English

Contagion in Bitcoin networks

Trading and Market Microstructure 2020-04-01 v1 Physics and Society

Abstract

We construct the Google matrices of bitcoin transactions for all year quarters during the period of January 11, 2009 till April 10, 2013. During the last quarters the network size contains about 6 million users (nodes) with about 150 million transactions. From PageRank and CheiRank probabilities, analogous to trade import and export, we determine the dimensionless trade balance of each user and model the contagion propagation on the network assuming that a user goes bankrupt if its balance exceeds a certain dimensionless threshold κ\kappa. We find that the phase transition takes place for κ<κc0.1\kappa<\kappa_c\approx0.1 with almost all users going bankrupt. For κ>0.55\kappa>0.55 almost all users remain safe. We find that even on a distance from the critical threshold κc\kappa_c the top PageRank and CheiRank users, as a house of cards, rapidly drop to the bankruptcy. We attribute this effect to strong interconnections between these top users which we determine with the reduced Google matrix algorithm. This algorithm allows to establish efficiently the direct and indirect interactions between top PageRank users. We argue that this study models the contagion on real financial networks.

Keywords

Cite

@article{arxiv.1906.01293,
  title  = {Contagion in Bitcoin networks},
  author = {Célestin Coquidé and José Lages and Dima L. Shepelyansky},
  journal= {arXiv preprint arXiv:1906.01293},
  year   = {2020}
}

Comments

12 pages, 6 figures. Paper accepted in 2nd Workshop on Blockchain and Smart Contract Technologies (BSCT 2019), workshop satellite of 22nd International Conference on Business Information Systems (BIS 2019)

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