Blockchain Mechanism and Distributional Characteristics of Cryptos

Abstract

We investigate the relationship between underlying blockchain mechanism of cryptocurren- cies 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 charac- teristics 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 distribu- tional 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 clus- ters 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 un- derstanding toward the connection between the blockchain protocol design and distributional characteristics of cryptos.