Cryptocurrency Portfolio Selection A Multicriteria Approach

Although the time complexity of the Bitcoin method is O(n) , it can not guarantee that method can find solution that is close enough to the optimal solution. With n getting larger, the Bitcoin method will become more challenging to find a solution. The UTXO sets used in each set of simulations are shown in column 1 in both Tables 1 and 2, and the experimental rounds m in each set are shown in column 2. For each round, we randomly selected a set of UTXOs and set the target as the sum of their values. Ideally, the distance between UTXOs selected by the algorithm and the target is 0. There may be multiple miners who are trying to generate a block concurrently.

• In order to build a transaction in cryptocurrencies using UTXO model, the user or wallet must select a certain set of UTXOs from the account as the transaction input.
• Suppose someone tries to pretend he is a beneficiary and generates an unlocking script with his private key.
• Based on these modeling scenarios, “we are able to predict the subset of the most widely adopted crypto assets and their features,” the study says.
• Designing an appropriate coin selection algorithm should consider utilizing dust, ensuring user privacy, accounting for specific user requirements as well as the transaction fee.

Analysis of the Bitcoin UTXO Set

A transaction with a lock time can be included in a block if the block height or the current time reaches the lock time requirement of the transaction. Otherwise, the miner will not include this transaction in the current block 5. After the greedy algorithm is run, each UTXO selected has a large amount because small UTXOs were excluded, which suppresses the utility of the low-value UTXOs. However, the genetic algorithm makes use of the lower value UTXOs regurgitating the suppressed small UTXOs from the greedy algorithm. Besides, because the initial value of best is set to the result obtained by the greedy algorithm, the final result must be the result of the greedy algorithm or a better result than the greedy algorithm.

Discussion and Interpretation of Results

However, the proposed method is applicable to all blockchain applications that employs the UTXO transaction model and includes an amount field in the transaction. Although, transactions generated using this method cannot guarantee the lowest possible transaction fees, it does not produce excessively high transaction fees. The algorithm described in this paper is mature and has established accountability and hence why it is essential to illustrate the feasibility of this method.

Specific steps to select UTXOs by greedy algorithm and genetic algorithm

The number of transactions is directly proportional to the size of the block 13. In Bitcoin, a block is a storage unit used to publicly store several transactions permanently. Generating a block is considered as mining, which is a process of packing transactions into blocks and finding a random number that solves a cryptographic problem. Consumers regularly study investigates crypto selection choose books, music, travel destinations and other activities based on recommendations by many people on e-commerce or social media platforms. The annual event, held online this year, allows finance practitioners to interact with academic researchers.

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Suppose someone tries to pretend he is a beneficiary and generates an unlocking script with his private key. In that case, the miner will find that the unlocking script does not match the locking script when the signature verification is performed and can discard the transaction 8. These various crypto assets have different electronic sharing protocols and other technological features, as well as varying governance solution such as private versus open access to the ledger. For the second experiment, we used the sample of UTXO set taken on October 1st of 2019 available on GitHub 19, we ran 1000 rounds of simulations.

Conclusions and Future Research

A study co-authored by Dr Andrei Kirilenko of Cambridge Judge Business School, presented at a recent CERF in the City event, develops an app-based recommendation framework for investor adoption of crypto assets. Study co-authored by Dr Andrei Kirilenko of Cambridge Judge Business School, presented at CERF in the City event, develops app-based recommendation framework for investor adoption of crypto assets. Every Bitcoin transaction has a transaction hash which is calculated for the entire transaction content by Secure Hash Algorithm-256 (SHA-256). Transaction hash is also called transaction ID, and the size of the hash is 32 bytes. The UTXO as transaction input is indicated by the hash value of the referenced transaction and the index, which occupies 4 bytes of the UTXO in the transaction output. The sequence field is used to indicate the relative lock-time for this input, and it occupies 4 bytes.

• These various crypto assets have different electronic sharing protocols and other technological features, as well as varying governance solution such as private versus open access to the ledger.
• For each 100 rounds we compared the minimum, maximum, and average number of dust in each wallet to demonstrate the performance of the respective coin selection methods.
• The most applied coin selection method that UTXO-based cryptocurrencies currently employ is an algorithm that decides on a certain set of UTXOs that matches the target amount and limits the transaction fee.
• The algorithm described in this paper is mature and has established accountability and hence why it is essential to illustrate the feasibility of this method.

Additionally, the outstanding result of the methods variance of distance showcases its stability. 10 and 11, visualizes the performance of all three methods and exhibits the distinguished performance of our proposed method in a vertical comparison. When a user needs to generate a transaction, the Bitcoin core will use its own strategy to select the set of UTXOs in the user’s account 4.

Where \( V_i \) is the value of ith transaction input in this transaction, \( A_i \) is the age of ith transaction input in this transaction, and \(S_t\) is the size of this transaction. 4, a block consists of a magic number, block size, block header and transactions, and the size of the first three fields is fixed. For example, Bitcoin requires that the size of a block be less than or equal to 1 MB, and the block header occupies 80 bytes. Since every transaction is recorded in the block, the transaction size affects the number of transactions that the block can accommodate 9,10,11,12.

With the development of Bitcoin, large transaction arrival rates have occasionally been observed. Bitcoin’s block cannot accommodate all of them due to the limitation that the size of a block cannot exceed 1 MB 3. The wallet in UTXO-based cryptocurrencies manages several UTXOs owned by the specific accounts. When the owner of a wallet wants to accomplish a transaction, the wallet will use their own coin selection method to choose a certain set of UTXOs to fund this transaction. The paper 4 discusses in detail dust in UTXO-based cryptocurrencies namely Bitcoin, Bitcoin Cash, and Litecoin. Their work demonstrates the importance of designing appropriate coin selection methods as the current state of such cryptocurrency networks faces an imminent threat of dust.