Cryptocurrency faces scrutiny: Study finds link between coding process, market behavior

LONDON — Is 2021 the year of Bitcoin? The original cryptocurrency’s price has skyrocketed past $30,000 heading into the new year. However, a new study is calling into question the legitimacy of cryptocurrency coding transparency. Researchers from City University London report four percent of developers have contributed to the code of two or more cryptocurrencies.

“In our paper, we challenge the view that open code grants transparency to cryptocurrencies, even accepting that literate users do check it carefully,” says study leader Dr. Andrea Baronchelli in a university release.

Researchers analyzed 297 cryptocurrencies whose codes are stored on GitHub and have reached a daily trading volume average of $100,000 during the study.

Is the cryptocurrency code is danger?

According to the “code is law” cryptocurrency operating principle, the security, transferability, and availability of a given cryptocurrency is determined by its code. The code for most cryptocurrencies is “open-source,” meaning it’s available for viewing by anyone and everyone. The idea here is that code transparency will foster trustworthiness among both users and traders, as well as prevent tampering with the code.

All of that is great in theory, but this approach only works if each individual cryptocurrency is totally separate and unconnected to any other form of digital money. The study finds if four percent of developers are contributing to multiple cryptocurrencies, everything changes.

Study authors say both regulators and professional investors should consider the full spectrum of the crypto market when considering market moves and ways to achieve portfolio diversification.

Digital money shifting the market

Among the 2,225 cryptocurrencies listed in CoinMarketCap on June 9, 2019, 1,668 have made their source code available of GitHub. Researchers decided to query the GitHub Archive dataset covering all public “events” dating back to 2011. More specifically, the team focused on two types of events: “push events” and accepted “pull request events.”

The study removed GitHub app triggered events from consideration, as well as any events “bots” initiate. The review also recorded daily crypto prices, exchange volume, and market capitalization from three distinct sources: CoinGecko, CryptoCompare, and CoinMarketCap.

Dr. Baronchelli says these findings hold major implications for the cryptocurrency industry as a whole. “Code is law” is considered an integral reason why cryptocurrencies have disrupted traditional institutions like national laws and financial markets in recent years.

“Cryptocurrencies are open source digital objects traded as financial assets that allow, at least theoretically, everyone to directly shape both an asset structure and its market behavior. Our study, identifying a simple event in the development space that anticipates a corresponding behavior in the market, establishes a first direct link between the realms of coding and trading. In this perspective, we anticipate that our results will be of interest to researchers investigating how code and algorithms may affect the non-digital realm and spark further research in this direction,” the researcher concludes.

The study is published in Science Advances.

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