Economic Analyses of Security Investments on Cryptocurrency Exchanges

Benjamin Johnson; Aron Laszka; Jens Grossklags; Tyler Moore

doi:10.1109/Cybermatics_2018.2018.00220

Economic Analyses of Security Investments on Cryptocurrency Exchanges

Benjamin Johnson, Aron Laszka, Jens Grossklags, Tyler Moore

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

5 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 language	English (US)
Title of host publication	Proceedings - IEEE 2018 International Congress on Cybermatics
Subtitle of host publication	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
Publisher	Institute of Electrical and Electronics Engineers Inc.
Pages	1253-1262
Number of pages	10
ISBN (Electronic)	9781538679753
DOIs	https://doi.org/10.1109/Cybermatics_2018.2018.00220
State	Published - Jul 2018
Event	11th 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 2018 → Aug 3 2018

Publication series

Name	Proceedings - 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

Conference	11th 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/Territory	Canada
City	Halifax
Period	7/30/18 → 8/3/18

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

Access to Document

10.1109/Cybermatics_2018.2018.00220

Cite this

Johnson, B., Laszka, A., Grossklags, J., & Moore, T. (2018). Economic Analyses of Security Investments on Cryptocurrency Exchanges. In Proceedings - 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 (pp. 1253-1262). Article 8726538 (Proceedings - 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). Institute of Electrical and Electronics Engineers Inc.. https://doi.org/10.1109/Cybermatics_2018.2018.00220

Johnson, Benjamin ; Laszka, Aron ; Grossklags, Jens et al. / Economic Analyses of Security Investments on Cryptocurrency Exchanges. Proceedings - 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. Institute of Electrical and Electronics Engineers Inc., 2018. pp. 1253-1262 (Proceedings - 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).

@inproceedings{896e3b2085fc4506aa0fa20f815d5c83,

title = "Economic Analyses of Security Investments on Cryptocurrency Exchanges",

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.",

author = "Benjamin Johnson and Aron Laszka and Jens Grossklags and Tyler Moore",

note = "Publisher Copyright: {\textcopyright} 2018 IEEE.; 11th 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 ; Conference date: 30-07-2018 Through 03-08-2018",

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language = "English (US)",

series = "Proceedings - 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",

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Johnson, B, Laszka, A, Grossklags, J & Moore, T 2018, Economic Analyses of Security Investments on Cryptocurrency Exchanges. in Proceedings - 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., 8726538, Proceedings - 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, Institute of Electrical and Electronics Engineers Inc., pp. 1253-1262, 11th 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, 7/30/18. https://doi.org/10.1109/Cybermatics_2018.2018.00220

Economic Analyses of Security Investments on Cryptocurrency Exchanges. / Johnson, Benjamin; Laszka, Aron; Grossklags, Jens et al.
Proceedings - 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. Institute of Electrical and Electronics Engineers Inc., 2018. p. 1253-1262 8726538 (Proceedings - 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).

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

TY - GEN

T1 - Economic Analyses of Security Investments on Cryptocurrency Exchanges

AU - Johnson, Benjamin

AU - Laszka, Aron

AU - Grossklags, Jens

AU - Moore, Tyler

PY - 2018/7

Y1 - 2018/7

N2 - 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.

AB - 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.

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M3 - Conference contribution

AN - SCOPUS:85067859930

T3 - Proceedings - 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

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BT - Proceedings - IEEE 2018 International Congress on Cybermatics

PB - Institute of Electrical and Electronics Engineers Inc.

T2 - 11th 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

Y2 - 30 July 2018 through 3 August 2018

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Johnson B, Laszka A, Grossklags J, Moore T. Economic Analyses of Security Investments on Cryptocurrency Exchanges. In Proceedings - 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. Institute of Electrical and Electronics Engineers Inc. 2018. p. 1253-1262. 8726538. (Proceedings - 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). doi: 10.1109/Cybermatics_2018.2018.00220

Economic Analyses of Security Investments on Cryptocurrency Exchanges

Abstract

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