Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk

  • Tyler Moore
  • Nicolas Christin
Conference paper

DOI: 10.1007/978-3-642-39884-1_3

Part of the Lecture Notes in Computer Science book series (LNCS, volume 7859)
Cite this paper as:
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

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.

Keywords

Bitcoin currency exchanges security economics cybercrime 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Tyler Moore
    • 1
  • Nicolas Christin
    • 2
  1. 1.Computer Science & EngineeringSouthern Methodist UniversityUSA
  2. 2.INI & CyLabCarnegie Mellon UniversityUSA

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