Tag: Lyle School of Engineering

StarTribune: Bitcoin has more staying power than other digital currencies

Post author By Margaret Allen
Post date June 14, 2013

Said one Minnesota fan of the digital money: “Right now I wouldn’t call it investing, I would call it gambling.”

Business writer Jennifer Bjorhus with the Minneapolis Star Tribune newspaper covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.

Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.

The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close. Moore carried out the research with Nicolas Christin, with the Information Networking Institute and Carnegie Mellon CyLab at Carnegie Mellon University.

The coverage by Bjorhus, “Bitcoin has more staying power than other digital currencies,” was published online June 8.

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EXCERPT:

Jennifer Bjorhus
StarTribune
Bitcoin has shot up and crashed at least twice now.

Exchanges where the fast-rising new digital currency trades have been hacked, and so have individual accounts. It’s been linked to illegal activity in underground cyber haunts such as Silk Road, and sparked a move by the U.S. government to halt unregulated use.

And Bitcoin persists.

Heck, CNBC has a Bitcoin ticker on its website.

In its fourth year of circulation now, the decentralized online-only form of money has evolved from a libertarian-styled geek curiosity to a contender for becoming the first digital currency to go truly mainstream. There are now more than 11 million “coins” created worth more than $1 billion. Lumpy and volatile as it is, the math-based cash is one of the fastest rising alternative currencies in a world filled with them.

Tyler Moore, who studies alternative currencies, said he still isn’t sure why.

“It’s one part luck, one part decentralization and one part this design that carries appeal for people that don’t like inflation,” said Moore, an assistant professor of computer science and engineering at Southern Methodist University in Dallas. “The timing of it was really good.”

Bitcoin slipped onto the scene in 2009, as trust in established banks crumbled and inflation fears rose. It’s not managed by anyone. There’s no central bank. It’s based on open-source encryption technology.

In fact, the digital cash can be created by anyone with the hefty computer power required to solve specified algorithms that secure the network. Bitcoins are rewards for effort. The system takes banks out of the picture completely as individuals pay each other directly. Transactions are private but because there’s a public ledger of them it’s unlikely they are perfectly anonymous.

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SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.

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Tags Lyle School of Engineering, Tyler W. Moore

Economics & Statistics Researcher news SMU In The News Technology

Yahoo! News: Study shows 45% of Bitcoin exchanges end up failing

Post author By Margaret Allen
Post date April 26, 2013

Technology reporter Brad Reed with BGR News covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.

The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.

Moore carried out the research with Nicolas Christin, with the Information Networking Institute and Carnegie Mellon CyLab at Carnegie Mellon University.

Reed’s coverage, “ Study shows 45% of Bitcoin exchanges end up failing,” was published online April 26.

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EXCERPT:

Brad Reed
Yahoo! News
Imagine a world where the Nasdaq, the Nikkei and the FTSE all failed within the span of a week and you have an idea how crazy the world of virtual currency trading has become. Wired reports that a new study from computer scientists Tyler Moore of the Southern Methodist University in Dallas and Nicolas Christin of Carnegie Mellon University has found that 45% of Bitcoin exchanges end up shutting their virtual doors while leaving their users’ money in limbo. However, this doesn’t mean that the Bitcoin exchanges that have survived so far are safe havens, since the study also shows that they’re under constant assault from cybercriminals who are working around the clock to hack users’ transactions.

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Wired: Study — 45 percent of Bitcoin exchanges end up closing

Post author By Margaret Allen
Post date April 26, 2013

Technology writer Ian Steadman with Wired in the United Kingdom covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.

The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.

Moore carried out the research with Nicolas Christin, with the Information Networking Institute and Carnegie Mellon CyLab at Carnegie Mellon University.

Steadman’s coverage, “Study: 45 percent of Bitcoin exchanges end up closing,” was published online April 26.

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EXCERPT:

Ian Steadman
Wired
A study of the Bitcoin exchange industry has found that 45 percent of exchanges fail, taking their users’ money with them. Those that survive are the ones that handle the most traffic — but they are also the exchanges that suffer the greatest number of cyber attacks.

Computer scientists Tyler Moore (from the Southern Methodist University, Dallas) and Nicolas Christin (of Carnegie Mellon University) found 40 exchanges on the web which offered a service of changing bitcoins into other fiat currencies or back again. Of those 40, 18 have gone out of business — 13 closing without warning, and five closing after suffering security breaches that forced them to close. Four other exchanges have suffered serious attacks but remain open.

One of those is Mt Gox, the largest Bitcoin exchange, with Moore and Christin stating that at its peak it handles more than 40,000 Bitcoin transactions a day, compared to a mean average of 1,716. It has been the victim of a huge number of distributed denial-of-service (DDoS) attacks over the past month during the peak of the Bitcoin bubble (and its subsequent bursting — though the price now appears to be rising again). Its latest statement, dealing with the attack it suffered on 21 April, is long and comprehensive, seeking to assuage the fears of Bitcoin users who feel that Mt Gox is becoming a weak chain in Bitcoin’s infrastructure.

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redOrbit: Economists Question Bitcoin Stability Despite Meteoric Rise In Value

Post author By Margaret Allen
Post date April 25, 2013

Technology reporter Peter Suciu with redOrbit covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.

The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.

Moore carried out the research with Nicolas Christin, with the Information Networking Institute and Carnegie Mellon CyLab at Carnegie Mellon University.

Suciu’s coverage, “Economists Question Bitcoin Stability Despite Meteoric Rise In Value,” was published online April 25.

Read the full story.

EXCERPT:

Peter Suciu
redOrbit
The bank failures that resulted from the 1929 stock market crash took many people’s life savings with it, and some say the same thing could happen – a albeit on a much smaller scale at least – to those who invest heavily in Bitcoins.

According to a new study from Southern Methodist University in Dallas and Carnegie Mellon University in Pittsburgh, the virtual cyber currency known as Bitcoin could have as much as a 45 percent chance of failing. This could occur if an exchange center that held the currency – much as a bank holds real money – closed, losing customers their Bitcoins and any hard money paid for them.

Bitcoin received a boost in interest this week when PayPal president David Marcus noted that the online payment center would consider making Bitcoin a funding instrument. Many still believe that the sophisticated cyber currency still holds promise for becoming a major international medium of exchange.

Moreover the SMU-CMU study also found that currency exchanges that buy and sell a higher volume of Bitcoins are less likely to shut down. That’s the good news. The bad news is that these transactions are more likely to suffer a security breach.

The encrypted digital currency has been in the spotlight this week, as 87 percent of the nation’s top economists think that the Bitcoin only has “limited usefulness,” reported TechCrunch. This is according to a recent University of Chicago Initiative on Global Markets (IGM) poll of the 38 of the world’s top economists.

“A bitcoin’s value derives solely from the belief that others will want to use it for trade, which implies that its purchasing power is likely to fluctuate over time to a degree that will limit its usefulness,” the IGM findings noted – a general statement that, though intended to downplay the stability of Bitcoin, is actually true of all forms of currency.

Bitcoin exchanges work two ways. In the first, purchasers can go through an online exchange and pay for the virtual currency with hard currency, typically with a credit card. The exchange then transfers the purchased Bitcoins to the buyer’s account. The second way is for Bitcoins to be purchased from local dealers, where the parties meet in person and the buyer pays in cash.

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Culture, Society & Family Economics & Statistics Technology

Study: High-volume Bitcoin exchanges less likely to fail, but more likely to suffer breach

Post author By Margaret Allen
Post date April 24, 2013

Empirical computer science study finds consumers face risk of losing money on Bitcoin currency exchanges, many of which close

Online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.

The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.

Results showed also that currency exchanges that buy and sell a higher volume of Bitcoins are less likely to shut down, but more likely to suffer a security breach.

The study analyzed 40 exchanges that buy and sell the virtual Bitcoin to identify factors that trigger or stave off closure, said the study’s authors, computer scientists Tyler W. Moore, in the Lyle School of Engineering, Southern Methodist University, Dallas, and Nicolas Christin, with the Information Networking Institute and Carnegie Mellon CyLab at Carnegie Mellon University.

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As of April 2013, Bitcoin’s market capitalization had soared to more than $1 billion, making it a frequent target of fraudsters. Bitcoins are encrypted virtual money created by computer programmers and not backed by any country or government.

A traceable form of cyber money, Bitcoins can be purchased and used much like hard currency to pay for goods and services, mostly over the Internet. Part of Bitcoins’ attraction is its potential to reduce transaction fees for online purchases, as well as its mathematically-enforced protections against inflation.

Study authors Moore and Christin identified 40 Bitcoin exchanges worldwide that convert the cyber money into 33 hard currencies. Of those 40, 18 have gone out of business. Nine of the 40 experienced security breaches from hackers or other criminal activity, forcing five of them to subsequently close. Another 13 closed without any publicly announced breach, according to Moore and Christin.

From their study, the researchers found the failure rate of Bitcoin exchanges is 45 percent. The median lifetime of an exchange is just over one year, 381 days.

Of the 18 Bitcoin exchanges that closed, in 11 of those cases the authors were able to find evidence of whether or not the customers were reimbursed their money. Five exchanges didn’t reimburse their customers. Six claim to have done so.

“The risk of losing funds stored at exchanges is real but uncertain,” write Moore and Christin in “Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk,” which was invited for presentation at the 17th International Financial Cryptography and Data Security Conference held in Okinawa, Japan, April 1-5.

While various so-called crypto-currencies have been introduced in the past few years, Bitcoin is the first to be so widely adopted. Besides being open source, Bitcoin’s attraction includes real-time peer-to-peer transactions, worldwide acceptance and low or no processing fees.

Crypto-currencies are intended to eliminate reliance on brick-and-mortar middlemen such as banks, exchanges, credit card conglomerates and other financial intermediaries. Despite that, and as a result of Bitcoin’s booming popularity, a wide variety of middlemen have sprung up around the cyber currency. Those range from currency exchanges and online wallets to mining pools and legitimate or Ponzi scheme investment services, the authors said.

Moore and Christin focused their study on currency exchanges to examine the risk Bitcoin holders face from exchange failures.

Middlemen rise up in a system specifically meant to avoid middlemen
“Bitcoin is expressly designed to be completely decentralized with no single points of control,” Moore said. “Yet currency exchanges have become de facto central authorities, and their success or failure drives Bitcoin’s success or failure.”

Recent wild fluctuations in the exchange rate of Bitcoins can be traced in part to the role of digital middlemen, he said, including the emergence of the currency exchanges that buy and sell Bitcoins.

Bitcoin’s trading value at the start of the year was around $10 per Bitcoin. But its price soared as high as $260 earlier in April, then recently took a nosedive and is now hovering around $68, explained Moore.

“Much of that can be attributed to the Mt. Gox exchange temporarily shutting down because of heavy trading that overwhelmed the exchange,” Moore said. “Studying why these exchanges fail helps us better understand the risks of Bitcoin.”

Mt. Gox, https://mtgox.com/, based in Tokyo, is the most popular of the exchanges, with average daily transactions totaling more than 50,000 Bitcoins. Other high-volume exchanges include btc-e.com and Intersango.

Of the 40 exchanges Moore and Christin studied, the median for daily transactions carried out is 290. The mean is 1,716. Some 25 percent of exchanges process under 25 Bitcoins each day on average.

The findings of the study leave Bitcoin buyers in a dilemma: According to the study’s empirical analysis, “Mt. Gox and Intersango are less likely to close than other exchanges” because of their high volume, the authors write.

But the study’s logistic regression model yielded the result that the higher the transaction volume, the more likely a security breach by hackers. “More than 43,000 Bitcoins were stolen from the Bitcoinica trading platform in March 2012,” the authors write, and “in September 2012, $250,000 worth of Bitcoins were pilfered from the Bitfloor currency exchange.” Moreover, Mt. Gox has been breached multiple times.

Holding money at Bitcoin exchanges is risky
There are two ways to buy Bitcoins. Purchasers go online through an exchange such as Mt. Gox. They pay hard currency such as U.S. dollars at the market exchange rate, typically funded by a credit card. The exchange transfers the purchased Bitcoins to the buyer’s Bitcoin address or the money remains in an online account maintained by the exchange.

“In the latter case, customers are at risk of losing their Bitcoins if the exchange suddenly closes,” Moore said. “Believe it or not, many people — if not most —choose to leave the Bitcoins in the exchange account, thinking that their Bitcoins are better protected there and with faster access to convert back to hard currencies.”

Bitcoins also can be purchased from local dealers found on web sites such as https://localbitcoins.com/. Buyers meet up with the dealer online or in person and pay cash for the Bitcoins, which are then transferred to the Bitcoin address provided.

Data for the study included daily trade volumes, average weighted daily price for conversions to other currencies, the lifetime of each exchange, whether investors were repaid following an exchange’s closure, and whether the country where the exchange is based complies with the World Bank’s regulations for Anti-Money-Laundering and Combating the Financing of Terrorism. — Margaret Allen

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SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.

Tags Lyle School of Engineering, Tyler W. Moore

Said one Minnesota fan of the digital money: “Right now I wouldn’t call it investing, I would call it gambling.”

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Empirical computer science study finds consumers face risk of losing money on Bitcoin currency exchanges, many of which close

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