Cybercrime on the Ethereum blockchain

Lars Hornuf, Paul P. Momtaz, Rachel J. Nam and Ye Yuan

No 444, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We examine how cybercrime impacts victims' risk-taking and returns. The results from our difference-in-differences analysis of a sample of victim and matched non-victim investors on the Ethereum blockchain are in line with prospect theory and suggests that victims increase their long-term total risk-taking after losing part of their wealth, leading to lower risk-adjusted returns in the post-cybercrime period. Victims' long-term total risk-taking increases because they increase diversifiable risk due to victims' post-cybercrime withdrawal from altcoins. At the same time, the reduction in risk-adjusted returns correlates with increased trading activity and churn, due plausibly to managing cybercrime exposure. In the cross-section of Ethereum addresses, we show that the most affluent victims take a systematic approach to restore their pre-cybercrime wealth level, while the least affluent victims turn into gamblers. Finally, a parsimonious forensic model explains a good part of the addresses' probability of being involved in cybercrime, on both the victim and the cybercriminal side.

Keywords: Ethereum blockchain; market manipulation; financial fraud; token investment scam; cybercrime; cryptocurrency (search for similar items in EconPapers)
JEL-codes: G14 G24 G30 L26 M13 O16 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-pay and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:312431

DOI: 10.2139/ssrn.5158570

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