Систематичні дослідження інструментів використання криптовалюти на фінансових ринках
The paper analyzes mining processes when using cryptocurrency on financial exchanges. It considers the cognitive map (CM) of the use of cryptocurrency as a complex system. It reveals all functions of mining processes when interacting with speculative instruments under conditions of uncertainties and...
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| author | Romanenko, Viktor Kantsedal, Heorhii |
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| description | The paper analyzes mining processes when using cryptocurrency on financial exchanges. It considers the cognitive map (CM) of the use of cryptocurrency as a complex system. It reveals all functions of mining processes when interacting with speculative instruments under conditions of uncertainties and risks. Digital modeling of impulse processes in the CM was carried out to study the dynamic properties of the free movement of the tops of the CM under random disturbances. |
| doi_str_mv | 10.20535/SRIT.2308-8893.2024.4.01 |
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Publisher IASA at the Igor Sikorsky Kyiv Polytechnic Institute, 2024
14 ISSN 1681–6048 System Research & Information Technologies, 2024, № 4
TIДC
ПРОБЛЕМИ ПРИЙНЯТТЯ РІШЕНЬ ТА
УПРАВЛІННЯ В ЕКОНОМІЧНИХ, ТЕХНІЧНИХ,
ЕКОЛОГІЧНИХ І СОЦІАЛЬНИХ СИСТЕМАХ
UDC 303.732.4
DOI: 10.20535/SRIT.2308-8893.2024.4.01
SYSTEMATIC STUDIES OF CRYPTOCURRENCY USAGE
TOOLS FOR FINANCIAL MARKETS
V. ROMANENKO, H. KANTSEDAL
Abstract. The paper analyzes mining processes when using cryptocurrency on fi-
nancial exchanges. It considers the cognitive map (CM) of the use of cryptocurrency
as a complex system. It reveals all functions of mining processes when interacting with
speculative instruments under conditions of uncertainties and risks. Digital modeling of
impulse processes in the CM was carried out to study the dynamic properties of the
free movement of the tops of the CM under random disturbances.
Keywords: cryptocurrency, cognitive map, mining, impulse processes.
INTRODUCTION
During the 1990s and 2000s, there was a need to solve the problems of verifying
and signing digital documents (or transactions) in an environment with partial
trust, that is, in an environment where one or more agents may not be in good
faith [1]. Bitcoin was proposed to solve this problem. In work [2], attention was
focused on the exchange of monetary assets, and a workable cryptocurrency pro-
totype was also proposed. This ensured a relatively rapid spread of the idea
among cryptographic enthusiasts. In four years, the popularity of the topic of Bit-
coin led to a boom in articles aimed at increasing the efficiency of its support
(mining) [3], as well as the appearance of a request for specific computing sys-
tems aimed only at mining.
Miners, the backbone of the cryptocurrency ecosystem, are responsible for
emissioning and maintaining cryptocurrency. Their crucial task is to ensure the
recording and execution of transactions by forming digital blocks in a standard
chain—blockchain. This blockchain, one of the key concepts that underpin mod-
ern cryptographic systems, is a testament to the vital role of miners in the crypto-
currency world.
Mining is a popular way to earn money through cryptocurrency. The block-
chain rules require the chain of blocks to be continuous, meaning breaks in the
chain are not allowed, but branching is possible. This applies even to traditional
cryptocurrencies when creating new ones based on old ones or temporarily until
the next block is generated. In addition, blockchain requires the instant execution
of events (smart contracts) included in the block. It also prohibits changes to the
results and composition of actions in each block.
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 15
In a further development, cryptocurrency led to the emergence of specialized
cryptocurrencies that can solve specific tasks of cloud computing and data storage.
However, Bitcoin continues to occupy a dominant position among other currencies.
In works [4–7], cognitive maps of the use of cryptocurrency in financial
markets were developed. These maps were designed based on causal relationships
and took into account the main financial indicators of cryptocurrency circulation.
However, they did not consider the role of miners as organizers and performers of
cryptocurrency exchange by performing transactions outside the banking system.
STATEMENT OF THE PROBLEM
This article examines the problems of researching the processes of using crypto-
currency in financial markets as a complex system, the model of which is devel-
oped in the form of a cognitive map (CM).
The first task is devoted to analyzing the functions of mining processes,
which help perform cryptocurrency exchange operations by conducting transac-
tions in digital form outside the banking system.
The second task is to analyze the interaction of speculative instruments with
the cryptocurrency market. The third task is to analyze the uncertainties and risks
of using cryptocurrencies.
In the article we simulate the processes in the CM to study the dynamic
properties of the CM’s vertexes under random disturbances.
PECULIARITIES OF FUNCTIONING OF DIGITAL CRYPTOCURRENCY LIKE
BITCOIN
The nature of using Bitcoin for exchange
The primary purpose of using Bitcoin was to transfer funds between users during
trade transactions. In recent years, Bitcoin has gained mostly speculative popular-
ity. To reveal the specifics of using Bitcoin as a means of exchange, let us con-
sider the traditional type of money transfer via a bank (Fig. 1).
Fig. 1. The sequence of funds transfer in traditional systems is conditionally divided into
four stages
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 16
There are several stages in the standard options for transferring funds:
Authorization on the bank’s server, sending a request to transfer funds.
Internal verification of the bank (whether this transaction is possible,
whether the recipient’s address is valid, whether there are enough funds).
Transaction authorization/confirmation (more a legal requirement than a
necessary step).
Physical transfer of funds (i.e., changing the balance of two users). Send-
ing a message about a successful transaction.
The considered simple option of transferring funds between two clients of
the same bank vividly illustrates the main features of the system, namely:
The user cannot access his money and the bank’s database directly.
All operations are performed on the bank’s side in its single system. The
user acts as an external factor.
The system is centralized.
This approach, of course, has its advantages, particularly for the regulation
of funds; however, it also has significant disadvantages, such as limited function-
ality in the event of system damage (lack of Internet, light, etc.). The Bitcoin sys-
tem partially solves this problem. Consider an example of Bitcoin transfer be-
tween users (Fig. 2):
Fig. 2. The transfer of funds between two users in the Bitcoin system is conventionally divided into four
sequential stages. In the figure, it is assumed that only two users are actively engaged in mining
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 17
During the transfer of bitcoins, several stages can be distinguished:
The user checks his balance against his own copy of the blockchain (simi-
lar to a bank database). According to the verification, he requests to transfer funds
to user 2. The request is coded using the user’s private key and can be verified by
anyone using the public key.
The request is sent to the system and processed by one of the miners (or
several). The possibility of operations is checked according to the miner’s local
blockchain. After verification, the operation is included in the block and the block
generation process begins (that is, the selection and calculation of the hash sum
that satisfies certain complexity characteristics).
One of the miners finds the required hash sum — the new block is con-
sidered generated and is sent to other users for confirmation. The user who made
the transaction receives an early warning that the transaction is already successful
and agreed with one miner.
Other crypto community users (and other miners) confirm the generation
of the block (that is, it does not contradict their transaction history). This transac-
tion is considered complete after receiving confirmation from 51% of users.
An additional requirement for users to accept the generated chain of blocks
is its length. Therefore, shorter chains are rejected, and the longest chain takes
priority for extension (Fig. 3).
In this system, there is no central element that can be replaced with another
one. This means that changes in the miners operating the system will not be no-
ticeable to ordinary users, and the loss of a part of the community of miners will
not affect the system’s operation. To ensure a smooth transition when miners’
capacities change, a balancing mechanism is embedded in the blockchain. The
complexity of block generation, which involves setting conditions on the selected
hash sum, depends on the speed of block generation and is balanced at the level of
1 block per 10 minutes. If there is a sudden increase in the total power of the min-
ers, the selection process may speed up. In response, the system will automati-
cally introduce an additional complication to hash sum generation. This resistance
to losing part of the mining capacity also limits the number of transactions that
can be included in a block, as block sizes have physical size limits.
Anonymity in the blockchain system and benefits of use
Unlike the traditional banking system, the blockchain system does not allow for
transaction cancellations or block alteration. The private key is the sole user iden-
tifier, enabling transactions from anywhere with an Internet connection. While it
is possible to trace the source of funds, it is impossible to prevent their transfer.
Fig. 3. Example of rejecting blocks based on chain length rule. Miner chain 1 is accepted,
while chains 2 and 3 are rejected
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 18
Linking an address to a specific Bitcoin user is another concern. This prob-
lem is partly addressed through regulating cryptocurrency exchanges, which over-
see real money flow and require user registration. However, a significant loophole
for money laundering via cryptocurrency is the process of mining, which effec-
tively converts electricity into cryptocurrency. This process completely ano-
nymizes the recipient of the cryptocurrency, enabling it to be used for criminal
purposes. The only way to trace the recipient of the cryptocurrency earned
through mining is by locating the connection points of the mining equipment. On
average, a miner can earn between $0.7 to $1.4 for every 1kWh of electricity
used, depending on the exchange rate and electricity prices. This becomes in-
credibly profitable when access to free energy is available, such as when an en-
terprise or government institution covers the electricity costs. Businesses with an
average power capacity of 100 kW, benefiting from discounted electricity rates,
can generate up to $70.000 in monthly illegal income. This income could be un-
declared or even a form of bribery.
Recent events have shown several unusual options for influencing the cryp-
tocurrency exchange rate. Thus, countries that extract raw energy materials (gas
and oil) are more prone to the mining process and, therefore, to the emission of
bitcoin. As a result of the impact of the sanction, it became a source of capital
outflow from the country and black purchase of goods. Bitcoin proved resistant to
restrictions, but crypto exchanges, as exchangers of cryptocurrency for real mon-
ey, came under restrictions and were forced to leave the market of such countries.
Despite the stability of the Bitcoin system itself, such a move significantly un-
dermined user confidence in the system. This shows that Bitcoin has not become
an independent means of payment and is still perceived as a speculative asset,
where the possibility of exchange for real money plays a key role.
CHARACTERISTICS OF MINING AS A DISTINCT PHENOMENON
RESULTING FROM THE USE OF CRYPTOCURRENCIES
Mining is the essential link that connects the world of cryptocurrencies with the
real-world environment. The concept of rewarding users for utilizing their com-
puting power is at the core of this process. Other users repeatedly verify every
action; only the result that aligns with most users (miners) is considered valid.
Initially, mining referred to creating a block in the blockchain by finding the
appropriate hash and solving cryptographic tasks. Over time, the term has evolved
to encompass any work for which a reward is received in the blockchain. In our
context, mining encompasses any computing process that supports the operation
of the blockchain system. From the network perspective, all users are integral
parts of the system, acting as nodes. Mining is the only chain that connects the
environment of cryptocurrencies with the real world. The idea of rewarding some
users for using their computing power is fundamental. Each action is repeatedly
duplicated and checked by other users. De facto, only the result that coincides
with the results of most users (miners) is considered valid.
First and foremost, mining was the process of generating a block in the
blockchain, that is, selecting the appropriate hash and solving cryptographic tasks.
However, gradually, this term spread to any work for which a reward is received
in the blockchain. In our work, mining is any computing process that supports the
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 19
operation of the blockchain system. From the network point of view, all users are
parts of the system — nodes:
Full nodes are transitional nodes of the blockchain that keep and update
all information about users. They require a lot of computing resources. Usually,
users who hold a full node are engaged in checking transactions (keys) and the
validity of blocks received from miners. Users with full nodes are rewarded for
validating transactions and maintaining the network. Direct mining may also be a
secondary task for such users.
Light nodes support only partial information about the blockchain. The
majority of users use them for everyday operations—checking the balance and
transferring funds. The computing load is minimal, and synchronization delays
can be up to several seconds.
Pruned full nodes — differ from full nodes by the possibility of limiting
support resources. Usually, only a certain limited part of the blockchain is
stored — for example, the last 10 GB of transactions. Convenient for blockchain
research.
Mining nodes — the most demanding node to support. It requires differ-
ent resources – from the processor and RAM to graphics processors and special-
purpose integrated circuits. Users who deploy this node on their equipment re-
ceive a reward directly from the mining process — the process of generating
blocks (combining transactions into a group for calculating the cryptographic
component of the system — the hash). As a result of successful block generation,
a reward is received. In an unsuccessful generation, the user receives nothing
(Proof of Work principal).
Master nodes — a complete analog of the full node but with additional
functions — guaranteeing anonymity in the system. Unlike users with full nodes,
an additional requirement for master nodes is the presence of significant capital in
cryptocurrency. When conducting an anonymous transaction with another user,
the capital of the master node will participate in the transaction and dilute the
anonymized transaction, among others. This mechanism will make it possible to
completely exclude the possibility of tracking the communication between the
sender and the recipient. Of course, from the side of ordinary users, this anony-
mous transaction will have an increased commission, which will go to the reward
of the owners of the master node. Officially, the Bitcoin system can work without
master nodes, but this mechanism is easily transferred to any cryptocurrency, so it
is definitely used.
Fast nodes (Lightning Network) are nodes whose main goal is to syn-
chronize speed among themselves. Wines act as a kindred nervous system of the
blockchain, increasing bandwidth and speeding up the number of transactions in
the system. The user receives a reward for transactions and the speed of their exe-
cution.
The operation of the blockchain system requires the participation of several
types of users. Mining nodes form the system’s foundation, but rewards are also
distributed to owners of fast nodes, master nodes, and full nodes based on similar
principles. Currently, the system involves over 12.000 different nodes. The ex-
change of information between these nodes is a hidden centralized element of the
system, as connecting to nodes requires knowledge of the API address, and the
system relies on resources with a list of active nodes.
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 20
Understanding the unique aspects of Bitcoin mining emission
The actual mining process simultaneously involves issuing cryptocurrency and
supporting its transfers. The miner receives a reward from two sources of income:
User commissions, a dynamic aspect of the process, are determined by the
user’s need to transfer Bitcoin quickly. The higher the commission, the greater the
motivation of the miner to include the transaction in the block, thus increasing the
priority of the transaction. The estimated minimum reward per block is 0.8 bitco-
ins and depends on user demand for transfers.
An additional block reward was staked when the cryptocurrency was cre-
ated. However, the reward is halved every 210.000 blocks. So, in 2032, the addi-
tional reward will be 0.78 bitcoins per block, which will be less than the user fee
(Fig. 4).
The additional reward acts as a source of creation of new bitcoins (emission
of cryptocurrency). At the same time, the commission is charged to users and is
not a floating factor on the cryptocurrency rate. This means that the number of
bitcoins is limited, and therefore, bitcoin is a unique resource, which gives the
right to partially compare it with gold (as a limited resource of exchange). Thus,
the number of bitcoins will be at most 21 million coins (Fig. 5). Therefore, con-
sidering the loss of wallets, this resource should become more and more unique
over time.
To comprehend another mining issue, one must understand the structure of
the primary mining outcome—the block (see Fig. 6).
As mentioned in 2.1, the block generation process does not depend on the
number of users involved in the mining process and on their computing power.
Theoretically, one user is enough for this. On the other hand, if there are several
miners, only one receives a reward for mining. The computing component of min-
Fig. 4. Decreasing the emission (rewards for mining) of Bitcoin over time
Fig. 5. The increase in the total number of bitcoins
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 21
ing causes this circumstance. To generate a new block, we need to include user
transactions and information about the previous block and generate a hash sum
that would meet some complexity rules (that is, it was less than a certain number).
With the help of the complexity level, the block’s birth time is regulated in 10
minutes, regardless of the computing power of the miners. In the case of low
computing power, the block generation time begins to increase, which leads to the
inconvenience of ordinary users and the accumulation of transactions. In this case,
the condition is gradually softened.
COGNITIVE MAP AS A MODEL FOR RESEARCHING THE USE
OF CRYPTOCURRENCY
The cognitive map for researching the mining process is presented in Fig. 7. The
vertices of the CM have the following names:
1. Cryptocurrency rate.
2. Number of active cryptocurrency users.
3. Number of miners.
4. Volume of processed transactions.
5. Performing miner functions.
6. Profitability of mining (profit).
7. User fees for transaction execution.
8. Issuance of cryptocurrency.
9. Amount of capitalization.
10. Indirect profit (circumvention of sanctions, economic restrictions inside
of countries).
11. Funding for the development of new mining equipment.
12. Cryptocurrency supply.
13. The price of energy resources when using cryptocurrency.
14. Number of passive users (institutional investors).
15. Mining equipment price.
16. Computing complexity of the network.
17. Safety of using cryptocurrencies.
18. Legality of using cryptocurrencies.
19. Tendency to accumulate cryptocurrencies.
20. Efficiency of miners.
21. Fear of devaluation of cryptocurrency.
22. Belief in the growth of the cryptocurrency rate.
23. Informational and speculative disturbances have the following names.
Fig. 6. A simplified Bitcoin block diagram
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 22
When the perturbations act on the CM vertices, a transient process occurs,
which is described by the difference equation [7]:
n
j
jiji kyaky
1
)()1( (1)
where nikykyky iii ,...,1),1()()( , ija — the weight of the edges of the
weighted directed graph (CM connects the j -th vertex of the CM with the i -th
one. Equation (1), which describes the free movement of the i -th coordinate of
the CM, can be written in vector-matrix form for the entire CM:
)()1( kyAkyi , (2)
where A is the weight matrix of the adjacency of the CM )( nn , which consists
of ija CM elements.
The first 15 vertices of the CM are measurable. This means that their coordi-
nates can be precisely measured and fixed at discrete moments of time K , start-
ing with the period of discretization 0T .
From the 16th vertex to the 23rd, their coordinates cannot be formalized, and
their change is difficult to determine on a real-time scale. To clarify this complex-
ity, the original model of the impulse process (2) is divided into two parts. The
first part is dedicated to the measured parameters of the vertices of the original
CM (2), ensuring a structured approach to the research. The second part includes
the non-measurable parameters of the vertices, acknowledging the inherent chal-
lenges in the field:
Fig. 7. Cognitive map of cryptocurrency mining
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 23
)()()1(
23
16
15
1
kyakyaky ij
j
iji
, (3)
where jy — the measured coordinates of the CM; y — unmeasured coordi-
nates of the top of the original CM.
The second model is created to describe the impulse process of the non-
measurable parameters of the CM vertices:
)()()1(
15
1
23
16
kyakyaky j
j
jj
j
j
. (4)
At the same time, the unmeasured parameters of the vertices are considered
disturbances in the first model (3).
Expressions (3) and (4), respectively, can be written in vector-matrix form:
)()()1( 2121111 kYAkYAkY ; (5)
)()()1( 2221212 kYAkYAkY , (6)
where 1Y is a vector of measured parameters, and 2Y is a vector of non-
measurable parameters, and the matrices 11A , 12A , 21A , 22A respectively have
the dimension )1515( , )815( , )158( , )88( and are components of the ad-
jacency matrix A in the model (2):
2221
1211
AA
AA
A . (7)
The use of cryptocurrencies is affected by various factors that can reduce
trust in their use. As a result, the following risks can occur when dealing with
cryptocurrencies:
Risk of losing users, leading to a decrease in the price of Bitcoin
Risks associated with incorrect general expectations of many users simul-
taneously, created by manipulating traders on financial exchanges.
Risk of a sudden collapse in the cryptocurrency price due to coordinated
manipulations on the stock exchanges, including high-frequency trading, where
assets are bought and sold at high speeds, potentially leading to investor panic.
Risks associated with the lack of guarantees for the safety of the capital
invested in cryptocurrency, leading to user anxiety when trading on the stock ex-
change.
It should be noted that the combination of vertices 15-11-6 has an interesting
stepped nature and behavior. The process of developing new computing schemes
aimed only at solving the mining problem is quite slow and requires a lot of real
money. Therefore, it constantly pulls resources away from long-term Bitcoin
holders. On the other hand, when the development is completed, and the new
equipment is ready for serial production, it causes a significant outflow of capital
invested in Bitcoin due to the need to update mining capabilities.
Vertex 13 (the price of energy resources when using cryptocurrency) closely
connects the world of miners with the real world. The mining process is ex-
tremely energy-consuming, and any fluctuations in the energy market lead to sig-
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 24
nificant problems with mining. In particular, military actions near oil fields tradi-
tionally have a negative impact on cryptocurrency.
On the other hand, the presence of conflicts in other regions is a positive in-
centive for the growth of Bitcoin’s price as a source of wealth in unstable condi-
tions or in terms of bypassing traditional financial instruments (bypassing sta-
tions, blockades, etc.). Although mining relies increasingly on green energy, its
behavior is still sensitive to daily fluctuations.
INTERACTION OF SPECULATIVE INSTRUMENTS WITH THE
CRYPTOCURRENCY MARKET
Since the dawn of currency, speculation has been a fundamental part of human
society. In the realm of cryptocurrencies, speculation takes on a whole new di-
mension. Cryptocurrencies, unlike traditional currencies, can be stored indefi-
nitely, with the only limit being the total number of cryptocurrencies in existence.
To navigate this unique landscape, many traders turn to mechanisms borrowed
from the stock market, such as contracts (futures). These contracts offer the assur-
ance of cryptocurrency redemption at any given time, a stark contrast to the typi-
cal trading of cryptocurrencies. In fact, the contract market is currently three
times the trading volume of Bitcoin, making it the most popular avenue for specu-
lation.
Contracts are divided into two types—to increase the price (long) of the as-
set (cryptocurrencies) and decrease it (short). To conclude a contract for an in-
crease, it is necessary to find a counterparty for a similar contract for a price de-
crease. Currently, exchanges provide the opportunity to conclude contracts
without being tied to a specific user and to share them between several counter-
parties (for ordinary users, the counterparty mechanism looks like the exchange
acts as counterparty for all contracts). Thus, the mechanism of contracts on cryp-
tocurrency exchanges is similar to the mechanism of making a bet and is a purely
speculative mechanism.
The market of contracts on exchanges is divided into the following categories:
Perpetual contracts: These are derivatives that involve a commission paid
depending on the duration of the contract. The commission size is directly related
to the imbalance of the number of contracts on the market/exchange.
Delivery contracts: These are futures with a fixed execution time. Until
the execution time, they are similar to perpetual contracts. At the time of execu-
tion, holders of long contracts must sell the asset (cryptocurrency) for the amount
specified in the contract, and holders of short contracts must buy cryptocurrency
at the market price.
Contracts for cryptocurrency in cryptocurrency: In terms of the execution
mechanism, they can be similar to the first two types, but the use of only crypto-
currency expands the possibilities of contracts and allows for the addition of new
conditions. These contracts can be applied in decentralized settlements.
Credit funds are widely used for all the speculative assets listed. Under very
reasonable conditions, it is possible to borrow up to 124 credit dollars using just
one physical dollar. The contract market is seen as a form of speculation that is a
significant destabilizing factor in the financial market. Speculative assets are read-
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 25
ily accessible and fully integrated into the basic functionality of modern ex-
changes. Speculation can be categorized as follows:
Inter-exchange arbitrage involves making a profit from price differences
between exchanges. This involves buying and selling assets, but it carries the risk
of transferring cryptocurrency between exchanges.
Cross-currency arbitrage is about profiting from exchange rate differences
between interconnected assets. This situation arises when one asset is traded in
much smaller volumes than the others, leading to delayed price quotations.
Cross-product arbitrage is an arbitrage between different products of an
exchange or exchanges. It typically involves derivatives, options, and futures.
Trading based on graphic data analysis is risky for speculation, as it in-
volves a desire to get rich quickly rather than long-term operations. In the short
term, the behavior of the cryptocurrency exchange rate is random and has a low,
but not zero, chance of success.
High-speed trading involves short-term transactions and frequent or full
automation, which reduces risks due to their short duration.
Scraping is a speculation strategy based on a stationary cryptocurrency
rate assumption. The user engages in the de facto resale of the asset with a mini-
mal markup. This is the least risky strategy among non-arbitrage options for spec-
ulation.
On the cognitive map (Fig. 7), speculation is depicted as a disruption, which
is considered at the top of 23 CM. Other speculations, in various forms, stem from
the above. While most arbitrage strategies enable synchronization of different
parts of the system and cryptocurrency markets, scraping introduces white noise.
Trading based on graphical analysis and high-speed trading with many users is
entirely random.
CHARACTERISTICS OF UNCERTAINTIES WITH CRYPTOCURRENCY
USAGE
Uncertainties when using Bitcoin
One of the major issues with blockchain systems in the context of using crypto-
currencies is their reliance on users. Any action or information on the blockchain
is considered valid if most users accept it. This vulnerability is exploited in what
is known as a “51% attack”. In this attack, the goal is to temporarily control more
than 51% of the mining capacity of the entire network. Once this control is
achieved, false data can be entered into the generation of the current block and
validated. The false data is considered valid because the remaining 49% of users
cannot reverse this. However, it is essential to note that the current power of the
Bitcoin blockchain is substantial, and the network of miners is extensive, making
this type of attack unlikely, given the current number of users and the advance-
ment of computing technology.
Another drawback is the potential for the blockchain network to become
overloaded due to the volume of transactions. An attack with a high volume of
transactions could potentially cripple the blockchain for some time, resulting in
the isolation of cryptocurrency exchanges. In theory, this could lead to a loss of
user confidence and a significant drop in the price of the cryptocurrency.
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 26
Uncertainties inherent in the characteristics of Bitcoin as a digital currency
One of the significant issues with cryptocurrencies today is their reliance on the
Proof of Work (PoW) algorithm to a certain extent. The global economy heavily
depends on digital signature technology, with most digital signatures being cre-
ated using a few simple numbers. This uneven distribution of operations reduces
cryptographic stability and poses a potential challenge to economic activities in
the next 50 years, not just for Bitcoin.
Another concern is the need for more decentralization and the need to store
node addresses. In the event of a 51% attack on Bitcoin services, control over ap-
proximately 8.000 nodes could allow fake transactions to be introduced into the
system. If most users are successfully redirected to fake nodes within 10 minutes,
significant damage could be done to the system.
Additionally, the implementation of the Proof of Work protocol in mining,
where the mining reward goes to only one successful miner, has led to the unifica-
tion of miners in mining pools. While this makes the mining process more pre-
dictable, it makes the system less resistant to a 51% attack.
A more immediate challenge for Bitcoin is the issue of limiting both the
number of coins and the number of transactions per second. As the world evolves,
it’s increasingly likely that cryptocurrency may no longer be a convenient me-
dium of exchange due to its price or exchange speed. This could lead to a collapse
of the industry in the future.
Furthermore, future mining limitations may lead to a significant amount of
equipment being released on the market, which could be used for fraudulent ac-
tions with cryptocurrency. The same equipment used for mining can also be used
to hack wallets successfully. Considering the dormant wallets with significant
funds stored since the beginning of the cryptocurrency era, this may lead to a col-
lapse of the cryptocurrency rate as early as 2040.
Uncertainties arise from speculative phenomena in the cryptocurrency market
Speculation and leverage pose potential problems for cryptocurrency markets.
The most significant issue is the synchronization of speculators’ actions at certain
times, leading to significant market fluctuations. This is further exacerbated by
the introduction of copy trading, which enables traders to share strategies with
others at the exchange level, making synchronization even easier.
Another risk is the accumulation of substantial finances in speculative assets,
potentially leading to a stock market crash. Currently, there is no legal regulation
of cryptocurrency exchanges, and tracking the amount of collateral on the
exchanges is challenging. Additionally, part of the collateral is always in crypto-
currency, the exchange rate of which can fluctuate significantly, especially when
funds need to be transferred through the exchange into real money. These transac-
tion volumes can significantly impact the cryptocurrency market and the pricing
mechanism for cryptocurrency.
MODELING OF IMPULSE PROCESSES OF THE COORDINATES OF THE CM
VERTICES OF THE USE OF CRYPTOCURRENCY
Based on cause-and-effect relationships, the adjacency matrix A of the impulse
process of the cognitive map (7) was developed, which has the follow-
ing components 11A , 12A , 21A , 22A :
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 27
00004.00000000005.0
08.00000000000000
008.0000000000000
02.0000000000006.00
0002.00003.004.000007.0
000007.0000000000
07.000008.000000000
00000000003.025.0000
05.00000000003.005.00
3.004.000004.06.0000003.0
0000000000007.000
00000000003.00000
0000003.0000004.000
000001.000000015.03.00
0025.02.00015.04.00000004.0
11A
3.00000000
25.015.03.004.0000
00000000
00000000
00000000
00000000
2.00000000
00000000
00000000
0003.00002.0
00000000
00000000
2.00015.0015.002.0
3.000002.05.00
7.00000000
12A
000000000000000
000000000000000
000000000000001.0
0015.0003.0000005.0000
0000000002.00001.03.0
000002.0000000000
0000000000002.01.00
000000000000000
21A
00000000
000003.000
00015.00000
03.0000000
00000000
0000004.00
00000000
00000000
22A
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 28
The eigenvalues of the matrix A are 0i+0.989 , 0.282i+0.592 , 0i+0.489 ,
0.333i+0.22 , 0.333i0.22 , 0.336i+0.08 , 0i+0.334 , 0.13i+0.188 ,
0.13i0.188 , 0i+0.142 , 0.102i+0.064 , 0.102i0.064 , 0i+0.122 , 0i ,
0i , 0i , 0i , 0i+0.7 , 0i+0.8 , 0i , 0i . The eigenvalues of the matrix are smaller
than one by module. Therefore, the impulse responses of the closed-loop control
for models (5) and (6) are stable.
Modeling the impulse processes of the coordinates of the CM vertices is car-
ried out to examine the
movement of critical ver-
tices 1, 2, 3, 6, and 20
under the influence of
random disturbances
applied to vertices 18, 22,
and 23.
Figs. 8–12 display
graphs of the CM coor-
dinates’ free movement,
including the crypto-
currency exchange rate,
the number of active
cryptocurrency users, the
amount of mining, and the
efficiency of miners.
Fig. 8. Free movement of the exchange rate of cryptocur-
rencies (vertex 1)
T
B
itc
oi
n
pr
ic
e,
v
er
te
x
1
Fig. 9. Free movement of the number of active users (vertex 2)
T
Fig. 10. Free movement of the number of miners (vertex 3)
T
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 29
T
Fig. 11. Free fluctuations of mining profitability (vertex 6)
Fig. 12. Free fluctuations of mining efficiency (vertex 20)
T
Fig. 13. The behavior of the cryptocurrency exchange rate over an extended period
Pr
ic
e
T
For a clearer simulation, initial values of 60000, 700000, 50000, 3000, and
30 were set as the system’s starting point for vertices 1, 2, 3, 6, and 20. The most
significant changes affected the profitability of mining and cryptocurrency’s rate
while other changes occurred gradually and were highly correlated. There pat-
terns closely mirror real marked behavior. Specifically, as the number of disk-
ettes increases, the behavior of the cryptocurrency exchange rate closely resem-
bles that of the real market (Fig. 13)
V. Romanenko, H. Kantsedal
ISSN 1681–6048 System Research & Information Technologies, 2024, № 4 30
Therefore, these graphs comprehensively describe the dynamic properties of
the cryptocurrency circulation’s CM. The model built reflects the primary interac-
tions of cryptocurrencies in financial markets and corresponds to the simulated
phenomenon.
CONCLUSION
The work performs a systematic study of the dynamic properties of mining prin-
ciples when using cryptocurrency on financial exchanges, which are used to per-
form cryptocurrency exchange operations by conducting transactions in digital
form outside the banking system. For this, a cognitive map of the use of crypto-
currency as a complex system was developed, in which all the functions of min-
ing processes in interaction with speculative instruments in conditions of uncer-
tainties and risks are revealed.
In the article, the digital simulation of impulse processes in the CM was car-
ried out while investigating the dynamic properties of the free movement of the
tops of the CM under the action of random disturbances.
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Received 10.05.2024
Systematic studies of cryptocurrency usage tools for financial markets
Системні дослідження та інформаційні технології, 2024, № 4 31
INFORMATION ON THE ARTICLE
Viktor D. Romanenko, ORCID: 0000-0002-6222-3336, Educational and Research
Institute for Applied System Analysis of the National Technical University of Ukraine
“Igor Sikorsky Kyiv Polytechnic Institute”, Ukraine, e-mail: romanenko.viktorroman@
gmail.com
Heorhii O. Kantsedal, ORCID: 0000-0003-2740-2176, Educational and Research Insti-
tute for Applied System Analysis of the National Technical University of Ukraine “Igor
Sikorsky Kyiv Polytechnic Institute”, Ukraine, e-mail: g.kantsedal@protonmail.com
СИСТЕМАТИЧНІ ДОСЛІДЖЕННЯ ІНСТРУМЕНТІВ ВИКОРИСТАННЯ
КРИПТОВАЛЮТИ НА ФІНАНСОВИХ РИНКАХ / В.Д. Романенко, Г.О. Канцедал
Анотація. Проаналізовано процеси майнінгу за використання криптовалюти
на фінансових біржах. Розглянуто когнітивну карту (КК) використання крип-
товалюти як складної системи. Розкрито всі функції процесів майнінгу у ході
взаємодії зі спекулятивними інструментами в умовах невизначеності та ризи-
ків. Для дослідження динамічних властивостей вільного руху вершин КК під
дією випадкових збурень виконано цифрове моделювання імпульсних проце-
сів у КК.
Ключові слова: криптовалюта, когнітивна карта, майнінг, імпульсні процеси.
|
| id | journaliasakpiua-article-322441 |
| institution | System research and information technologies |
| keywords_txt_mv | keywords |
| language | English |
| last_indexed | 2025-07-17T10:28:38Z |
| publishDate | 2024 |
| publisher | The National Technical University of Ukraine "Igor Sikorsky Kyiv Polytechnic Institute" |
| record_format | ojs |
| resource_txt_mv | journaliasakpiua/fa/df4093539cd11e55d6e4c48ab22847fa.pdf |
| spelling | journaliasakpiua-article-3224412025-02-09T21:55:38Z Systematic studies of cryptocurrency usage tools for financial markets Систематичні дослідження інструментів використання криптовалюти на фінансових ринках Romanenko, Viktor Kantsedal, Heorhii криптовалюта когнітивна карта майнінг імпульсні процеси cryptocurrency exchange rate cognitive map mining impulse processes The paper analyzes mining processes when using cryptocurrency on financial exchanges. It considers the cognitive map (CM) of the use of cryptocurrency as a complex system. It reveals all functions of mining processes when interacting with speculative instruments under conditions of uncertainties and risks. Digital modeling of impulse processes in the CM was carried out to study the dynamic properties of the free movement of the tops of the CM under random disturbances. Проаналізовано процеси майнінгу за використання криптовалюти на фінансових біржах. Розглянуто когнітивну карту (КК) використання криптовалюти як складної системи. Розкрито всі функції процесів майнінгу у ході взаємодії зі спекулятивними інструментами в умовах невизначеності та ризиків. Для дослідження динамічних властивостей вільного руху вершин КК під дією випадкових збурень виконано цифрове моделювання імпульсних процесів у КК. The National Technical University of Ukraine "Igor Sikorsky Kyiv Polytechnic Institute" 2024-12-25 Article Article application/pdf https://journal.iasa.kpi.ua/article/view/322441 10.20535/SRIT.2308-8893.2024.4.01 System research and information technologies; No. 4 (2024); 14-31 Системные исследования и информационные технологии; № 4 (2024); 14-31 Системні дослідження та інформаційні технології; № 4 (2024); 14-31 2308-8893 1681-6048 en https://journal.iasa.kpi.ua/article/view/322441/312881 |
| spellingShingle | криптовалюта когнітивна карта майнінг імпульсні процеси Romanenko, Viktor Kantsedal, Heorhii Систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| title | Систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| title_alt | Systematic studies of cryptocurrency usage tools for financial markets |
| title_full | Систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| title_fullStr | Систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| title_full_unstemmed | Систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| title_short | Систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| title_sort | систематичні дослідження інструментів використання криптовалюти на фінансових ринках |
| topic | криптовалюта когнітивна карта майнінг імпульсні процеси |
| topic_facet | криптовалюта когнітивна карта майнінг імпульсні процеси cryptocurrency exchange rate cognitive map mining impulse processes |
| url | https://journal.iasa.kpi.ua/article/view/322441 |
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