INTRODUCTION
Research background and problem statement
Bitcoin is a digital currency introduced in 2008 by a person called “Satoshi Nakamoto” It’s an open network which allows online payment to be sent directly without a third party, transactions follow a public ledger called blockchain (Nakamoto, 2008) Nowadays, Bitcoin becomes the most widely used and accepted the digital currency Moreover, Bitcoin is considered as the financial products associated with technology but outside of the scope of this research This thesis only deals with Bitcoin at economic approach
Bitcoin users in Vietnam included three main players: investors, Bitcoin miners and businesses that accept exchange in Bitcoins have grown rapidly, from 30,000 users in 2016 to 60,000 in 2017 and about 300,000 users in 2018 In this context, currently, Bitcoin miners, users and businesses cooperate together to build a sustainable community However, in some cases of conflict of interest, many users have lost money and caused adverse impacts on Bitcoin and social awareness of Bitcoin
In this situation, regulatory authorities have cautioned about the risks related to Bitcoin, as well as the risk of using virtual currency for criminal activity because virtual currency is anonymous, decentralized, and not subject to management of any organization Investment activities, buying and selling virtual money, mobilizing capital through issuing virtual money (ICO), especially using virtual money by multi- level marketing is more and more complicated, threatening to affect financial markets, and can cause huge risks for participating organizations and individuals
It is difficult for investors to recover money because the regulation on Bitcoin has not yet been released When Bitcoin users cooperate together, they must protect their assets and take risks by themselves So Vietnam government need to legitimize Bitcoin in the current Vietnamese context Besides, policies that directly affect stakeholders will also reduce frauds and have a better understanding of Bitcoin These policies not only will benefit and protect Bitcoin stakeholders but also help to promote innovation technology in Vietnam.
Research rationale
The rationale behind this topic is to consider legalization of Bitcoin which can be used for effective regulation of Bitcoin community; apply Game theory model to calculate reasonable cost in case of price fluctuation The findings suggest that if we manage Bitcoin’s system to reduce its cost practices, the rate of loss of the users and the amount of money in exchange market could be in the acceptable range
With the background and problem statement mentioned above, this study has aimed to clarify characteristics and mechanisms of Bitcoin market; and suggest solutions and policies to incentivize individuals’ contribution and maximize benefits to the society in Vietnam.
Research questions
Based on research problem, the main research question is:
How can Bitcoin be regulated while harmonizing the interests of stakeholders by applying Bitcoin cost sharing model in Vietnam?
Moreover, some other sub-questions also can be answered in this study:
What is the Bitcoin’s characteristics and how is Bitcoin obtained?
How about legal and regulatory issues of Bitcoin in Vietnam and in the world?
How the Bitcoin cost allocation can be solved using cooperative game theory and which solutions can be used to get consensus between stakeholders?
Which policies should recommend to manage Bitcoin community in Vietnam?
Research methodology and design
In order to clarify problem, this research employed both qualitative research and cooperative game theory This thesis firstly provides a conceptual framework of Bitcoin in Vietnam and around the world From this analysis, it is possible to examine stakeholders For these purposes, original models which can describe the interaction between Bitcoin stakeholders and the cost sharing of Bitcoin is developed With qualitative instrument, the secondary data is gathered from policies, documents of the government, company, news and media video
Quantitative method will enable results of game theory model, discussion and comparative analysis The data of Bitcoin price will be collected from official exchange market, price of mining Bitcoin in Vietnam according to the analytical publication Elite Fixtures The costs and utility in the coalitions are stated, after that the solutions concepts also calculated and analyzed in each situation
This research is organized into five main chapters After the introduction, the study will establish the theoretical framework in which, we provide a literature review and define important concepts After which, the thesis will discuss the methodological approach for the research and explain the cooperative game theory concepts and solution methods In chapter four, the results will be calculated in two main periods and compared to non-cooperative situation Lastly, policy recommendations will be suggested based on situation and findings of this research.
Research limitation
The main limitation is a simple case study, which works purely in the information
Also, this study cannot to conduct a full empirical analysis Moreover, this research also need to analyze the ability to leave the grand coalition of players in the different situation.
LITERATURE REVIEW
The characteristics of Bitcoin
Bitcoin is new phenomenon, so that many papers explained the Bitcoin characteristics
Bitcoin is the first decentralized cryptocurrency, its transaction cannot be forged and the amount of Bitcoin is limited (Nakamoto, 2008) This first document published by Satoshi Nakamoto describe how the Bitcoin network works
Bitcoin have many advantages (Mirzayi, 2017) It eliminates transaction costs, is safer than cash, harder to fake than fiat currency The potential of Bitcoin outweighs the threats (Alcorn, Eagke, & Ethan, 2014), however Bitcoin users also need to know more detailed about the risks that can happen It is not accidental that many financial experts oppose Bitcoin, many countries banned Bitcoin, some countries accept Bitcoin like Japan and Canada but are extremely cautious The use of Bitcoin is a medium for illegal activities to transmit proceeds locally or globally (Bryans, 2014)
The difficult of definition Bitcoin’s value make many users lose money when they speculate Bitcoin or invest to scam projects Therefore, regulators and investigators struggled with Bitcoin and the problems associated with this new form of electronic value transfer system (Ajello, 2015)
Bitcoin is an emerging technology based on complex technology In addition, Bitcoins are not regulated by a centralized agency till date, make them less reliable and it is difficult to evaluate Bitcoin value To invest in Bitcoin, users must believe in the Bitcoin security, trust any organizations involved, such as wallet services or exchange Bitcoin is considered as a speculation (Yermack, 2013) and Bitcoin value has the relationship with the number of search queries for its information on Google or Wikipedia (Kristoufek, 2015) So, the value of Bitcoin will increase when people pay more attention to Bitcoin and it is important condition to develop Bitcoin community
Bitcoin price fluctuates dramatically and depends substantially on public sentiment (Thies & Molnár, 2018) The large fluctuation has caused many economists to questions the viability of Bitcoin In December 2017, Bitcoin prices peaked at over
$ 20,000, and only a week later hit bottom at $ 10,000, which could cause huge losses for investors In January 2019, Bitcoin has lost about 80% value from its peak
Figure 2.1: The price of Bitcoin from April 2018 to April 2019
However, in 2018 and 2019, figure 2.1 shows that Bitcoin price have relatively stable periods From 6/2018 to 11/2018, the average price is about 6.5 thousand USD From 12/2018 to 4/2019, the average price is about 3.6 thousand USD
In order for Bitcoin to exist, form and exchange, it is necessary to focus on three factors: (1) Miners; (2) Businesses; (3) Investors Besides, in order to develop a flawless system, developers’ contribution is crucial They try to solve bottlenecks and threats, and develop methods to apply in the future
There are three ways to get Bitcoins when users join network (Murphy, Seitzinger, &
Elwell, 2015) First, users can obtain new Bitcoin by serving as miners Second, users can exchange money (e.g., dollars, yen and Vietnam dong) for a fee on exchange market (e.g., Remitano, Coinbase and Binance) by using credit card The exchange fee depends on the value of transaction Third, users can receive Bitcoin in exchange for the sale of goods or services with other businesses
Miners play a very important role in Bitcoin ecosystem, they secure integrity of coins and business model, as well as confirm the existence of Bitcoin in the network
Mining decentralization is crucial to keeping consensus between players and everyone’s Bitcoins safe Businesses are organizations which provide exchange service, make coins more accessible, increase adoption and face new regulation
Finally, investors are holders and users who affect the demand and supply of Bitcoin, they also create value circulating Bitcoin in the economy, more value creation and wider adoption
The term "Bitcoin mining" refers to individuals or organizations that use their devices to search for Bitcoin units to own and earn Bitcoin mining is worked by the specialized computer This process is the backbone of Bitcoin network The mining of Bitcoin based on Blockchain technology, it is easy to understand that all of these activities will be recognized by the global network of computers, so it is difficult to fake and steal because it is only recognized when both parties confirm the transaction to be considered valid
The region with the most mining pool is China, accounting for 81% of the global market share, the Czech Republic accounts for 10%, the rest are other regions (9%)
Profits from mining Bitcoin have prompted many people to buy excavators On the one hand, this situation raises concerns about the amount of energy consumed in this area, while the future of Bitcoin remains a mystery
On the other hand, it is the desire to maximize profits from mining, which has promoted the field of information technology to develop more to strengthen the system of excavators, and develop clean energy sector (like using solar power) to get the lowest energy consumption cost
The Asia-Pacific region accounts for the largest proportion of Bitcoin in the world (50%), followed by North America (Rauchs, 2017) Meanwhile, storing Bitcoin electronic wallet in Europe accounts for the largest proportion (42%), followed by North America (39%)
Bitcoin trading company provide services to buy, sell electronic currencies and other digital assets, exchange units are currencies in the world The exchange market plays a central role in the existence of electronic money, because it provides trading locations, creating liquidity as well as price setting mechanisms for these currencies
The first trading platform was established in 2010 (Mt Gox) to create a platform for investors of Bitcoin trading, so far, there have been hundreds of trading company established, can include some big businesses like Binance, Kraken, OKcoin, Coinbase, Huobi etc.
Bitcoin regulation in the world
The situation of Bitcoin in the world can be summarized in the figure 2.2:
Figure 2.2: Regulatory status of Bitcoins Worldwide in 2018
Source: https://coin.dance/poli
Figure 2.2 highlights Bitcoin regulation around the world Using color, a range of Bitcoin legacies shows different levels of acceptance around the world Firstly, green countries are legitimate Bitcoin markets, such as Canada, United States, Australia and etc Orange represents neutral markets that are not fully legalized Bitcoin, but there are some announcements regarding the use of electronic money Light pink countries with limited Bitcoin markets may have red tape, regulations and government efforts to slow down the use of electronic money The dark pink country represents the markets where Bitcoin has been made completely illegal and criminalized Finally, some countries have yet to comment on the legitimacy of Bitcoin, expressed in gray
Eastern countries seem to close with Bitcoin more than their Western counterparts
Russia is currently the largest country to legalize Bitcoin However, China and South Korea are the latest two countries to strengthen inspection and regulation of using Bitcoin This has led to a recent sell-off in the electronic money market, as China and South Korea are two important hotspots that have contributed a lot of liquidity to Bitcoin market
North America and Western Europe are the most accepting areas for Bitcoin The Middle East seems very divided on the topic of Bitcoin Interestingly, Iraq, Iran and Turkey are legitimate Bitcoin markets, while Afghanistan, Pakistan, Saudi Arabia and Egypt have different levels of restrictions on digital currency
There are 112 (45%) countries with unrestricted Bitcoin laws, out of 251 Nearly 8% of countries in the world, have limited or illegal Bitcoin 47% of the world has not yet commented on Bitcoin and the legality of its use in their countries This is a risk for Bitcoin, because some of these undecided countries may eventually decide to set restrictions on market
In general, most of the world has not yet commented on the legitimacy of Bitcoin
The emerging industry is still not fully understood by global managers, which may explain why some countries have not yet commented on this movement As time goes by, countries that remain on the sidelines will eventually come up with a set of rules for approving Bitcoin, or operating illegally Bitcoin increases the popularity level continues to exceed expectations, but not all countries will see electronic money in a favorable light
Table 2.1 demonstrates the way other country around the world regulate Bitcoin
According to statistics from Binance Company, there are five factors related to Bitcoin regulation: crypto exchanges, ICO, crypto payments, conversions from digital currencies to fiat currencies; and plan to increase cryptocurrency regulation
Table 2.1: The status of crypto asset regulations in the world
Are crypto exchanges banned, regulated or do they operate in a gray area?
Are ICOs banned, regulated or do they operate in a gray area?
Are conversions from virtual currencies to fiat currencies banned?
Is there any planned legislation to increase crypto regulation?
Source: data compiled by Bloomberg, released in March 26, 2019, updated by Binance
Table 2.1 shows that China and Indonesia is the most difficult country in crypto regulation Some countries have regulated Bitcoin and also planned increase policies in the future
From my research, in case of Vietnam, Bitcoin exchange market and ICOs still operate in gray area Bitcoin is considered as illegal payment and cannot convert to fiat currency However, Vietnam government also planned to regulate Bitcoin in 2019.
Bitcoin regulation in Vietnam
Legal framework related to Bitcoin
According to Clause 6, Article 6 of Decree No 101/2012 / ND-CP amended and supplemented by Decree No 80/2016 / ND-CP stipulating prohibited acts: “6 Issuing, supplying and using illegal payment instruments” Therefore, the supply and use of illegal payment instruments such as Bitcoin virtual currency is prohibited
Currently, the issuance, supply and use of Bitcoin as a method of payment can be handled for administrative violations with a fine of between VND 150 - 200 million as stipulated in Clause 6 Article 27 of Decree 96/2014 / ND-CP on administrative penalties in the field of currency and banking activities
In addition, acts of issuing, supplying and using illegal means of payment, including Bitcoin, will be subject to criminal prosecution in accordance with the provisions of Point h Clause 1 Article 206 Criminal Code 2015 was amended and supplemented in
Moreover, on 11 April 2018, the Prime Minister issued Directive 10 / CT-TTg in
2018 to strengthen management of activities related to Bitcoin
Vietnam Still Undecided About Cryptocurrencies
Vietnamese authorities are still delay the released documents to regulating Bitcoin
The Ministry of Justice of Vietnam has submitted a report to the government with an assessment of the current law and assessment of business activities related to digital money in Vietnam
The report proposes three alternative policies to be applied in different regions of the world The first approach, which is referred to as “Floating”, involves implementing a relatively loose regulatory regime The second option is called “Prohibition”, and the third is legalizing digital asset transactions under clear conditions
The relevant ministries and departments will establish an appropriate legal framework for managing Bitcoin This regulation should balance the risks and potentials related to Bitcoin to ensure that investors benefit from it and support the development of electronic money technology in general
Trade Ministry banned on imports of mining equipment
Electronic money mining has become a source of income for many Vietnamese companies and citizens, but the digital money mining business is not really popular with the Vietnamese government In 2018, the Ministry of Finance proposed to suspend the import of mining equipment - measures that the State Bank of Vietnam and the Ministry of Public Security supported According to statistics from the General Department of Vietnam Customs, more than 27,000 mining components were imported into Vietnam in 2017 and over 15,000 in the first five months of 2018
Digital currency has arrived in Vietnam when some services in Ho Chi Minh City start paying with Bitcoin ATM Bitcoin has been installed in this city, allowing users to withdraw cash and buy electronic money (Nguyen, T.N.Y, 2017)
Vietnamese people are one of the most active electronic money users, especially bitcoin, along with Japan and Korea Data from SimilarWeb in 2017 shows that Vietnamese investors are ranked top of Remitano exchange market, and second on CoinMarketCap.com and Bittrex platform
The reasons why Vietnam government do not accept Bitcoin as a payment method
First, Bitcoin is not currency and cannot be considered as money because the money must be made by the central bank Fluctuations of money affect the balance of payments, commodity prices as well as other currencies However, Bitcoin do not have the above characteristics
Second, the level of risk is high According to research by private company ICO Satis Group, it is estimated that in 2017, approximately 78% of ICO projects are frauds, 4% fail, 3% are dead and only 15% of projects are taken on the market
Third, Bitcoin is a technology product from Blockchain which is a new technology
All transactions are anonymous and have security, high confidentiality Therefore, many people worry that Bitcoin can be a money laundering tool of crime
Fourth, the law does not recognize Bitcoin Currently the law does not recognize it as a means of payment, but the transaction, buying and selling it as an asset is still happening in Vietnam
2.4 Game theory in Bitcoin and cost sharing model
Game theory is a set of analytical tools designed to model interdependent situations, in which each player's logical behavior not only affects his or her own interests and losses, but also impact others Allocation cost of Bitcoin involves interaction between multiple stakeholders, so that game theory is consistent with cost-sharing model
Each player in the Bitcoin community has different benefits and investment costs
For miners, they try to maintain their system to gain profits when Bitcoin prices rise, while businesses want to have a stable amount of Bitcoin to use for many different purposes The remaining investors tend to speculate and trade when there is a change in prices In the Bitcoin community, stakeholders can form very different game forms, non-cooperation, cooperation, partial cooperation
This study applies cooperative game theory to analyze the cost sharing between agencies in Bitcoin community The cooperative game theory approach has emerged as an effective, fair-minded approach to providing adequate incentive to motivate stakeholders in community (Ray et al., n.d.) Recently, the game theory method has been used as an effective framework for making decisions on a number of issues and conflicts in Bitcoin inter-group Application of cooperative game theory has been used in Bitcoin mining (Lewenberg, Bachrach, Sompolinsky, Zohar, & Rosenschein,
Cooperative game theory and cost allocation
Cost sharing process for purchasing Bitcoin between miners, businesses and investors in different coalitions have been established The core, Value Shapley, Nucleolus and traditional methods such as proportional division were used in this study as a cost- sharing method Different types of players' coalitions have been considered to assess fairness in cooperation among players in different price situations The data in this research such as Bitcoin mining cost, Bitcoin price and brokerage fee are collected in Vietnam and in the Bitcoin market
This figure will point out the process of research method
Figure 3.1: The process of research method
Given that in the Bitcoin market there are 3 main investor groups: Miners, Businesses and Investors All these players want to obtain Bitcoin, but the way to get their Bitcoin is different Miners is the group who use computers and software that they invest to
Confirm the form of game: Cooperative game theory, Bitcoin Cost sharing
Find solutions: the Core, proportional, the Shapley value, Nucleolus
Compare and discuss the results
Suggest the solutions and policy implication
RESEARCH METHODOLOGY
Research method
Cost sharing process for purchasing Bitcoin between miners, businesses and investors in different coalitions have been established The core, Value Shapley, Nucleolus and traditional methods such as proportional division were used in this study as a cost- sharing method Different types of players' coalitions have been considered to assess fairness in cooperation among players in different price situations The data in this research such as Bitcoin mining cost, Bitcoin price and brokerage fee are collected in Vietnam and in the Bitcoin market
This figure will point out the process of research method
Figure 3.1: The process of research method
Bitcoin cost sharing model
Given that in the Bitcoin market there are 3 main investor groups: Miners, Businesses and Investors All these players want to obtain Bitcoin, but the way to get their Bitcoin is different Miners is the group who use computers and software that they invest to
Confirm the form of game: Cooperative game theory, Bitcoin Cost sharing
Find solutions: the Core, proportional, the Shapley value, Nucleolus
Compare and discuss the results
Suggest the solutions and policy implication solve algorithms and own Bitcoin Investors can own Bitcoin by trading in the market or buying directly from Bitcoin miners Businesses can purchase Bitcoin from investors or miners Currently, in order to share the benefits and risks in owning Bitcoin, players have agreed and contacted each other, from which many cooperative alliances have been formed
In Bitcoin market, conflicts can occur when decision makers should cooperate in building a joint project and then the cost of this group is not equally distributed
Therefore, if stakeholders do not see this part of the total cost equitably, they will not be willing to cooperate for joint projects
This study uses game theory in cost allocation from a cooperative game to find a different proportional vector of results This ratio vector is not only optimized but also fair for all players
Some of method used for cooperative game include:
Cost structure in sharing model
There are the following types of costs: Bitcoin mining costs, Bitcoin price in the market, and brokerage cost
Characteristics of the types of expenses are as follows:
- Bitcoin mining cost (α) is almost stable, depending on a number of factors such as geographical location, electricity price and cost of mining equipment
- Bitcoin price in the market (β): has a large fluctuation range, influenced by many factors in the international market, investor psychology
- Brokerage fee (γ) : depends on Bitcoin price, difference price between buy and sell, exchange fee usually accounts for 0.5% of the value of transaction
Figure 3.2: Bitcoin cost sharing model
According to the research methodology, players included: 1 (Miners), 2 (Businesses), and 3 (Investors) are considered as a community who are going to obtain Bitcoin for exchange by mining or by buying in the Bitcoin market It is supposed that the exchange Bitcoin in the group is considered as cheaper than the separate player due to economies of scale and the fee reduction Bitcoin exchange process are given in Figure 3.3 This figure shows that Miners can obtain Bitcoin directly Businesses and Investors can get Bitcoin by exchanging each other or buying from Miners In order to reduce the cost, players can cooperate and form coalitions.
Cost and utility
To apply Cooperative game theory model, this research analyzes two the period from April 2018 to April 2019:
The cost of players will be determined based on the secondary data in the market
Cost of mining 1 BTC in Vietnam: α= 4.7 thousand Dollars (Elite Fixtures)
Average Bitcoin price (β) in 2 periods:
- High price period (from April 2018 to October 2018) is considered as the period time when Bitcoin price higher than cost of mining, with the average price is called β1 = 6.5 thousand Dollars
- Low price period (from December 2018 to April 2019) is considered as the period time when Bitcoin price lower than cost of mining, with the average price is called β2 = 3.6 thousand Dollars
Cost of Bitcoin brokerage fee (included purchase price differences and exchange fee): γ = 0.2 thousand Dollars
Miners (1), businesses (2), and investors (3) could cooperate with each other to form alliances There are 7 options to create non-empty collections, to show the characteristics of the game we need to find the results of the solutions
Table 3.1 and 3.2 shows the costs for different possible group of players in a cooperative game when the price of Bitcoin is higher than mining cost and vice versa
The cost of obtaining Bitcoin can be reduced by cooperation of all players together
With S is the set of players, C(s) is the cost of each coalition and v(S) is the utility of coalition when players form coalition, we have the following table:
Table 3.1: Cost and utility of players in High price period
Based on individual rational and group rational, when a player act individually, the cost he/she incurs is not change When miners and businesses cooperate, in order to buy 2 Bitcoin, they will obtain Bitcoin with the cost of mining because it is smaller, it the same with cooperation between miners and investors In coalition of businesses and investors, the cost is based on the Bitcoin price in market
Table 3.2: Cost of coalitions in High price period:
Combination Cost break down Total cost
Bitcoin mining cost calculated by the report of Huobi Company, called α considered fixed The purchase price of Bitcoin (β) on the market is based on the price of Bitcoin on exchange market in two periods, with relatively large fluctuations The purchase price of Bitcoin through brokers and exchanges is calculated at 0.5% of the price If the miners and investors cooperate with each other, they will not incurr transaction fees, if the investors form coalition with businesses, they will be able to share the profits or reduce the risk of buying Bitcoin If all 3 players form a coalition, they can get Bitcoin at the lowest price, control the risk, but the share of profits will have to be based on many factors of fairness
Similar to High price period, in Low price period, the cost of mining and exchange cost are also unchanged However, the Bitcoin price in this period will change to β2
= 3.6, this is the average price from January 2019 to April 2019
Table 3.3: Cost and utility of players in Low price period
Table 3.4: Cost of coalition in Low price period
Combination Cost break down Total cost
Table 3.1 and 3.3 demonstrates that cost of Bitcoin under cooperation of all three players will be 14.5 or 10.8 cheaper than buying separate Bitcoin by each player It can be said that cooperate miners (1) and businesses (2) together to buy two Bitcoins can save about 1.8 or 1.1 thousand dollars By joining businesses (2) and investors
(3) the cost can be saved about 0.2 thousand dollars All three players that can be saved about 3.4 or 1.3 thousand dollars of the total cost
After forming the coalitions and calculating the utility, the problem is how the cost of Bitcoin should be distributed between the stakeholders which ensure the fairness for all players.
FINDINGS AND ANALYSIS
The result of solutions
This chapter will show the way obtain the results and explain the properties of each method After calculating the solutions, the comparisons of method will be analyzed
In the case of changing the price of Bitcoin, the consensus between users will be suggested to harmonize the benefit of players
Proportional split is the method of distribution costs which the costs incurred are allocated simply based on the ratio of a number of factors such as equal parts, benefits, use needs, etc Conflicts may arise between participants due to their personal interests
And so it can reduce the incentive between cooperative participants
Table 4.1 indicated the cost sharing between the three player in the grand coalition following equal proportion:
With yi is the involved costs of miners, businesses and investors, we can calculate:
In high price period: yi= C(1,2,3)
In low price period: yi= C(1,2,3)
Table 4.1: Equal proportion cost between players (yi)
It is derived from table 4.1 that miners (in High price period) and businesses (in Low price period) hardly accept such as allocation Since, in High price period, miners can obtain Bitcoin from mining about 130 dollars lesser compared to the grand coalitions can be achieved whenever all participants pay no more than their own participation in the group
A reasonable allocation must be at least individual rational It means that no participant has to pay more in the venture than he has to pay In this example, individual rationality can be achieved when y1 ≤ 4,7 thousand dollars, y2 ≤ 6.5 or 3.6 thousand dollars, y3 ≤ 6.7 or 3.8 thousand dollars, where y1+y2+y3= 14.5 or 11.2 y1, y2 and y3 are the involved costs to miners, businesses and investors in the grand coalitions
4.1.2 The core and Nucleolus method
In Bitcoin market, with 3 players, the cost of each player is represent with a ratio vector:
In a cooperative game, the player will accept that allocation approach which is located inside the core
The core in a cooperative game theory is specified with C(N, v) (Asgari & Afshar,
In cooperative games (N, v), set n players and the cost function v, the payoff of players is in the core if:
N = The number of players in game
Xi = The total cost allocated to the player i in the grand coalition v(N)= Cost function
Equation (1) is sharing the total cost of all players
The rationale of the group follows that if a player joins the largest player alliance, the amount allocated to him/her in the largest coalition will be less than any amount the player is in Any coalition has a number of players to pay For any group consisting of only one player, the condition is said to be reasonable
Firstly, there are n players {1,2, …, n} = N function c(S) gives the costs, the condition for group rationality for a cost allocation x = (x1, x2, …, xn), ∑N yi = v(N), is that:
Secondly, the principle is the marginal cost Any players should not be paid less than the marginal cost of including him/her in the group For example, there are three participants in a group including 1, 2 and 3 In grand coalition, it costs 14,5 thousand dollars but for cooperation only miners and businesses, it cost 9.4 thousand dollars
So the marginal cost of C is equal to 14,5-9.4=5.1 thousand dollars It means that investors should pay at least 4.7 thousand dollars So, the cost allocation x should satisfy:
The goal of group rationality is to give adequate incentive to all players to cooperate
It is mutual in game theory to clarify the two principles (2) and (3) regarding the cost savings v If yi is the cost for player i and then cooperation and forming a coalition make a saving of the amount i, then it can be said that yi = c(i) – xi
According to (2) and (3), for three players, we have table 4.2
Table 4.2: Conditional cost of players
High price period Low price period y1 ≤ α, y2 ≤ β1, y3 ≤ (β1+γ) y1+y2 ≤ 2α, y2 + y3 ≤ 2β1 y1 + y3 ≤ 2α y1+y2+y3 ≤ (3α+2γ) y1 ≤ α, y2 ≤ β2, y3 ≤ (β2+γ) y1+y2 ≤ 2β2, y2 + y3 ≤ 2β2 y1 + y3 ≤ 2(β2+γ) y1+y2+y3 ≤ 3β2
The area covered by this point shows the core area that brings both individual and group rationality to the player By the fact that the core is not empty, it can be concluded that the Nucleolus is in the core Indeed, the Core solution concept refers to a range of values of values that meet specific conditions, but the Nucleolus solution concept recommends one point Method of Nucleolus based on the idea of excess
The Nucleolus is calculated by imposing the smallest uniform tax e (Young, 1982)
Then, the Nucleolus can be established by equation:
The Nucleolus is the value calculated by (4) and (5) for this least e (Shapley and Shubik, 1973) Then, the corresponding cost sharing can be found by equation yi c(i) – x1 for all i where c(i) is incurred cost to i in non-cooperative situation
The nucleolus method can be accomplished by following the (4) and (5) So for players 1,2 and 3 based on (4), (5), we have table 4.3
Table 4.3: Terms the amount of x1, x2 and x3
High price period Low price period x1 + x2 + x3 = v (1,2,3) xi ≥ 0, i = 1,2,3 x1 + x2 ≥ v (1,2) – e x1 + x3 ≥ v (1,3) – e x2 + x3 ≥ v (2,3) – e x1 + x2 + x3 = v (1,2,3) xi ≥ 0, i = 1,2,3 x1 + x2 ≥ v (1,2) – e x1 + x3 ≥ v (1,3) – e x2 + x3 ≥ v (2,3) – e
After solving the above terms, the amount of x1, x2, x3 can be found
Table 4.4: The value of xi solved by Nucleolus method with parameters
Table 4.5: The amount of xi (thousand dollars) for each player x1 x2 x3
Table 4.6 shows the corresponding cost sharing calculated by equation yi=c(i)-xi for all players
Table 4.6: Corresponding cost allocation (thousand dollars) between players based on Nucleolus method (yi)
The Shapley value method was introduced by Lloyd Shapley This method can be summarized in a brief description that the Shapley value is equal to the average cost of adding a player to the coalition in different stages
The Shapley value is one of the popular methods of cost allocation (Valinejadshoubi
& Shakibabarough, 2013) If player i was the last player added to the coalition, his/her cost marginal contribution to group S is c(S)-c(S-1)
So the Shapley value for players can be determined in case including 3 players based on marginal contribution as follows:
Table 4.7: The amount of xi based on Shapley value method in High price period
Table 6 shows the cost contribution of players 1,2 and 3 calculated by the Shapley value method And the cost contribution of player 1,2 and 3 are 1.67, 0.83 and 0.9 thousand dollars
Table 4.8: The amount of xi based on Shapley value method in Low price period
Table 4.8 demonstrates the cost contribution of players 1,2 and 3 calculated by the Shapley value method The cost allocation of players 1,2, and 3 are 0.7, 0.35 and 0.25
Table 4.9: Cost allocation (thousand dollars) between player based on Shapley value method (yi)
With the core of this game is non-empty, the reasonable range have found and the detail figure are also pointed out Shapley value and Nucleolus are illustrated in figure 4.1
High price period Low price period Figure 4.1: The core – Shapley value – Nucleolus in high price and low price period
Figure 4.2: Comparison between cooperative game methods and non-cooperation situation (High price period) (Thousand dollars)
Table 4.10: Result of solutions in High price period (Thousand dollars)
Figure 4.3: Comparison between cooperative game methods and non-cooperation situation (Low price period) (Thousand dollars)
Figure 4.2 and figure 4.3 indicate the comparison of costs sharing to each player based on different methods
Table 4.11: Results of solutions in Low price period (Thousand dollars)
Table 4.12: Percentage of utility received by each player based on solutions concepts in High price period
Benefits (%) gained by different concepts
Proportional split The Nucleolus The Shapley value
Table 4.13: Percentage of utility received by each player based on solutions concepts in Low price period (%)
Benefits (%) gained by different concepts
Proportional split The Nucleolus The Shapley value
Discussion
The total cost of buying Bitcoin in a joint venture was 14.5 or 10.8 thousand USD
The results in this research were calculated from proportional split, the Shapley value and the Nucleolus method The value of cost allocation to each player in thousand dollars based on different methods and the percentage of benefits obtained by each player are presented in table 4.9 and 4.10 The comparison between the costs sharing based on game theory methods and the cost incurred to each player in non- cooperation situation are also displayed in Figure 4.2 and 4.3
By comparing three allocation methods, it can be seen that the proportional methods differ significantly from other methods Comparing the cost allocated by proportional method to the non-cooperative cost, these ratio methods make some players pay more their separate participation According to the Table 4.11, the percentage of benefits earned by Miners is -2.8 (High price period) and Businesses is 0 (Low price period) based on proportional split method This negative rate of benefits suggests that this method may not make adequate incentive between players, especially Miners and Businesses to join to other players in one coalition, because the individual rationality has not been satisfied by this method However, Investors (High price period) and Miners (Low price period) have incentive to cooperate with others because of high benefits they could be earned
Results based on the Nucleolus method show that this method is more advantageous for Investors (High price period) and Businesses (Low price period) Contrasting with proportional method, in Nucleolus method no player must pay more than they would have to pay individually Therefore, it provides enough incentive for all players to cooperate together
Based on Shapley value method, the percentage of benefit increased for Miners (both periods) is highest compared to other players Comparison to the Nucleolus method, Miners earn more benefit
Calculation results show that if three players cooperate together, it will save a relatively large cost Using the method will help limit players from leaving the big coalition In high price period, with Shapley value, players will have benefits based on contributions to the alliance In low price period, based on Nucleolus method, players will have more motivation to join the big alliance, not merely between two players
Besides the advantages of fairness and efficiency, a disadvantage of the Shapley value and Nucleolus is not considering the stability of the coalition Each player's tendency to separate from the league is also different, so that the calculation these indicators are necessary because of price volatility
Totally, miners earn most benefit with Shapley value method, Businesses and that the Shapley value method may be more appropriate while the Nucleolus method may provide adequate encouragement for cooperation By examining the amount calculated according to these solution concepts, it can be deduced that the Shapley value and the Nucleolus method are the method of cost distribution in cooperative game theory method taking into account the individuals and groups rationality in joint ventures No players in the cooperative game pay more than they will have to pay for themselves Therefore, cooperation provides them with adequate incentives to create coalition and participate in the Bitcoin community.
POLICY IMPLICATION AND CONCLUSION
Policy implication
In order to facilitate cooperative games in Bitcoin community, the most important issue is the legalization of Bitcoin in Vietnam today First of all, organizations, investors and startups need policy advocacy activities, highlighting the advantages of Bitcoin and Blockchain technology From there, create a creative environment, promote the development of technology, and eliminate illegal activities related to Bitcoin Although the overall benefit or utility of using Bitcoin do not outweigh the risk of its adoption into the financial system, SBV still need to recognize Bitcoin and other digital asset because the number of stakeholders is increasing rapidly Besides that, illegal activities and scams make many investors lose money and they are unprotected in the law
After acknowledging the existence of Bitcoin, the government will play an important role in maintaining stability and managing activities in the Bitcoin community This is also the most important factor to be able to apply cooperative game theory in Bitcoin cost sharing
The frameworks for cooperation of game theory given in this article can also be the basis for designing agreements for actual negotiations between parties in the Bitcoin community Each solution offered will be used by parties to negotiate with other players when investing in Bitcoin This game can be used to simulate a realistic chatter process that negotiators have to make decisions, in a variety of strategic choices such as joining another community, or doing independently Such games are preparatory stages before formal negotiations
The most important lesson from the above analysis is that the position of all parties in the Bitcoin movement is assumed to be significant from large alliances, and many rules of benefit sharing are feasible and fair Based on this results, the government can manage and ensure the rationality of cooperative contract between stakeholders
This regulation also restricts the multi-level marketing activities in Bitcoin community, because scam companies often offer huge profits regardless of Bitcoin's price fluctuations
Moreover, the government should ensure the information transparency and manage Bitcoin community, which not only helps individuals achieve benefits and society also benefits from development of technology According to Directive 10 / CT-TTg of 2018 on managing Bitcoin and other similar virtual currencies issued by the Prime Minister, the agencies responsible for implementation include: State Bank of Vietnam; Ministry of Justice; Ministry of Finance; Ministry of Information and Communications; Ministry of Public Security; Ministry of Industry and Trade;
People's Committees of provinces and cities
After analyzing and discussing the results of Bitcoin cost sharing model, this study will make some suggestions on the policy for legitimizing Bitcoin and managing of Bitcoin community in Vietnam
Recognize Bitcoin and Bitcoin Advocates and Stakeholders
- Firstly, Ministry of Justice should define Bitcoin more carefully Now, Vietnam government do not have any official document exist clarifying Bitcoin’s status in the law Secondly, we also need issue a clear set of policies and regulations regarding Bitcoin and other digital assets Finally, the government need to develop thought, active and sensible policies that protect the public without suppressing innovation technology
- Involve Bitcoin Stakeholders: To avoid excessively strong and broad regulation of the Bitcoin market, Ministry of Information and Communications can ensure that they invite a variety of Bitcoin stakeholders in the negotiation and regulatory process, because their vision and needs can be fairly balanced with government benefit
Ministry of Industry and Trade should work with Bitcoin organization, businesses, users and miners when creating and enforcing law
Regulate Bitcoin Market and businesses
- Ministry of Finance clarifies their laws around licensing requirements for virtual money In order to prevent money laundering, companies participating in Bitcoin purchases must register with the Ministry of Finance and maintain records of their transaction history
- Consumer Protection: Companies maintain online wallets for people who use Bitcoin to operate in legal gray areas according to the law In this case, the value is being stored on the company's servers as a text file If a user's wallet is compromised, its content is lost or stolen, companies will be refunds to users whose wallets are compromised rather than government
- Clarifying Tax code: Taxation is the question surrounding Bitcoin Bitcoin has dual properties of a highly liquid instrument such as cash in a local currency and an exchange tool like foreign currency or even securities Moreover, a user has the ability to create new Bitcoin through mining, which makes it completely unlike any existing financial instrument
- Combatting the illegal Markets: Money laundering and illegal trade in Bitcoin is one of the reasons why Vietnam government did not accept Bitcoin Ministry of Public Security could combat illegal markets by targeting unlawful business, rather than consumers By working with technology experts to analyze ledgers, the government can discover illegal activities in Bitcoin more effectively than cash
The State Bank can help stabilize the currency by maintaining Bitcoin reserves They can buy and sell to supply and demand moderately, easing drastic changes in the market The government can also help Bitcoin network remains honest by providing computing power for honest nodes in the network
Bitcoin can be considered as money in a specific community but only in this community If Bitcoin moves from a community to the whole society and the country, it should be strictly managed Even in countries with modern facilities and good management like Japan, the shift from investment to real money has to go through strict regulatory authorities, which are only recognized in some jurisdictions like few areas of investment
In Vietnam, Bitcoin is being considered legitimate, but it needs to be apperception that it is normally used by law-abiding parties to transact business Unluckily, Bitcoin has a history related to illegal activities, such as black market (Wannacry virus) and money laundering
Conclusion
According to data analysis, traditional proportional methods cannot be fully encouraged for all participants In fact, these methods are not reasonable for some participants On the other hand, Shapley value, Nucleolus methods, although there is little difference in quantity, represents a fair and impartial method to allow financial managers to discuss how to divide Additional costs Regarding the rationality of individuals and groups, both Shapley value and Nucleolus establish the rational principles of individuals and groups It can be concluded from the data analysis that these cited methods can provide a fair atmosphere among players to agree on the amount of allocated costs
Bitcoin has proven a lot of potential as a technology capable of reshaping the way we view and use money Lack of economic knowledge and electronic money can make people destroy the economy made up of digital currency The purpose of Bitcoin is to create a currency through public networks without third parties and establish trust through peer collaboration Bitcoin is just the beginning of new technologies based on the blockchain platform, which will impact all areas of finance, banking, healthcare and education and so on Blockchain is an inevitable trend in the world, helping to significantly reduce transaction costs, secure data sharing and being included in university training programs
With the steady growth of digital currency, a parallel economy is growing and that is when the Vietnamese government should step in and put regulations into it
Decentralized virtual currencies need to be acknowledged, Bitcoin stakeholders should be included in the decision-making process Setting rules can help governments impose taxes and prevent illegal activities from maintaining in the system It would be a mistake to say that the digital money system has developed perfectly because it still lacks the platform to build a good economy that even the fiat currency cannot do in history during the debacle global recession
In the future, Bitcoin can become an immediate of the economy and centralized tax system of the government Perhaps this digital currency system is currently not getting nearly that It will be interesting to see how society and nations will grow without any central power because of the economic power of any country that is tied to currency.
Future research
In further research, a new model can use non-cooperative game theory to describe the risk attitude between players When the coalitions are reformed, each player can reduce the cost However, the price of Bitcoin is fluctuation, players still face to many risks, such as: Coalition risk, value risk, and legal risk
Because the interaction in Bitcoin community is unavoidable, many concepts can apply in more case study such as: Nash equilibrium, prisoner’s dilemma, bargaining game and etc Based on these theories, further research also aims to create a new game between player, which could be used for effective governance of Bitcoin community
For each player, they prepare the basic Bitcoin’s knowledge and when coalition reforming, they also make strategy carefully
For miners, they understand the mechanism of Bitcoin market Because of volatility and the change of technology, miners need to compliance with law, self-protect personal property
Investors want to make benefit from Bitcoin, they can find reliable investment company They also have to prepare the investment plan to reduce risks in Bitcoin market
For businesses, they have to assurance of capital, Bitcoin reserves and technology platform Besides that, it is very important to store transaction information of clients
Comprehensive collaboration: players must cooperate with each other if they want to connect and share information, restricting the monopoly and manipulation of Bitcoin prices
Discounts and profit sharing are often committed in cooperation contracts, depending on the nature and prospects of cooperation projects In some projects, high profits come with risks
Money benefits: The benefits of each player will be evaluated in terms of currency, players have the same marginal benefits This means this will be a transferrable utility game In the case of Bitcoin, to simplify the problem, we only focus on the cost of buying Bitcoin A portion of the profits will be taken into account in the grand coalition, as a cut of intermediate costs
Optimized transfer cost: to simplify, when parties allied together, Bitcoin exchanges will be made at a very small, insignificant cost compared to buying on a trading platform or through brokers In the future, due to changes in Bitcoin's value and technology, transaction costs will be almost eliminated, the Bitcoin circulation in the system will be implemented immediately
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