Blockchain mechanism and distributional characteristics of cryptos

TL;DR

This paper explores how the underlying blockchain mechanisms influence the distributional characteristics of cryptocurrencies, using spectral clustering on various statistical features derived from crypto time series.

Contribution

It introduces a novel approach linking blockchain structure to distributional features of cryptos through spectral clustering, revealing meaningful groupings based on blockchain design.

Findings

Cryptos cluster into five groups sharing similar blockchain mechanisms.

Blockchain features like fork origin and difficulty adjustment relate to distributional patterns.

Distributional characteristics can be explained by underlying blockchain protocols.

Abstract

We investigate the relationship between underlying blockchain mechanism of cryptocurrencies and its distributional characteristics. In addition to price, we emphasise on using actual block size and block time as the operational features of cryptos. We use distributional characteristics such as fourier power spectrum, moments, quantiles, global we optimums, as well as the measures for long term dependencies, risk and noise to summarise the information from crypto time series. With the hypothesis that the blockchain structure explains the distributional characteristics of cryptos, we use characteristic based spectral clustering to cluster the selected cryptos into five groups. We scrutinise these clusters and find that indeed, the clusters of cryptos share similar mechanism such as origin of fork, difficulty adjustment frequency, and the nature of block size. This paper provides crypto creators and users with a better understanding toward the connection between the blockchain protocol design and distributional characteristics of cryptos.