Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/251106
Authors: 
Ciaian, Pavel
Kancs, D'Artis
Rajcaniova, Miroslava
Year of Publication: 
2021
Series/Report no.: 
EERI Research Paper Series No. 02/2021
Publisher: 
Economics and Econometrics Research Institute (EERI), Brussels
Abstract: 
This paper studies to what extent the cost of operating a proof-of-work blockchain is intrinsically linked to the cost of preventing attacks, and to what extent the underlying digital ledger's security budgets are correlated with the cryptocurrency market outcomes. We theoretically derive an equilibrium relationship between the cryptocurrency price, mining rewards and mining costs, and blockchain security outcomes. Using daily crypto market data for 2014-2021 and employing the autoregressive distributed lag approach - that allows treating all the relevant moments of the blockchain series as potentially endogenous - we provide empirical evidence of cryptocurrency price and mining rewards indeed being intrinsically linked to blockchain security outcomes.
Subjects: 
Cryptocurrency
ARDL
blockchain
proof-of-work
security budget
institutional governance technology
network externalities
JEL: 
D82
E42
G12
G15
G18
G29
Document Type: 
Working Paper

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