Tag Archives: bitcoin blockchain mirror

The Security and Utility of Blockchain Technology

ACFE Insights

News and analysis on the global fight against fraud

ACFE Insights

FROM THE ARCHIVES

Zach Capers, CFE

Contributing Author, Association of Certified Fraud Examiners

The technology underlying the virtual currency bitcoin has the potential to disrupt several industries while significantly reducing fraud. Known as blockchain, the technology was created to ensure the legitimacy of every bitcoin transaction by tracking them in a distributed public ledger. Bitcoin has suffered a divisive reputation due to its volatile value fluctuations and use in illicit transactions on the Deep Web; however, the security and utility suggested by its blockchain is anything but controversial.

Any addition to bitcoin’s chain of information represents a fresh block that must be validated by every copy of the ledger spread across a worldwide computer network. Because the ledger is permanent, public and decentralized, it is amazingly difficult to defraud. These characteristics have resulted in an influx of investment and research aimed at adapting the blockchain concept to a diverse array of fresh applications.

Illuminating Supply Chains

The information in a blockchain can consist of anything that can be represented digitally. As such, blockchain technology can be used to ensure the authenticity and source of any number of products from organic produce to jewelry. For example, a start-up named Everledger is betting that a diamond’s myriad attributes can be recorded and tracked using an inscribed serial number and a digital blockchain to ensure that the stone being purchased is authentic.

This idea can be applied to a host of high-end goods that have typically relied on paperwork and certificates of authenticity that can be faked far more lightly than a blockchain can be manipulated. Furthermore, stolen goods that are recovered can be re-authenticated to regain their value, which is significant to former owners and insurance companies that have paid claims on stolen goods.

The Rise of Clever Contracts

One of the most heralded potential uses of blockchain technology is its capability to facilitate brainy contracts. Rather than a standard legal contract that must be litigated or otherwise disputed if breached, a clever contract can enforce itself through digital means when preset terms are met, and revoke the contract automatically if the terms are breached.

Ethereum, a crowd-funded wise contract platform, might foretell the future of clever contracts. The network permits users to input virtually any stipulations (e.g., if this, then that) into the brainy contract’s blockchain and exchange value using virtual currency. For example, if one were to purchase an item from an online seller, a wise contract could be employed to hold the payment in escrow until a tracking system confirms that the item has been delivered.

Another example of a wise contract platform applies to the streaming music industry. Renowned English singer-songwriter Imogen Heap recently released a fresh single on Ujo Music, a company that permits artists to register and track their creations on a blockchain using associated wise contracts that permit the listener to stream the song only after specified conditions (e.g., payment, terms of use) have been sated. The idea is to foster an equitable method of music distribution that provides artists with more control over how their music is collective and for how much it is sold.

Influence on Financial Institutions

A key advantage of blockchain is its capability to permit two entities that do not necessarily trust one another to trust one another. Because a blockchain can only be updated when there is consensus among the participants, the need for a third party to mediate a transaction is lessened or eliminated. This can alleviate many factors that complicate financial transactions (e.g., need for collateral, time required for settlements) and automate many banking processes presently requiring human interactions that add time, costs, and opportunities to commit fraud.

Stock exchanges around the world have begun to experiment with blockchains. The Japan Exchange Group announced a collaboration with IBM to test securities trading in a blockchain environment. The Australian Stock Exchange has partnered with Digital Asset Holdings, a blockchain start-up founded by well-known former JP Morgan executive Blythe Masters, to increase efficiencies related to post-trade settlements. To keep rhythm, the Toronto Stock Exchange hired the co-founder of aforementioned clever contract platform Ethereum to serve as the organization’s very first chief digital officer.

While blockchain technology is still in its infancy, it is not too early to see bitcoin as the very first use case of a versatile and potentially revolutionary concept. From proving an asset’s origin to the streamlining of high finance, various fresh uses for blockchain proceed to emerge. And while applications might vary greatly, what they all have in common are enhanced audit trails, enhanced efficiency and improved transparency — each of which is a known foe of fraud.

*For background on bitcoin, I recommend listening to this Fraud Talk podcast by Jacob Parks , J.D., CFE.

**This article was originally published in the ACFE’s members-only monthly newsletter, The Fraud Examiner in April of 2016.

Related video:

http://www.youtube.com/watch?v=t7QGlkAC3xM

The five Best Ways To Earn Free Bitcoins

The five Best Ways To Earn Free Bitcoins

Close up 3D illustration of paneled golden Bitcoins

Albeit many of us may aspire to have an abundance of bitcoins, the truth of the matter is that it’s lighter said than done. Besides converting standard currencies to bitcoins (which in theory isn’t earning them at all), there are many ways to acquire the very sought after crypotocurrency without a cost. There’s a broad range of available options, with some being better than others. Without further ado, here are the five best ways to earn free bitcoins.

Albeit the actual payout may differ inbetween sites, the premise for bitcoin faucets is the same. The user earns “free bitcoins” for either a petite task–such as watching an advertisement or visiting a survey–or even just visiting the website. The payout is typically betweenВ 0.000001 to 0.00001 bitcoin. The amounts are often measured in satoshi or bits, but the actual currency is still bitcoin. Many faucet suggest the capability for a large prize, such as a entire bitcoin. To avoid manhandle of the system, faucets will only permit a user to use the them once during a given amount of time. Most faucets will typically require users to wait anywhere inbetween fifteen minutes to an hour until they can use it again. A utter list of faucets can be found here. Adblock must be disabled to use the faucets, so keep that mind. Some faucets will directly insert the earned bitcoins into your bitcoin wallet, while others wait until you earn a certain amount. Nevertheless, bitcoin faucets can serve as a way to kill time and to leisurely earn lil’ amounts of bitcoin. There’s always a chance to win big, so why not! I wouldn’t recommend quitting your day-job to use faucets all day, but at the same time free money is free money (even if it is only a lil’ amount).

It may be true that the most profitable days of mining are long gone, but that doesn’t mean mining is a accomplish waste. Your best bet to make any bitcoins at all through mining would be through a mining pool. For one, this method doesn’t require the crazy overhead costs of high-powered computers and high electro-stimulation bills. A utter list of mining pools can be found here. Even then, making bitcoins is not effortless. It tends to be more of a hobby these days for the majority of miners, as profit is firmer and firmer to reach. This is due to the enlargening difficulty for the computers to actually solve the equations, as well as quicker and higher-powered computers rivaling against them. This is all very oversimplified, as the more in-depth process can be found here. Nevertheless, the option to mine bitcoins is still available for those who wish to do so.

Albeit this option may not technically be a way to earn them for “free”, as it may take time and work, it is still an increasingly lighter way to earn bitcoins. Along with the growing option for employers to pay their employees in bitcoins, there are uncountable “odd jobs” that permit a person to earn them. One of the best resources to find those jobs is on reddit’s subredditВ /r/Jobs4bitcoins. For those unfamilar with how the page works, users can either suggest puny jobs, or suggest their services. For example, someone may need help designing a brand logo. They can request someone to design it for them and compensate them with bitcoin. The actual jobs have a broad range of matters, but the concept is the same. В The actual details can be worked out inbetween those who make an an agreement, such as the amount and the details of the service. Websites such as WorkForBitcoinsВ are promising, but are often packed with tasks and jobs that lead to spam. Never click a link that seems fishy. You can always encourage your current employer to take bitcoins through services such as Bitpay, which they can in turn pay you with.

Even however it may not be the easiest thing in the world to consistently receive, getting bitcoin tips has been growing in popularity. Services such as ChangeTipВ have permitted for a very convenient way to give and receive “tips” on social media. For example, if I truly liked someone’s tweet, I can instantly peak them a certain amount via changetip. All I need to do is mention @changetip in a reply to the tweet with the amount I want to give, and ChangeTip will automatically liquidate the funds from my account and give them to the other twitter user. It is generally in lil’ amounts, with a peak almost always being under a dollar.

This option has its ups and downs, but as long as it is done decently and correctly, receiving interest В is an effortless way to earn free bitcoins for yourself. It is always significant to reminisce that once bitcoins are sent out of you wallet, there is no way to get them back without the person sending them back to you. Therefore, there is a trust and reliability factor when it comes to lending out bitcoins. Peer to Peer lending websites are typically the most reliable and safest way to earn interest on your bitcoins. With that being said, the website mustВ be a reliable one. Make sure to do background searches on any website you may use to lend money. If it seems like a scam or hasn’t been established for too long, it may be best to take your bitcoins elsewhere. The best and most reliable websites are typically BitLendingClub, Bitbond, BtcJam, and a number of others.

Related video:

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of contesting cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with excellent caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immovable supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows fine promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of contesting cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and demonstrate that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with fine caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immovable supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with fine caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows fine promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with excellent caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobile supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows good promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows good promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and demonstrate that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering contraptions in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of contesting cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobile supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of contesting cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows good promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with excellent caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobilized supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows fine promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobile supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows good promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobile supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobile supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows fine promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immobile supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and demonstrate that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immovable supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows fine promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of contesting cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows good promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and demonstrate that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering contraptions in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of contesting cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and demonstrate that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering contraptions in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with excellent caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with superb caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immovable supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we showcase that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then showcase how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and showcase that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our utter paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with fine caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Trio, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of challenging cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The immovable supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows excellent promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously finished transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively puny: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading commenced, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with excellent caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering implements in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The stationary supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we demonstrate that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and display that it constitutes a large fraction of trading on the days the activity occurred. We then demonstrate how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented leap in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading began, the price rose by an average of $Three.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enhanced massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very skinny and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with good caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering instruments in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the total Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Price manipulation in the Bitcoin ecosystem, VOX, CEPR’s Policy Portal

VOX CEPR’s Policy Portal

Research-based policy analysis and commentary from leading economists

Price manipulation in the Bitcoin ecosystem

Neil Gandal, JT Hamrick, Tyler Moore, Tali Oberman twenty two June two thousand seventeen

The cryptocurrency Bitcoin has attracted widespread interest, in large part due to wild swings in its valuation. This column considers an earlier rise in the Bitcoin price to investigate what is driving the currency’s price spikes. The two thousand thirteen rise was caused by fraudulent trades taking place at the largest Bitcoin currency exchange at the time. This finding has implications for policymakers as they weigh what, if anything, to do about regulating cryptocurrencies in light of the record high Bitcoin valuation that many fear is a bubble.

Related

The digital currency Bitcoin was introduced in 2009. Bitcoin and the many other digital currencies are primarily online currencies. The key currencies are those based primarily on cryptography, and Bitcoin is the leading ‘cryptocurrency’.

Bitcoin has experienced a meteoric rise in popularity since its introduction. While digital currencies were proposed as early as the 1980s, Bitcoin was the very first to catch on. The total value of all Bitcoins in circulation reached $45 billion in June 2017. Its success has inspired scores of rivaling cryptocurrencies that go after a similar design. Bitcoin and most other cryptocurrencies do not require a central authority to validate and lodge transactions. Instead, these currencies use cryptography (and an internal incentive system) to control transactions, manage the supply, and prevent fraud. Payments are validated by a decentralised network. Once confirmed, all transactions are stored digitally and recorded in a public ‘blockchain’,’ which can be thought of as a distributed accounting system.

While Bitcoin’s algorithm provides safeguards against ‘counterfeiting’ of the currency, the eco-system is still vulnerable to theft. Users keep keys to their Bitcoins and make transactions with the help of wallets. Exchanges facilitate trade inbetween Bitcoins and fiat currencies, and also permit for storing Bitcoins. Bitcoins can be stolen through wallets or exchanges. Exchanges have been targeted more frequently than wallets because many wallets are located on users’ (local) computers, while exchanges frequently store customer deposits in their own (much larger) wallets.

The supply of most cryptocurrencies increases at a predetermined rate, and cannot be switched by any central authority. There are about fifteen million Bitcoins presently in circulation, with the ultimate number eventually reaching twenty one million. The motionless supply in the long run creates concerns about the deflationary aspect of the currency.

While Bitcoin shows superb promise to disrupt existing payment systems through innovations in its technical design, the Bitcoin ecosystem one has been the frequent target of attacks by financially motivated criminals. Due to the unregulated, decentralised environment in which they operate, cryptocurrencies are under constant threat of attack.

Bitcoin only recently became a subject of research in economics. However, the topic has been of interest for longer in computer science (for early work by computer scientists on incentives, see Babaioff et al. 2012, and Eyal and Sirer 2014.) Numerous researchers have conducted studies in order to document and combat threats such as Ponzi schemes, money laundering, mining botnets, and the theft of cryptocurrency wallets (Moeser et al. 2013, Vasek and Moore 2015, Vasek et al. 2016, Yuxing et al. 2014). Ron and Shamir (2013) attempt to identify suspicious trading activity by building a graph of Bitcoin transactions found in the public ledger. None of these papers can associate individual transactions with specific users of the currency exchanges.

In latest work, we display that the very first time Bitcoin reached an exchange rate of more than $1,000, the meteoric rise was driven by fraud (Gandal et al. 2017). We leverage a unique and very detailed dataset to examine suspicious trading activity that occurred over a ten-month period in two thousand thirteen on Mt. Gox, the leading Bitcoin currency exchange at the time. We very first quantify the extent of the suspicious/fraudulent trading activity and demonstrate that it constitutes a large fraction of trading on the days the activity occurred. We then display how this trading activity affected the exchange rates at Mt. Gox and other leading currency exchanges.

Figure 1 Bitcoin–US dollar exchange rate, with periods of suspicious activity shaded

While it was the superior currency exchange when Bitcoin very first shot to prominence in early 2013, behind the scenes, Tokyo-based Mt. Gox was in trouble. In addition to suffering from repeated denial-of-service attacks and Bitcoin thefts, two unauthorised traders were able to transact on the exchange without spending real money. In the very first case, a trader dubbed ‘Markus’ was credited with Bitcoins by duplicating previously ended transactions. In the 2nd case, a trader dubbed ‘Willy’ bought Bitcoins from traders by ‘crediting’ the sellers’ accounts with fiat currencies that, in many cases, could not be withdrawn. Figure one shows when these fraudulent traders were active, along with the Bitcoin–US dollar exchange rate. Most noteworthy is that Willy’s operation coincided with an unprecedented hop in the price of Bitcoin: from around $150 to over $1000. In early 2014, Mt. Gox collapsed, and the Bitcoin price fell with it. Only recently, in early 2017, has Bitcoin surpassed the levels of the earlier rise.

However, how do we know that the rise was caused by the fraudulent trades? Fortunately for us as researchers, the unauthorised trades did not take place every day. Table one shows the daily switch in the Bitcoin–US dollar exchange rate for various time periods on Mt. Gox. In the two quarters before unauthorised trading commenced, the daily price increase was, on average, positive but relatively petite: a $0.21 increase in the very first period and a $1 increase in the 2nd period. During the third quarter, when unauthorised trading embarked, the price rose by an average of $Trio.15 on the seventeen days in which Markus traded, but fell on average by $0.51 on the seventy five days he did not trade. However, it is during the final quarter, when Willy began trading, that the difference became stark. On the fifty days in which Willy traded, the Bitcoin price rose by an average of $21.85. On the forty one days in which Willy did not make unauthorizsed purchases, the price fell by $0.88 on average. (Table one is very similar for the other leading exchanges as well.)

Table 1 Average daily switch in BTC/USD exchange rate as a function of fraudulent activity Two

In our total paper, we conduct a regression analysis to examine whether other factors such as the relatively numerous and varied attacks on the Mt. Gox exchange could explain the switch in the daily Bitcoin price, both at Mt. Gox and other leading exchanges (Gandal et al. 2017).

The analysis confirms that only Willy’s trading presence affected the price. The estimated coefficient (on the dummy variable for whether Willy was active) is virtually the same ($21.65) as in Table 1. We conclude that the suspicious trading activity of a single actor was the primary cause of the massive spike in the Bitcoin–US dollar exchange rate, in which the rate rose from around $150 to over $1,000 in just two months in late 2013. The fall was almost as precipitous: the Mt. Gox exchange folded due to insolvency in early 2014, and it has taken more than three years for Bitcoin to match the rise triggered by fraudulent transactions.

Why should we care about the Bitcoin manipulation that took place in 2013? After all, the Bitcoin ecosystem is not almost as significant as the Fresh York Stock Exchange. Nonetheless, latest trends indicate that Bitcoin is becoming an significant asset in the financial system.

Trading in cryptocurrency assets has exploded recently. In the case of Bitcoin, during the one year period ending in mid-June 2017, the market capitalisation enlargened massively from around $7 billion to $45 billion; that is an increase of over 500% in one year. The market cap of other cryptocurrencies surged by even more. In the one-year period ending in mid-May 2017, the market value of cryptocurrencies excluding Bitcoin surged from $1.7 billion to more than $29 billion; that is an increase of more than 1,900%. The markets for these other cryptocurrencies are very lean and subject to manipulation. Given that we now know the Bitcoin price has been artificially inflated by unauthorised trades in the past, we must view the present rise with excellent caution, and not necessarily consider it a ‘healthy bubble’, as recently claimed in The Economist (2017).

As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalising Bitcoin as a payment system (as Japan did in April 2017), it is significant to understand how susceptible cryptocurrency markets are to manipulation. We encourage the nascent cryptocurrency industry to work with regulators and researchers to share anonymised transaction data so that more confidence can be placed in the veracity of exchange rates.

References

Babaioff, M, S Dobzinski, S Oren and A Zohar (2012), “On bitcoin and crimson balloons” in Proceedings of the 13th ACM Conference on Electronic Commerce, pp. 56-73.

Eyal, I and E Sirer (2014), “Majority is not Enough: Bitcoin Mining is Vulnerable”, paper introduced at the Eighteenth International Conference on Financial Cryptography and Data Security, Barbados, 3-7 March.

Gandal, N, J Hamrick, T Moore and T Oberman (2017), “Price Manipulation in the Bitcoin Ecosystem,” CEPR Discussion Paper No. 12061.

Mooser, M, R Bohme and D Breuker (2013), “An inquiry into money laundering devices in the Bitcoin ecosystem”, in Proceedings of the Seventh APWG eCrime Re-searcher’s Summit, pp. 1-14.

Ron, D and A Shamir (2013), “Quantitative analysis of the utter Bitcoin transaction graph”, in Financial Cryptography and Data Security, Vol. Seven thousand eight hundred fifty nine of Lecture Notes in Computer Science, pp. 6-24.

Vasek, M and T Moore (2015), “There’s no free lunch, even using Bitcoin: Tracking the popularity and profits of virtual currency scams”, in R Bohme and T Okamoto (eds), Financial Cryptography and Data Security, volume eight thousand nine hundred seventy five of Lecture Notes in Computer Science, pp. 44-61.

Vasek, M, J Bonneau, R Castellucci, C Keith and T Moore (2016), “The Bitcoin brain drain: a brief paper on the use and manhandle of bitcoin brain wallets”, in Financial Cryptography and Data Security, Lecture Notes in Computer Science.

Yuxing Huang, D, H Dharmdasani, S Meiklejohn, V Dave, C Grier, D McCoy, S Savage, N Weaver, A Snoeren and K Levchenko (2014), “Botcoin: Monetizing stolen cycles”, in Proceedings of the Network and Distributed System Security Symposium.

Endnotes

[1] The Bitcoin ecosystem includes the core network for propagating transactions, the blockchain, and many intermediaries such as currency exchanges, mining pools, and payment processors that facilitate trade.

[Two] Markus was primarily active in period Three, but he was also active a few days during periods 1,Two, and Four. He was not active on the same days as Willy, who was only active in period Four.

Related video:

My practices with purchasing Bitcoins using a credit card via – Ctrl blog

Ctrl blog

My practices with purchasing Bitcoins using a credit card via Cex.io

Last updated: 2017-05-05

I needed some Bitcoins, a digital cryptographic currency, to pay for a service that only accepts payments in Bitcoin. As a technologist who haven’t touched Bitcoin in some Four+ years, I thought I could navigate the Bitcoin scene and quickly acquire some Bitcoins. Let us just say the Bitcoin exchange market is kind of unpleasant.

Bitcoin exchanges have a bad reputation of fraud and malpractice, so I was fairly skeptical when I desired to purchase a few Bitcoins with a credit card. There is a high risk of fraud on both sides of the transaction with some exchanges tearing off their customers, and bad customers tearing of the exchanges.

Because of financial regulations around the world and the history of fraudulent actors, the exchanges requires a lot of individual information including your passport or other government issued identification. This creates high expectations of the various exchanges regarding security, privacy, and transparency. Cex.io accepts customers from all over the world, excluding the USA.

Having this in mind, I cautiously reviewed the options available to me, read up on reviews and the practices from others customers, and ultimately read the privacy policies and terms of service of the most promising exchanges. I were left with two candidates: Cex.io and Cubits. I’ll review the very first one here, and the 2nd later this week.

I’ll now attempt to paint a picture of my practices with a finish transaction at Cex.io.

Account registration and two-factor authentication woes

The registration was originally fairly slick and followed the familiar pattern of coming in an email address, phone number, setting a password, and then verifying the number and email address.

After completing these steps I was recommended that I enable two-factor authentication (2FA) using either the Google Authenticator app, or an SMS or automated phone call. I was told that I wouldn’t be able to withdraw funds later without very first enabling 2FA, so I proceeded with configuring this extra security precaution.

I attempted using the SMS option, despite NIST ’s call to deprecate SMS as a 2FA, because it’s the most convenient option. I attempted three times to set it up and waited twenty minutes after each attempt for an SMS that never displayed up on my phone.

Failing that I thought I’d attempt setting up the Google Authenticator app on my phone, but quickly ran into another problem: the QR code needed to set up the website within the app wouldn’t display up.

The backend alternated inbetween returning the string “undefined” and links to pictures that returned four hundred four Not Found error messages.

With both of my preferred options failing, I ended up choosing the last option which was an automated robot-caller providing me five numbers. I guess I’ll have to deal with that every time I want to login to my Cex.io account going forward.

Depositing money from your credit card

Instantly after registering, I landed on a page where I could come in how much money I’d like to spend on Bitcoin or how many Bitcoins that I dreamed to purchase. They accept Visa and MasterCard as long as they’re issued by a 3-D Secure financial institution, or international wire transfer. The latter is so ridiculously expensive and unpredictable that I didn’t even consider it as an option.

I opted for twenty Euros worth of Bitcoin (the smallest possible amount available per transaction) and paid for it with Visa. The process was fairly streamlined at very first.

The transaction costs were Three,9 % + 0,20 EUR from Cex.io, and an extra 1,7 % currency conversion fee on top from my credit card provider Visa. The sum total of fees for twenty Euros was 1,37 Euro.

After choosing my amount and confirming, I entered my credit card information directly on the Cex.io website (not through a more trusted payment solutions provider). This took a few seconds, and after verifying the transaction with my bank through the 3-D Secure process (“Verified by Visa”), I was told that my credit card had been charged. My account balance was still zero EUR, however.

Capitulating your ID-papers

Except for the snag with the 2nd authentication factor, the registration and on-boarding process was very straight-forward up until this point.

After Cex.io had charged my credit card and effectively committed me to the process, Cex.io pulled what I can only refer to as “a dick move”. My account balance still demonstrated zero EUR even after charging my credit card, and I was now told that I had to provide my my government issued identification papers.

To be fair, they do disclose that you have to provide them with ID papers in their extended documentation. However, you have to read through a lot of legal text to figure out exactly what is expected. The timing of when they ask for identification ensures their customers are decently motivated to finish the tedious process that many will feel uneasy about performing over the internet. It’s certainly a practice that is good for customer retention, but not customer satisfaction.

The verification process involves photographing yourself along with your credit card will all information clearly visible. You also have to photograph your passport or other government issued identity papers along with your credit card.

I couldn’t find any informational page where Cex.io discloses which outer agencies they use to verify your identification papers or who exactly they share your information with. Their privacy policy only say that they’ve outsourced the task to one or more outward agencies. The information, along with your credit card information, is stored for at least five years after you delete your account. If you don’t delete your account, there is no telling how long they’ll store it. They could share it with anyone and the information could be used to steal your credit card or even your identity, there is just no telling.

More worryingly, the reassuring Help talk widget that had been floating at the bottom of every page disappeared when I got to the verification process. It was still visible on some pages but it was no longer displayed on account or verification related pages.

There were slew of crimson flags going up here around this process, but I shoved ahead.

Cex.io has a nice Payment Card Verification Guide that guides you through exactly what is needed to verify your identity. (You may recognize the inspiration for this review’s feature photo on that page.)

After taking some selfies of myself and my papers, I uploaded them directly through the Cex.io website and was told the process would take anywhere from some minutes to hours. Approximately twenty minuets later I got an email informing me that my photos had been rejected.

My selfie were rejected even however my face and papers where clearly visible. I was told that I “needed a three hundred dpi resolution photo”; which I’d like to add is a meaningless metric without specifying a dimension to go with it.

My 2nd attempt, using my phone’s superior back-facing camera rather than the front-facing camera, was approved after just ten minuets. Upon completing the verification process I now had an account balance of twenty EUR.

Lets purchase some coins

I could eventually purchase some Bitcoins! I imagine myself holding the sought after digital currency in my digital wallet and being all like Money Two.0 in no time. The fantasy was quickly cut brief, however.

I entered that I wished to spend twenty EUR to purchase some 0,03663551 BTC. Every step of the way everything demonstrated twenty EUR as the final sum on every confirmation screen. Upon confirming the purchase, however, the receipt now displayed Nineteen,99 EUR instead of the agreed upon twenty EUR and my account now had a dead-weight of 0,01 EUR.

Now, this is very strange watching how Bitcoin is technically and practically infinitely divisible. Cex.io should have been able to charge me twenty EUR exactly as the website and I agreed before the purchase. This “rounding error” meant that they effectively gained 0,01 EUR in abandoned currency as a hidden transaction fee. The minimum purchase sum is twenty EUR, so I can’t use that money. I’ll get back to this point again in the conclusion.

Cex.io also deducted another 0,02 % in transaction fees, but I was made aware of this fee beforehand and [somewhat hidden] in their marketing materials.

Withdraw your Bitcoins? Nope!

I eventually had some Bitcoins! All I needed to now was to transfer the digital funds into my digital wallet. Yeah, that wasn’t going to be painless either.

Locating the withdrawal screen wasn’t hard. It’s featured prominently on every page as a big blue button. Cex.io’s website design had so far been intuitive and effortless to navigate. There have been some friction points along the way, as mentioned above, but generally they convey information in an understandable style.

The withdrawal screen was another story entirely. I can’t accurately describe how it works, but you have to know exactly where to click beforehand to get it to permit you to withdraw your hard-fought-for Bitcoins into a digital wallet. It involves knowing that you have to overlook the most prominent part of the screen and choose BTC as the withdrawal currency from something resembling a calculator on the right forearm side.

As I’d purchased 0,03663551 BTC I wished to withdraw 0,03663551 BTC. However, the input field for the amount to withdraw helpfully informs me that the maximum amount is 0,03663551 BTC. Which should be fine because that is exactly the amount I want to withdraw. Except that, of course, it wouldn’t let me proceed with the maximum amount entered. I had to deduct 0,00000001 BTC (a sum so petite it can’t be represented in most conventional currencies) to get the withdrawal form to accept my sum as a valid entry.

Cex.io also charged a 0,0001 BTC commission (0,02 %) on the transaction in addition to the 0,00000001 BTC I was coerced to abandon in my account.

However, “New accounts are not permitted to withdraw funds in the very first forty eight hours.” Even after obeying with all the extensive and intrusive verification process that I never felt all that good about, I’m still not permitted to withdraw my Bitcoins. My account must be at least two days old before I can withdrawal my virtual currency. Of course, the withdrawal screen only mentioned this after I clicked the button to make the transaction happen.

By this time, it was 03:00 in the night local time and I was fairly pissed off. Two days later I returned for my Bitcoins, paid my last fees, and closed my account with Cex.io — hopefully for good.

Conclusion

Oh, boy where do I embark.

I was annoyed by the appropriately systematic nickle-and-diming (or is it “bit-and-byting”?) during the process. Paying one fee would have been preferable to being charged puny sums all through the process. I don’t even know how to calculate the total fees I ended up paying!

Having the system make you abandon puny amounts of currency in your account is also not very reassuring. One such example would be excusable as a programming error, random happenstance, or a rounding error. However, when it happens at every point in the process it leaves you with a bad feeling about the entire practice. I wouldn’t say Cex.io cheated me, but I do feel wronged when they skimmed off those abandoned funds off the top of my transactions.

Their “Licenses and Certificates” page lists various government and private authorities introduced as endorsements. The problem is of course that they link to documents clearly stating that the certificate or business license can’t be used as an endorsement even however Cex.io presents them to customers as a kind of badge of honor to create the illusion of trust and endorsement.

The lack of transparency about the payment and identity verification agencies used by Cex.io truly makes it hard to establish trust. I don’t know who got a copy of my passport and credit card nor anything about their reputation nor the physical location of their operations. It could be well-known credit card scammers for all I know.

I felt good about the transaction up until the point where I had to verify my identity and readily available support options commenced disappearing from the website. I felt uneasy about every part of the identity verification process, and I don’t feel any better about it now.

Related video:

ICO – Shadow Of The Colossus Collection Review – PS3, Shove Square

Review: ICO & Shadow Of The Colossus Collection (PS3)

An impeccable, provocative and emotional affair, ICO & Shadow of the Colossus Collection makes a strong argument in favour of interactive art, and does so with such a matter of fact, effortless mentality that it’s unlikely not to fall in love with the practice.

Despite being heralded as two of the finest games ever created, there’s an effortless manner at which both ICO and Shadow of the Colossus go about their business.

It’s with ICO that we begin. Originally released ten years ago, the game centres upon the relationship inbetween a youthful boy and an ethereal woman named Yorda. It emerges that the boy has been incarcerated in a vast castle after being considered a bad omen by the residents of his native village. Happening upon an escape route, the boy detects the mystical Yorda trapped in a box, and instantly sets about releasing the damsel from her restricts. Together the freshly liberated duo embark on an venture that sees them attempting to escape from the castle’s captivity. To say much more would be to spoil the game’s unparalleled sense of discovery, but what you’ll uncover is a narrative so devouring that it left us with goosebumps at numerous points during its running time.

What’s most staggering about ICO if you’re coming to it from a fresh perspective is just how much it’s influenced other games. The strongest comparison would most likely be to Playdead’s latest PSN downloadable, LIMBO, which has much in common with ICO’s level design. Elementary puzzles are at the heart of the game’s progression, but it’s in the relationship inbetween the two protagonists that the title indeed finds its lasting presence.

With a quick tap of R1 you’re able to clasp the palm of Yorda, dragging her through the environment with the subtlest of controller rumbles complementing your deeds. It’s perhaps the best implementation of rumble ever to emerge in a movie game, and its meaning is entirely up for interpretation. Some people believe that the rumble indicates the strain on the fragile Yorda as you pull at her brittle assets, but we happen to believe its more akin to the fluttering warmth that passes inbetween two human beings in spite of fine adversity.

ICO is a game scattered with fine imagery, but nothing appeals fairly like the very first time you haul the wistful Yorda across an epic bridge as the wind purrs in your ears. There’s truly nothing else fairly like it in games; it’s a spine-tingling moment that’s underlined by the sheer simpleness of it all.

While ICO and Shadow Of The Colossus aren’t technically connected, there are similarities that indicate they’re the brainchild of the same creator. Both games have a penchant for extravagant, Mayan architecture that represent the non-natural environments in the two campaigns. They also each love pulled out camera angles that emphasise the enormity of each game’s scale.

And no game does scale fairly like Shadow of the Colossus. Originally released in 2005, the game’s drawn-out opening centres on the journey of its protagonist Wander, a worn 20-something adventurer who’s travelled to a barred land in order to bring back the life of his deceased love. Resting her figure on an exuberant stone bed — which serves as a visual reminder of your plight across the game’s ten hour campaign — Wander is informed that he must defeat no fewer than sixteen Colossi in order to restore his companion. The Colossi are gigantic majestic animals that wander the prohibited land.

Like ICO, it’s the plainness of Shadow of the Colossus that underlines its brilliance. There are no mini-bosses, sub-quests or mini games: it’s all about you, your pony and the sixteen boss fights ahead of you.

You’ll need to find the Colossi before you can face them, but gratefully your sword is tooled with a nifty gadget that points you in the direction of each brute when held towards the sun. The game’s Hyrulian hub world is beautiful in its emptiness, spanning long horizons of nothing but fields, deserts and postcard-perfect blue skies. Pelting through the landscape invokes memories of ICO’s sense of loneliness, as there’s nothing to accompany you but the sound of your pony’s hooves hitting the turf below.

Fighting the Colossi is where the game most stuns. With each creature possessing a different look and style, you’ll need to cautiously consider your methods in order to bring the hulking monsters down. Fights are intense, white knuckle rails backed by one of the most powerful musical scores in movie games. The solutions for each boss battle are wonderfully creative too: one requires you to frighten the animal with a searing torch, while another has you hopping inbetween piles and runways in an attempt to crack the enemy’s armour.

Our favourite boss fight comes in the form of Colossus number five, a winged eagle-like foe that resides in a forgotten lake. Here you’ll need to clasp hold of the animal as it swoops down to attack you, and will find yourself clambering across its figure hundreds of feet into the air as the world flies by underneath you.

The game’s imagination is liberated from its technical limitations on the PlayStation Three, with the screen-tearing and framework rate inconsistencies that plagued the title’s original release now no longer a concern. The cleaned up textures don’t hurt either, providing the game’s outstanding art direction room to shine.

Both games are bona fide classics, ensuring ICO & Shadow of the Colossus Collection’s status as a must-own compilation. Stereoscopic 3D support, Trophies and a duo of behind-the-scenes movies (curiously absent from our review copy) help to round out the package, but it’s the inclusion of the definitive versions of two of the greatest games ever designed that makes this collection such a necessary purchase.

Conclusion

If movie games aren’t art, then ICO & Shadow of the Colossus Collection is not a movie game. It’s a staggering compilation of two of the most creative, intimate and emotional lumps of interactive entertainment ever conceived. Bring on The Last Guardian.

ICO – Shadow Of The Colossus Collection Review – PS3, Shove Square

Review: ICO & Shadow Of The Colossus Collection (PS3)

An impeccable, provocative and emotional affair, ICO & Shadow of the Colossus Collection makes a strong argument in favour of interactive art, and does so with such a matter of fact, effortless mentality that it’s unlikely not to fall in love with the practice.

Despite being heralded as two of the finest games ever created, there’s an effortless manner at which both ICO and Shadow of the Colossus go about their business.

It’s with ICO that we embark. Originally released ten years ago, the game centres upon the relationship inbetween a youthfull boy and an ethereal woman named Yorda. It emerges that the boy has been incarcerated in a vast castle after being considered a bad omen by the residents of his native village. Happening upon an escape route, the boy detects the mystical Yorda trapped in a cell, and instantly sets about releasing the chick from her restricts. Together the freshly liberated duo embark on an escapade that sees them attempting to escape from the castle’s captivity. To say much more would be to spoil the game’s unparalleled sense of discovery, but what you’ll uncover is a narrative so devouring that it left us with goosebumps at numerous points during its running time.

What’s most staggering about ICO if you’re coming to it from a fresh perspective is just how much it’s influenced other games. The strongest comparison would very likely be to Playdead’s latest PSN downloadable, LIMBO, which has much in common with ICO’s level design. Elementary puzzles are at the heart of the game’s progression, but it’s in the relationship inbetween the two protagonists that the title indeed finds its lasting presence.

With a quick tap of R1 you’re able to clasp the mitt of Yorda, dragging her through the environment with the subtlest of controller rumbles complementing your deeds. It’s perhaps the best implementation of rumble ever to emerge in a movie game, and its meaning is entirely up for interpretation. Some people believe that the rumble represents the strain on the fragile Yorda as you pull at her brittle assets, but we happen to believe its more akin to the fluttering warmth that passes inbetween two human beings in spite of superb adversity.

ICO is a game scattered with superb imagery, but nothing appeals fairly like the very first time you haul the wistful Yorda across an epic bridge as the wind coos in your ears. There’s truly nothing else fairly like it in games; it’s a spine-tingling moment that’s underlined by the sheer plainness of it all.

While ICO and Shadow Of The Colossus aren’t technically connected, there are similarities that indicate they’re the brainchild of the same creator. Both games have a penchant for extravagant, Mayan architecture that represent the non-natural environments in the two campaigns. They also each love pulled out camera angles that emphasise the enormity of each game’s scale.

And no game does scale fairly like Shadow of the Colossus. Originally released in 2005, the game’s drawn-out opening centres on the journey of its protagonist Wander, a worn 20-something adventurer who’s travelled to a barred land in order to bring back the life of his deceased love. Resting her assets on an exuberant stone bed — which serves as a visual reminder of your plight via the game’s ten hour campaign — Wander is informed that he must defeat no fewer than sixteen Colossi in order to restore his companion. The Colossi are ample majestic animals that wander the prohibited land.

Like ICO, it’s the simpleness of Shadow of the Colossus that underlines its brilliance. There are no mini-bosses, sub-quests or mini games: it’s all about you, your pony and the sixteen boss fights ahead of you.

You’ll need to find the Colossi before you can face them, but gratefully your sword is tooled with a nifty gadget that points you in the direction of each brute when held towards the sun. The game’s Hyrulian hub world is beautiful in its emptiness, spanning long horizons of nothing but fields, deserts and postcard-perfect blue skies. Pelting through the landscape invokes memories of ICO’s sense of loneliness, as there’s nothing to accompany you but the sound of your pony’s hooves hitting the turf below.

Fighting the Colossi is where the game most stuns. With each creature possessing a different look and style, you’ll need to cautiously consider your methods in order to bring the hulking monsters down. Fights are intense, white knuckle rails backed by one of the most powerful musical scores in movie games. The solutions for each boss battle are wonderfully creative too: one requires you to frighten the animal with a searing torch, while another has you hopping inbetween piles and runways in an attempt to crack the enemy’s armour.

Our favourite boss fight comes in the form of Colossus number five, a winged eagle-like foe that resides in a forgotten lake. Here you’ll need to clasp hold of the brute as it swoops down to attack you, and will find yourself clambering across its figure hundreds of feet into the air as the world flies by underneath you.

The game’s imagination is liberated from its technical limitations on the PlayStation Trio, with the screen-tearing and framework rate inconsistencies that plagued the title’s original release now no longer a concern. The cleaned up textures don’t hurt either, providing the game’s outstanding art direction room to shine.

Both games are bona fide classics, ensuring ICO & Shadow of the Colossus Collection’s status as a must-own compilation. Stereoscopic 3D support, Trophies and a duo of behind-the-scenes movies (curiously absent from our review copy) help to round out the package, but it’s the inclusion of the definitive versions of two of the greatest games ever designed that makes this collection such a necessary purchase.

Conclusion

If movie games aren’t art, then ICO & Shadow of the Colossus Collection is not a movie game. It’s a staggering compilation of two of the most creative, intimate and emotional lumps of interactive entertainment ever conceived. Bring on The Last Guardian.

Related video:

How To Earn Bitcoin – ten Ways – one hundred one Websites

How To Earn Bitcoin: ten Ways & one hundred one Websites

  • Cash Poker Pro: Anonymous, Secure Online Poker [ICO crowdsale] – August 28, 2017
  • Iconomi: The Easiest Way to Invest in Cryptocurrency? – August Two, 2017
  • CoinLend: Earn Interest on CryptoCurrency (& USD) with this Fee Free Lending Bot – July Ten, 2017

Today there are almost as many ways to earn bitcoin as there are ways to earn any other kind of money. In one sense that makes this an effortless article to write – its not difficult to learn how to earn bitcoins. In other ways it makes it very raunchy to write, because there is no ‘one-size fits all’ reaction which is going to suite everybody who might end up on this page.

In all honesty the best way to earn bitcoin is just to stop thinking about it as something different from the regular fiat money that you use everyday. How do you get money usually? Well, that is most likely how you should go about earning digital currency as well. But of course I do realize that its not always that elementary. Perhaps you just want to get hold of a puny amount of Bitcoin to attempt it out before buying some. You may also be fighting to earn money at all, and are interested in exploring fresh opportunities within this arousing fresh economy, or using it to supplement your income. And, of course,not very many bosses are going to be blessed to pay you in BTC, so you may not think it is possible for you to earn bitcoin the same way you earn fiat money (hint: it is possible). If any of those screenplays apply to you, then hopefully this page can be of some help, at least pointing you in the right direction.

Because there are so many different opportunities out there, my guide on how to earn bitcoin will not provide a comprehensive list of every single website. Instead I will introduce you to around ten general strategies with some links to a few of the best websites for each one and information about how to find more. The one hundred one websites from the title includes sites listed in other Cryptorials articles which this page links to.

Get Rewarded in Bitcoin for Your Crypto Investment Intelligence

KoCurrency offers cryptocurrency investors the chance to pledge intelligence on intelligence contracts which ask users elementary yes / no investment questions. The platform, amongst other things, acts as a predictions platform that zero’s in on the prediction patterns of the smartest members of the crowd. Users who continuously pledge intelligence correctly will earn Intelligence Tokens which can later be converted into Bitcoin. Users can pledge intelligence on many different subjects including bitcoin, ethereum, litecoin, ripple and more. Essentially, KoCurrency permits users to sell the value they create within the platform in exchange for bitcoin. Take their cyptocurrency predictions platform for a spin.

Get Bitcoin Tips

You’ll find some other tipping platforms further down the page, but I thought it was worth pointing you to the Cryptorials reviews of BitForTip and Zapchain to kick things off. BitforTip is a Q&A site where the best reaction gets a bitcoin peak, and Zapchain is a reddit style social network where you can earn tips for posting and commenting.

Earn Bitcoins From Faucet Websites

If you are just looking for a quick and effortless way to get a puny amount of bitcoin then faucets might be exactly what you are looking for. A faucet is just a website which gives free coins to every visitor. You will have to pack out a captcha to prove you are a real life human being and not an automated bot attempting to game the system, you may need to let your balance build up to a threshold level before the coins are sent (so they aren’t all eaten up by transaction fees), and there will usually be a limit on how often you can claim from each site; but apart from that its just as ordinary as providing your wallet address and asking for some free coins to be sent to you. Some of these site are set up by enthusiasts who just want to introduce fresh people to digital currency, but today most faucets support themselves using advertising placed on the site.

You are certainly not going to earn a living using faucets – even if you are living in a basic wooden hut in the very cheapest location in the world you would most likely not be able to do that. But you can quickly and lightly get a few coins to get yourself began and make a test transaction or two to get familiar with using digital currency without needing to buy any coins.

Here are some of the best faucet websites:cet

  1. Moon Bitcoin – You can choose to claim every five minutes to maximize your earnings over the day, or claim once per day for the highest payout per claim.
  2. FreeBitco.in – One of the longest running faucet sites around, with a generous hourly payout.

Bitcoin Mining

Unless you have access to the best wholesale tens unit prices in the world, you most likely aren’t going to make a profit from buying mining hardware to run at home, albeit some people still like to do it as a joy way to earn bitcoins which also contributes something to running the network.

For others cloud mining is a more realistic alternative – but beware, there has been a number of instances of con artists setting up a fake cloud mining business which is actually just taking people’s money only for the business’s owners to vanish overnight with all the coins. To help you out with finding the real ones and side-stepping the scams we’ve compiled a comparison of what we think are the best cloud mining sites. Using one of these won’t assure you a profit, there are many factors which influence your earnings including the price per coin, hash rate, electrical play price and so on, so make sure you do your homework, but it should give you the best possible embark. There are also some offers and bonuses listed, such as a free welcome bonus you can get just for registering.

GPT Websites and ‘Microtasks’

One step up from faucets are GPT websites where you ‘get paid to’ do various quick tasks, sometimes called ‘microtasks’. Again, you are not going to make a decent living for yourself by using these websites, but if you have time on your forearms and you are looking for something you can embark straight away and proceed to do whenever you have a few spare minutes, and which will earn you a few more coins that you can get from just claiming from faucets, then these sites may be worth a look.

Typically tasks can range from watching youtube movies that somebody is paying to promote, to clicking ad links and spending thirty seconds on a website, to packing out surveys and completing offers, or even doing a little bit of basic data entry.

Here are some of the best sites to ‘get paid to’ do plain tasks:

  1. CoinBucks – A broad range of surveys as well as various promotional offers, some of which require you to make a purchase and some of which just want you to do things like accept a free thirty day trial or download some free software. You may not find a lot of offers you want to finish, but you do get a truly good amount of BTC per suggest.
  2. CoinAd – Get paid to click advert links and spend a certain amount of time on each site (usually thirty seconds or less). I’ve tested out a few similar services and this one seems to have the highest payments.
  3. BitcoinYellowPages – This directory service pays for the microtask of submitting business listings. If you can do a little bit of research and data entry then it might be worth a look.

Earn Bitcoins as a Content Producer

If you can create premium digital content then you will find that Bitcoin provides the flawless way for you to sell it over the internet.

  1. Bittit – If you have photographs or other pictures to sell then you could do worse than to take a look at this site, which provides a market for both stock photos and pornographic photos.
  2. See My Bit – Upload your movies to this site and select your own ‘pay per view’ price.
  3. Streamium – Stream live movie to your fans, charge per 2nd, and get paid directly via the blockchain with no middlemen.
  4. Pastecoin – You can sell any text paste with this service, but it is most commonly used as a market for code snippets and plain website scripts.

Make A Website to Earn Bitcoin

Of course if you are going to produce digital content then you may choose to create your own website rather than permitting somebody else to publish it for you. There are explosions of fine ad networks and affiliate programs that will help you to generate bitcoin revenue from your site. Take a look at these articles for more information and ideas about publishing your own website:

Earn Bitcoins on Social Media

You don’t even need to have your own website to embark generating an income – if you are have a strong social media presence or you fancy yourself as a bit of a marketing guru, you can earn some free coins through social media. Here are some of the best websites that may help you do that:

  • Changetip – This is the most popular platform for tipping across many different social media sites, and even provides you with a custom-built link that you can add to your profile page to receive tips. Post fine content, make yourself useful, and wait for the tips to embark rolling in.
  • Coinurl.com – If you are a prolific link sharer who gets a lot of clicks on everything you share then interstitial ad services like Coinurl suggest you a way to earn coins from every link you share with your followers by placing an ad before the content you are sharing.
  • ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ – Check out the referral / affiliate programs mentioned in the previous section – you can promote these and earn using social media too!
  • Re 2et in – Get paid in BTC for retweeting sponsored tweets.

Get A Job Which Pays in Bitcoin

  1. Coinality -Global jobs board and the option to upload your resume
  2. Bit Task – Mostly freelance work
  3. CoinDesk Jobs – Well paid total time positions, including listings from some major employers who are willing to pay you in BTC.
  4. BitcoinTalk Services Board – A good place to look for casual and freelance work within the digital currency industry.

Get Your Regular Wage in BTC

If you have a job then you can get paid in Bitcoin. It doesn’t even matter if your boss has never heard of cryptocurrency or even if they are a strident critic of it – you can get your regular wage paid to you in digital currency without your boss even knowing about it. The following services will take your paycheck and either convert the entire thing, or just convert a portion of it, and automatically send the coins to your digital wallet.

  1. BitWage – This is the best known company providing a service like this. They provide you with bank details to give to your employer, then when you get paid they convert whatever percentage you want and send your money to you the next day.
  2. Get Paid in Bitcoin – An Australian service provider which will work with your employer to let them lightly pay your wage the way you want it to be paid.

Sell Stuff

If you are looking for some spare cash to provide a one-off boost to your finances then digging through your old stuff and picking out a few things that you no longer need to sell on over the internet is a good way to go. But of course you can’t just go to eBay if you want to sell your stuff for BTC. Fortunately, there are some good alternatives out there which let you do exactly that. This may also be a fine way for you to embark off your own business if have something that people want to buy. Here are some of the best sites to earn bitcoin by selling stuff online:

  1. CryptoThrift – This site is amongst the most popular auctions sites which let you sell your things for either bitcoin or one of the supported altcoins.
  2. BidBit – Another good ebay-style auction website for bitcoiners.
  3. Shopify – If you want to go beyond just selling a few old things and actually look into setting up your own retail business then Shopify provides one of the world’s most popular ways to set up an online store, and will let you sell for either bitcoin, fiat, or both.
  4. Open Bazaar – This decentralized marketplace provides a way to buy and sell anything for BTC. Here’s why its better than eBay.

Bitcoin Revenue Sharing

Many website today are based around ‘user generated content’. That means they provide a platform, whether its a social network, a blog publishing site, an picture sharing site, or a thousand other things, and their users actually pack it up with useful stuff. To many people that doesn’t seem very fair, because the site’s users are providing most of the value but getting nothing in come back. Revenue sharing is a way to even out that imbalance by paying part of the advertising revenue generated by a lump of content (which could be anything from a social media post to a movie) o the person who originally posted it. There are fountains of revenue sharing sites out there which pay in bitcoin, but here is a selection of the best ones:

  1. BitLanders – A social media website where it truly does pay to share.
  2. Paste4BTC – Get a share of the ad revenue from your text pastes.
  3. Taringa – A Latin American social media site with digital currency revenue sharing

Earn Bitcoins Playing Movie Games

Yes, you read that right – you can get paid to play movie games. Of course you very likely aren’t going to earn all that much, but I can’t think of a more pleasurable way to get paid.

There are actually dozens of sites in this category so if you are interested please take a look at the total list in our Get Paid to Play Movie Games article!

Become A Bitcoin Broker

If you have a bit of capital to commence off with (you don’t need a fortune, but >1 btc at least) then you can set yourself up as a broker, buying and selling coins with other users in your area. You can do this solo through a peer-to-peer marketplace such as local bitcoins, or you can sign up with LakeBTC which is looking for ‘Lake Bankers’ to operate as a kind of broker through their site.

How To Earn Bitcoin – ten Ways – one hundred one Websites

How To Earn Bitcoin: ten Ways & one hundred one Websites

  • Cash Poker Pro: Anonymous, Secure Online Poker [ICO crowdsale] – August 28, 2017
  • Iconomi: The Easiest Way to Invest in Cryptocurrency? – August Two, 2017
  • CoinLend: Earn Interest on CryptoCurrency (& USD) with this Fee Free Lending Bot – July Ten, 2017

Today there are almost as many ways to earn bitcoin as there are ways to earn any other kind of money. In one sense that makes this an effortless article to write – its not difficult to learn how to earn bitcoins. In other ways it makes it very rough to write, because there is no ‘one-size fits all’ reaction which is going to suite everybody who might end up on this page.

In all honesty the best way to earn bitcoin is just to stop thinking about it as something different from the regular fiat money that you use everyday. How do you get money usually? Well, that is very likely how you should go about earning digital currency as well. But of course I do realize that its not always that ordinary. Perhaps you just want to get hold of a petite amount of Bitcoin to attempt it out before buying some. You may also be fighting to earn money at all, and are interested in exploring fresh opportunities within this titillating fresh economy, or using it to supplement your income. And, of course,not very many bosses are going to be blessed to pay you in BTC, so you may not think it is possible for you to earn bitcoin the same way you earn fiat money (hint: it is possible). If any of those screenplays apply to you, then hopefully this page can be of some help, at least pointing you in the right direction.

Because there are so many different opportunities out there, my guide on how to earn bitcoin will not provide a comprehensive list of every single website. Instead I will introduce you to around ten general strategies with some links to a few of the best websites for each one and information about how to find more. The one hundred one websites from the title includes sites listed in other Cryptorials articles which this page links to.

Get Rewarded in Bitcoin for Your Crypto Investment Intelligence

KoCurrency offers cryptocurrency investors the chance to pledge intelligence on intelligence contracts which ask users ordinary yes / no investment questions. The platform, amongst other things, acts as a predictions platform that zero’s in on the prediction patterns of the smartest members of the crowd. Users who continuously pledge intelligence correctly will earn Intelligence Tokens which can later be converted into Bitcoin. Users can pledge intelligence on many different subjects including bitcoin, ethereum, litecoin, ripple and more. Essentially, KoCurrency permits users to sell the value they create within the platform in exchange for bitcoin. Take their cyptocurrency predictions platform for a spin.

Get Bitcoin Tips

You’ll find some other tipping platforms further down the page, but I thought it was worth pointing you to the Cryptorials reviews of BitForTip and Zapchain to kick things off. BitforTip is a Q&A site where the best response gets a bitcoin peak, and Zapchain is a reddit style social network where you can earn tips for posting and commenting.

Earn Bitcoins From Faucet Websites

If you are just looking for a quick and effortless way to get a petite amount of bitcoin then faucets might be exactly what you are looking for. A faucet is just a website which gives free coins to every visitor. You will have to pack out a captcha to prove you are a real life human being and not an automated bot attempting to game the system, you may need to let your balance build up to a threshold level before the coins are sent (so they aren’t all eaten up by transaction fees), and there will usually be a limit on how often you can claim from each site; but apart from that its just as ordinary as providing your wallet address and asking for some free coins to be sent to you. Some of these site are set up by enthusiasts who just want to introduce fresh people to digital currency, but today most faucets support themselves using advertising placed on the site.

You are certainly not going to earn a living using faucets – even if you are living in a basic wooden hut in the very cheapest location in the world you would very likely not be able to do that. But you can quickly and lightly get a few coins to get yourself embarked and make a test transaction or two to get familiar with using digital currency without needing to buy any coins.

Here are some of the best faucet websites:cet

  1. Moon Bitcoin – You can choose to claim every five minutes to maximize your earnings over the day, or claim once per day for the highest payout per claim.
  2. FreeBitco.in – One of the longest running faucet sites around, with a generous hourly payout.

Bitcoin Mining

Unless you have access to the best wholesale electro-stimulation prices in the world, you most likely aren’t going to make a profit from buying mining hardware to run at home, albeit some people still like to do it as a joy way to earn bitcoins which also contributes something to running the network.

For others cloud mining is a more realistic alternative – but beware, there has been a number of instances of con artists setting up a fake cloud mining business which is actually just taking people’s money only for the business’s owners to vanish overnight with all the coins. To help you out with finding the real ones and side-stepping the scams we’ve compiled a comparison of what we think are the best cloud mining sites. Using one of these won’t assure you a profit, there are many factors which influence your earnings including the price per coin, hash rate, electrical play price and so on, so make sure you do your homework, but it should give you the best possible embark. There are also some offers and bonuses listed, such as a free welcome bonus you can get just for registering.

GPT Websites and ‘Microtasks’

One step up from faucets are GPT websites where you ‘get paid to’ do various quick tasks, sometimes called ‘microtasks’. Again, you are not going to make a decent living for yourself by using these websites, but if you have time on your forearms and you are looking for something you can begin straight away and proceed to do whenever you have a few spare minutes, and which will earn you a few more coins that you can get from just claiming from faucets, then these sites may be worth a look.

Typically tasks can range from watching youtube movies that somebody is paying to promote, to clicking ad links and spending thirty seconds on a website, to packing out surveys and completing offers, or even doing a little bit of basic data entry.

Here are some of the best sites to ‘get paid to’ do elementary tasks:

  1. CoinBucks – A broad range of surveys as well as various promotional offers, some of which require you to make a purchase and some of which just want you to do things like accept a free thirty day trial or download some free software. You may not find a lot of offers you want to finish, but you do get a indeed good amount of BTC per suggest.
  2. CoinAd – Get paid to click advert links and spend a certain amount of time on each site (usually thirty seconds or less). I’ve tested out a few similar services and this one seems to have the highest payments.
  3. BitcoinYellowPages – This directory service pays for the microtask of submitting business listings. If you can do a little bit of research and data entry then it might be worth a look.

Earn Bitcoins as a Content Producer

If you can create premium digital content then you will find that Bitcoin provides the ideal way for you to sell it over the internet.

  1. Bittit – If you have photographs or other photos to sell then you could do worse than to take a look at this site, which provides a market for both stock photos and pornographic pictures.
  2. Observe My Bit – Upload your movies to this site and select your own ‘pay per view’ price.
  3. Streamium – Stream live movie to your fans, charge per 2nd, and get paid directly via the blockchain with no middlemen.
  4. Pastecoin – You can sell any text paste with this service, but it is most commonly used as a market for code snippets and elementary website scripts.

Make A Website to Earn Bitcoin

Of course if you are going to produce digital content then you may choose to create your own website rather than permitting somebody else to publish it for you. There are explosions of good ad networks and affiliate programs that will help you to generate bitcoin revenue from your site. Take a look at these articles for more information and ideas about publishing your own website:

Earn Bitcoins on Social Media

You don’t even need to have your own website to commence generating an income – if you are have a strong social media presence or you fancy yourself as a bit of a marketing guru, you can earn some free coins through social media. Here are some of the best websites that may help you do that:

  • Changetip – This is the most popular platform for tipping across many different social media sites, and even provides you with a custom-made link that you can add to your profile page to receive tips. Post superb content, make yourself useful, and wait for the tips to commence rolling in.
  • Coinurl.com – If you are a prolific link sharer who gets a lot of clicks on everything you share then interstitial ad services like Coinurl suggest you a way to earn coins from every link you share with your followers by placing an ad before the content you are sharing.
  • ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ – Check out the referral / affiliate programs mentioned in the previous section – you can promote these and earn using social media too!
  • Re 2et in – Get paid in BTC for retweeting sponsored tweets.

Get A Job Which Pays in Bitcoin

  1. Coinality -Global jobs board and the option to upload your resume
  2. Bit Task – Mostly freelance work
  3. CoinDesk Jobs – Well paid total time positions, including listings from some major employers who are willing to pay you in BTC.
  4. BitcoinTalk Services Board – A fine place to look for casual and freelance work within the digital currency industry.

Get Your Regular Wage in BTC

If you have a job then you can get paid in Bitcoin. It doesn’t even matter if your boss has never heard of cryptocurrency or even if they are a strident critic of it – you can get your regular wage paid to you in digital currency without your boss even knowing about it. The following services will take your paycheck and either convert the entire thing, or just convert a portion of it, and automatically send the coins to your digital wallet.

  1. BitWage – This is the best known company providing a service like this. They provide you with bank details to give to your employer, then when you get paid they convert whatever percentage you want and send your money to you the next day.
  2. Get Paid in Bitcoin – An Australian service provider which will work with your employer to let them lightly pay your wage the way you want it to be paid.

Sell Stuff

If you are looking for some spare cash to provide a one-off boost to your finances then digging through your old stuff and picking out a few things that you no longer need to sell on over the internet is a good way to go. But of course you can’t just go to eBay if you want to sell your stuff for BTC. Fortunately, there are some superb alternatives out there which let you do exactly that. This may also be a good way for you to begin off your own business if have something that people want to buy. Here are some of the best sites to earn bitcoin by selling stuff online:

  1. CryptoThrift – This site is amongst the most popular auctions sites which let you sell your things for either bitcoin or one of the supported altcoins.
  2. BidBit – Another excellent ebay-style auction website for bitcoiners.
  3. Shopify – If you want to go beyond just selling a few old things and actually look into setting up your own retail business then Shopify provides one of the world’s most popular ways to set up an online store, and will let you sell for either bitcoin, fiat, or both.
  4. Open Bazaar – This decentralized marketplace provides a way to buy and sell anything for BTC. Here’s why its better than eBay.

Bitcoin Revenue Sharing

Many website today are based around ‘user generated content’. That means they provide a platform, whether its a social network, a blog publishing site, an photo sharing site, or a thousand other things, and their users actually pack it up with useful stuff. To many people that doesn’t seem very fair, because the site’s users are providing most of the value but getting nothing in comeback. Revenue sharing is a way to even out that imbalance by paying part of the advertising revenue generated by a chunk of content (which could be anything from a social media post to a movie) o the person who originally posted it. There are fountains of revenue sharing sites out there which pay in bitcoin, but here is a selection of the best ones:

  1. BitLanders – A social media website where it indeed does pay to share.
  2. Paste4BTC – Get a share of the ad revenue from your text pastes.
  3. Taringa – A Latin American social media site with digital currency revenue sharing

Earn Bitcoins Playing Movie Games

Yes, you read that right – you can get paid to play movie games. Of course you very likely aren’t going to earn all that much, but I can’t think of a more pleasurable way to get paid.

There are actually dozens of sites in this category so if you are interested please take a look at the utter list in our Get Paid to Play Movie Games article!

Become A Bitcoin Broker

If you have a bit of capital to embark off with (you don’t need a fortune, but >1 btc at least) then you can set yourself up as a broker, buying and selling coins with other users in your area. You can do this solo through a peer-to-peer marketplace such as local bitcoins, or you can sign up with LakeBTC which is looking for ‘Lake Bankers’ to operate as a kind of broker through their site.

How To Earn Bitcoin – ten Ways – one hundred one Websites

How To Earn Bitcoin: ten Ways & one hundred one Websites

  • Cash Poker Pro: Anonymous, Secure Online Poker [ICO crowdsale] – August 28, 2017
  • Iconomi: The Easiest Way to Invest in Cryptocurrency? – August Two, 2017
  • CoinLend: Earn Interest on CryptoCurrency (& USD) with this Fee Free Lending Bot – July Ten, 2017

Today there are almost as many ways to earn bitcoin as there are ways to earn any other kind of money. In one sense that makes this an effortless article to write – its not difficult to learn how to earn bitcoins. In other ways it makes it very raunchy to write, because there is no ‘one-size fits all’ response which is going to suite everybody who might end up on this page.

In all honesty the best way to earn bitcoin is just to stop thinking about it as something different from the regular fiat money that you use everyday. How do you get money usually? Well, that is very likely how you should go about earning digital currency as well. But of course I do realize that its not always that plain. Perhaps you just want to get hold of a petite amount of Bitcoin to attempt it out before buying some. You may also be fighting to earn money at all, and are interested in exploring fresh opportunities within this titillating fresh economy, or using it to supplement your income. And, of course,not very many bosses are going to be glad to pay you in BTC, so you may not think it is possible for you to earn bitcoin the same way you earn fiat money (hint: it is possible). If any of those scripts apply to you, then hopefully this page can be of some help, at least pointing you in the right direction.

Because there are so many different opportunities out there, my guide on how to earn bitcoin will not provide a comprehensive list of every single website. Instead I will introduce you to around ten general strategies with some links to a few of the best websites for each one and information about how to find more. The one hundred one websites from the title includes sites listed in other Cryptorials articles which this page links to.

Get Rewarded in Bitcoin for Your Crypto Investment Intelligence

KoCurrency offers cryptocurrency investors the chance to pledge intelligence on intelligence contracts which ask users elementary yes / no investment questions. The platform, amongst other things, acts as a predictions platform that zero’s in on the prediction patterns of the smartest members of the crowd. Users who continuously pledge intelligence correctly will earn Intelligence Tokens which can later be converted into Bitcoin. Users can pledge intelligence on many different subjects including bitcoin, ethereum, litecoin, ripple and more. Essentially, KoCurrency permits users to sell the value they create within the platform in exchange for bitcoin. Take their cyptocurrency predictions platform for a spin.

Get Bitcoin Tips

You’ll find some other tipping platforms further down the page, but I thought it was worth pointing you to the Cryptorials reviews of BitForTip and Zapchain to kick things off. BitforTip is a Q&A site where the best response gets a bitcoin peak, and Zapchain is a reddit style social network where you can earn tips for posting and commenting.

Earn Bitcoins From Faucet Websites

If you are just looking for a quick and effortless way to get a petite amount of bitcoin then faucets might be exactly what you are looking for. A faucet is just a website which gives free coins to every visitor. You will have to pack out a captcha to prove you are a real life human being and not an automated bot attempting to game the system, you may need to let your balance build up to a threshold level before the coins are sent (so they aren’t all eaten up by transaction fees), and there will usually be a limit on how often you can claim from each site; but apart from that its just as ordinary as providing your wallet address and asking for some free coins to be sent to you. Some of these site are set up by enthusiasts who just want to introduce fresh people to digital currency, but today most faucets support themselves using advertising placed on the site.

You are certainly not going to earn a living using faucets – even if you are living in a basic wooden hut in the very cheapest location in the world you would very likely not be able to do that. But you can quickly and lightly get a few coins to get yourself commenced and make a test transaction or two to get familiar with using digital currency without needing to buy any coins.

Here are some of the best faucet websites:cet

  1. Moon Bitcoin – You can choose to claim every five minutes to maximize your earnings over the day, or claim once per day for the highest payout per claim.
  2. FreeBitco.in – One of the longest running faucet sites around, with a generous hourly payout.

Bitcoin Mining

Unless you have access to the best wholesale electro-therapy prices in the world, you very likely aren’t going to make a profit from buying mining hardware to run at home, albeit some people still like to do it as a joy way to earn bitcoins which also contributes something to running the network.

For others cloud mining is a more realistic alternative – but beware, there has been a number of instances of con artists setting up a fake cloud mining business which is actually just taking people’s money only for the business’s owners to vanish overnight with all the coins. To help you out with finding the real ones and side-stepping the scams we’ve compiled a comparison of what we think are the best cloud mining sites. Using one of these won’t assure you a profit, there are many factors which influence your earnings including the price per coin, hash rate, electro-stimulation price and so on, so make sure you do your homework, but it should give you the best possible embark. There are also some offers and bonuses listed, such as a free welcome bonus you can get just for registering.

GPT Websites and ‘Microtasks’

One step up from faucets are GPT websites where you ‘get paid to’ do various quick tasks, sometimes called ‘microtasks’. Again, you are not going to make a decent living for yourself by using these websites, but if you have time on your mitts and you are looking for something you can begin straight away and proceed to do whenever you have a few spare minutes, and which will earn you a few more coins that you can get from just claiming from faucets, then these sites may be worth a look.

Typically tasks can range from watching youtube movies that somebody is paying to promote, to clicking ad links and spending thirty seconds on a website, to packing out surveys and completing offers, or even doing a little bit of basic data entry.

Here are some of the best sites to ‘get paid to’ do elementary tasks:

  1. CoinBucks – A broad range of surveys as well as various promotional offers, some of which require you to make a purchase and some of which just want you to do things like accept a free thirty day trial or download some free software. You may not find a lot of offers you want to finish, but you do get a indeed good amount of BTC per suggest.
  2. CoinAd – Get paid to click advert links and spend a certain amount of time on each site (usually thirty seconds or less). I’ve tested out a few similar services and this one seems to have the highest payments.
  3. BitcoinYellowPages – This directory service pays for the microtask of submitting business listings. If you can do a little bit of research and data entry then it might be worth a look.

Earn Bitcoins as a Content Producer

If you can create premium digital content then you will find that Bitcoin provides the ideal way for you to sell it over the internet.

  1. Bittit – If you have photographs or other photos to sell then you could do worse than to take a look at this site, which provides a market for both stock photos and pornographic pics.
  2. Witness My Bit – Upload your movies to this site and select your own ‘pay per view’ price.
  3. Streamium – Stream live movie to your fans, charge per 2nd, and get paid directly via the blockchain with no middlemen.
  4. Pastecoin – You can sell any text paste with this service, but it is most commonly used as a market for code snippets and plain website scripts.

Make A Website to Earn Bitcoin

Of course if you are going to produce digital content then you may choose to create your own website rather than permitting somebody else to publish it for you. There are fountains of excellent ad networks and affiliate programs that will help you to generate bitcoin revenue from your site. Take a look at these articles for more information and ideas about publishing your own website:

Earn Bitcoins on Social Media

You don’t even need to have your own website to embark generating an income – if you are have a strong social media presence or you fancy yourself as a bit of a marketing guru, you can earn some free coins through social media. Here are some of the best websites that may help you do that:

  • Changetip – This is the most popular platform for tipping across many different social media sites, and even provides you with a custom-made link that you can add to your profile page to receive tips. Post fine content, make yourself useful, and wait for the tips to commence rolling in.
  • Coinurl.com – If you are a prolific link sharer who gets a lot of clicks on everything you share then interstitial ad services like Coinurl suggest you a way to earn coins from every link you share with your followers by placing an ad before the content you are sharing.
  • ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ – Check out the referral / affiliate programs mentioned in the previous section – you can promote these and earn using social media too!
  • Re 2et in – Get paid in BTC for retweeting sponsored tweets.

Get A Job Which Pays in Bitcoin

  1. Coinality -Global jobs board and the option to upload your resume
  2. Bit Task – Mostly freelance work
  3. CoinDesk Jobs – Well paid utter time positions, including listings from some major employers who are willing to pay you in BTC.
  4. BitcoinTalk Services Board – A good place to look for casual and freelance work within the digital currency industry.

Get Your Regular Wage in BTC

If you have a job then you can get paid in Bitcoin. It doesn’t even matter if your boss has never heard of cryptocurrency or even if they are a strident critic of it – you can get your regular wage paid to you in digital currency without your boss even knowing about it. The following services will take your paycheck and either convert the entire thing, or just convert a portion of it, and automatically send the coins to your digital wallet.

  1. BitWage – This is the best known company providing a service like this. They provide you with bank details to give to your employer, then when you get paid they convert whatever percentage you want and send your money to you the next day.
  2. Get Paid in Bitcoin – An Australian service provider which will work with your employer to let them lightly pay your wage the way you want it to be paid.

Sell Stuff

If you are looking for some spare cash to provide a one-off boost to your finances then digging through your old stuff and picking out a few things that you no longer need to sell on over the internet is a good way to go. But of course you can’t just go to eBay if you want to sell your stuff for BTC. Fortunately, there are some superb alternatives out there which let you do exactly that. This may also be a fine way for you to begin off your own business if have something that people want to buy. Here are some of the best sites to earn bitcoin by selling stuff online:

  1. CryptoThrift – This site is amongst the most popular auctions sites which let you sell your things for either bitcoin or one of the supported altcoins.
  2. BidBit – Another excellent ebay-style auction website for bitcoiners.
  3. Shopify – If you want to go beyond just selling a few old things and actually look into setting up your own retail business then Shopify provides one of the world’s most popular ways to set up an online store, and will let you sell for either bitcoin, fiat, or both.
  4. Open Bazaar – This decentralized marketplace provides a way to buy and sell anything for BTC. Here’s why its better than eBay.

Bitcoin Revenue Sharing

Many website today are based around ‘user generated content’. That means they provide a platform, whether its a social network, a blog publishing site, an pic sharing site, or a thousand other things, and their users actually pack it up with useful stuff. To many people that doesn’t seem very fair, because the site’s users are providing most of the value but getting nothing in come back. Revenue sharing is a way to even out that imbalance by paying part of the advertising revenue generated by a lump of content (which could be anything from a social media post to a movie) o the person who originally posted it. There are fountains of revenue sharing sites out there which pay in bitcoin, but here is a selection of the best ones:

  1. BitLanders – A social media website where it indeed does pay to share.
  2. Paste4BTC – Get a share of the ad revenue from your text pastes.
  3. Taringa – A Latin American social media site with digital currency revenue sharing

Earn Bitcoins Playing Movie Games

Yes, you read that right – you can get paid to play movie games. Of course you very likely aren’t going to earn all that much, but I can’t think of a more pleasurable way to get paid.

There are actually dozens of sites in this category so if you are interested please take a look at the utter list in our Get Paid to Play Movie Games article!

Become A Bitcoin Broker

If you have a bit of capital to begin off with (you don’t need a fortune, but >1 btc at least) then you can set yourself up as a broker, buying and selling coins with other users in your area. You can do this solo through a peer-to-peer marketplace such as local bitcoins, or you can sign up with LakeBTC which is looking for ‘Lake Bankers’ to operate as a kind of broker through their site.

How To Earn Bitcoin – ten Ways – one hundred one Websites

How To Earn Bitcoin: ten Ways & one hundred one Websites

  • Cash Poker Pro: Anonymous, Secure Online Poker [ICO crowdsale] – August 28, 2017
  • Iconomi: The Easiest Way to Invest in Cryptocurrency? – August Two, 2017
  • CoinLend: Earn Interest on CryptoCurrency (& USD) with this Fee Free Lending Bot – July Ten, 2017

Today there are almost as many ways to earn bitcoin as there are ways to earn any other kind of money. In one sense that makes this an effortless article to write – its not difficult to learn how to earn bitcoins. In other ways it makes it very raunchy to write, because there is no ‘one-size fits all’ reaction which is going to suite everybody who might end up on this page.

In all honesty the best way to earn bitcoin is just to stop thinking about it as something different from the regular fiat money that you use everyday. How do you get money usually? Well, that is very likely how you should go about earning digital currency as well. But of course I do realize that its not always that ordinary. Perhaps you just want to get hold of a puny amount of Bitcoin to attempt it out before buying some. You may also be fighting to earn money at all, and are interested in exploring fresh opportunities within this arousing fresh economy, or using it to supplement your income. And, of course,not very many bosses are going to be glad to pay you in BTC, so you may not think it is possible for you to earn bitcoin the same way you earn fiat money (hint: it is possible). If any of those screenplays apply to you, then hopefully this page can be of some help, at least pointing you in the right direction.

Because there are so many different opportunities out there, my guide on how to earn bitcoin will not provide a comprehensive list of every single website. Instead I will introduce you to around ten general strategies with some links to a few of the best websites for each one and information about how to find more. The one hundred one websites from the title includes sites listed in other Cryptorials articles which this page links to.

Get Rewarded in Bitcoin for Your Crypto Investment Intelligence

KoCurrency offers cryptocurrency investors the chance to pledge intelligence on intelligence contracts which ask users elementary yes / no investment questions. The platform, amongst other things, acts as a predictions platform that zero’s in on the prediction patterns of the smartest members of the crowd. Users who continuously pledge intelligence correctly will earn Intelligence Tokens which can later be converted into Bitcoin. Users can pledge intelligence on many different subjects including bitcoin, ethereum, litecoin, ripple and more. Essentially, KoCurrency permits users to sell the value they create within the platform in exchange for bitcoin. Take their cyptocurrency predictions platform for a spin.

Get Bitcoin Tips

You’ll find some other tipping platforms further down the page, but I thought it was worth pointing you to the Cryptorials reviews of BitForTip and Zapchain to kick things off. BitforTip is a Q&A site where the best reaction gets a bitcoin peak, and Zapchain is a reddit style social network where you can earn tips for posting and commenting.

Earn Bitcoins From Faucet Websites

If you are just looking for a quick and effortless way to get a petite amount of bitcoin then faucets might be exactly what you are looking for. A faucet is just a website which gives free coins to every visitor. You will have to pack out a captcha to prove you are a real life human being and not an automated bot attempting to game the system, you may need to let your balance build up to a threshold level before the coins are sent (so they aren’t all eaten up by transaction fees), and there will usually be a limit on how often you can claim from each site; but apart from that its just as plain as providing your wallet address and asking for some free coins to be sent to you. Some of these site are set up by enthusiasts who just want to introduce fresh people to digital currency, but today most faucets support themselves using advertising placed on the site.

You are certainly not going to earn a living using faucets – even if you are living in a basic wooden hut in the very cheapest location in the world you would very likely not be able to do that. But you can quickly and lightly get a few coins to get yourself commenced and make a test transaction or two to get familiar with using digital currency without needing to buy any coins.

Here are some of the best faucet websites:cet

  1. Moon Bitcoin – You can choose to claim every five minutes to maximize your earnings over the day, or claim once per day for the highest payout per claim.
  2. FreeBitco.in – One of the longest running faucet sites around, with a generous hourly payout.

Bitcoin Mining

Unless you have access to the best wholesale violet wand prices in the world, you most likely aren’t going to make a profit from buying mining hardware to run at home, albeit some people still like to do it as a joy way to earn bitcoins which also contributes something to running the network.

For others cloud mining is a more realistic alternative – but beware, there has been a number of instances of con artists setting up a fake cloud mining business which is actually just taking people’s money only for the business’s owners to vanish overnight with all the coins. To help you out with finding the real ones and side-stepping the scams we’ve compiled a comparison of what we think are the best cloud mining sites. Using one of these won’t ensure you a profit, there are many factors which influence your earnings including the price per coin, hash rate, violet wand price and so on, so make sure you do your homework, but it should give you the best possible embark. There are also some offers and bonuses listed, such as a free welcome bonus you can get just for registering.

GPT Websites and ‘Microtasks’

One step up from faucets are GPT websites where you ‘get paid to’ do various quick tasks, sometimes called ‘microtasks’. Again, you are not going to make a decent living for yourself by using these websites, but if you have time on your palms and you are looking for something you can begin straight away and proceed to do whenever you have a few spare minutes, and which will earn you a few more coins that you can get from just claiming from faucets, then these sites may be worth a look.

Typically tasks can range from watching youtube movies that somebody is paying to promote, to clicking ad links and spending thirty seconds on a website, to packing out surveys and completing offers, or even doing a little bit of basic data entry.

Here are some of the best sites to ‘get paid to’ do ordinary tasks:

  1. CoinBucks – A broad range of surveys as well as various promotional offers, some of which require you to make a purchase and some of which just want you to do things like accept a free thirty day trial or download some free software. You may not find a lot of offers you want to accomplish, but you do get a indeed good amount of BTC per suggest.
  2. CoinAd – Get paid to click advert links and spend a certain amount of time on each site (usually thirty seconds or less). I’ve tested out a few similar services and this one seems to have the highest payments.
  3. BitcoinYellowPages – This directory service pays for the microtask of submitting business listings. If you can do a little bit of research and data entry then it might be worth a look.

Earn Bitcoins as a Content Producer

If you can create premium digital content then you will find that Bitcoin provides the ideal way for you to sell it over the internet.

  1. Bittit – If you have photographs or other photos to sell then you could do worse than to take a look at this site, which provides a market for both stock photos and pornographic pics.
  2. See My Bit – Upload your movies to this site and select your own ‘pay per view’ price.
  3. Streamium – Stream live movie to your fans, charge per 2nd, and get paid directly via the blockchain with no middlemen.
  4. Pastecoin – You can sell any text paste with this service, but it is most commonly used as a market for code snippets and ordinary website scripts.

Make A Website to Earn Bitcoin

Of course if you are going to produce digital content then you may choose to create your own website rather than permitting somebody else to publish it for you. There are fountains of superb ad networks and affiliate programs that will help you to generate bitcoin revenue from your site. Take a look at these articles for more information and ideas about publishing your own website:

Earn Bitcoins on Social Media

You don’t even need to have your own website to embark generating an income – if you are have a strong social media presence or you fancy yourself as a bit of a marketing guru, you can earn some free coins through social media. Here are some of the best websites that may help you do that:

  • Changetip – This is the most popular platform for tipping across many different social media sites, and even provides you with a custom-built link that you can add to your profile page to receive tips. Post fine content, make yourself useful, and wait for the tips to begin rolling in.
  • Coinurl.com – If you are a prolific link sharer who gets a lot of clicks on everything you share then interstitial ad services like Coinurl suggest you a way to earn coins from every link you share with your followers by placing an ad before the content you are sharing.
  • ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ ⇧ – Check out the referral / affiliate programs mentioned in the previous section – you can promote these and earn using social media too!
  • Re 2et in – Get paid in BTC for retweeting sponsored tweets.

Get A Job Which Pays in Bitcoin

  1. Coinality -Global jobs board and the option to upload your resume
  2. Bit Task – Mostly freelance work
  3. CoinDesk Jobs – Well paid total time positions, including listings from some major employers who are willing to pay you in BTC.
  4. BitcoinTalk Services Board – A fine place to look for casual and freelance work within the digital currency industry.

Get Your Regular Wage in BTC

If you have a job then you can get paid in Bitcoin. It doesn’t even matter if your boss has never heard of cryptocurrency or even if they are a strident critic of it – you can get your regular wage paid to you in digital currency without your boss even knowing about it. The following services will take your paycheck and either convert the entire thing, or just convert a portion of it, and automatically send the coins to your digital wallet.

  1. BitWage – This is the best known company providing a service like this. They provide you with bank details to give to your employer, then when you get paid they convert whatever percentage you want and send your money to you the next day.
  2. Get Paid in Bitcoin – An Australian service provider which will work with your employer to let them lightly pay your wage the way you want it to be paid.

Sell Stuff

If you are looking for some spare cash to provide a one-off boost to your finances then digging through your old stuff and picking out a few things that you no longer need to sell on over the internet is a good way to go. But of course you can’t just go to eBay if you want to sell your stuff for BTC. Fortunately, there are some fine alternatives out there which let you do exactly that. This may also be a fine way for you to begin off your own business if have something that people want to buy. Here are some of the best sites to earn bitcoin by selling stuff online:

  1. CryptoThrift – This site is amongst the most popular auctions sites which let you sell your things for either bitcoin or one of the supported altcoins.
  2. BidBit – Another fine ebay-style auction website for bitcoiners.
  3. Shopify – If you want to go beyond just selling a few old things and actually look into setting up your own retail business then Shopify provides one of the world’s most popular ways to set up an online store, and will let you sell for either bitcoin, fiat, or both.
  4. Open Bazaar – This decentralized marketplace provides a way to buy and sell anything for BTC. Here’s why its better than eBay.

Bitcoin Revenue Sharing

Many website today are based around ‘user generated content’. That means they provide a platform, whether its a social network, a blog publishing site, an picture sharing site, or a thousand other things, and their users actually pack it up with useful stuff. To many people that doesn’t seem very fair, because the site’s users are providing most of the value but getting nothing in come back. Revenue sharing is a way to even out that imbalance by paying part of the advertising revenue generated by a chunk of content (which could be anything from a social media post to a movie) o the person who originally posted it. There are fountains of revenue sharing sites out there which pay in bitcoin, but here is a selection of the best ones:

  1. BitLanders – A social media website where it truly does pay to share.
  2. Paste4BTC – Get a share of the ad revenue from your text pastes.
  3. Taringa – A Latin American social media site with digital currency revenue sharing

Earn Bitcoins Playing Movie Games

Yes, you read that right – you can get paid to play movie games. Of course you most likely aren’t going to earn all that much, but I can’t think of a more pleasant way to get paid.

There are actually dozens of sites in this category so if you are interested please take a look at the utter list in our Get Paid to Play Movie Games article!

Become A Bitcoin Broker

If you have a bit of capital to commence off with (you don’t need a fortune, but >1 btc at least) then you can set yourself up as a broker, buying and selling coins with other users in your area. You can do this solo through a peer-to-peer marketplace such as local bitcoins, or you can sign up with LakeBTC which is looking for ‘Lake Bankers’ to operate as a kind of broker through their site.

Related video:

Digital currency, Learning Bitcoin: BitxBit

Learning Bitcoin: BitxBit

Day thirty – Mister B is Missing.

Since the Holiday Season has begun, I’ve stopped receiving assignments from Mister B.

I’m still reeling a bit from Assignment #6: Greed. The different levels of greed associated with money — consumerism, controlling wealth, politics, energy, etc — are a lot sickening. It got me thinking about how the latest interest in Bitcoin (including my own) have been largely based on greed.

No one cared about Bitcoin when it was worth $Three or even $100 (again, myself included). Even however it is designed to alleviate a bit of this control of wealth, bank greed and be a precursor for economic freedom from our current economic system, the majority of people didn’t pay attention until it was surging with monetary value. And still then, no one cared about its other values.

Everyone was interested because they dreamed to know how they could make money from it. People witnessed it as an investment scheme; they eyed it as a way to make a quick buck. This is part of the reason Bitcoin is being looked at as a commodity instead of a currency.

Actually, I shouldn’t say everyone. People who are in absolute economic despair, like Argentina and other countries, have commenced to faithfully adopt this “Crimson Cross of Currencies” for use as a real alternative currency. Because they have to. But we shouldn’t have to totally lose trust and faith in our current systems, before we embark looking for redemption. Right?

You can see how up-in-arms I get when I get going. So, I’m okay with not hearing from Mister B at the moment. Besides, I’ve got some stuff to catch up on and Christmas presents to buy (Hey there, Consumerism)– with Bitcoin, of course!

Buying Bitcoin via Coinbase

At some point in this Bitcoin game, I’m guessing you will want to buy and/or sell BTC. Maybe you’ve had enough of the acute ups and downs; maybe you want to buy more while the price is down. Unlike what my friend thinks — that it’s a confusing and complicated process — it’s actually super-duper effortless. If you now how to transfer money online, use Paypal or use online bill pay, You Got This.

Firstly, let me explain something. While I know there are numerous ways to buy/sell/trade BTC on the interwebs, I use Coinbase. It’s plain, effortless and my bank accounts are already linked. There’s not crazy hoops to hop through, or other weird shit like I’ve heard happens on Mt. Gox. I suggest this to anyone who, like me, is a bit of a Bitcoin novice.

Buying the Bitcoin via Coinbase

It’s indeed just three steps:

1. Log-in to Coinbase.

Two. Click the link to buy BTC and inject how many BTC you want to buy.

Four. Confirm your purchase.

Step 1: Log-in to Coinbase.com

Instantaneously after logging into Coinbase, the home screen for your wallet pops up. The majority of the screen lists the transactions to/from your specific account. If you haven’t made any, then it will look something like this:

You can click on the very first link in the Quckstart Guide to embark buying BTC!

Step Two: Figure Out How Much You Want to Buy

You can either click on the “Buy your very first bitcoin” link in the Quickstart Guide or head over to the left screen and click “Buy/Sell” under the General menu heading. Welcome to the purchase screen!

You MUST verify and link a bank account to purchase Bitcoin. You can also link your credit card for later purchases.

Here is what I think is the thickest misconception of buying Bitcoin.

YOU DO NOT HAVE TO BUY ONE Entire BITCOIN!

We think in terms of round numbers: $1 or 5¢, but Bitcoin is different. They are very divisible. So, maybe you don’t want to spend $657 (or whatever the exchange is) to get embarked in Bitcoin. YOU DON’T HAVE TO. Feel free to buy some random fraction of a Bitcoin. Buy .187 BTC or .666 BTC — whatever you want.

If you aren’t near a calculator, once you’ve entered an amount, they will automatically calculate its equivalent in USD — and showcase you all the ugly fees that come with your purchase.

But I thought BTC didn’t charge fees?

It doesn’t but since we are using Coinbase, a third-party service, so they can charge whatever they want. And it actually finishes up seeming like a lot if you ask me. But what do I know?

Step Three: Confirm & Wait.

Before you confirm your purchase, a screen will pop up with your purchase details and the planned date of deposit into your wallet. It is usually inbetween 3-4 business days, which is annoying because I don’t truly see what the hold up is.

It’s significant (and maybe evident) to note that you are paid out on the value of the BTC at the time of purchase. Which can be excellent if the value drops and a bummer if it goes higher. Thems the cracks!

Joy Fact! Coinbase calculates the value of exchange at the EXACT time of purchase. For example: Inbetween the time I plugged in my purchase amount to the five or ten seconds it took for me to go through the confirmation process my BTC were worth $Ten more! And the amount was adjusted and once again confirmed with me.

Want to know about Selling Bitcoin through Coinbase?

Update: There are thresholds to how many BTC you can buy and sell within a day, so be sure to check that out before you attempt being a large baller.

Day nine – Assignment #Two – Creating A Blockchain Wallet

This is not my wallet, but I wish it was.

When I very first looked at the Blockchain site, I almost instantaneously closed the browser tab. It looked so plain to me, but the kind of elementary that seemed to warn, “You better know what you are doing if you are going to use this site!”

It took me a duo days, and the promise of delicious BTC being transferred to me, to embark my Blockchain wallet. After a fairly brief drop over the weekend, the value of BTC seemed to be climbing up again.

I dreamed to get my forearms on some as soon as possible.

Turns out, setting up an online wallet on Blockchain was like a bazillion times lighter than on Coinbase. Who knew?

Embark a fresh wallet: They make it a little too effortless here providing you two lightly accessible buttons to click, both directing you to the fresh wallet set up. So, take the crimson pill or the blue pill, both the “Create My Free Wallet” and the “Commence a Fresh Wallet” button end up in the same place. How comforting.

That’s About It: Just pack in your email* and a password and capatcha — deciphering this sonofabitch can be the hardest part of all this — you get an email link to your shiny fresh wallet!

* If you want to stay a little anonymous, just for the mystery of it, get a “fake” BitMessageaccount and commence the undercover party.

Once you log-in to your account, your BTC address is lightly found (along with its lifemate, a matching QR code).

Like it says, this is your BTC address. So store it away, send it away and see the BTC come rolling in (hopefully). Note: This is a DEMO address.

To Link Accounts or To Not Link (Bank) Accounts?

I chose to NOT link my bank account to this address — mostly in spirit of the game/experiment/just ’cause. My Coinbase account is already linked to my bank account so I don’t see the need. Personally, I’d rather just remain mysterious on Blockchain. Why? Because I can, I guess. But you can do whatever you want.

I get it, some of you are visual learners. Check out Blockchain.info’s Demo Account with working links within the site to help you get a feel for the site’s user-friendliness and look.

Day four – Assignment #Two // Creating a Coinbase Account

Day four – Thursday, November 7th, 2013

Mister B assumed (correctly) that I would want to get my grubby forearms on some Bitcoin (BTC) ASAP. I recall back a few months ago when they spiked up to around $200 each, I miraculously found this old sheet of paper, folded once, still crisp from neglect. I was attempting to find out how many Bitcoin he had given me back in 2011, and how much they were worth now. I dreamed to cash them, at least some of them, out so I could, you know, pay my bills.

Unluckily, when I opened the folded sheet of paper, I had no idea what I was looking at. It was a bunch of different random coded lines and QR codes. I didn’t even know what to Google to attempt to figure out what it all meant. Instead, I sadly folded my unknown possible fortune back up and hid it away. There must be a simpler way, I thought.

Assignment #Two – Research How to Receive Bitcoin. Make Two Online Wallets And Send Mister B the Addresses.

My help this time:

My suggestion is to set up a coinbase.com account and a blockchain.info [wallet]. Once you have set up the wallets send me the bitcoin addresses.

Well, you can’t receive Bitcoin without a place to have them sent.

I instantly typed in coinbase.com and blockchain.info into my browser. I was both excited and a little frightened, maybe paranoid. The blockchain website looked scary and confusing, so I headed to Coinbase. The very first thing I noticed on Coinbase was the price of exchange. My eyes widened. It was dancing unbelievably close to $250. (I wouldn’t realize until later that Coinbase’s value charts are usually always less than other sites like the Bitcoin exchange site, Mt. Gox. To learn about Bitcoin value, read this.)

Coinbase.com is a good introductory site for people wanting to ease into the world of Bitcoin transactions. It is a type of online “wallet” for your Bitcoin account. I didn’t need any prior Bitcoin anythings — no address, no account, no nothing — to get commenced. I just simply signed up for an account. It is the Apple computer of internet wallet sites.

Register: After you’ve entered your email address and preferred password on the homepage, waited for and then clicked on the verification link in your email, and accepted the user agreement, you are taken straight to a Transactions page where a handy Quick Commence Guide can walk you through linking Coinbase to your bank account, a necessary evil to buy Bitcoin or exchange it into regular spending cash.

Link Your Bank Account: I was a little hesitant at very first to be linking anything to my bank account, but I figured I would have to take th e plunge eventually and there’s no time like the present, so… I linked both my checking and savings account via the instructions in the Buy/Sell menu link. As of now you can link a checking, savings and business checking account to the site. I was even more hesitant to link my phone number, but I realized it was also for security purposes. Adding a phone number* permits for two-factor authentication which adds an extra layer of protection against people attempting to build up access to your account. You can learn more about it here.

*I actually had an annoying time getting my verification code sent to me via text. I just wasn’t receiving the texts. However, once I requested a phone call for the verification code, it was sleek sailing.

Create a Bitcoin Address: So, you can’t do much without a Bitcoin address — which should be looked at as an account number. It’s the place your Bitcoins hangout and wait to be spent or hop up and down in value. Coinbase makes creating an address super ordinary, so even however I had some crazy confusing address on that sheet of paper from years back (and since I had no clue how to get it inwards the computer), I created a fresh one. That’s one of the beauties of Bitcoin — you can have as many addresses as you want. Make one for everything you do if you want, bounce as many as your nimble arms can treat, if you want. Since I’ve never been excellent at bouncing, I determined to commence with just the one.

On the left menu, under Account Settings, I clicked under the visible tab of Bitcoin Addresses. There was a bunch of stuff on there that I overlooked (like the “callback urls”) because I figured I should wait to use them until I knew what they were for. So, I lodged for clicking the +Create Fresh Address button. And Bam! I had a Bitcoin address. Display me the money.

If you are an organization enthusiast or generally nosey, clicking the Details button to the right of the Bitcoin address will pop open a screen that permits you to label your Bitcoin address. This is very recommended to keep track of your accounts. No one wants to stare at a string of random letters and numbers, attempting to recall which one is which.

The only weird thing I notice so far with Coinbase is that I’m not fairly sure where my private key is. And this worries me. But more importantly, I copied my shiny fresh address into a BitMessage and patiently waited to receive my very first transaction.

Update: Your private key is like the password to your address. It is required to spend your Bitcoin. You should never share this information. And unluckily, some sites, like Coinbase, keep this information stored on their server — whether or not you create your address with them — causing your wallet to be less secure.

Day one – My Secret Message

I woke up in the middle of the night to urinate. As habit dictates, I grab my phone to check my messages along the way. My eyes scarcely open, they bashful away from the light of my phone. There is a message from a weird address containing nonsensical order of characters and with an offensive subject line.

My very first Bitmessage.

I press on the email and am expecting to find a jumbled set of characters that I have to break like the da Vinci code, but its just a regular email. Part of me is disappointed, part of me is eased its lighter than I thought to send an encrypted message, and the last part of me is still half sleeping and wants to come back to bed.

I skim the paragraphs of words. Even tho’ I am tired, I have no idea what I am reading. The jargon is foreign, the concepts twist my brain. I determine that right now, on the toilet, mid-pee, is no way to attempt to decypher this message. I go back to bed and leave behind all about it.

I wake up and don’t recall my mysterious email until about an hour or two. I grab my phone, and check again. Its no lighter to comprehend than a few hours earlier. But my mission is clear, if I choose to accept it: Create a Bitmessage account and send an encrypted message to a different weird looking address listed in the email. Listen to a Udemy.com lesson on Bitmessage and familiarize myself with the concept of crypto.

I feel shocked. I feel like a lab rat. The articles idea has now been switched for an experiment on instructing the luddite monkey how to learn Bitcoin.

But I also, as I stared at this weird email I didn’t truly understand, I felt like a secret agent.

Day zero – Life Before Bitcoin

I have a friend who has been into Bitcoin for the last few years. Before the blogs, before the news coverage, before they were mentioned on Prime Time television dramas. He got in on them at $.Ten each. He told me to buy some.

A few years ago, I found myself crashing on his couch after a long time spent oversees. And he was still rattling on about this bitcoin business. It had come a long way over the last five or six years, but I just associated it with computer geeks, or experimental nerds. People that sat hunched over at their computer screens in the pitch black of 4am except for the dim glow of a PC monitor illuminating their face. Illuminating a secret world.

Bitcoin was so far off my radar that from the beginning even the most rudimentary information bounced of my brain like a nickel. Duo my lack of technical understanding with my embarrassingly low level of economics skill and you’ve got one dumb idiot blankly staring back at you. But he never gave up. He kept talking. Things kept bouncing. He even bought me $25 dollars worth of Bitcoin, five at $Five each — always looking out for me.

A few months later they rose to $8.

He called me. “You should indeed buy more Bitcoin. They are going up in value.” I didn’t understand how. But again armed with my keen understanding of basic economics, I rationed that since they had already almost doubled in price, I most likely couldn’t afford to buy any. “I think I missed the boat on them”, I said into a silent phone.

A few weeks ago, Bitcoin reached $200 each. Fuck me.

Today they are almost at $350. I still don’t know how. I still don’t understand why. But I do know this world is switching, and I damn sure better know a bit more about Bitcoin if I am going to get through.

So I wrote this friend tonight. I wrote because he mentioned wanting me to write Bitcoin articles for him. And since I could use the money, because I “missed the boat” way back when, I asked him if he still dreamed to hire me to write for his blog. I wasn’t sure how I could write anything about something I fresh so little about, but I was up for the challenge. Or I could attempt and fake it.

What did I know about Bitcoin? Well, I knew it was a digital currency created out of lean air. I knew it was used on the internet to buy drugs or something. I knew it had substantially risen in value over the last few years. But that’s about it.

I shoved send feeling like a failure. I shoved send and had no idea what a rail I would be taken on over the next few months as BitXBitcoin took form.

Related video:

Coinbase, Instant Exchange

Coinbase

Instant Exchange

Instant Exchange permits you to send bitcoin and pay for it with your local currency from the same page. You can also receive bitcoin and Coinbase will execute an instant sell in the background. The sell will credit funds to your local currency wallet.

Instant Exchange is a excellent instrument for people who want to use bitcoin but choose to cash out instantaneously to fiat currency. The fiat currency value of each conversion transaction, after Coinbase’s conversion fee, will be reflected in your USD, EUR, and/or GBP wallets. Instant Exchange is supported only for users who hold fiat currency wallets with Coinbase.

How does it work?

Instant Exchange is just a different way to use Coinbase's existing Conversion Service. For example, when you wish to instantly purchase and send bitcoin using Instant Exchange, you can simply click on the "Send/Request" tab in your Coinbase Account, identify the recipient, and indicate the amount of bitcoin or USD-equivalent you wish to transfer. By selecting your USD Wallet as the funding source, when you confirm the transaction you will (a) use Coinbase's Conversion Service to purchase a corresponding amount of bitcoin, and then (b) instantaneously transfer the bitcoin from your Coinbase Account to the recipient.

On the roll side, you can also use Instant Exchange to instantly sell bitcoin which you receive into your Coinbase Account. Using the same “Send/Request” feature, you can generate a unique bitcoin address for this purpose. Instant Exchange will then permit you to use that address to (a) receive bitcoin from the payer into your Coinbase Account, and (b) instantly sell the bitcoin using Coinbase's Conversion Service. This is a good way to use the Bitcoin payment network.

What are the fees?

Coinbase’s standard Conversion Fee applies to all bitcoin purchase and sale transactions. There are no extra fees for use of Instant Exchange.

For example, if you wish to use Instant Exchange to send $15-worth of bitcoin to a recipient, the total amount debited from your USD wallet will be $15.15: the amount of USD you wish to convert into bitcoin plus Coinbase’s Conversion Fee. This works the same way in switch roles, so if you receive $15-worth of bitcoin and sell it instantaneously using Instant Exchange, then your USD wallet will be credited $14.85: the USD-value of the bitcoin you converted into USD, minus Coinbase’s Conversion Fee. As always, you can loosely fiat currency from your Coinbase Account back to your own bank account without charge from Coinbase (for ACH transfers; for list of all withdrawal fees, please see this page).

What are the thresholds?

Instant Exchange is just another way to use Coinbase’s Conversion Service, so your standard buy/sell thresholds will apply. You therefore will not be able to exceed your weekly or aggregate buy boundaries when you use Instant Exchange to purchase and send bitcoin. It is also significant to recall that you cannot use Instant Exchange to receive and sell bitcoin in excess of your weekly or aggregate sell thresholds. If you receive an amount of bitcoin for Instant Exchange whose conversion would exceed your weekly or aggregate sell limit, all of the bitcoin will be received into your default bitcoin wallet and no conversion will occur. You can separately initiate a bitcoin sell transaction in an amount that does not exceed your sell limit.

You can check your buy/sell boundaries by logging into your Coinbase Account and visiting this page.

Can I send or receive bitcoin like this using my linked bank account?

Not yet, but we are working on this feature.

I use Coinbase Merchant Services. Will anything switch?

Nothing switches on the merchant side of things. We are just extending and expanding Instant Exchange to the rest of our customers.

Related video:

Can I buy bitcoin with euro or do I need to switch it to dollars?

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Yes certainly, You can use any currency whatever you like. That's how powerful the bitcoin is. You need not to switch your currency. It's just an effortless peasy!

My advise you must pick of your choose of local bitcoin websites. It's also your choice if you pick more that one.

Choose whatever you think that is established enough. That has a good feedback, reliable and effortless to access

In my private practice, I picked randomly.

I have been in a bitcoin for duo of months now. The progress is superb.

I eyed I site that has excellent feedback to all its clients. I'm interested to begin with a fresh one. I think they are superb. Here is their website; https://paxful.com/

You can buy using any currency.

  • Coinbase (worst exchanger ?)
  • cexio (horrible customer service and two weeks verification delay)
  • bitstamp (takes time to verify your account, and to credit deposits, slow support)
  • paxful (you do not want to know that website)

Yes you can. You can buy Bitcoin and Ethereum from International Exchanges like Bitcoin Exchange, Trading BTC USD, BTC EUR – CEX.IO ,Lake BTC , HitBTC , using your Credit Card / Debit Card / Wire Transfer / Paypal / Skrill .

Bitcoin Exchange, Trading BTC USD, BTC EUR – CEX.IO is the best Destination to buy Ethereum. The Current price is 353$ , it is growing like anything.

You can buy Ripple from Kraken .

If you want to convert BTC to Ethereum/Monero/Ripple then use Changelly or Cryptonator .

Yes, you can buy Bitcoins with Euro on CEX.IO Bitcoin exchange. For that, you can use your VISA/MasterCard payment card in Euros and buy Bitcoins for Euro right on the website, just like any good on the web.

Our exchange possesses PCI DSS certificate that ensures safety of payment card data.

We’ll be glad to see you among our customers!

You can buy Bitcoin with euro and many other currencies at SpectroCoin . They even suggest Bitcoin debit card that permits you to spend bitcoin in all places that accept VISA or MasterCard.

You can buy it with the currency that you want, but it’s lighter with CAD, Euro, GBD, NOK and maybe with other currencies, but for those it’s effortless.

I give an example.

I can buy Bitcoin with CAD with Coinbase or Quadriga CX in Canada.

It costs me 3–5% with Coinbase to buy bitcoins and I can’t sell it (for cash) in Canada, but you can in the USA and in some countries.

With Quadriga (Only in Canada), it costs 0.5% to buy in 3–7 days or 2% to buy and get your bitcoin instantaneously, to sell your bitcoins for cash, it costs 0.5% and you get the money in 2–5 days.

I can send you my bitcoins from Coinbase to your Coinbase Account and you can see the balance in bitcoin and Euro (or the currency that you want).

You can receive the bitcoin instantaneously and for free inbetween Coinbase member.

But you sell your bitcoins for cash in Europe, so you withdraw your bitcoins on LocalBitcoins and sell them for 3–12% or for bounty cards for 20–50% fees.

So you can say, hey I need a fresh TV, I need 700$, so you sell your bitcoins for 700$ Amazon Bounty cards, you take 35% fees, so it costs you 455$ in Bitcoins, you did 245$ in fees or profit.

You can also sell your bitcoins for another currency on Poloniex, you have two choices.

You buy a fresh cryptocurrency with your bitcoins like Golem, Stellar, Ripple, Siacoin, Burstcoin, ShadowCash, Ethereum, Dash, Litecoin, UBQ, if you don’t want to wait, you pay 0.02% fee, if you wait that someone take your suggest, you pay nothing.

With another cryptocurrency that is at like 0.Ten cent or 1$, if it goes up to 100$, you made 1000x or 100x your cash, if it goes up to 1000$, you made ten 000x or 1000x your cash.

You can also go in an ATM,

You can also lend your bitcoins

If you are in the Philippines, you can use Coin.PH , I think it’s the best Bitcoin company I eyed, the only issue is that it’s the best company but in Phippilines not outside, they need to expand.

You can also buy a Bitcoin Card with Spectrocoin and buy and sell bitcoins for 1%, they have a card in US, Euro and GBP.

The other card that are also good is Cryptopay and Coinbase in the US.

The fresh cards are going to be indeed nice, Token and Monaco.

You can also ask who want to buy or sell bitcoins on your Facebook wall, a lot of people are interested, especially when you are Truly in this world for more than three months, your friends switches.

You can also use BitStamp in the Euro Zone, otherwise it costs too much, it’s truly cheap with SEPA transfer, but it takes time 1–3 days, with Credit card it costs too much according to me, 8% and 5% if you buy 5000euro and more.

The debit card costs truly too much, it’s not an good option according to me, I choose the other cards and the only service that I found to buy bitcoins at good price with a credit card is Coinbase, otherwise it’s 7% and more.

…I don’t buy bitcoins and get them from my company, so I sell them, I choose to use a way that I make money when I sell them :P.

Related video:

Blockchain, simply explained

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Blockchain is a secured and reliable technology, operating on a peer-to-peer basis (i.e. with connected computer systems), which is used to confidently stock and share data or list transactions. It enables to perform transactions in a relatively swift and cost-effective manner. It is a distributed, see-through (but pseudo-anonymous) cryptographic ledger, deemed unforgeable, that keeps records of all transactions, without involvement of a central intermediary, each transaction being verified by the network participants.

When verified, the transaction is added to a block of other verified transactions. The block is then immutably added to the distributed ledger in a linear and chronological order. This is where the term “chain” comes from. The chain may be public (e.g. bitcoin blockchain) or private (i.e. access limited to members of a private network).

Said transactions may concern cryptocurrencies (e.g. bitcoin) or any other kind of digital assets or digital representations of a physical asset, so-called “tokens”.

While traditional ledgers are centralised, meaning that the ledger holder (the central intermediary) controls the system and mediates every transaction, with the blockchain technology, each network participant holds a copy of the ledger and participates to the approval of the transactions. Consequently, while corrupting a “traditional” ledger implies getting to the central ledger holder (the centralised intermediary), corrupting a blockchain would imply attacking all copies of the ledger at the same time because of the distributed nature of the ledger. The fattest “added” value of the blockchain technology may well refer to trust. Rather than helping you building trust, blockchain technology makes trust irrelevant.

How does a blockchain basically work?

Fresh transactions (e.g. A would like to send ten bitcoins to B) are grouped within blocks. Each block is verified and validated by the “knots” (network participants) or so-called “miners” using elaborate cryptotechnics which will depend on the type of blockchain (in our bitcoin transaction example: the miners will verify that A is indeed proprietor of ten bitcoins and once this is confirmed, the transaction is validated and visible for B and the other network participants; B thus becomes the holder of said ten bitcoins). Blockchain security methods use encryption technology.

Network participants are incentivised to perform the verification and approval tasks, mostly by receiving fees or fresh cryptocurrencies. If a discrepancy is found, the block is rejected. Otherwise validated transactions (in the block) are time-stamped and added to the chain, in a linear and chronological order, making a chain of transactions (or a chain of blocks) that shows every and all transactions in the history of that blockchain.

What are possible uses of a blockchain?

Originally, the blockchain technology has been used for cryptocurrency transactions. The potential of the blockchain technology goes, however, far beyond cryptocurrencies. This technology may basically be used for any types of transaction involving value (money, goods, real estate, etc.) or for unforgeable databases or registers. Blockchain technology may be applied to any transaction or operation where traceability and visibility is required (e.g. casting votes in election, proving that a document existed at a certain time or that a person is the legitimate possessor of an asset, proving origin of a product within a supply chain, etc.).

It may also be used for contracts that will be automatically executed, without human intervention (so-called “smart contracts”). Not fully clear what that is? Go after us on our Linkedin Page and stay tuned for the next gig: Brainy Contracts simply explained.

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