Interaction of Cryptography and Economics

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NB: The data set used is obtained from yahoo finance, historical data from January 31 2018 to January
31 2019.
(Q1)
Interaction of Cryptography and Economics
In a decentralized system, access is limited parties involved with interacting with the system. Bad
actors will always try to disrupt and gain access to the system. The approaches of cryptography and
economics aim to establish a decentralized network can thrive besides attempt to disruption. The
underlying concepts that make the P2P network communication secure between the parties are the
cryptography while economics is the aspect that motivates the actors to contribute to the network to
ensure its continuity.
Economics provides a layer of abstraction that ensures coordination and interaction between the
network participants in the decentralized cryptographic system. The interaction between cryptography
and economics can be referred to as crypto economics. The process of ultimately securing a network
from parties who can listen and control the channel is referred to as cryptography.
Understanding Block chain technology
This refers to a list of records that are linked together using the concepts of cryptography. Each of the
consecutive blocks of record contains a timestamp and a cryptographic hash from the previous block.
The blocks can be used to store information between two parties and the transactions involved by the
parties using a digital signature. Records that are captured using block chain are verified in a way such
that the records cannot be altered.
The invention of the block chain was meant to act as a decentralized public ledger that can manage
transactions using the cryptocurrencies. Block chain enables participants to alter and audit the
transactions independently.
Participating not involved in the communication can be able to alter the data without changing the
subsequent blocks. The block chain network has no central authority since it shared. Hence any
infrastructure built on block chain is transparent, and the parties are responsible for every transaction.

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(Q2)
The year between 2018 and 2019 turned to be a terrible year for the bitcoin. The cryptocurrency lost
momentum and was outperformed by other cryptocurrencies. Besides shaping a great portion in the
cryptocurrency market, bitcoin continues to surge backward with as low as prices slightly above $3000.
The price of bitcoin is seen to drop at several sections of the graph. A 10% drop from the previous
recording. The key events took place between January 2018 and May 2018, when the prices of bitcoin
were high with values of up to $ 9000.
Correlations on the key and non-key events
The cryptocurrency correlation coefficient in 2018 is greater than that of 2019.

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Correlation matrix which is based on the key events and the non key events. A Correlation matrix
explains the relationship between a set of given variables.
Values of standard deviation together with the defined set of variables can be used to find the
coefficient of the correlation and are based on the occurrence of the events.
It is identified that when there is a change in price for the events, the correlation value is identified to
have an exponential rise.
import pandas as _panda
_data_frame = _panda.read_csv('BTC-USD (1).csv', 'Date', True)
print(_data_frame.describe())

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Regression analysis
Regression analysis is a statistical method that is used to identify and give the relationship between a
defined set of variables. Regression is calculated based on the key and the non key events. The key
events are identified to have a higher regression value than no key events. The price at key events is
identified to rise exponential up to a certain optimal point where it starts to drop again.
import seaborn as _sea
import pandas as _pandas
_value_of_reg = _pandas.read_csv('BTC-USD (1).csv')
_value_of_reg.head()
_value_of_reg.info()
_value_of_reg.describe()
# plot
_sea.pairplot(_value_of_reg)
print(_value_of_reg.corr)