Please, wait while we are validating your browserThe Evolution of the Bitcoin Economy: Extracting and Analyzing the Network of Payment Relationships 46 Pages Posted: 13 Jul 2016 Last revised: 29 Aug 2016 Date Written: July 1, 2016 Abstract In this paper, we gather together the minimum units of Bitcoin identity (the individual addresses), and group them into approximations of business entities, what we call “super clusters”.While these clusters can remain largely anonymous, we are able to ascribe many of them to particular business categories by analyzing some of their specific transaction patterns, as observed during the period from 2009-2015.We are then able to extract and create a map of the network of payment relationships among them, and analyze transaction behavior found in each business category.We conclude by identifying three marked regimes that have evolved as the Bitcoin economy has grown and matured: from an early prototype stage; to a second growth stage populated in large part with “sin” enterprise (i.e., gambling, black markets); to a third stage marked by a sharp progression away from “sin” and toward legitimate enterprises.

Keywords: Blockchain, Bitcoin, Digital Currencies, Business Analysis, Network Theory JEL Classification: E42, L14, O12, O35, P40 Suggested Citation Tasca, Paolo and Liu, Shaowen and Hayes, Adam, The Evolution of the Bitcoin Economy: Extracting and Analyzing the Network of Payment Relationships (July 1, 2016).A Cost of Production Model for Bitcoin 4 Pages Posted: 21 Mar 2015 Last revised: 10 Jan 2016 Date Written: March 19, 2015 Abstract As bitcoin becomes more important as a worldwide financial phenomenon, it also becomes important to understand its sources of value formation.There are three ways to obtain bitcoins: buy them outright, accept them in exchange, or else produce them by 'mining'.Mining employs computational effort which requires electrical consumption for operation.The cost of electricity per kWh, the efficiency of mining as measured by watts per unit of mining effort, the market price of bitcoin, and the difficulty of mining all matter in making the decision to produce.

Bitcoin production seems to resemble a competitive market, so in theory miners will produce until their marginal costs equal their marginal product.Break-even points are modeled for market price, energy cost, efficiency and difficulty to produce.The cost of production price may represent a theoretical value around which market prices tend to gravitate.As the average efficiency increases over time due to competition driving technological progress – as inefficient capital becomes obsolete it is removed while new capital replaces them – the break-even production cost of bitcoins denominated in dollars will fall.Increased efficiency, although necessary to maintain competitive advantage over other miners could serve to drive the value of bitcoin down, however adjustments in the mining difficulty and the regular halving of the block reward throughout time will tend to counteract a decreasing tendency in cost of production.Keywords: bitcoin, cryptocurrencies, asset pricing, cost of production models, valuation models, competitive markets JEL Classification: C51, D58, E42, E47, G12 Suggested Citation Hayes, Adam, A Cost of Production Model for Bitcoin (March 19, 2015).

A soon-to-be-released study centers on evidence that bitcoin’s market has matured to a point where commerce is no longer driven by illicit activities.Drafted by researchers from the central bank of Germany, University College London and the University of Wisconsin-Madison, the paper argues that bitcoin has passed through three distinct phases of growth as a distributed payment system, the most recent and current of which they assert is driven by "legitimate payments, commerce and services".bitcoin financial servicesAs such, the study sheds light on a key question that the bitcoin network continues to face: whether it should face more scrutiny than other, more established payment networks.bitcoin going public"Our results suggest that some recent concerns regarding the use of bitcoin for illegal transactions at the present time might be overstated, and that whatever such transactions may exist could further diminish as the bitcoin economy continues to mature."bitcoin financial services

For the study, researchers Paolo Tasca, Shaowen Liu and Adam Hayes sought to de-anonymize a database composed of "millions" of pseudonymous bitcoin addresses, which they worked to distill into "super clusters" they assert are owned by one entity or managed collectively.From there, the researchers sought to sort these clusters of addresses into four categories – bitcoin exchanges, gambling services, mining pools and black markets.bitcoin high frequency tradingThe report then traces the transaction history between these entities over time, finding that the first two phases of the network were dominated by mining activities and "sin enterprises" respectively.bitcoin handelenThe third and current phase, the report said, is now dominated by legitimate merchants and exchanges.galt's gulch bitcoin

"We can thus refer to the first regime as the 'proof of concept' or 'mining-dominated' phase, the second as the 'sin' or 'gambling/black market-dominated' phase, and the third as the 'maturation' or 'exchange-dominated' phase," the paper reads.Notably, the report asserts this has happened even as the number of illicit black market websites has increased in the wake of the shutdown of the original Silk Road, one of the earliest significant drivers of bitcoin commerce.The report also revealed new information about the activities of the entities it was able to identify and classify on the bitcoin network.For instance, the report found the average gambler bets 0.5 BTC on average, and that these individuals often make multiple bets in the same day.Likewise, the average observable transaction between user-dealers and black market services was 3 BTC.By comparison, the average transaction between a trader and an exchange, the report said, is for 20 BTC, with traders buying or selling via these services roughly every 11 days.