nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2020‒10‒19
twenty-one papers chosen by

  1. Knowledge Discovery in Cryptocurrency Transactions: A Survey By Xiao Fan Liu; Xin-Jian Jiang; Si-Hao Liu; Chi Kong Tse
  2. Security and convenience of a central bank digital currency By Charles M. Kahn; Francisco Rivadeneyra
  3. Lessons learned from the world's first CBDC By Grym, Aleksi
  4. Does mining fuel bubbles? An experimental study on cryptocurrency markets By Lambrecht, Marco; Sofianos, Andis; Xu, Yilong
  5. Please don't hurt me, I will rate you: Reputation systems as self-regulatory mechanisms for the sharing economy By Stergiou, Paraskevi (Vivian) M.
  6. On the Performance of Cryptocurrency Funds By Daniele Bianchi; Mykola Babiak
  7. Deep Learning for Digital Asset Limit Order Books By Rakshit Jha; Mattijs De Paepe; Samuel Holt; James West; Shaun Ng
  8. Bitcoin and its impact on the economy By Merrick Wang
  9. The Effects of Government Licensing on E-commerce: Evidence from Alibaba By Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Chunxiao Li
  10. Global Software Piracy, Technology and Property Rights Institutions By Asongu, Simplice
  11. Social Media and Inclusive Human Development in Africa By Asongu, Simplice; Odhiambo, Nicholas
  12. El modelo de mSalud en organizaciones de seguridad social argentinas By Zanfrillo, Alicia Inés; Artola, María Antonia
  13. Blockchain technologies for commodity value chains: The solution for more sustainability? By Tröster, Bernhard
  14. Bridging the gap in transatlantic data protection By Maldonado, Eric
  15. Transparency, Auditability and eXplainability of Machine Learning Models in Credit Scoring By Michael B\"ucker; Gero Szepannek; Alicja Gosiewska; Przemyslaw Biecek
  16. Intangible capital indicators based on web scraping of social media By Breithaupt, Patrick; Kesler, Reinhold; Niebel, Thomas; Rammer, Christian
  17. Are cryptocurrencies becoming more interconnected? By Nektarios Aslanidis; Aurelio F. Bariviera; Alejandro Perez-Laborda
  18. Social Media and the News: Content Bundling and news Quality By de Cornière, Alexandre; Sarvary, Miklos
  19. Liquidations: DeFi on a Knife-edge By Daniel Perez; Sam M. Werner; Jiahua Xu; Benjamin Livshits
  20. Using Word of Mouth Data from Social Media to Identify Asymmetric Competition in Food Retailing By Jaeger, Lena-Christin; Höhler Julia
  21. Bubbles in history By Quinn, William; Turner, John D.

  1. By: Xiao Fan Liu; Xin-Jian Jiang; Si-Hao Liu; Chi Kong Tse
    Abstract: Cryptocurrencies gain trust in users by publicly disclosing the full creation and transaction history. In return, the transaction history faithfully records the whole spectrum of cryptocurrency user behaviors. This article analyzes and summarizes the existing research on knowledge discovery in the cryptocurrency transactions using data mining techniques. Specifically, we classify the existing research into three aspects, i.e., transaction tracings and blockchain address linking, the analyses of collective user behaviors, and the study of individual user behaviors. For each aspect, we present the problems, summarize the methodologies, and discuss major findings in the literature. Furthermore, an enumeration of transaction data parsing and visualization tools and services is also provided. Finally, we outline several future directions in this research area, such as the current rapid development of Decentralized Finance (De-Fi) and digital fiat money.
    Date: 2020–10
  2. By: Charles M. Kahn; Francisco Rivadeneyra
    Abstract: An anonymous token-based central bank digital currency (CBDC) would pose certain security risks to users. These risks arise from how balances are aggregated, from their transactional use and from the competition between suppliers of aggregation solutions. The central bank could mitigate these risks in the design of the CBDC by limiting balances or transfers, modifying liability rules or imposing security protocols on storage providers.
    Keywords: Central bank research; Digital currencies and fintech; Financial system regulation and policies; Payment clearing and settlement systems
    JEL: E42 G21
    Date: 2020–10
  3. By: Grym, Aleksi
    Abstract: Central banks worldwide are currently exploring so called Central Bank Digital Currencies (CBDC). The Avant smart card system created by the Bank of Finland in the 1990's can be considered the world's first CBDC and the only one so far that has gone into production. Avant cards were based on smart card technology similar to that used in debit and credit cards today. Even though the system was initiated, developed, and for the first few years operated by the central bank, it was eventually spun off and sold to commercial banks. Once debit cards became less expensive and were upgraded to use smart card technology, Avant became obsolete and was shut down. The story of Avant can give us valuable insight contributing to the ongoing discussion regarding CBDC.
    Keywords: CBDC,e-money
    Date: 2020
  4. By: Lambrecht, Marco; Sofianos, Andis; Xu, Yilong
    Abstract: Recent years have seen an emergence of decentralized cryptocurrencies that were initially devised as a payment system, but are increasingly being recognized as investment instruments. The price trajectories of cryptocurrencies have raised questions among economists and policymakers, especially since such markets can have spillover effects on the real economy. We focus on two key properties of cryptocurrencies that may contribute to their pricing. In a controlled lab setting, we test whether pricing is influenced by costly mining, as well as entry barriers to the mining technology. Our mining design resembles the proof-of-work mechanism employed by the vast majority of permissionless cryptocurrencies, such as Bitcoin. In our second condition, half of the traders have access to the mining technology, while the other half can only participate in the market. This is designed to model high concentration in cryptocurrency mining. In the absence of mining, no bubbles or crashes occur. When costly mining is introduced, assets are traded at prices more than 200% higher than fundamental value and the bubble peaks relatively late in the trading periods. When only half of the traders can mine, prices surge much earlier and reach values of almost 400% higher than the fundamental value at the peak of the market. Overall, the proof-of-work mechanism seems to fuel overpricing, which is further intensified by concentration in mining.
    Keywords: cryptocurrency; financial market experiment; Bitcoin; bubbles
    Date: 2020–09–28
  5. By: Stergiou, Paraskevi (Vivian) M.
    Abstract: The rise of the sharing economy has generated great regulatory challenges. The European Union (EU) has to perform a fine balancing act. On the one hand, it has to safeguard weaker parties, consumers and workers, ensuring they enjoy fair treatment by adopting proper regulatory responses. On the other hand, since the sharing economy offers innovative solutions to common societal and consumer problems, the EU wishes to tap into its full potential. It is hard to strike the right balance between innovation and regulation. This paper contributes to the hot debate on how to regulate the sharing economy without stifling innovation, by examining reputation systems and their function as self-regulatory mechanisms. Can the EU have the best of both worlds, reputation and innovation, by letting innovative technology, and reputation systems specifically, do the regulatory work? My answer is no. I first take reputation systems seriously by examining how they work and what they may achieve. Reputation systems are based on innovative algorithmic technology and generate trust among strangers. Self-regulation advocates argue that reputation systems are well suited, and in any case better than top down regulatory responses, to help users and society deal with the risks generated by the sharing economy . I then turn to the many and well-established flaws in the design and function of reputation systems. These systems come with clear limitations, and are unable to adequately address the complex regulatory challenges that have followed the sharing economy boom. The EU has to work towards developing innovative regulatory solutions, which allow space for self-regulatory mechanisms but combine them with other regulatory tools. The EU needs to set a "traditional" regulatory framework within which self-regulation can function properly. At the same time rules and regulations should be used to deal with the problems that, by default, cannot be addressed by reputation systems (such as externalities). Such clear cut EU rules must be the outcome of democratic debate.
    Keywords: regulation,self-regulation,platform regulation,EU policy challengers,EU responses to technological innovation,sharing economy,European Single Market strategy,technology enabled regulation,consumer protection,European consumer protection law,reputation systems,ratings,consumer harm,Airbnb,Uber,behavioral economics,digital discrimination,reporting bias,European Union law
    Date: 2020
  6. By: Daniele Bianchi; Mykola Babiak
    Abstract: We investigate the performance of funds that specialise in cryptocurrency markets. In doing so, we contribute to a growing literature that aims to understand the role of digital assets as an investment. Methodologically, we implement a novel bootstrap approach that samples jointly the cross-sectional distribution of alphas and controls for the nonnormality of fund returns and their within-strategy correlations. Empirically, we find that a sizable minority of managers are able to cover their costs and generate large alphas. However, there is weak statistical evidence of managers’ skills once withinstrategy common variation in returns is taken into account.
    Keywords: cryptocurrency; investments; active management; alternative investments; boot-strap methods; bitcoin;
    JEL: G12 G17 E44 C58
    Date: 2020–09
  7. By: Rakshit Jha; Mattijs De Paepe; Samuel Holt; James West; Shaun Ng
    Abstract: This paper shows that temporal CNNs accurately predict bitcoin spot price movements from limit order book data. On a 2 second prediction time horizon we achieve 71\% walk-forward accuracy on the popular cryptocurrency exchange coinbase. Our model can be trained in less than a day on commodity GPUs which could be installed into colocation centers allowing for model sync with existing faster orderbook prediction models. We provide source code and data at rderbook.
    Date: 2020–10
  8. By: Merrick Wang
    Abstract: The purpose of this paper is to review the concept of cryptocurrencies in our economy. First, Bitcoin and alternative cryptocurrencies' histories are analyzed. We then study the implementation of Bitcoin in the airline and real estate industries. Our study finds that many Bitcoin companies partner with airlines in order to decrease processing times, to provide ease of access for spending in international airports, and to reduce fees on foreign exchanges for fuel expenses, maintenance, and flight operations. Bitcoin transactions have occurred in the real estate industry, but many businesses are concerned with Bitcoin's potential interference with the U.S. government and its high volatility. As Bitcoin's price has been growing rapidly, we assessed Bitcoin's real value; Bitcoin derives value from its scarcity, utility, and public trust. In the conclusion, we discuss Bitcoin's future and conclude that Bitcoin may change from a short-term profit investment to a more steady industry as we identify Bitcoin with the "greater fool theory", and as the number of available Bitcoins to be mined dwindles and technology becomes more expensive.
    Date: 2020–10
  9. By: Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Chunxiao Li
    Abstract: Using proprietary data from Alibaba, we examine how the 2015 Food Safety Law (FSL) affects e-commerce in China. The FSL requires most food sellers on e-commerce platforms to obtain a valid, online license for retail food handling. Because the FSL was rolled out progressively, we have a rare opportunity to observe a gradual transition from voluntary certification to partial licensing and mandatory licensing. Data summary shows that, conditional on sellers with valid licensing information, those that had a better online reputation and more online food sales before FSL tend to display their FSL license earlier on the platform, and buyers are more willing to transact with a seller after she displays her FSL license. To identify the causal impact of the FSL, we compare food and non-food categories via synthetic control matching. We find the average quality of surviving food sellers has improved after partial and mandatory licensing, partly because those who are unwilling to obtain the FSL license must exit the platform. Despite an increase in seller concentration, the platform's gross merchandise value (GMV) in the food category did not decline post FSL, nor did the average sales price increase significantly one year into full enforcement of the FSL.
    JEL: D82 K23 L5 L81
    Date: 2020–10
  10. By: Asongu, Simplice
    Abstract: This study extends the literature on fighting software piracy by investigating how Intellectual Property Rights (IPRs) regimes interact with technology to mitigate software piracy when existing levels of piracy are considered. Two technology metrics (internet penetration rate and number of PC users) and six IPRs mechanisms (constitution, IPR law, main IP laws, WIPO Treaties, bilateral treaties and multilateral treaties) are used in the empirical analysis. The statistical evidence is based on: (i) a panel of 99 countries for the period 1994-2010 and (ii) interactive contemporary and non-contemporary Quantile regressions.The findings show that the relevance of IPR channels in the fight against software piracy is noticeably contingent on the existing levels of technology embodied in the pirated software. There is a twofold policy interest for involving modern estimation techniques such as interactive Quantile regressions. First, it uncovers that the impact of IPR systems on software piracy may differ depending on the nature of technologies used. Second, the success of initiatives to combat software piracy is contingent on existing levels of the piracy problem. Therefore, policies should be designed differently across nations with high-, intermediate- and low-levels of software piracy.
    Keywords: Piracy; Business Software; Software piracy; Intellectual Property Rights
    JEL: F42 K42 O34 O38 O57
    Date: 2020–01
  11. By: Asongu, Simplice; Odhiambo, Nicholas
    Abstract: This study investigates the relationship between social media and inclusive human development in 49 African countries for the year 2012. Social media is measured with Facebook penetration whereas inclusive human development is proxied by the inequality- adjusted human development index. The empirical evidence is based on Ordinary Least Squares, Tobit and Quantile regressions. Ordinary Least Squares provided baseline results, Tobit regressions account for the limited range in the outcome variable while Quantile regressions are engaged to control for initial levels of inequality-adjusted human development. From Ordinary Least Squares and Tobit results, Facebook penetration is positively associated with inclusive human development. Quantile regressions confirm this positive nexus and further establish that the positive association is slightly higher in magnitude in the above-median sub-sample. From a comparative assessment, it is apparent that with the exception of the resource-wealth sub-samples, higher levels of Facebook penetration are associated with comparatively higher levels of inclusive human development. Accordingly, the positive association between Facebook penetration and inclusive human development is: (i) a positive function of income levels and (ii) more apparent in Middle East and North African countries (compared to Sub-Saharan African countries), English common law countries (compared to their French civil law counterparts), and coastal countries (in relation to landlocked countries).
    Keywords: Social Media; Inclusive development; Income levels; Regions
    JEL: D74 D83 O30
    Date: 2020–01
  12. By: Zanfrillo, Alicia Inés; Artola, María Antonia
    Abstract: La rápida penetración de las tecnologías móviles en el ámbito de la salud posicionó a estos dispositivos como protagonistas de una variedad de innovaciones que facilitaron el acceso a información sanitaria y la gestión de prestaciones médicas. La implementación de herramientas tecnológicas conllevó oportunidades en el desarrollo de nuevos modelos de atención, como el de la salud móvil o mHealth, que promovieron eficiencia de servicios, disminución de costos y ampliación de los canales de comunicación. Pese a estos beneficios, en los países en desarrollo estas tecnologías aún no alcanzaron su plena difusión, con una oferta de servicios básicos que trasladaron el modelo de atención presencial al espacio virtual. El propósito del trabajo consistió en describir las características de las aplicaciones móviles de las organizaciones de seguridad social radicadas en el Partido de General Pueyrredon (República Argentina). Se adoptó una investigación cuantitativa de tipo descriptiva con técnica de análisis de contenido sobre las características de las aplicaciones registradas en plataformas de distribución digital. La investigación permitió reconocer un reducido número de entidades con aplicaciones móviles, basadas mayoritariamente en la provisión de información unidireccional y limitada interacción con la entidad para facilitar un mayor uso de tecnologías y la adopción de estilos de vida saludables.
    Keywords: Telefonía Móvil; Salud; Seguridad Social; Tecnologías de la Información y las Comunicaciones;
    Date: 2020–04
  13. By: Tröster, Bernhard
    Abstract: With the rising public awareness of poor social and environmental production conditions in many global value chains (GVCs), the pressure for more transparency and traceability is growing. Applications of distributed ledgers (DL) technologies such as blockchains are seen as a key solution in this context. These technologies enable the collection, recording and sharing of the information about physical transactions and related metadata in a tamperresistant way, without the control of a central actor. This briefing paper presents the basic concepts behind the DL and blockchain technologies and discusses the opportunities and limits of these applications in the context of GVCs. The challenges are due more to power asymmetries in the value chains than to technical issues. Thus, most DL applications could only be tools to bring existing sustainable conditions in GVCs to the fore as long as chain governance and the lack of legal frameworks remain as the main obstacles to extending sustainability in GVCs.
    Keywords: Global Value Chains,Governance,Sustainability,Commodities,Blockchain,Distributed Ledgers
    Date: 2020
  14. By: Maldonado, Eric
    Abstract: As technology continues to innovate at lightning speeds and technology becomes more central to everyday life, personal data must be protected. In 2017, the passage of the General Data Protection Regulation (GDPR) in the European Union set an important precedent in the world of data protection law. Building upon the Data Protection Directive (95/46/EC), the GDPR has taken the fundamental right to privacy and extended it to the transmission of personal data. The United States of America, however, offers no such protection at the federal level - the right to privacy within the U.S. is not absolute. This article will comparatively present the pattern of case law and legislation in the EU that led to the General Data Protection Regulation, and then the pattern of case law and legislation leading to data protection law(s) in the United States of America. The contrasting degrees of protection within the two regimes is a large discrepancy; the collection and transmission of personal data is protected by law in the EU and the US differs to such a degree that companies like Facebook, have had to drastically alter their services in Europe to comply with the stringent requirements of the GDPR. The paper continues on to addresses how personal data protection is being addressed by lawmakers vis-à-vis competition law and anti-trust regulation in the EU. While it may be difficult for the United States to develop a sweeping, federal-level piece of legislation like the GDPR, the increasing success of laws protecting personal data vis-à-vis competition law points to an area in which the U.S. and the E.U. can more easily harmonize their laws and protections. Finally, the paper offers a comment on the future of the transatlantic relationship and the role data protection law could play in strengthening that relationship.
    Keywords: data protection,GDPR,privacy,fundamental right,competition,policy,transatlantic,USA,Europe,regulation,directive,Schrems,Safe Harbor,coordination,technology
    Date: 2020
  15. By: Michael B\"ucker; Gero Szepannek; Alicja Gosiewska; Przemyslaw Biecek
    Abstract: A major requirement for credit scoring models is to provide a maximally accurate risk prediction. Additionally, regulators demand these models to be transparent and auditable. Thus, in credit scoring, very simple predictive models such as logistic regression or decision trees are still widely used and the superior predictive power of modern machine learning algorithms cannot be fully leveraged. Significant potential is therefore missed, leading to higher reserves or more credit defaults. This paper works out different dimensions that have to be considered for making credit scoring models understandable and presents a framework for making ``black box'' machine learning models transparent, auditable and explainable. Following this framework, we present an overview of techniques, demonstrate how they can be applied in credit scoring and how results compare to the interpretability of score cards. A real world case study shows that a comparable degree of interpretability can be achieved while machine learning techniques keep their ability to improve predictive power.
    Date: 2020–09
  16. By: Breithaupt, Patrick; Kesler, Reinhold; Niebel, Thomas; Rammer, Christian
    Abstract: Knowledge-based capital is a key factor for productivity growth. Over the past 15 years, it has been increasingly recognised that knowledge-based capital comprises much more than technological knowledge and that these other components are essential for understanding productivity developments and competitiveness of both firms and economies. We develop selected indicators for knowledge-based capital, often denoted as intangible capital, on the basis of publicly available data from online platforms. These indicators based on data from Facebook and the employer branding and review platform Kununu are compared by OLS regressions with firm-level survey data from the Mannheim Innovation Panel (MIP). All regressions show a positive and significant relationship between survey-based firm-level expenditures for marketing and on-the-job training and the respective information stemming from the online platforms. We therefore explore the possibility of predicting brand equity and firm-specific human capital with machine learning methods.
    Keywords: Web Scraping,Knowledge-Based Capital,Intangibles
    JEL: C81 E22 O30
    Date: 2020
  17. By: Nektarios Aslanidis; Aurelio F. Bariviera; Alejandro Perez-Laborda
    Abstract: This paper studies the dynamic market linkages among cryptocurrencies during August 2015 - July 2020 and finds a substantial increase in market linkages for both returns and volatilities. We use different methodologies to check the different aspects of market linkages. Financial and regulatory implications are discussed.
    Date: 2020–09
  18. By: de Cornière, Alexandre; Sarvary, Miklos
    Abstract: The growing influence of internet platforms acting as content aggregators is one of the most important challenges facing the media industry. We develop a simple model to understand the impact of third-party content bundling by a social platform that has a monopoly on showing user-generated content to consumers. In our model consumers can access news either directly through a newspaper’s website, or indirectly through a platform, which also offers social content. We show that content bundling, when unilaterally implemented by the platform, tends to harm publishers and to increase the dispersion of quality across outlets. News quality is more likely to increase with content bundling when the cost of providing quality is low, and when competition among publishers is strong. When content bundling follows an agreement between the platform and publisher, its effects are reversed, as publishers’ profits go up while quality dispersion goes down. In a setup with heterogeneous consumers, we also show that the platform’s ability to personalize the mix of content it shows to users induces publishers to invest more in the quality of their content.
    Date: 2020–10–02
  19. By: Daniel Perez; Sam M. Werner; Jiahua Xu; Benjamin Livshits
    Abstract: The trustless nature of permissionless blockchains renders overcollateralization a key safety component relied upon by decentralized finance (DeFi) protocols. Nonetheless, factors such as price volatility may undermine this mechanism. In order to protect protocols from suffering losses, undercollateralized positions can be \textit{liquidated}. In this paper, we present the first in-depth empirical analysis of liquidations on protocols for loanable funds (PLFs). We examine Compound, one of the most widely used PLFs, for a period starting from its conception to September 2020. We analyze participants' behavior and risk-appetite in particular, to elucidate recent developments in the dynamics of the protocol. Furthermore, we assess how this has changed with a modification in Compound's incentive structure and show that variations of only 3% in an asset's price can result in over 10m USD becoming liquidable. To further understand the implications of this, we investigate the efficiency of liquidators. We find that liquidators' efficiency has improved significantly over time, with currently over 70% of liquidable positions being immediately liquidated. Lastly, we provide a discussion on how a false sense of security fostered by a misconception of the stability of non-custodial stablecoins, increases the overall liquidation risk faced by Compound participants.
    Date: 2020–09
  20. By: Jaeger, Lena-Christin; Höhler Julia
    Keywords: Consumer/Household Economics, Marketing
    Date: 2020–09–18
  21. By: Quinn, William; Turner, John D.
    Abstract: Bubbles have become ubiquitous. This ubiquity has stimulated research over the past three decades into bubbles in history. In this article, we provide a systematic overview of research into historical bubbles. Our analysis reveals that there is no coherent approach to the study of bubbles and much of the debate has unhelpfully focussed on the rationality/irrationality dichotomy. We then suggest a new framework for the study of historical bubbles, which helps us understand the causes of bubbles and their economic consequences. We conclude by suggesting ways in which business history can contribute to the study of historical bubbles.
    Keywords: Bubbles,Business History,Speculation
    JEL: G01 G10 N10 N20 N80
    Date: 2020

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