Abstract
Bitcoin has enjoyed wider adoption than any previous crypto- currency; yet its success has also attracted the attention of fraudsters who have taken advantage of operational insecurity and transaction irreversibility. We study the risk investors face from Bitcoin exchanges, which convert between Bitcoins and hard currency. We examine the track record of 40 Bitcoin exchanges established over the past three years, and find that 18 have since closed, with customer account balances often wiped out. Fraudsters are sometimes to blame, but not always. Using a proportional hazards model, we find that an exchange’s transaction volume indicates whether or not it is likely to close. Less popular exchanges are more likely to be shut than popular ones. We also present a logistic regression showing that popular exchanges are more likely to suffer a security breach.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
References
Birch, D., McEvoy, N.: Electronic cash – technology will denationalise money. In: Luby, M., Rolim, J.D.P., Serna, M. (eds.) FC 1997. LNCS, vol. 1318, pp. 95–108. Springer, Heidelberg (1997)
Chaum, D.: Achieving electronic privacy. Scientific American, 96–101 (August 1992)
Nakamoto, S.: Bitcoin: A peer-to-peer electronic cash system (2009), http://www.bitcoin.org/bitcoin.pdf
Bitcoin Watch, http://bitcoinwatch.com/ (last accessed January 27, 2013)
Leyden, J.: Linode hackers escape with $70k in daring Bitcoin heist. The Register (March 2012), http://www.theregister.co.uk/2012/03/02/linode_bitcoin_heist/
Lee, T.: Hacker steals $250k in bitcoins from online exchange bitfloor. Ars Technica (September 2012), http://arstechnica.com/tech-policy/2012/09/hacker-steals-250k-in-bitcoins-from-online-exchange-bitfloor/
Christin, N.: Traveling the Silk Road: A measurement analysis of a large anonymous online marketplace. Technical Report CMU-CyLab-12-018, Carnegie Mellon University (2012)
Jeffries, A.: Suspected multi-million dollar Bitcoin pyramid scheme shuts down, investors revolt. The Verge (August 2012), http://www.theverge.com/2012/8/27/3271637/bitcoin-savings-trust-pyramid-scheme-shuts-down
Anderson, R.: Closing the phishing hole: Fraud, risk and nonbanks. In: Federal Reserve Bank of Kansas City – Payment System Research Conferences (2007)
Moore, T., Han, J., Clayton, R.: The postmodern Ponzi scheme: Empirical analysis of high-yield investment programs. In: Keromytis, A.D. (ed.) FC 2012. LNCS, vol. 7397, pp. 41–56. Springer, Heidelberg (2012)
Bitcoin wiki, https://bitcointalk.org/ (last accessed January 27, 2013)
Bitcoin forums, https://en.bitcoin.it/ (last accessed January 27, 2013)
Yepes, C.: Compliance with the AML/CFT international standard: Lessons from a cross-country analysis. IMF Working Papers 11/177, International Monetary Fund (July 2011)
Cox, D.: Regression models and life-tables. Journal of the Royal Statistics Society, Series B 34, 187–220 (1972)
Clark, J., Essex, A.: CommitCoin: Carbon dating commitments with bitcoin (short paper). In: Keromytis, A.D. (ed.) FC 2012. LNCS, vol. 7397, pp. 390–398. Springer, Heidelberg (2012)
Barber, S., Boyen, X., Shi, E., Uzun, E.: Bitter to better – how to make Bitcoin a better currency. In: Keromytis, A.D. (ed.) FC 2012. LNCS, vol. 7397, pp. 399–414. Springer, Heidelberg (2012)
Karame, G., Androulaki, E., Capkun, S.: Two Bitcoins at the price of one? Double-spending attacks on fast payments in bitcoin. In: Proc. ACM CCS, Raleigh, NC (October 2012)
Ron, D., Shamir, A.: Quantitative analysis of the full Bitcoin transaction graph, Cryptology ePrint Archive, Report 2012/584 (October 2012)
Reid, F., Harrigan, M.: An analysis of anonymity in the Bitcoin system, arXiv:1107.452a4v2 [physics.soc-ph] (May 2012), http://arxiv.org/abs/1107.4524
Becker, J., Breuker, D., Heide, T., Holler, J., Rauer, H.P., Böhme, R.: Can we afford integrity by proof-of-work? Scenarios inspired by the Bitcoin currency. In: Proc. WEIS, Berlin, Germany (June 2012)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2013 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Moore, T., Christin, N. (2013). Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk. In: Sadeghi, AR. (eds) Financial Cryptography and Data Security. FC 2013. Lecture Notes in Computer Science, vol 7859. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-39884-1_3
Download citation
DOI: https://doi.org/10.1007/978-3-642-39884-1_3
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-39883-4
Online ISBN: 978-3-642-39884-1
eBook Packages: Computer ScienceComputer Science (R0)