Cybercrime on the Ethereum Blockchain

59 Pages Posted: 2 Aug 2023

See all articles by Lars Hornuf

Lars Hornuf

Technische Universität Dresden; CESifo (Center for Economic Studies and Ifo Institute)

Paul P. Momtaz

Technische Universität München (TUM) - TUM School of Management; University College London Center for Blockchain Technologies; CESifo (Center for Economic Studies and Ifo Institute)

Rachel J. Nam

Goethe University Frankfurt; Leibniz Institute for Financial Research SAFE

Ye Yuan

TUM School of Management,Technical University of Munich

Date Written: July 31, 2023

Abstract

We propose a taxonomy of cybercrime on the Ethereum blockchain and examine how cybercrime impacts victims' risk-taking and returns. Our difference-in-differences analysis of a sample of victims and matched non-victims suggests that victims increase their long-term total risk-taking and earn lower risk-adjusted returns in the post-cybercrime period. Victims' long-term total risk-taking increases because they increase diversifiable risk in the long term. The increased diversifiable risk correlates with victims' withdrawal from altcoins after cybercrime. At the same time, the reduction in risk-adjusted returns correlates with increased trading activity and churn, due plausibly to managing cybercrime exposure. In the cross-section of Ethereum addresses, we show that the most-affluent victims take a systematic approach to restore their pre-cybercrime wealth level, while the least-affluent victims turn into gamblers. Finally, a parsimonious forensic model explains a good part of the addresses' probability of being involved in cybercrime, both on the victim and the cybercriminal side.

Keywords: Ethereum blockchain, market manipulation, financial fraud, token investment scam, cybercrime, cryptocurrency

JEL Classification: G14, G24, G30, L26, M13, O16

Suggested Citation

Hornuf, Lars and Momtaz, Paul P. and Nam, Rachel J. and Yuan, Ye, Cybercrime on the Ethereum Blockchain (July 31, 2023). Available at SSRN: https://ssrn.com/abstract=4527415 or http://dx.doi.org/10.2139/ssrn.4527415

Lars Hornuf

Technische Universität Dresden ( email )

Dresden, 01307
Germany

HOME PAGE: http://www.hornuf.com

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Paul P. Momtaz (Contact Author)

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, 80333
Germany

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
Malet Place London WC
London, London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Rachel J. Nam

Goethe University Frankfurt ( email )

Finance Department
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Ye Yuan

TUM School of Management,Technical University of Munich ( email )

Arcisstrasse 21
Munchen, 80333
Germany

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