From code to market: Network of developers and correlated returns of cryptocurrencies

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Science Advances  16 Dec 2020:
Vol. 6, no. 51, eabd2204
DOI: 10.1126/sciadv.abd2204


“Code is law” is the founding principle of cryptocurrencies. The security, transferability, availability, and other properties of crypto-assets are determined by the code through which they are created. If code is open source, as is customary for cryptocurrencies, this would prevent manipulations and grant transparency to users and traders. However, this approach considers cryptocurrencies as isolated entities, neglecting possible connections between them. Here, we show that 4% of developers contribute to the code of more than one cryptocurrency and that the market reflects these cross-asset dependencies. In particular, we reveal that the first coding event linking two cryptocurrencies through a common developer leads to the synchronization of their returns. Our results identify a clear link between the collaborative development of cryptocurrencies and their market behavior. More broadly, they reveal a so-far overlooked systemic dimension for the transparency of code-based ecosystems that will be of interest for researchers, investors, and regulators.

This is an open-access article distributed under the terms of the Creative Commons Attribution-NonCommercial license, which permits use, distribution, and reproduction in any medium, so long as the resultant use is not for commercial advantage and provided the original work is properly cited.

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