A new study carried out by ETH Zurich, Switzerland’s leading technology university, has found that the public perception of bitcoin is changing.
Rather than being a mysterious cryptocurrency for geeks or criminals, bitcoin has transformed into a much bigger phenomenon.
David Garcia, a postdoctoral fellow at the ETH Zurich Department of Systems Design, said the image of bitcoin has changed fundamentally:
“Previously bitcoins were something for hackers and computer nerds. Today hipsters pay for their drinks with it.”
The research paper, which is entitled ‘The Digital Traces of Bubbles: Feedback Cycles Between Socio-Economic Signals in the Bitcoin Economy’, looks at how the social dimensions of the users of bitcoin and their interactions with social media affect its price.
The authors say:
“Amidst the hype surrounding the cryptocurrency, it is difficult to recognize which factors participate in its growth and influence its value. Bitcoin’s decentralised structure, based on the contribution of its users rather than a central authority, implies that the dynamics of its economy may be strongly driven by social factors, which are composed of interactions between the actors of the market.”
Spikes in the data
Garcia and his colleagues examined the spikes in Google searches for bitcoin, and postulated that the increase in value was accelerated by online activity, especially social media.
To test their hypothesis the researchers analysed four different socioeconomic parameters: the development of the user base, price fluctuations, search trends and interactions on social media platforms like Twitter.
The researchers found strong correlations between price development, the number of new bitcoin users, Internet searches and tweets related to bitcoin. They also identified two positive feedback loops. In the first, the increased popularity led to growing demand, which in turn stimulated activity on social media. The second loop relates to the user base: the more users join the network, the higher the price.
However, there is also negative feedback: before a significant drop in prices, the level of activity on the Internet skyrockets. The researchers concluded that big changes in online and social media activities lead to major price fluctuations.
The power of the network
Garcia’s colleague and co-author Nicolas Perony sees great potential in the quantitative analysis of social phenomena.
“With digital currencies we can examine certain aspects of the economy which cannot be observed with cash,” said Perony. “That way we can better understand how the market really works.”
Perony argues that the same methodology can be applied to other areas of society, thanks to block-chain technology. He points out that the bitcoin network is 300 times more powerful than the 500 most powerful supercomputers combined.
“The big question is how one could use such a powerful system for collaborative activities that go beyond the production of money,” said Perony.
Perony believes it would be possible to use the system to manage ownership of certain goods or to help collaborative research efforts, as the network could be used to conduct research on various collaborative concepts.