How Do Cryptocurrencies Differ

Kai Rohde, Jan Heinrich Beinke

In: Hans-Gert Penzel (editor). Banking and Information Technology (BIT) 2 Pages 39-48 Ibi Research 2021.


The scientific literature has recently pointed out the weaknesses of classic cryptocurrencies (e.g. Bitcoin) such as high volatility. The opinion that these cryptocurrencies are not „currencies“ or „money“ in the actual sense but rather investment assets have become generally accepted. Therefore, stablecoins (e.g. Tether) have been developed by the private sector, which shall overcome the weaknesses and are actually to be used as money. Moreover, these stablecoins are also used as a bridge between cryptocurrencies and fiat money. We analyze by using a clustering algorithm which cryptocurrencies provide financial stability and form a homogenous cluster. For this purpose, we examine different financial indicators and technical properties of cryptocurrencies. If we only consider financial data, volatility is the decisive factor for a grouping. If we consider technical aspects, these clearly come to the fore and the properties of (1) being built on a separate blockchain, (2) being a centralized coin and (3) being implemented in open source code are essential features of financially stable cryptocurrencies.

German Research Center for Artificial Intelligence
Deutsches Forschungszentrum für Künstliche Intelligenz