Tag: research

A Research Establishes a Relationship Between Activities in Bitcoin Forum and the Changes on the Price of Bitcoins.

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Recently a study conducted in South Korea found out that forum comments can be used to predict the variations in the price of Bitcoins to an accuracy of over 80%. The research paper is entitled “When Bitcoin encounters information in an online forum: Using text mining to analyze user opinions and predict value fluctuation”

The research paper was produced by five researchers from two universities in South Korea; Korea University and Kangnam University. The study which was supported by the Basic Science Research Program through the National Research Foundation of Korea (NRF) funded by the Ministry of Education, Science, ICT and Future Planning was also funded by the Korean government through the Institute for Information and Communication Technology promotion (IITP).

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On a brief of the research and its significance in predicting Bitcoin prices, the authors mentioned in the research that;

“In order to predict the price fluctuation of Bitcoin, we analyze the comments posted in the Bitcoin online forum. Our approach involved extracting keywords from Bitcoin-related user comments posted on the online forum with the aim of analytically predicting the price and extent of transaction fluctuation of the currency.”

What method of data collection and analysis was used in this Research?

The accuracy of the findings of a research depends to a big extent on the methods used for data collection and analysis. According to the authors, the method used involved data extraction, data gathering, data analysis and development of models. Models would be tested to simulate how the prediction process works. The research main data involved keywords of user comments in major bitcoin forums and number of bitcoin transaction against their corresponding prices. The study covered data collected for a period of three years from 2013 to 2016. The study whose data was analyzed by an artificial intelligent model established the relationship between Bitcoin transaction count and price based on the extracted keywords and quantification.

High level of accuracy:

The study produced models with very high levels of accuracy in relating bitcoin price trends with the trends of the activities happening in Bitcoin Forums. The authors found out that online user postings influenced Bitcoin transaction which affects Bitcoin prices in return. The authors said in a statement that,

“We analyzed the user comments posted on a Bitcoin online forum to predict the fluctuation in the bitcoin price and transaction count. Based on the easily accessible online data, the proposed method predicted the bitcoin price fluctuation with an accuracy rate of over 80%.”

Do the models apply for all digital currencies?

The researchers were so confident that their models can be applied to predict the price of any digital currency. However, they suggested ways for improving the accuracy of the results. The researchers mainly emphasized the use of quantitative analysis on the search results or relevant content. This kind of research can also be adapted in other fields apart from digital currencies.

 

Bank of Korea’s paper says cryptocurrencies and Fiat can develop symbiotic relationship

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South Korea’s Bitcoin adoption has been on the rise ever since Chinese exchanges stopped withdrawals. While Japan has truly eaten into the Chinese trading volumes, South Korea has secured the fifth spot in terms of trading currencies by volume. The central bank and the financial legislative committee of South Korea have decided to not only adopt cryptocurrencies but also launch a cryptocurrency of their own. While the country is taking a positive yet cautious approach towards digital currencies, they are diverting the good amount of effort in studying them in detail. The result of such research is the recent paper by the Central Bank of Korea that predicts how cryptocurrencies and Fiat currencies would go on to develop a symbiotic relationship. Let’s look into the details of the paper and how they are proposing this would happen:

How cryptocurrencies would be sought after:

 

Cryptocurrency Art Gallery by Namecoin via Attribution Engine. Licensed under CC BY.

The working draft submitted by the researchers from the Bank of Korea and Seoul’s Hongik University aims to identify factors that could drive the use of a blockchain-based currency over a government-issued one. The paper clearly highlights the cost-effectiveness of cryptocurrencies and point out that it would turn out to be an attractive positive for cross-border transfers. However, while the cryptocurrency’s flagship advantages are being identified as the key factors, we cannot completely rule out the advantages of fiat currencies.

The proposed symbiotic relationship:

The authors proposed that there would likely be a symbiotic relationship if cryptocurrencies like Bitcoin gain a wider user base and good levels of adoption. For example, when the cost of using one currency rises, the other is likely to fall thereby increasing the attractiveness of the other option. While in cases where factors like speed of transfer or any other factor that influences the priority of decisions, either of the currencies might take precedence depending upon the necessity.

The authors wrote:

“High costs of using fiat currency increase the demand for digital currency. Similarly, high costs of using digital currency relative to fiat currency raise the demand for fiat currency. In a world of imperfect currencies with uncertain costs associated with the use of a currency, it is unlikely that the relative costs of using digital currency will be low enough to drive out and accordingly crowd out fiat currency entirely.”

How the findings will assist central banks:

Most of the Central Banks are currently not in a position to regulate or monitor cryptocurrency as the impact of this sphere over the existing monetary system is something beyond speculation. However, the paper gives some insight into how we can expect the future dynamics of crypto and fiat currencies to shape up. The authors believe that the results of their paper can help shape up the future of a composite monetary system across the globe.

 

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