Proof-of-What? Detecting Original Consensus Algorithms in Cryptocurrencies with a Four-Factor Model

9 Pages Posted: 28 Jun 2019

See all articles by Savva Shanaev

Savva Shanaev

Northumbria University; Government of the Russian Federation - Financial University (Moscow Branch)

Satish Sharma

University of Northumbria at Newcastle

Subhakara Valluri

Institute of Economics of the Polish Academy of Sciences (INE PAN)

Arina Shuraeva

University of London

Date Written: May 21, 2019

Abstract

This study applies Fama-French-style factor loading analysis to cryptocurrency financial performance data to determine the originality of 32 reportedly novel consensus algorithms (“proofs”) and 20 hybrid consensus mechanisms as compared to conventional proof-of-work and proof-of-stake using a sample of 302 cryptocurrencies. Only 14 out of 32 new consensus algorithms and 12 out of 20 hybrid mechanisms are found to be truly original. Innovative consensus protocols are not associated with superior returns while original hybrid solutions are. The findings allow investors to select coins with original “proofs” and to explore performance implications of consensus algorithms. For future research, the applicability of market, size, proof and age factors for risk and attribution analysis of cryptocurrency markets is evidenced.

Keywords: cryptocurrency, consensus algorithm, proof-of-work, proof-of-stake, risk factor, factor portfolio

JEL Classification: C22, G12, O33

Suggested Citation

Shanaev, Savva and Sharma, Satish and Valluri, Subhakara and Shuraeva, Arina, Proof-of-What? Detecting Original Consensus Algorithms in Cryptocurrencies with a Four-Factor Model (May 21, 2019). Available at SSRN: https://ssrn.com/abstract=3395008 or http://dx.doi.org/10.2139/ssrn.3395008

Savva Shanaev (Contact Author)

Northumbria University ( email )

Pandon Building
208, City Campus East-1
Newcastle-Upon-Tyne, Newcastle NE1 8ST
United Kingdom

Government of the Russian Federation - Financial University (Moscow Branch) ( email )

Satish Sharma

University of Northumbria at Newcastle ( email )

Subhakara Valluri

Institute of Economics of the Polish Academy of Sciences (INE PAN) ( email )

Palace of Culture and Science
Pl. Defilad 1
Warsaw, 00-901
Poland

Arina Shuraeva

University of London ( email )

Senate House
Malet Street
London, WC1E 7HU
United Kingdom

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