Economic Analyses of Security Investments on Cryptocurrency Exchanges

Benjamin Johnson, Aron Laszka, Jens Grossklags, Tyler Moore

Research output: Chapter in Book/Report/Conference proceedingConference contribution

4 Scopus citations

Abstract

Cryptocurrency exchanges are frequently targeted and compromised by cyber-Attacks, which may lead to significant losses for the depositors and closure of the affected exchanges. These risks threaten the viability of the entire public blockchain ecosystem since exchanges serve as major gateways for participation in public blockchain technologies. In this paper, we develop an economic model to capture the short-Term incentives of cryptocurrency exchanges with respect to making security investments and establishing transaction fees. Using the model, we derive conclusions regarding an exchange's optimal economic decisions, and illustrate key features of these conclusions using graphs based on real-world data. Our security investment model exhibits horizontal scaling properties with respect to reducing exposure to losses, and may be of special interest to exchanges operating in markets with high price volatility.

Original languageEnglish (US)
Title of host publicationProceedings - IEEE 2018 International Congress on Cybermatics
Subtitle of host publication2018 IEEE Conferences on Internet of Things, Green Computing and Communications, Cyber, Physical and Social Computing, Smart Data, Blockchain, Computer and Information Technology, iThings/GreenCom/CPSCom/SmartData/Blockchain/CIT 2018
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages1253-1262
Number of pages10
ISBN (Electronic)9781538679753
DOIs
StatePublished - Jul 2018
Event11th IEEE International Congress on Conferences on Internet of Things, 14th IEEE International Conference on Green Computing and Communications, 11th IEEE International Conference on Cyber, Physical and Social Computing, 4th IEEE International Conference on Smart Data, 1st IEEE International Conference on Blockchain and 18th IEEE International Conference on Computer and Information Technology, iThings/GreenCom/CPSCom/SmartData/Blockchain/CIT 2018 - Halifax, Canada
Duration: Jul 30 2018Aug 3 2018

Publication series

NameProceedings - IEEE 2018 International Congress on Cybermatics: 2018 IEEE Conferences on Internet of Things, Green Computing and Communications, Cyber, Physical and Social Computing, Smart Data, Blockchain, Computer and Information Technology, iThings/GreenCom/CPSCom/SmartData/Blockchain/CIT 2018

Conference

Conference11th IEEE International Congress on Conferences on Internet of Things, 14th IEEE International Conference on Green Computing and Communications, 11th IEEE International Conference on Cyber, Physical and Social Computing, 4th IEEE International Conference on Smart Data, 1st IEEE International Conference on Blockchain and 18th IEEE International Conference on Computer and Information Technology, iThings/GreenCom/CPSCom/SmartData/Blockchain/CIT 2018
Country/TerritoryCanada
CityHalifax
Period7/30/188/3/18

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting (miscellaneous)
  • Artificial Intelligence
  • Computer Networks and Communications
  • Computer Science Applications
  • Hardware and Architecture
  • Information Systems and Management
  • Health Informatics
  • Communication

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