Blockchain Mechanism and Distributional Characteristics of Cryptos

Lin MB, Khowaja K, Chen CYH, Härdle WK. Blockchain mechanism and distributional characteristics of cryptos. Advances in Quantitative Analysis of Finance & Accounting (AQAFA) , Vol. 18, 2021. DOI:10.6293/AQAFA.202112_(18).0006

27 Pages Posted: 20 Mar 2021 Last revised: 3 Feb 2022

See all articles by Min-Bin Lin

Min-Bin Lin

Karlsruhe Institute of Technology - Institute AIFB

Kainat Khowaja

International Research Training Group 1792, School of Business and Economics, Humboldt University of Berlin

Cathy Yi‐Hsuan Chen

University of Glasgow, Adam Smith Business School; Humboldt Universität zu Berlin

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute; Academy of Economic Studies, Bucharest

Date Written: November 24, 2020

Abstract

We investigate the relationship between underlying blockchain mechanism of cryptocurren- cies and its distributional characteristics. In addition to price, we emphasise on using actual block size and block time as the operational features of cryptos. We use distributional charac- teristics such as fourier power spectrum, moments, quantiles, global we optimums, as well as the measures for long term dependencies, risk and noise to summarise the information from crypto time series. With the hypothesis that the blockchain structure explains the distribu- tional characteristics of cryptos, we use characteristic based spectral clustering to cluster the selected cryptos into five groups. We scrutinise these clusters and find that indeed, the clus- ters of cryptos share similar mechanism such as origin of fork, difficulty adjustment frequency, and the nature of block size. This paper provides crypto creators and users with a better un- derstanding toward the connection between the blockchain protocol design and distributional characteristics of cryptos.

Keywords: Cryptocurrency, price, blockchain mechanism, distributional characteristics, clustering

JEL Classification: C00

Suggested Citation

Lin, Min-Bin and Khowaja, Kainat and Chen, Cathy Yi‐Hsuan and Härdle, Wolfgang Karl, Blockchain Mechanism and Distributional Characteristics of Cryptos (November 24, 2020). Lin MB, Khowaja K, Chen CYH, Härdle WK. Blockchain mechanism and distributional characteristics of cryptos. Advances in Quantitative Analysis of Finance & Accounting (AQAFA) , Vol. 18, 2021. DOI:10.6293/AQAFA.202112_(18).0006 , Available at SSRN: https://ssrn.com/abstract=3784776 or http://dx.doi.org/10.2139/ssrn.3784776

Min-Bin Lin (Contact Author)

Karlsruhe Institute of Technology - Institute AIFB ( email )

Building 05.20 KIT-Campus South
Karlsruhe, D-76128
Germany

Kainat Khowaja

International Research Training Group 1792, School of Business and Economics, Humboldt University of Berlin

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Cathy Yi‐Hsuan Chen

University of Glasgow, Adam Smith Business School ( email )

University Avenue
Glasgow, G12 8QQ
United Kingdom
01413305065 (Phone)

HOME PAGE: http://https://gla.cathychen.info

Humboldt Universität zu Berlin ( email )

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Berlin, 10117
Germany
03020935631 (Phone)
10099 (Fax)

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

Academy of Economic Studies, Bucharest ( email )

Bucharest
Romania

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