarge the mining duration length to increase the likelihood of winning the next mining race. We first show that an advanced mining attacker can maximize its expected revenue by optimizing its mining duration length. We then formulate a game-theoretical model in which multiple miners perform advanced mining to compete with each. Based on the proposed model, we compute the expected revenue of the attacker and analyze the Nash equilibrium for the mining game. We show that by adapting the mining duration lengths according to the equilibrium point of the game, these miners can increase their expected mining revenues compared to honest mining. Therefore, we conclude that miners have a great incentive to have advanced mining attack.
Blockchain-general
When Blockchain Meets AI: Optimal Mining Strategy Achieved By Machine Learning
Authors: Taotao Wang, Chang Soung Liew, Shengli Zhang
Abstract: This work applies reinforcement learning (RL) from the AI machine learning field to derive an optimal blockchain mining strategy without knowing the details of the blockchain network model. Previously, the most profitable mining strategy was believed to be honest mining encoded in the default Bitcoin-like blockchain protocol. It was shown later that it is possible to gain more mining rewards by deviating from honest mining. In particular, the mining problem can be formulated as a Markov Decision Process (MDP) which can be solved to give the optimal mining strategy. However, solving the mining MDP requires knowing the values of various parameters that characterize the blockchain network model. In real blockchain networks, these parameter values are not easy to obtain and may change over time. This hinders the use of the MDP model-based solution. In this work, we employ RL to dynamically learn a mining strategy with performance approaching that of the optimal mining strategy by observing and interacting with the network. Since the mining MDP problem has a non-linear objective function (rather than linear functions of standard MDP problems), we design a new multi-dimensional RL algorithm to solve the problem. Experimental results indicate that, without knowing the parameter values of the mining MDP model, our multi-dimensional RL mining algorithm can still achieve the optimal performance over time-varying blockchain networks.
Blockchains: a Systematic Multivocal Literature Review
Authors: Bert-Jan Butijn, A. Damian Tamburri, Den Van Willem-Jan Heuvel
Abstract: Blockchain technology has gained tremendous popularity both in practice and academia. The goal of this article is to develop a coherent overview of the state of the art in blockchain technology, using a systematic(i.e.,protocol-based, replicable), multivocal (i.e., featuring both white and grey literature alike) literature review, to (1) define blockchain technology (2) elaborate on its architecture options and (3) trade-offs, as well as understanding (4) the current applications and challenges, as evident from the state of the art. We derive a systematic definition of blockchain technology, based on a formal concept analysis. Further on, we flesh out an overview of blockchain technology elaborated by means of Grounded-Theory.
A new ECDLP-based PoW model
Authors: Alessio Meneghetti, Massimiliano Sala, Daniele Taufer
Abstract: We lay the foundations for a blockchain scheme, whose consensus is reached via a proof of work algorithm based on the solution of consecutive discrete logarithm problems over the point group of elliptic curves. In the considered architecture, the curves are pseudorandomly determined by block creators, chosen to be cryptographically secure and changed every epoch. Given the current state of the chain and a prescribed set of transactions, the curve selection is fully rigid, therefore trust is needed neither in miners nor in the scheme proposers.
A Cryptoeconomic Traffic Analysis of Bitcoins Lightning Network
Authors: Ferenc Beres, Andras Istvan Seres, A. Andras Benczur
Abstract: Lightning Network (LN) is designed to amend the scalability and privacy issues of Bitcoin. It is a payment channel network where Bitcoin transactions are issued off the blockchain and onion routed through a private payment path with the aim to settle transactions in a faster, cheaper, and more private manner, as they are not recorded in a costly-to-maintain, slow, and public ledger. In this work, we design a traffic simulator to empirically study LN’s transaction fees and privacy provisions. The simulator relies only on publicly available data of the network structure and capacities, and generates transactions under assumptions that we attempt to validate based on information spread by certain blog posts of LN node owners. Our findings on the estimated revenue from transaction fees are in line with the widespread opinion that participation is economically irrational for the majority of the large routing nodes. Either traffic or transaction fees must increase by orders of magnitude to make payment routing economically viable. We give worst-case estimates for the potential fee increase by assuming strong price competition among the routers. We also estimate how current channel structures and pricing policies respond to a potential increase in traffic, and show examples of nodes who are estimated to operate with economically feasible revenue. Our second set of findings considers privacy. Even if transactions are onion routed, strong statistical evidence on payment source and destination can be inferred, as many transaction paths only consist of a single intermediary by the side effect of LN’s small-world nature. Based on our simulation experiments, we quantitatively characterize the privacy shortcomings of current LN operation, and propose a method to inject additional hops in routing paths to demonstrate how privacy can be strengthened with very little additional transactional cost.
ConnectionChain: Secure Interworking of Blockchains
Authors: Shingo Fujimoto, Yoshiki Higashikado, Takuma Takeuchi
Abstract: Blockchain is a core technology to manage the value of cryptocurrencies, or to record trails of important business trades. The Smart Contract on blockchain is expected to improve security on blockchain system with automated operation, but it cannot be the solution when the application service required to operate tightly related blockchain ledgers as service business logic. This paper proposed the method to extend the functionality of traditional Smart Contract on blockchain, and introduced the prototype system, named ‘ConnectionChain’.
The coin that never sleeps. The privacy preserving usage of Bitcoin in a longitudinal analysis as a speculative asset
Authors: Emmanouil Karampinakis, Michalis Pachilakis, Panagiotis Papadopoulos, Antonis Krithinakis, P. Evangelos Markatos
Abstract: Bitcoin is the first and undoubtedly most successful cryptocurrecny to date with a market capitalization of more than 100 billion dollars. Today, Bitcoin has more than 100,000 supporting merchants and more than 3 million active users. Besides the trust it enjoys among people, Bitcoin lacks of a basic feature a substitute currency must have: stability of value. Hence, although the use of Bitcoin as a mean of payment is relative low, yet the wild ups and downs of its value lure investors to use it as useful asset to yield a trading profit. In this study, we explore this exact nature of Bitcoin aiming to shed light in the newly emerged and rapid growing marketplace of cryptocurencies and compare the investmet landscape and patterns with the most popular traditional stock market of Dow Jones. Our results show that most of Bitcoin addresses are used in the correct fashion to preserve security and privacy of the transactions and that the 24/7 open market of Bitcoin is not affected by any political incidents of the offline world, in contrary with the traditional stock markets. Also, it seems that there are specific longitudes that lead the cryptocurrency in terms of bulk of transactions, but there is not the same correlation with the volume of the coins being transferred.
Transparent Downsampling Blockchain Algorithm
Authors: Qin Huang, Li Quan, Shengli Zhang
Abstract: With the development of blockchain, the huge history data limits the scalability of the blockchain. This paper proposes to downsample these data to reduce the storage overhead of nodes. These nodes keep good independency, if downsampling follows the entropy of blockchain. Moreover, it demonstrates that the entire blockchain history can be efficiently recovered through the cooperative decoding of a group of nodes like fountain codes, if reserved data over these nodes obey the soliton distribution. However, these data on nodes are uncoded (transparent). Thus, the proposed algorithm not only keeps decentralization and security, but also has good scalability in independency and recovery.
Bitcoin Coin Selection with Leverage
Authors: J. Daniel Diroff
Abstract: We present a new Bitcoin coin selection algorithm, “coin selection with leverage”, which aims to improve upon cost savings than that of standard knapsack like approaches. Parameters to the new algorithm are available to be tuned at the users discretion to address other goals of coin selection. Our approach naturally fits as a replacement for the standard knapsack ingredient of full coin selection procedures.
Blockchain-noncrypto uses
Recognition of Blockchain-based Multisignature E-Awards
Authors: J. A. Santos
Abstract: With blockchain technology, information is recorded in a permanent distributed ledger that is maintained by multiple computers in a peer-to-peer network. There is no central authority that can alter records or change network consensus rules. Such technology could be utilized for voting, title transfers, issuance of company shares, document notarization, but currently, the most popular use-case are virtual currencies. An interesting feature that some virtual currencies have is a multisignature (multisig) protocol that requires the electronic signatures from more than one private key to initiate a transfer of funds. Raw data of a multisig transaction may be recognized as an arbitral award under the New York Convention, where the law of England is the lex arbitri and parties have opted-out of a reasoned award.
Empowering Artists, Songwriters & Musicians in a Data Cooperative through Blockchains and Smart Contracts
Authors: Thomas Hardjono, Alex Pentland
Abstract: Over the last decade there has been a continuing decline in social trust on the part of individuals with regards to the handling and fair use of personal data, digital assets and other related rights in general. At the same time, there has been a change in the employment patterns for many people through the emergence of the gig economy. These gig workers include artists, songwriters and musicians in the music industry. We discuss the notion of the data cooperative with fiduciary responsibilities to its members, which is similar in purpose to credit unions in the financial sector. A data cooperative for artists and musicians allows the community to share IT resources, such as data storage, analytics processing, blockchains and distributed ledgers. A cooperative can also employ smart contracts to remedy the various challenges currently faced by the music industry with regards to the license tracking management.
Blockchain-Based Electronic Voting System for Elections in Turkey
Authors: Rumeysa Bulut, Alperen Kantarcı, Safa Keskin, Şerif Bahtiyar
Abstract: Traditional elections satisfy neither citizens nor political authorities in recent years. They are not fully secure since it is easy to attack votes. It threatens also privacy and transparency of voters. Additionally, it takes too much time to count the votes. This paper proposes a solution using Blockchain to eliminate all the disadvantages of conventional elections. Security and data integrity of votes are absolutely provided theoretically. Voter privacy is another requirement that is ensured in the system. Lastly, the waiting time for results decreased significantly in the proposed Blockchain voting system.
Audita: A Blockchain-based Auditing Framework for Off-chain Storage
Authors: Danilo Francati, Giuseppe Ateniese, Abdoulaye Faye, Maria Andrea Milazzo, Massimo Angelo Perillo, Luca Schiatti, Giuseppe Giordano
Abstract: The cloud changed the way we manage and store data. Today, cloud storage services offer clients an infrastructure that allows them a convenient source to store, replicate, and secure data online. However, with these new capabilities also come limitations, such as lack of transparency, limited decentralization, and challenges with privacy and security. And, as the need for more agile, private and secure data solutions continues to grow exponentially, rethinking the current structure of cloud storage is mission-critical for enterprises. By leveraging and building upon blockchain’s unique attributes, including immutability, security to the data element level, distributed (no single point of failure), we have developed a solution prototype that allows data to be reliably stored while simultaneously being secured, with tamper-evident auditability, via blockchain. The result, Audita, is a flexible solution that assures data protection and solves for challenges such as scalability and privacy. Audita works via an augmented blockchain network of participants that include storage-nodes and block-creators. In addition, it provides an automatic and fair challenge system to assure that data is distributed and reliably and provably stored. While the prototype is built on Quorum, the solution framework can be used with any blockchain platform. The benefit is a system that is built to grow along with the data needs of enterprises, while continuing to build the network via incentives and solving for issues such as auditing, outsourcing and malicious users.
Blockchain-based System Evaluation: The Effectiveness of Blockchain on E-Procurements
Authors: August Thio-ac, Keanu Alfred Serut, Louise Rayn Torrejos, Dave Keenan Rivo, Jessica Velasco
Abstract: Electronic systems tend to simplify the tedious traditional scheme and basically focuses on the platform design and process organization. The integrity of the output of an automated system is not left behind but the possibility of internal manipulation is still high. This paper presents the current issues in company procurements and the solution in the form of blockchain technology. Several individuals and professionals were asked to evaluate a blockchain-based procurement system in comparison to the current electronic (e-procurement) system. A blockchain-based system has the capability to hold transactional data with complete decentralization and eliminate the growing number of fraud cases in companies and organizations. This paper mainly focuses on the effectiveness of a blockchain-based system in company procurements.
Development of a Secure and Private Electronic Procurement System based on Blockchain Implementation
Authors: August Thio-ac, John Erwin Domingo, May Ricca Reyes, Nilo Arago, Jr. Romeo Jorda, Jessica Velasco
Abstract: This paper presents the development of an online procurement system and the integration of blockchain technology. Various tools such as PHP, JavaScript, HTML, CSS, and jQuery were used in designing the graphical, programming logic, and blockchain aspect of the system. Every page and function will have their respective construction and result. In addition, the proposed system’s flow of process and the methods on the testing and hosting of the site as well as the different web development languages used in every part of the development and design process were presented. The proposed system was successfully and functionally developed starting from the execution of procurement proper, to the placement of procured items or goods, and up to the signing of contracts by the winner and the procurer. Lastly, features were added such as user profiles of the bidder and procurer.
Blockchain for Future Smart Grid: A Comprehensive Survey
Authors: Baqer Muhammad Mollah, Jun Zhao, Dusit Niyato, Kwok-Yan Lam, Xin Zhang, M. Y. M. Amer Ghias, Hai Leong Koh, Lei Yang
Abstract: The concept of smart grid has been introduced as a new vision of the conventional power grid to figure out an efficient way of integrating green and renewable energy technologies. In this way, Internet-connected smart grid, also called energy Internet, is also emerging as an innovative approach to ensure the energy from anywhere at any time. The ultimate goal of these developments is to build a sustainable society. However, integrating and coordinating a large number of growing connections can be a challenging issue for the traditional centralized grid system. Consequently, the smart grid is undergoing a transformation to the decentralized topology from its centralized form. On the other hand, blockchain has some excellent features which make it a promising application for smart grid paradigm. In this paper, we have an aim to provide a comprehensive survey on application of blockchain in smart grid. As such, we identify the significant security challenges of smart grid scenarios that can be addressed by blockchain. Then, we present a number of blockchain-based recent research works presented in different literatures addressing security issues in the area of smart grid. We also summarize several related practical projects, trials, and products that have been emerged recently. Finally, we discuss essential research challenges and future directions of applying blockchain to smart grid security issues.
A Survey of Blockchain Applications in Different Domains
Authors: Wubing Chen, Zhiying Xu, Shuyu Shi, Yang Zhao, Jun Zhao
Abstract: Blockchains have received much attention recently since they provide decentralized approaches to the creation and management of value. Many banks, Internet companies, car manufacturers, and even governments worldwide have incorporated or started considering blockchains to improve the security, scalability, and efficiency of their services. In this paper, we survey blockchain applications in different areas. These areas include cryptocurrency, healthcare, advertising, insurance, copyright protection, energy, and societal applications. Our work provides a timely summary for individuals and organizations interested in blockchains. We envision our study to motivate more blockchain applications.
DeLottery: A Novel Decentralized Lottery System Based on Blockchain Technology
Authors: Zhifeng Jia, Rui Chen, Jie Li
Abstract: In this paper, we design DeLottery, a decentralized lottery system based on block chain technology and smart contracts. Lottery is a classical form of entertainment and charity for centuries. Facing the bottleneck of the combination between lottery and information technology, we use smart contracts and blockchain in decentralized, intelligent, and secure systems for lottery industries. Moreover, we are inspired by the algorithm of RANDAO, an outstanding way of random number generation in blockchain scenario. The components and the functions of the novel system are described in details. We implement DeLottery in a blockchain network and show functioning procedure and security of the proposed lottery system.
Ethereum
Smart Contract Repair
Authors: Liang Xiao Yu, Omar Al-Bataineh, David Lo, Abhik Roychoudhury
Abstract: Smart contracts are automated or self-enforcing contracts that can be used to exchange money, property, or anything of value without having to place trust in third parties. Many commercial transactions presently make use of smart contracts due to their potential benefits in enabling parties to engage in secure peer-to-peer transactions independent of external parties. They do so by transferring trust to computer programs (smart contracts), raising the question of whether these programs can be fully trusted. However, the code can be complex and may behave in many different unexpected or malicious ways due to poorly written or vulnerable smart contracts. Furthermore, in the case of smart contracts on the blockchain, they are typically open to (malicious) agents which can interact with it in various ways. Experience shows that many commonly used smart contracts are vulnerable to serious malicious attacks which may enable attackers to steal valuable assets of involved parties. There is therefore a need to apply analysis techniques to detect and repair bugs in smart contracts before being deployed. In this work, we present the first automated smart contracts repair approach that is gas-optimized and vulnerability-agnostic. Our repair method is search-based and considers the gas usage of the candidate patches via leveraging our novel notation of \emph{gas dominance relationship}. Our approach can be used to optimise the overall security and reliability of smart contracts against malicious attackers.
Plasma Cash: Towards more efficient Plasma constructions
Authors: Georgios Konstantopoulos
Abstract: Plasma is a framework for scalable off-chain computation. We describe and evaluate Plasma Cash, an improved Plasma construction which leverages non-fungible tokens and Sparse Merkle Trees to reduce the data storage and bandwidth requirements for users. We analyze the cryptoeconomic exit and challenge mechanisms used to keep user funds secured, even when the Plasma Cash chain’s consensus algorithm is compromised. A reference implementation is provided for evaluation. Finally, we briefly discuss further improvements that can be made to the Plasma Cash protocol such as arbitrary denomination payments, less user data checking, fast and optimistic exits.
Transaction Confirmation Time Prediction in Ethereum Blockchain Using Machine Learning
Authors: Jot Harsh Singh, Senhaji Abdelhakim Hafid
Abstract: Blockchain offers a decentralized, immutable, transparent system of records. It offers a peer-to-peer network of nodes with no centralised governing entity making it unhackable and therefore, more secure than the traditional paper-based or centralised system of records like banks etc. While there are certain advantages to the paper-based recording approach, it does not work well with digital relationships where the data is in constant flux. Unlike traditional channels, governed by centralized entities, blockchain offers its users a certain level of anonymity by providing capabilities to interact without disclosing their personal identities and allows them to build trust without a third-party governing entity. Due to the aforementioned characteristics of blockchain, more and more users around the globe are inclined towards making a digital transaction via blockchain than via rudimentary channels. Therefore, there is a dire need for us to gain insight on how these transactions are processed by the blockchain and how much time it may take for a peer to confirm a transaction and add it to the blockchain network. This paper presents a novel approach that would allow one to estimate the time, in block time or otherwise, it would take for a mining node to accept and confirm a transaction to a block using machine learning. The paper also aims to compare the predictive accuracy of two machine learning regression models- Random Forest Regressor and Multilayer Perceptron against previously proposed statistical regression model under a set evaluation criterion. The objective is to determine whether machine learning offers a more accurate predictive model than conventional statistical models. The proposed model results in improved accuracy in prediction.
Implement Liquid Democracy on Ethereum: A Fast Algorithm for Realtime Self-tally Voting System
Authors: Xuepeng Fan, Peng Li, Yulong Zeng, Xiaoping Zhou
Abstract: We study the liquid democracy problem, where each voter can either directly vote to a candidate or delegate his voting power to a proxy. We consider the implementation of liquid democracy on the blockchain through Ethereum smart contract and to be compatible with the realtime self-tallying property, where the contract itself can record ballots and update voting status upon receiving each voting massage. A challenge comes due to the gas fee limitation of Ethereum mainnet, that the number of instruction for processing a voting massage can not exceed a certain amount, which restrict the application scenario with respect to algorithms whose time complexity is linear to the number of voters. We propose a fast algorithm to overcome the challenge, such that i) shifts the on-chain initialization to off-chain and ii) the on-chain complexity for processing each voting massage is O(\log n), where n is the number of voters.
Application Level Authentication for Ethereum Private Blockchain Atomic Crosschain Transactions
Authors: Peter Robinson
Abstract: Atomic Crosschain Transaction technology allows composable programming across private Ethereum blockchains. It allows for inter-contract and inter-blockchain function calls that are both synchronous and atomic: if one part fails, the whole call graph of function calls is rolled back. Traditional Ethereum contract functions can limit which accounts can call them by specialised application program logic. This is important as it allows application developers to specify which callers can execute functions that update contract state. In this paper we introduce the strategy required to restrict which contracts on one blockchain can call a function in a contract that is deployed on another blockchain. We show that validating the Originating Blockchain Id (the blockchain the crosschain function call started on), From Blockchain Id, and From Account provides contracts with certainty that a function call came from a specific contract on a specific blockchain.
GRuB: Gas-Efficient Blockchain Storage via Workload-Adaptive Data Replication
Authors: Kai Li, Yuzhe, Tang, Qi, Zhang, Cheng Xu, Jianliang Xu
Abstract: Modern Blockchains support the execution of user programs, called smart contracts. As a trusted computing platform, smart contracts bring decentralization, computation integrity, open access and information transparency to average users on the Internet. However, running smart-contract programs leads to high costs, known as Gas. Such costs prevent the use of smart contracts in data-intensive application scenarios, such as high-frequency trading and transparency logging. This paper addresses the Gas-based cost effectiveness in the most consuming layer of a smart contract, namely data storage. We present GRuB, a dynamic data-replication framework that monitors the smart-contract workload and makes online replication decisions. A new online algorithm is proposed that provides constant-bounded ‘competitiveness’ in Gas. To further save Gas, the workload monitor and decision maker are run off the Blockchain and with security against the forging of workload trace being monitored. A GRuB prototype is built, including a smart-contract component on Ethereum and an off-chain middleware on top of Google LevelDB. The cost evaluation under the YCSB workloads shows that GRuB can converge quickly to changing workloads and save Gas significantly compared with static replication schemes. Two case studies are conducted for data-intensive applications, including high-frequency trading and transparency logging, in which running GRuB leads to affordable Gas.
MPro: Combining Static and Symbolic Analysis for Scalable Testing of Smart Contract
Authors: William Zhang, Sebastian Banescu, Leodardo Pasos, Steven Stewart, Vijay Ganesh
Abstract: Smart contracts are executable programs that enable the building of a programmable trust mechanism between multiple entities without the need of a trusted third-party. Researchers have developed several security scanners in the past couple of years. However, many of these analyzers either do not scale well, or if they do, produce many false positives. This issue is exacerbated when bugs are triggered only after a series of interactions with the functions of the contract-under-test. A depth-n vulnerability, refers to a vulnerability that requires invoking a specific sequence of n functions to trigger. Depth-n vulnerabilities are time-consuming to detect by existing automated analyzers, because of the combinatorial explosion of sequences of functions that could be executed on smart contracts. In this paper, we present a technique to analyze depth-n vulnerabilities in an efficient and scalable way by combining symbolic execution and data dependency analysis. A significant advantage of combining symbolic with static analysis is that it scales much better than symbolic alone and does not have the problem of false positive that static analysis tools typically have. We have implemented our technique in a tool called MPro, a scalable and automated smart contract analyzer based on the existing symbolic analysis tool Mythril-Classic and the static analysis tool Slither. We analyzed 100 randomly chosen smart contracts on MPro and our evaluation shows that MPro is about n-times faster than Mythril-Classic for detecting depth-n vulnerabilities, while preserving all the detection capabilities of Mythril-Classic.
XBlock-ETH: Extracting and Exploring Blockchain Data From Etherem
Authors: Peilin Zheng, Zibin Zheng, Hong-ning Dai
Abstract: Blockchain-based cryptocurrencies have received extensive attention recently. Massive data has been stored on permission-less blockchains. The analysis on massive blockchain data can bring huge business values. However, the lack of well-processed up-to-date blockchain datasets impedes big data analytics of blockchain data. To fill this gap, we collect and process the up-to-date on-chain data from Ethereum, which is one of the most popular permission-less blockchains. We name these well-processed Ethereum datasets as XBlock-ETH, which consists of the data of blockchain transactions, smart contracts, and cryptocurrencies (i.e., tokens). The basic statistics and exploration of these datasets are presented. We also outline the possible research opportunities. The datasets with the raw data and codes have been publicly released online.
Financial
Cryptocurrency Price Prediction and Trading Strategies Using Support Vector Machines
Authors: David Zhao, Alessandro Rinaldo, Christopher Brookins
Abstract: Few assets in financial history have been as notoriously volatile as cryptocurrencies. While the long term outlook for this asset class remains unclear, we are successful in making short term price predictions for several major crypto assets. Using historical data from July 2015 to November 2019, we develop a large number of technical indicators to capture patterns in the cryptocurrency market. We then test various classification methods to forecast short-term future price movements based on these indicators. On both PPV and NPV metrics, our classifiers do well in identifying up and down market moves over the next 1 hour. Beyond evaluating classification accuracy, we also develop a strategy for translating 1-hour-ahead class predictions into trading decisions, along with a backtester that simulates trading in a realistic environment. We find that support vector machines yield the most profitable trading strategies, which outperform the market on average for Bitcoin, Ethereum and Litecoin over the past 22 months, since January 2018.
Deep Reinforcement Learning in Cryptocurrency Market Making
Authors: Jonathan Sadighian
Abstract: This paper sets forth a framework for deep reinforcement learning as applied to market making (DRLMM) for cryptocurrencies. Two advanced policy gradient-based algorithms were selected as agents to interact with an environment that represents the observation space through limit order book data, and order flow arrival statistics. Within the experiment, a forward-feed neural network is used as the function approximator and two reward functions are compared. The performance of each combination of agent and reward function is evaluated by daily and average trade returns. Using this DRLMM framework, this paper demonstrates the effectiveness of deep reinforcement learning in solving stochastic inventory control challenges market makers face.
Competition of noise and collectivity in global cryptocurrency trading: route to a self-contained market
Authors: Stanisław Drożdż, Ludovico Minati, Paweł Oświęcimka, Marek Stanuszek, Marcin Wątorek
Abstract: Cross-correlations in fluctuations of the daily exchange rates within the basket of the 100 highest-capitalization cryptocurrencies over the period October 1, 2015, through March 31, 2019, are studied. The corresponding dynamics predominantly involve one leading eigenvalue of the correlation matrix, while the others largely coincide with those of Wishart random matrices. However, the magnitude of the principal eigenvalue, and thus the degree of collectivity, strongly depends on which cryptocurrency is used as a base. It is largest when the base is the most peripheral cryptocurrency; when more significant ones are taken into consideration, its magnitude systematically decreases, nevertheless preserving a sizable gap with respect to the random bulk, which in turn indicates that the organization of correlations becomes more heterogeneous. This finding provides a criterion for recognizing which currencies or cryptocurrencies play a dominant role in the global crypto-market. The present study shows that over the period under consideration, the Bitcoin (BTC) predominates, hallmarking exchange rate dynamics at least as influential as the US dollar. The BTC started dominating around the year 2017, while further cryptocurrencies, like the Ethereum (ETH) and even Ripple (XRP), assumed similar trends. At the same time, the USD, an original value determinant for the cryptocurrency market, became increasingly disconnected, its related characteristics eventually approaching those of a fictitious currency. These results are strong indicators of incipient independence of the global cryptocurrency market, delineating a self-contained trade resembling the Forex.
Internet of Things (IoT)
Enabling Opportunistic Users in Multi-Tenant IoT Systems using Decentralized Identifiers and Permissioned Blockchains
Authors: Nikos Fotiou, Iakovos Pittaras, A. Vasilios Siris, C. George Polyzos
Abstract: In this work, we leverage advances in decentralized identifiers and permissioned blockchains to build a flexible user authentication and authorization mechanism that offers enhanced privacy, achieves fast revocation, and supports distributed “policy decision points” executed in mutually untrusted entities. The proposed solution can be applied in multi-tenant “IoT hubs” that interconnect diverse IoT silos and enable authorization of “guest” users, i.e., opportunistic users that have no trust relationship with the system, which has not encountered or known them before.
Mathematical
Just Enough Security: Reducing Proof-of-Work Ecological Footprint
Authors: Itay Tsabary, Alexander Spiegelman, Ittay Eyal
Abstract: Proof-of-work (PoW) mechanisms secure about~80\% of the \$250B cryptocurrency market. PoW requires system participants to expend computational resources, and protects the system from attackers who cannot expend resources at an equivalent rate. These systems operate in the~\emph{permissionless} setting and compensate their users with cryptocurrency, having a monetary value. As cryptocurrency prices sore so do the invested resources, and Bitcoin expenditures alone are~0.24\% of the global electricity consumption. Arguably, this is superfluous, and lowering the ecological footprint justifies settling for a lower attack threshold. We present novel protocols that allow the system designer to accurately trade off security for expenditure reduction. To the best of our knowledge, this is the first work to do so without adding qualitatively stronger model assumptions. Moreover, our protocols reduce PoW resource expenditure significantly, but with only limited security degradation. To analyze these protocols We refine the common blockchain model to take into account the cryptocurrency value in real terms, expenditure, and security metrics, distinguishing common revenue-seeking attacks from sabotage. Our analysis of game-theoretic and economical properties of the protocols can be used to tune blockchain security to its required level and limit its ecological damage.
iCurrency?
Authors: Zura Kakushadze, Willie Yu
Abstract: We discuss the idea of a purely algorithmic universal world iCurrency set forth in [Kakushadze and Liew, 2014] (https://ssrn.com/abstract=2542541) and expanded in [Kakushadze and Liew, 2017] (https://ssrn.com/abstract=3059330) in light of recent developments, including Libra. Is Libra a contender to become iCurrency? Among other things, we analyze the Libra proposal, including the stability and volatility aspects, and discuss various issues that must be addressed. For instance, one cannot expect a cryptocurrency such as Libra to trade in a narrow band without a robust monetary policy. The presentation in the main text of the paper is intentionally nontechnical. It is followed by an extensive appendix with a mathematical description of the dynamics of (crypto)currency exchange rates in target zones, mechanisms for keeping the exchange rate from breaching the band, the role of volatility, etc.
Proof of Work (PoW) alternatives
More (or Less) Economic Limits of the Blockchain
Authors: Neil Gandal, S. Joshua Gans
Abstract: This paper extends the blockchain sustainability framework of Budish (2018) to consider proof of stake (in addition to proof of work) consensus mechanisms and permissioned (where the number of nodes are fixed) networks. It is demonstrated that an economically sustainable network will involve the same cost regardless of whether it is proof of work or proof of stake although in the later the cost will take the form of illiquid financial resources. In addition, it is shown that regulating the number of nodes (as in a permissioned network) does not lead to additional cost savings that cannot otherwise be achieved via a setting of block rewards in a permissionless (i.e., free entry) network. This suggests that permissioned networks will not be able to economize on costs relative to permissionless networks.
Linear Consistency for Proof-of-Stake Blockchains
Authors: Erica Blum, Aggelos Kiayias, Cristopher Moore, Saad Quader, Alexander Russell
Abstract: The blockchain data structure maintained via the longest-chain rule—popularized by Bitcoin—is a powerful algorithmic tool for consensus algorithms. Such algorithms achieve consistency for blocks in the chain as a function of their depth from the end of the chain. While the analysis of Bitcoin guarantees consistency with error $2^{-k}$ for blocks of depth $O(k)$, the state-of-the-art of proof-of-stake (PoS) blockchains suffers from a quadratic dependence on $k$: these protocols, exemplified by Ouroboros (Crypto 2017), Ouroboros Praos (Eurocrypt 2018) and Sleepy Consensus (Asiacrypt 2017), can only establish that depth $Θ(k^2)$ is sufficient. Whether this quadratic gap is an intrinsic limitation of PoS—due to issues such as the nothing-at-stake problem—has been an urgent open question, as deployed PoS blockchains further rely on consistency for protocol correctness. We give an axiomatic theory of blockchain dynamics that permits rigorous reasoning about the longest-chain rule and achieve, in broad generality, $Θ(k)$ dependence on depth in order to achieve consistency error $2^{-k}$. In particular, for the first time, we show that PoS protocols can match proof-of-work protocols for linear consistency. We analyze the associated stochastic process, give a recursive relation for the critical functionals of this process, and derive tail bounds in both i.i.d. and martingale settings via associated generating functions.
A Blockchain Consensus Protocol Based on Dedicated Time-Memory-Data Trade-Off
Authors: J. Miodrag Mihaljevic
Abstract: A problem of developing the consensus protocols in public blockchain systems which spend a combination of energy and space resources is addressed. A technique is proposed that provides a flexibility for selection of the energy and space resources which should be spent by a player participating in the consensus procedure. The technique originates from the cryptographic time-memory-data trade-off approaches for cryptanalysis. The proposed technique avoids the limitations of Proof-of-Work (PoW) and Proof-of Space (PoS) which require spending of only energy and space, respectively. Also, it provides a flexibility for adjusting the resources spending to the system budget. The proposed consensus technique is based on a puzzle where the problem of inverting one-way function is solved employing a dedicated Time-Memory-Data Trade-Off (TMD-TO) paradigm. The algorithms of the consensus protocol are proposed which employ certain unconstrained and constrained TMD-TO based inversions. Security of the proposed technique is considered based on the probability that the honest pool of nodes generate a longer extension of the blockchain before its update, and a condition on the employed parameters in order to achieve desired security have been derived. Implementation complexity of the proposed consensus protocol is discussed and compared with the complexities when PoW and PoS are employed.
Optical Proof of Work
Authors: Michael Dubrovsky, Marshall Ball, Bogdan Penkovsky
Abstract: Most cryptocurrencies rely on Proof-of-Work (PoW) “mining” for resistance to Sybil and double-spending attacks, as well as a mechanism for currency issuance. Hashcash PoW has successfully secured the Bitcoin network since its inception, however, as the network has expanded to take on additional value storage and transaction volume, Bitcoin PoW’s heavy reliance on electricity has created scalability issues, environmental concerns, and systemic risks. Mining efforts have concentrated in areas with low electricity costs, creating single points of failure. Although PoW security properties rely on imposing a trivially verifiable economic cost on miners, there is no fundamental reason for it to consist primarily of electricity cost. The authors propose a novel PoW algorithm, Optical Proof of Work (oPoW), to eliminate energy as the primary cost of mining. Proposed algorithm imposes economic difficulty on the miners, however, the cost is concentrated in hardware (capital expense-CAPEX) rather than electricity (operating expenses-OPEX). The oPoW scheme involves minimal modifications to Hashcash-like PoW schemes, inheriting safety/security properties from such schemes.
Rapid growth and improvement in silicon photonics over the last two decades has led to the commercialization of silicon photonic co-processors (integrated circuits that use photons instead of electrons to perform specialized computing tasks) for low-energy deep learning. oPoW is optimized for this technology such that miners are incentivized to use specialized, energy-efficient photonics for computation.
Beyond providing energy savings, oPoW has the potential to improve network scalability, enable decentralized mining outside of low electricity cost areas, and democratize issuance. Due to the CAPEX dominance of mining costs, oPoW hashrate will be significantly less sensitive to underlying coin price declines.
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