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Using Benford’s Law to Detect Bitcoin Manipulation

statmodeling.stat.columbia.edu

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Re: Using Benford’s Law to Detect Bitcoin Manipulation

#21

Post by fluidcruft »

qPM9l3XJrF wrote: post #10

I don't buy it. My intuition here is that Benford's law is a thing because for pretty much any statistical distribution, large numbers are less likely than small numbers, and small numbers are more likely to start with 1. But I'd only expect this effect to show up when aggregating across many different statistical distributions (e.g. looking at all stocks in the S&P 500 at once) rather than looking at individual dist…

I don't really know anything about this but every time I read these analyses using Benford's Law I don't understand why anyone would expect Bitcoin's exchange rate to begin with the digit "1" ~30% of the time. Once you're not talking about human-guestimated numbers, it seems more like a question of scale factors. If bitcoin's value fluctuates between 30k and 70k it's never going to start with a "1". Or if its value fluctuates between 120k and 180k then it's always going to start with "1". That's where I struggle trying to understand how Benford's Law is supposed to provide any insight.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#22

Post by casi »

louwrentius wrote: post #2

Frankly, I can’t judge the merits of this article because I lack the knowledge required. But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments”. [1] They are in every way totally irrelevant and detrimental to society. Governments are unfortunately slow to crack down on the exchanges, although progress is being made. And that effort is essential to battle the cancer that is the ra…

I equally find it strange that people continue to come to hackernews- the Silicon Valley VC startup land - and can’t grasp that the infrastructure for programmable money might have some value. And write off p2p communication and coordination tools as zero-sum/ fraudulent games. And then wish for the government to ban other people’s jobs and hobby’s and communities because they don’t like it.

Blows my mind that people might spend their day coding, and night playing mmorpgs, and still not understand crypto. I guess we need better UX and storytellers.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#23

Post by mumblemumble »

dannyw wrote: post #7

What is the statistical likelihood of this appearing by chance? Note that 2014 to today isn't actually that long of a timeframe, as prices in a time-series are highly linked to the previous data point. Berkshire Hathaway has been trading for several decades; so that's 40 years of data; as compared to 7 years of data. yet the author, by using the same charts, seems to falsely imply that these are remotely comparable.…

The author at statsmodeling.stat.columbia.edu is the person who wrote several of the books on things like this. I don't think he can be finger-wagged away quite so easily as that.

There's a huge difference between this and the election one, which is that this one is working with data that satisfies the key statistical assumptions needed to properly apply Benford's Law, and the QAnon elections rigged claims didn't. (Or at least the ones I know about offhand - I don't use Benford's Law at work, so this is not really my area of expertise.)

The big one you need to look for is that the variable spans multiple orders of magnitude.

Berkshire Hathaway going back to 1980 spans three orders of magnitude, so we're good there. Note that we could not use Benford's Law to look at BRK going back only 7 years, but that is not because it's not enough data. It's because that would cover only 1/4 of an order of magnitude.

BTC going back 7 years is also decent. It's not quite as good - only spanning two orders of magnitude - but it's enough that we would expect Benford's Law to apply better than it does in this graph.

By contrast, a lot of the cases where people thought they were using Benford's Law to uncover electoral fraud, the data only covered a small fraction of an order of magnitude. It's just silly to expect 1 to be the most common leading digit in a set of data that's constrained to the range [300, 600].

I don't know that this is compelling evidence of fraud or manipulation in BTC, but it at least seems like clear evidence that BTC doesn't behave like other securities. There's something unusual going on that merits further investigation. Perhaps it is just a shortcoming in the statistical model being used. But, since this isn't a big data conference, it's not sufficient to just keep hitting the "need more data" number until you finally get the number you want.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#24

Post by acover »

nobrains wrote: post #20
acover wrote: post #19

Earlier quoted context omitted.

Gold isn't even an inflation hedge in the scale of one's lifetime, why will Bitcoin be different?

Gold is an inflation hedge in many, many countries.

I'm not an expert, I am referring to the following. Am I misunderstandibg something?

> due to its real-price volatility, gold had not been a good inflation hedge over the short- or long-term.

They did find that, going back to the era of Emperor Augustus who reigned from 27 BC–14 AD, gold had been a pretty good hedge for inflation measured by military pay. So, if you have a liability due in 2,000 years, gold might be a good way to maintain your purchasing power.

https://www.pwlcapital.com/will-gold-save-the-day/

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#25

Post by MichaelBurge »

louwrentius wrote: post #2

Frankly, I can’t judge the merits of this article because I lack the knowledge required. But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments”. [1] They are in every way totally irrelevant and detrimental to society. Governments are unfortunately slow to crack down on the exchanges, although progress is being made. And that effort is essential to battle the cancer that is the ra…

I tend to agree, but this rant has nothing to do with using Benford's law to detect Bitcoin manipulation.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#26

Post by z3c0 »

casi wrote: post #22
louwrentius wrote: post #2

Frankly, I can’t judge the merits of this article because I lack the knowledge required. But I think at this point we know that all cryptocurrencies are ‘greater fool’ “investments”. [1] They are in every way totally irrelevant and detrimental to society. Governments are unfortunately slow to crack down on the exchanges, although progress is being made. And that effort is essential to battle the cancer that is the ra…

I equally find it strange that people continue to come to hackernews- the Silicon Valley VC startup land - and can’t grasp that the infrastructure for programmable money might have some value. And write off p2p communication and coordination tools as zero-sum/ fraudulent games. And then wish for the government to ban other people’s jobs and hobby’s and communities because they don’t like it. Blows my mind that people…

To give the original commenter some credit, they did warn us that they lack knowledge on the subject.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#27

Post by randunel »

saivan wrote: post #9

Sorry for the shameless plug. I made a video about Benford's law a while ago for anybody wondering how we get these values https://www.youtube.com/watch?v=9hY43XpVr1I&ab_channel=Treen...

I suspect your "shameless plug" message is trying to draw attention away from the fact that you've added an adblock whitelisting query param to the url, presumably whitelisting ads from certain providers. This is more unethical than sharing tracking links in here.

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#28

Post by nootropicat »

xiphias2 wrote: post #13
louwrentius wrote: post #12

Earlier quoted context omitted.

I don’t think so. It’s quite simple: where do the profits come from? Other people, who by definition will lose money because crypto doesn’t create value. A large amount of people will hold the bags of worthless currencies while a few laugh their asses off in their lambo’s.

El Salvador's Bitcoin Beach project is a great example of people profiting from a debit based value network instead of a credit based financial system: even though both US and El Salvador had USD as the legal tender, it took $10 to remit $50 through the western union network. Lightning network (which is using Bitcoin as a settlement network) is both dramatically lowering the fees and provides instant debit transfer f…

LN isn't actually used - the way it actually works is: Strike holds dollars for the user. The user wants to send dollars to someone. Strike buys btc using dollars (from itself), sends btc via ln - to itself - and then sells btc for the same amount of dollars, again to itself, and credits the receiver. What's actually happening is that Strike is a normal payment provider like Paypal, Venmo, Revolut that fakes the btc transfer process because pretending to be only a btc wallet means less regulation than a full payment provider.

They don't actually spell it as directly - they just claim an absurdity that buying btc and then selling btc is somehow cheaper than a direct transfer, which of course is impossible because it means taking the ask and then selling into the bid, and the actual spread on most liquid btc markets can be observed on biggest exchanges like Coinbase or Binance, and that's ignoring the fact that one part of the exchange is supposed to happen in a local illiquid market in El Salvador.

The whole thing would be less convoluted if stablecoin tokens were sent directly using a payment channel without a fake trade step - using btc is a completely pointless for anything but marketing (Strike to btc holders and marketing btc itself).

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#29

Post by dmurray »

randunel wrote: post #27
saivan wrote: post #9

Sorry for the shameless plug. I made a video about Benford's law a while ago for anybody wondering how we get these values https://www.youtube.com/watch?v=9hY43XpVr1I&ab_channel=Treen...

I suspect your "shameless plug" message is trying to draw attention away from the fact that you've added an adblock whitelisting query param to the url, presumably whitelisting ads from certain providers. This is more unethical than sharing tracking links in here.

Good spot, but I think this happens by accident rather than by design. If you have AdBlock Plus, and chose some option to allow YouTube ads on certain channels, it edits URLs to include this [0]. So @saivan may have just copied it from his browser's URL bar.

[0] https://support.google.com/youtube/thread/69037368/url-chang...

Re: Using Benford’s Law to Detect Bitcoin Manipulation

#30

Post by alisonkisk »

dannyw wrote: post #7

What is the statistical likelihood of this appearing by chance? Note that 2014 to today isn't actually that long of a timeframe, as prices in a time-series are highly linked to the previous data point. Berkshire Hathaway has been trading for several decades; so that's 40 years of data; as compared to 7 years of data. yet the author, by using the same charts, seems to falsely imply that these are remotely comparable.…

It always amazes me how people will confidently broadcast their arrogant ignorance in comments like like this.
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