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Bitcoin - Monero analysis

Pearson and Spearman correlation coefficients of cryptocurrencies

Written by A. Kalaitzis

Paper category

Master Thesis






Thesis: Bitcoin-Monero - Bitcoin3.1.1 What is Bitcoin? Bitcoin [57] is a digital currency and may be one of the greatest discoveries in the financial system of the 21st century. Its production, storage, movement and all transactions are carried out entirely in electronic form among the participants of the BTC network. No country, government or bank produces or controls BTC. Users of the BTC network interact with each other through the Internet using a decentralized peer-to-peer network [3]. This technology is easy to learn and can run on various electronic devices, such as computers and smartphones. BTC is an open source digital exchange. In order to avoid hacker attacks and achieve security, it uses encryption methods and digital signatures. Anyone can conduct BTC and cash transactions, but only at specific kiosks and not at the bank. The owners of BTC own the keys, one private and one public, which enables them to prove ownership of transactions in the BTC network [3]. Ownership of the keys is the only prerequisite for complete control of BTC, and they are usually stored in the digital wallet of the computer. 3.1.2 The history of Bitcoin The idea of ​​distributed cryptocurrency was proposed by David [18] in 1998 among cypherpunk activists. Ten years later in 2008, inspired by the collapse of Lehman Brothers, an innovative scientific article appeared, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System" [57]. In 2009, with the release of the first open source client and the creation of the corresponding BTC, BTC made its debut in operation. The author of the publication and the creator of the software use the pseudonym Satoshi Nakamoto [57] to remain anonymous. His true identity, whether it is a person or a group, remains a mystery to this day. What we know is that Satoshi Nakamoto has appeared on various BTC forums for a long time by answering questions. Then in the spring of 2012, he disappeared from the Internet. Nakamoto owns 1 million BTC, which is equivalent to US$ until July 2018. From 2009 to early 2010, BTC had no value at all. In April 2010, the value of each BTC at the beginning of the first transaction in the financial market did not exceed $0.14. At that time, the first commercial transaction was carried out with the new digital currency. On May 18, 2010, Laszlo Hanyecs, a developer from Florida, published an article offering 10,000 BTC to anyone who could buy him two pizzas. Four days later, on May 22, Jeremy Sturdivant, nicknamed "Jarcos" on the forum, accepted the transaction, and Laszlo received two pizzas from PapaJohn's shop. From the chart, the price of BTC has changed a lot. For example, in April 2013, its price dropped by 70%, that is, 160 US dollars a night, from 233 US dollars to 67 US dollars [7]. Many people think this happened due to the interruption of Mt.Gox, which is a very popular exchange for trading with BTC. 3.1.3 Bitcoin transactions use BTC to store and purchase by using BTC wallet [3]. The wallet can be used as a program on our computer or hosted on a website, such as a Bitcoin exchange. Every BTC wallet has a unique address and can transfer BTC anonymously. All BTC are shared in the wallets of all parties participating in the coin network. This is why the system is peer-to-peer because it relies on peers rather than banks. When a transaction occurs, the system will confirm the addresses of two different wallets of the buyer and seller, and then perform some mathematical calculations to confirm the validity of the transaction. These calculations are necessary to protect the encryption algorithm of a peer-to-peer system, which is based on a mathematical security protocol. After the calculation is completed, each valid transaction will be recorded. Block log data is added to a public log file called blockchain. 3.1.4 The production of Bitcoin Bitcoin is a completely digital currency without any central authority. It can prevent hackers from creating 1 billion or 1 trillion BTC through a few clicks on the computer? Fortunately, the creators of BTC predicted it in a genius way. The key to running BTC is the confirmation of the blocks and transactions we mentioned above. In order to confirm that each transaction is valid, the block describing it must be "resolved", that is, the data contained in it must be returned with a proper process to a mathematical result in a specific form to prove the authenticity of the block . This is important for the security of the entire system, so there will be no forged blocks for transactions that have not been made or cannot be traded with bitcoins that are not derived from valid transactions. In fact, the design of the system is to allow each new block to confirm the authenticity of the previous block as a chain (the entire log file is called a blockchain). However, as the chain grows, the process of resolving blocks becomes more complicated, and since there is no central server to perform calculations, the workload is shared by users who participate anonymously. The process of confirming transactions through the solution of each block is called mining, and the people involved are called miners [61]. This process takes an average of 10 minutes, and their reward for borrowing computer processing power is to obtain new BTC in each block they solve, as well as the commission generated by the transaction [3]. In fact, the complete confirmation of a transaction is a reward for miners to collect a certain amount of BTC. When BTC first appeared, there were few BTC miners (block producers), and their computers were normal. At that time, someone could run the BTCmining program on their computer and gather in a relatively short space of several hundred BTC. A BTC can be divided into 100 million units, called "satoshis" [12]. Read Less