Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk

Conference paper
Part of the Lecture Notes in Computer Science book series (LNCS, volume 7859)


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.


Bitcoin currency exchanges security economics cybercrime 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    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)CrossRefGoogle Scholar
  2. 2.
    Chaum, D.: Achieving electronic privacy. Scientific American, 96–101 (August 1992)Google Scholar
  3. 3.
    Nakamoto, S.: Bitcoin: A peer-to-peer electronic cash system (2009),
  4. 4.
    Bitcoin Watch, (last accessed January 27, 2013)
  5. 5.
    Leyden, J.: Linode hackers escape with $70k in daring Bitcoin heist. The Register (March 2012),
  6. 6.
    Lee, T.: Hacker steals $250k in bitcoins from online exchange bitfloor. Ars Technica (September 2012),
  7. 7.
    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)Google Scholar
  8. 8.
    Jeffries, A.: Suspected multi-million dollar Bitcoin pyramid scheme shuts down, investors revolt. The Verge (August 2012),
  9. 9.
    Anderson, R.: Closing the phishing hole: Fraud, risk and nonbanks. In: Federal Reserve Bank of Kansas City – Payment System Research Conferences (2007)Google Scholar
  10. 10.
    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)CrossRefGoogle Scholar
  11. 11.
    Bitcoin wiki, (last accessed January 27, 2013)
  12. 12.
    Bitcoin forums, (last accessed January 27, 2013)
  13. 13.
    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)Google Scholar
  14. 14.
    Cox, D.: Regression models and life-tables. Journal of the Royal Statistics Society, Series B 34, 187–220 (1972)zbMATHGoogle Scholar
  15. 15.
    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)CrossRefGoogle Scholar
  16. 16.
    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)CrossRefGoogle Scholar
  17. 17.
    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)Google Scholar
  18. 18.
    Ron, D., Shamir, A.: Quantitative analysis of the full Bitcoin transaction graph, Cryptology ePrint Archive, Report 2012/584 (October 2012)Google Scholar
  19. 19.
    Reid, F., Harrigan, M.: An analysis of anonymity in the Bitcoin system, arXiv:1107.452a4v2 [physics.soc-ph] (May 2012),
  20. 20.
    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)Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Computer Science & EngineeringSouthern Methodist UniversityUSA
  2. 2.INI & CyLabCarnegie Mellon UniversityUSA

Personalised recommendations