Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2020 027

Blockchain mechanism and distributional characteristics of cryptos

Min-Bin Lin
Kainat Khowaja
Cathy Yi-Hsuan Chen
Wolfgang Karl Härdle

We investigate the relationship between underlying blockchain mechanism of
cryptocurrencies and its distributional characteristics. In addition to price,
we emphasise on using actual block size and block time as the operational
features of cryptos. We use distributional characteristics such as fourier power
spectrum, moments, quantiles, global we optimums, as well as the measures for
long term dependencies, risk and noise to summarise the information from crypto
time series. With the hypothesis that the blockchain structure explains the
distributional characteristics of cryptos, we use characteristic based spectral
clustering to cluster the selected cryptos into  five groups. We scrutinise
these clusters and  find that indeed, the clusters of cryptos share similar
mechanism such as origin of fork, difficulty adjustment frequency, and the
nature of block size. This paper provides crypto creators and users with a
better understanding toward the connection between the blockchain protocol
design and distributional characteristics of cryptos.

Cryptocurrency, price, blockchain mechanism, distributional characteristics,

JEL Classification: