Can Bitcoin be Trusted? Quantifying the Economic Value of Blockchain Transactions

28 Pages Posted: 17 Jul 2020 Last revised: 27 Sep 2021

See all articles by Anne Haubo Dyhrberg

Anne Haubo Dyhrberg

Wilfrid Laurier University

Sean Foley

Macquarie University

Jiri Svec

The University of Sydney - Discipline of Finance

Benjamin M. Cole

Fordham University

Date Written: September 11, 2019

Abstract

Transparency of data recorded on distributed ledgers has been hailed as a key benefit of blockchains, such as Bitcoin. Our examination of 389 million Bitcoin wallet addresses involving 183 million unique users shows that the way the “Notebreaker” wallet mechanism handles transactions introduces remarkable opacity into otherwise “transparent” data. Utilizing a novel algorithm that achieves 90% accuracy at separating “economic value” from “security value” in Notebreaker blockchains, we show that transaction volumes are inflated 7-8 times and transaction fees are inflated 7-15 times what is commonly believed when compared to economic transfer undertaken. A common heuristic for unique adopter counts – address counts – is also overstated. Our study identifies a key weakness in public Bitcoin data and the danger of extrapolating adoption levels of blockchains utilizing Notebreaker.

Keywords: Bitcoin, Blockchain, Distributed Ledger Technology, Wallet Addresses, Adoption

JEL Classification: G41; O33; O32

Suggested Citation

Dyhrberg, Anne Haubo and Foley, Sean and Svec, Jiri and Cole, Benjamin M., Can Bitcoin be Trusted? Quantifying the Economic Value of Blockchain Transactions (September 11, 2019). Available at SSRN: https://ssrn.com/abstract=3452391 or http://dx.doi.org/10.2139/ssrn.3452391

Anne Haubo Dyhrberg

Wilfrid Laurier University ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

Sean Foley (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
0417702600 (Phone)

Jiri Svec

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
+61 2 9036 6241 (Phone)

Benjamin M. Cole

Fordham University ( email )

45 Columbus Ave., Ste 522
New York, NY 10023
United States
646-312-8261 (Phone)
646-312-8295 (Fax)

HOME PAGE: http://www.bnet.fordham.edu/bmcole/

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