Assessing Holistic Impacts of Major Events on the Bitcoin ... · Assessing Holistic Impacts of...
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Anthony Luo
Assessing Holistic Impacts of Major Events on the Bitcoin Blockchain Network
Anthony Luo
Advisor: Prof. Dianxiang Xu, Department of Computer Science, Boise State University
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Anthony Luo
Introduction
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Anthony Luo
Bitcoin
▰ Introduced by ‘Satoshi Nakamoto’ in 2008 [4]▰ The pioneer of blockchain technology
▻ Decentralized public ledger▻ Solves double spending
▰ Deflationary cryptocurrency▻ 2040 = no more Bitcoins created
▻ Current Market Cap: ~70 billion ▰ Proof of Work Consensus Algorithm
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Anthony Luo
Bitcoin Transactions
▰ Transactions are a transfer of BTC from one Bitcoin address(es) to others
▻ Broadcast to nodes (unconfirmed transactions)
▰ Unconfirmed transactions are added to the memory pool (Mempool)
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Anthony Luo
Bitcoin Blocks
▰ Set of validated transactions
▰ New block is mined every ~10 minutes -> added to blockchain (chronological)
▻ Miner rewarded with Bitcoins
▻ Transactions in that block are removed from mempool
▻ Unconfirmed -> Confirmed transactions
▻ Miners typically add transactions with a higher fee first 5
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Anthony Luo
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Anthony Luo
Purpose Events and Bitcoin
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Anthony Luo
Bitcoin Blockchain Network
▰ We define this as the aggregate of Bitcoin addresses, transactions, blockchain data, and memory pool
▰ Abbreviated BBN
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Anthony Luo
Price of Bitcoin
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From Blockchain.com Charts
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Anthony Luo
1010
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Anthony Luo
Motivation/Research Question
Is there a quantifiable change in the Bitcoin ecosystem (aside from price) in response to worldwide events?
How can we measure this change? Do certain types of events cause a particular type of change?
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Anthony Luo
Challenges
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Holistic State Capture
How can we quantitively capture holistic states of a cryptocurrency?
Change vs. Variation
How can we distinguish events from fluctuations?
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Anthony Luo
Existing Research
▰ Bitcoin transaction & users network [5][6]▻ Overall topology▻ Anonymity
▰ Bitcoin exchange price and factors [7][8][10]▻ User activity▻ Trends, wavelet coherence analysis
▰ Visualization [9]▻ Inspiration: DDOS attack and money
laundering
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Anthony Luo
FrameworkBitcoin Blockchain Network Analysis
Impact-Score 14
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Anthony Luo
Initial Exploration
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▰ Bitcoin transaction & users graph▻ Node = Bitcoin address▻ Edge = flow of Bitcoin▻ Edge color/weight = value
▰ Visualized before/after
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Anthony Luo
Ideal Approach
▰ Graph similarity/matching▰ Network property comparison
▻ Clustering coefficient, weighted degree, Eigenvector centrality, Betweenness centrality, PageRank, etc.
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Anthony Luo
Ideal Approach
▰ Problem: Graph Size!▰ ~1 million edges, ~500k nodes
▰ K-Core Filtering and Giant Component▻ Graph is still too big!
▰ Not computationally feasible
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8 hour frame with Giant Component Filtering
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Anthony Luo
Our Framework
1. “Features” of key Bitcoin attributes2. BNS (Blockchain Network Structure) Vectors
a. State comparisons without graph matchingi. Vector Similarity
3. Impact-Scorea. Standardize event-associated change against
fluctuations for given configuration
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Anthony Luo
Attribute Selection
Framework/Methods
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TransactionTx Value, Tx Fees, Tx Size, etc.
Mempool Mempool Growth, Mempool Size, etc.
AddressUnique Ads, Clustering Coefficient, etc.
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Bitcoin Attribute Types
BlockBlock Size, Tx/Block, etc.
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Anthony Luo
Feature Processing
Framework/Methods
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Anthony Luo
Feature Processing
▰ Used to reduce multidimensional size-variant raw data into BNS (Blockchain Network Structure) vector with consistent specs
▰ EX: 96 hour time frame▻ ~600 blocks▻ ~1 million transactions
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Anthony Luo
Feature Processing
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99 Features Derived from 13 attributes
1122 Features Derived from 27 attributes Feature Selection
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Anthony Luo
Why Feature Processing?
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Constant Specifications
N blocks, transactions, etc. fluctuates. Features allow us
to maintain constant BNS vector dimensionality & size
Remove Temporal Component
Did not want the time series of blocks, transactions, or
mempool values
Con: Decreased Data Resolution
Computational Efficiency
> 1 million BNS vectors used in our analysis
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Anthony Luo
Feature Sets & Subnetworks
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Transaction37 features3 attributes
Activity40 features5 attributes
Fee27 features3 attributes
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Anthony Luo
Impact-Score
Framework/Methods
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Anthony Luo
Impact Score
▰ Change associated with event must be compared against natural variations ▻ (natural, “non-event”) variations
▰ Distance Measure between BNS vector = change▰ Universal measure across cryptocurrencies
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Anthony Luo
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Ι =)𝑒𝑒𝑑𝑑 −𝑀𝑀𝑀𝑀(𝐵𝐵𝑑𝑑
)𝑆𝑆𝑆𝑆𝑀𝑀(𝐵𝐵𝑑𝑑
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Anthony Luo
Impact Score Advantage
▰ Direct cross-comparisons within ecosystem across all configurations▻ Network/subnetwork
▻ Fee vs. Overall ▻ Gap lengths
▻ 0 vs. 200 hour (natural variations)▻ Data frame length
▰ I score value is directly cross-comparable
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Compared to using vector distances
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Anthony Luo
Impact Score Advantage
▰ Event Impact Significance ▻ Separating event-induced change from natural
variations▰ Natural variation dependent on configuration ▰ Approximates Z-score cube-root normalized
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Compared to using vector distances
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Anthony Luo
Impact Score Weakness
▰ Assumes relatively event-free background time period
▰ Underestimates event-impact during high-event time period ▻ Late-2017 to early 2018
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Anthony Luo
Data Management
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Anthony Luo
Data Sources
▰ API key from Blockchain.com (formerly Blockchain.info) ▻ Block #300,000-534,000
▰ Mempool & Transaction Rate data from Blockchain Charts
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Anthony Luo
Analysis Workflow
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BNS Vector Generation
BNS Vector Distance
Calculations
Temporal Impact Scores & Graphs
Blockchain to MongoDB server
PythonJava
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Anthony Luo
Time Performance
Feature Processing & BNS Vector Creation
Parallelized: ~100 hours (data frame length = 96 hours)
Impact Score Analysis Single Thread: ~2 hours
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For all 16 events, run on a server with 24 cores, 128 GB RAM
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Anthony Luo
Case Study
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Anthony Luo
Events Selected ▰ 16 events selected from 2016-2018▻ No mempool data before 2016
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Global Security, political, or
governmental events that impact the Bitcoin
ecosystem either directly or indirectly.
FinancialEvents that impact or are the
result of a change in the state or value of Bitcoin as a
cryptocurrency.
Regulatory Events that are the result of either positive or negative
regulation directly or indirectly affecting the
Bitcoin ecosystem.
3 Types
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Anthony Luo
Events Selected
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Global Brexit
Bitfenix Hacked
Election of Trump
BTC-BCH Hard Fork
Coincheck NEM Hack
Financial1 BTC=$1000
CME Announces Bitcoin Futures
1 BTC = $10,000
CBOE BTC Futures Launch
BTC Price Peak
Regulatory SEC denies Winklevoss ETF
Japan legalizes BTC
South Korea announces BTC ban
Facebook bans Crypto ads
SEC requires BTC exchange registration
Google bans Crypto ads
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Anthony Luo
Impact Score Threshold
▰ Substantial Impact: I > 2.0 (1.9-2.1) ▻ Eventful background period ▻ ±0.1 if event time adjusted ± 3 hours
▰ Significant Impact: I > 3.0 (2.9-3.1)
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Anthony Luo
Distance Measure Selection
▰ Squared Euclidean Distance▻ 𝑑𝑑 𝑝𝑝, 𝑞𝑞 = 𝑝𝑝1 − 𝑞𝑞1 2 + 𝑝𝑝2 − 𝑞𝑞2 2 +
⋯+ 𝑝𝑝𝑖𝑖 − 𝑞𝑞𝑖𝑖 2 + ⋯+ 𝑝𝑝𝑛𝑛 − 𝑞𝑞𝑛𝑛 2
▰ 5 Distance Measures Tested:▻ Euclidean, Cosine, Squared Euclidean,
Chebyshev, and Canberra.
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Anthony Luo
Analysis Process
▰ Event analysis configurations▻ 4 featuresets▻ Gap lengths: 0-480 hours▻ Data frame length: 96 hours
▰ Scikit-Learn ▻ Vector standardized (0,1) Min-Max Scaler▻ Squared Euclidean Distance
▻ Temporal Graphs: Matplotlib▻ Cubic spline interpolation
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Anthony Luo
Analysis & Results
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Anthony Luo
Results
▰ 15/16 associated with substantial change in one or more of the four networks defined (overall, activity, fee, transaction)
▻ Exception: Japan Legalizes Bitcoin (April 1, 2017)▻ Prior announcement
▰ Greatest Impact: Election of Trump [I Score = 5.459] @ 60 hrs on Overall
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Anthony Luo
Overall BBN
Analysis & Results
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Anthony Luo
Overall BBN
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N & Type Event Max I-Score3, G Trump Elected 5.516, R Google bans Crypto Ads 3.97, G BTC-BCH Hard Fork 3.61, G Brexit 3.411, F BTC Price Peak 3.35, R SEC denies ETF 2.310, F CBOE BTC Futures Launch 2.38, F CME Announces BTC Futures 2.114, R Facebook bans Crypto Ads 2.0
▰ Only event with no measurable impact
▻ Bitfenix Hacked (I Score = 0.02)
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Anthony Luo
5 Sig. Events
▰ Significant (I Score > 3)▰ Top 4 associated with immediate
substantial change
▻ Exception: BTC Price Peak ▻ Hindsight nature
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Anthony Luo
4747
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Anthony Luo
Overall BBN
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▰ No strong correlations between event type and temporal impact on overall
▰ Red = Regulatory▰ Blue = Global▰ Green = Financial
Max I score vs. Temporal Delay
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Anthony Luo
BTC = $1000 and BTC = $10k
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▰ Two BTC Exchange Price Milestone Events
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Anthony Luo
Event Type Impact
Analysis & Results
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Anthony Luo
Global Events
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Non-Temporal Max I Score
0
1
2
3
4
5Transaction Subnetwork
Activity SubnetworkFee Subnetwork
Trump Elected BTC-BCH Hard Fork Brexit Coincheck NEM Hack Bitfenix Hacked
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Anthony Luo
Security Events
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0 0.5 1 1.5 2 2.5 3
Transaction Subnetwork
Activity Subnetwork
Fee Subnetwork
Bitfenix Hacked Coincheck NEM Hack
Non-Temporal Max I Score
Subgroup of Global Events
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Political Events
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Non-Temporal Max I Score
0 1 2 3 4 5
Transaction Subnetwork
Activity Subnetwork
Fee Subnetwork
Brexit Trump Elected
Subgroup of Global Events
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Regulatory Events
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0
1
2
3
4
5Transaction Subnetwork
Activity SubnetworkFee Subnetwork
Google bans Crypto Ads SEC denies ETF Facebook bans Crypto Ads
SEC Exchange Register Japan legalizes BTC South Korea BTC Ban
Non-Temporal Max I Score
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0
1
2
3
4
5Transaction Subnetwork
Activity SubnetworkFee Subnetwork
BTC Price Peak CBOE BTC Futures Launch CME Announces BTC Futures
1 BTC=$1000 USD 1 BTC = $10k USD
Financial EventsNon-Temporal Max I Score
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Event Specific Analysis
Events in Focus
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Election of Trump
▰ Political event associated with largest I Score on Overall BBN
▻ FUD -> Bitcoin “safe haven” nature▰ Traditional Markets [12]
▻ Gold spiked 4% but fell▻ US dollar index dropped but recovered quickly
▰ Event Time: Nov 9 2016 08:00:00 GMT
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5858
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5959
-100 -80 -60 -40 -20 0 20 40
Tx Size x̅
Tx Value x̅
Fee Rate x̅
Tx Fee Percent x̅
Block Size x̅
Tx Rate x̅
Mempool Count x̅
Mempool Growth x̅
Mempool Size x̅
Unique Addresses
% CHANGE
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6060
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Conclusion
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7
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Anthony Luo
Contribution
▰ Framework for holistic analysis of event-induced change
▻ Applicable to other cryptocurrencies▰ I-Score facilitates separation of event-induced
change from background variations▻ Cross-comparisons across all configurations
(temporal possible)▰ Applied to simple Bitcoin case study (simple fset)
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Anthony Luo
Future Work
▰ I-Score weakness
▻ More complex anomaly detection (unsupervised ML)
▰ Bitcoin transaction/user network topology
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Acknowledgements
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I would like to thank Dr. Dianxiang Xu, my research advisor for the past two years, for his guidance and support. I would also like to thank Boise High school for creating a flexible schedule to allow me to conduct research.
This research was supported in part by the National Science Foundation under grant CNS 1461133. We would like to acknowledge high-performance computing support of the R2 compute cluster (DOI: 10.18122/B2S41H) provided by Boise State University’s Research Computing Department.
We would like to thank Blockchain.com for granting an API key for analysis and Dr. Edoardo Serra for providing his Deep Learning servers for our use.
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References
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[1] https://towardsdatascience.com/blockchain-technology-explained-to-your-grandma-bfea5ba876ac.[2] https://coinmarketcap.com/all/views/all/[3] https://qz.com/154877/by-reading-this-page-you-are-mining-bitcoins[4] S. Nakamoto, “Bitcoin: A peer-to-peer electronic cash system,” 2008.[5] F. Reid and M. Harrigan, “An Analysis of Anonymity in the Bitcoin System,” Security and Privacy in Social Networks, pp. 197–223, 2012.[6] A. Baumann, B. Fabian, and M. Lischke, “Exploring the Bitcoin Network,” Proceedings of the 10th International Conference on Web Information Systems and Technologies, 2014.[7] L. Kristoufek, “BitCoin meets Google Trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era,” Scientific Reports, vol. 3, no. 1, 2013.[8] L. Kristoufek, “What Are the Main Drivers of the Bitcoin Price? Evidence from Wavelet Coherence Analysis,” Plos One, vol. 10, no. 4, 2015.[9] D. McGinn, D. Birch, D. Akroyd, M. Molina-Solana, Y. Guo, and W. J. Knottenbelt, “Visualizing Dynamic Bitcoin Transaction Patterns,” Big Data, vol. 4, no. 2, pp. 109–119, 2016.[10] D. D. F. Maesa, A. Marino, and L. Ricci, “Data-driven analysis of Bitcoin properties: exploiting the users graph,” International Journal of Data Science and Analytics, vol. 6, no. 1, pp. 63–80, 2017.[11] blockchain.com[12] https://money.cnn.com/2016/11/09/investing/dow-jones-trump-wins-election/index.html[13] https://medium.com/@preethikasireddy/eli5-what-do-we-mean-by-blockchains-are-trustless-aa420635d5f6[14] https://tech.eu/features/808/bitcoin-part-one/[15] https://www.nytimes.com/2017/03/10/business/dealbook/winkelvoss-brothers-bid-to-create-a-bitcoin-etf-is-rejected.html[16] https://www.nytimes.com/2017/12/07/technology/bitcoin-price-rise.html[17] https://www.nytimes.com/2016/08/04/business/dealbook/bitcoin-bitfinex-hacked.html