Cryptocurrency Market Analysis from the Open Innovation Perspective By Alexey Mikhaylov

Abstract: The paper focuses on the analysis of the cryptocurrency open innovation market to predict
sustainable growth in the future. The nature of cryptocurrencies ‘development leads to the rapid
increase in their popularity and spread of trading at this new market. The high volatility of these
assets is encouraging to understand and predict their price in ever changing market environment.
The paper proposed the pool complexity approach to choose optimal technology using social activity
in the internet, trading parameters, technical indicators and other cryptocurrency data. According to
the results of the analysis, the most effective and promising cryptocurrency is EOS cryptocurrency,
which has the lowest complexity and commission level among the analyzed digital currencies and
allows you to implement third-party applications in the system.
Keywords: cryptocurrency; data selection; EOS; Bitcoin; ethereum
1. Introduction
The period from the 20th until the early 21st century has been characterized by intensive
development of the global financial sector. Financial systems are actively developing, transforming,
and adjusting to certain economic and technological requirements, creating an environment for the
effective functioning of commodity-money and financial relations, as they are the circulatory system
of world economies. The main catalysts for financial open innovations have recently been actively
developing processes of globalization and digitalization of world economies. In such conditions,
increased regulatory requirements are imposed on payment systems and tools since risks are shared
between world economies [1,2].
This study fills the gap in the analysis of the prospects and risks of developing cryptocurrency as an
element of the financial system. The paper creates a theoretical base for crypto market prices prediction.
Digital currencies are capable of developing existing payment systems and financial institutions,
as they represent a new understanding of the form of money and the security of transactions.
For example, one of the world financial leaders—the United States—has been actively conducting
research and actions to introduce cryptocurrencies into the internal payment system since 2019. At the
end of 2019, the US Congress passed a bill for consideration called the “Crypto-Currency Act of 2020”.
It reviewed the procedure for the recognition, licensing, and registration of digital currencies as a
form of payment, and also established a list of state institutions responsible for the regulation and
control of the new currency [1,3,4]. Today it is difficult to assess and evaluate the significance of this
technology and the prospects for its development. However, digital currencies can become a new
generally accepted means of payment, replacing the usual fiat money. In this case, the most successful
cryptocurrency system owned by a particular country can gain a significant advantage in the race of
financial “arms” and leadership in the financial arena. This makes it difficult to analyze the potential
of cryptocurrency development in Russia and other global economies at the present time. In addition,
the transparency of data flow in the network of cryptocurrency systems can potentially solve the

problems of corruption and the shadow or underground sectors of the economy that exist in each state,
to one degree or another [5,6].
The goal of this work is to analyze the prospects and risks of developing cryptocurrency as an
element of the financial system.
To achieve this goal, the following tasks must be completed:
1. the study of digital currencies’ theoretical basis.
2. consideration of the chronology of blockchain technology and cryptocurrency development.
3. analysis of the current state of the market and comparation of cryptocurrencies.
4. evaluating the possible threats and prospects for the development of cryptocurrencies within the
global financial system.
2. Literature Review
2.1. The Innovation in Cryptocurrency Market
At this stage in the development of payment systems and technologies, cryptocurrencies are
something new—an asset unsuitable for widespread use. The concept of cryptocurrencies in domestic
and foreign literature is often equated with other similar names, such as virtual currency, digital
currency, electronic money and digital gold, but in practice it has a number of distinctive properties
that do not fully define these concepts as synonyms [2].
The term “digital currency” is the most generalized concept, which implies a special non-material
form of existence of currency in a digital (electronic) form. Since the data on cash flows is stored on
remote servers, access to the Internet or another network that provides for the interaction of electronic
wallets is required to perform operations and interact with this type of currency. Digital currencies
have no intrinsic value—they only reflect the equivalent of funds deposited on the issuer’s balance
sheet, or, otherwise, the right to claim against the provision of funds. However, this type of currency is
often intended to pay for goods and services on certain online stores, sites, and social networks [3–5].
The name “cryptocurrency” itself came from the science called cryptography. Cryptographers
study methods to ensure confidentiality of information and has deep roots, being more than four
thousand years old. The modern interpretation of cryptography is based on elements of mathematics
and computer science and is a method of encrypting data with a certain key that provides access to
the decryption of the data. Cryptography has developed in several subspecies over its long history:
symmetric encryption—the recipient and the sender of the data have the same keys to decrypt the
information exchanged with each other; and assymmetric encryption—each of the network participants
has a public key confirming the participant’s status. Meanwhile, the sender of the data has a secret key
to decrypt the information being sent, which he shares with the desired recipient.
Hashing is a method that involves converting an array of data into a specific code that stores
information about this very data. This transformation is called a hash function, and the result of the
encryption is called a hash code. Each hash code is unique, and its decryption leads to the receipt of
the original data. It is this subspecies of cryptography—hashing—that is the basis for the formation of
cryptocurrency systems, reflecting their essence: the technological nature of creation and the security
inherent in these systems. The scheme for obtaining a hash of transactions is shown in the figure below.
This technology increases the level of confidentiality and reliability of transaction data. The process
of hashing an array of data is as follows: information about the individual operations performed is
converted by a hash function, and separate hashes are formed. This encrypted data is combined and
modified by the following hash function, and, as a result, the largest combination of functions will be
the transaction hash, with which the data will be decrypted. As a result, information data blocks are
formed [4–8].
Furthermore, the hashed data formed in blocks create a single stream of interconnected information,
protected using blockchain technology (Figure 1). Due to this, transactions cannot be reversed, and it is
impossible to change the degenerated data. Each generated block in the blockchain network contains

Cryptocurrency Market Analysis from the Open Innovation Perspective By Alexey Mikhaylov