Article

Application of Benford’s Law on Cryptocurrencies

Jernej Vičič 1,2, *,† and Aleksandar Tošić 1,3,†
1 Faculty of Mathematics Natural Sciences and Information Technologies, University of Primorska,
6000 Koper, Slovenia; [email protected]
2 Research Centre of the Slovenian Academy of Sciences and Arts, The Fran Ramovš Institute,
1000 Ljubljana, Slovenia
3 InnoRenew CoE, 6310 Izola, Slovenia
* Correspondence: [email protected]
† These authors contributed equally to this work.

Abstract: The manuscript presents a study of the possibility of use of Benford’s law conformity
test, a well proven tool in the accounting fraud discovery, on a new domain: the discovery of
anomalies (possibly fraudulent behaviour) in the the cryptocurrency transactions. Blockchain-based
currencies or cryptocurrencies have become a global phenomenon known to most people as a
disruptive technology, and a new investment vehicle. However, due to their decentralized nature,
regulating these markets has presented regulators with difficulties in finding a balance between
nurturing innovation, and protecting consumers. The growing concerns about illicit activity have
forced regulators to seek new ways of detecting, analyzing, and ultimately policing public blockchain
transactions. Extensive research on machine learning, and transaction graph analysis algorithms
has been done to track suspicious behaviour. However, having a macro view of a public ledger is
equally important before pursuing a more fine-grained analysis. Benford’s law, the law of first digit,
has been extensively used as a tool to discover accountant frauds (many other use cases exist). The
basic motivation that drove our research presented in this paper was to test the applicability of the
well established method to a new domain, in this case the identification of anomalous behavior using



Benford’s law conformity test to the cryptocurrency domain. The research focused on transaction


values in all major cryptocurrencies. A suitable time-period was identified that was long enough
Citation: Vičič, J.; Tošić, A.
Application of Benford’s Law on
to present sufficiently large number of observations for Benford’s law conformity tests and was
Cryptocurrencies. J. Theor. Appl. also situated long enough in the past so that the anomalies were identified and well documented.
Electron. Commer. Res. 2022, 17, The results show that most of the cryptocurrencies that did not conform to Benford’s law had well
313–326. https://doi.org/10.3390/ documented anomalous incidents, the first digits of aggregated transaction values of all well known
jtaer17010016 cryptocurrency projects were conforming to Benford’s law. Thus the proposed method is applicable
to the new domain.
Academic Editor: Jani Merikivi

Received: 7 November 2021 Keywords: cryptocurrency; Benford’s law; anomaly detection; method application
Accepted: 8 February 2022
Published: 25 February 2022

Publisher’s Note: MDPI stays neutral

with regard to jurisdictional claims in 1. Introduction
published maps and institutional affil- Benford’s law [1], also known as the first-digit law, has been widely used as a tool
iations. to discover anomalies in various data ranging from accounting fraud detection, stock
prices, house prices to electricity bills, population numbers, natural phenomena, death
rates and recently so popular COVID-19 cases reports. Cryptocurrencies, also referred
to as Blockchain-based currencies or crypto coins, have become a global phenomenon
Copyright: © 2022 by the authors.
known to most people.Throughout the paper we will rely on the definition presented
Licensee MDPI, Basel, Switzerland.
by [2] (cryptocurrency). A cryptocurrency is in fact quite a narrow, albeit recognizable,
This article is an open access article
description of a subset of an umbrella class of cryptoassets. While still somehow geeky and
distributed under the terms and
conditions of the Creative Commons
not understood by most people, banks, governments and many companies are aware of
Attribution (CC BY) license (https://
its importance.
creativecommons.org/licenses/by/ Since the inception of Bitcoin, many alternative systems have been developed. Some
4.0/). remain blockchain-based, where transactions are stored and consequently timestamped

J. Theor. Appl. Electron. Commer. Res. 2022, 17, 313–326. https://doi.org/10.3390/jtaer17010016 https://www.mdpi.com/journal/jtaer
J. Theor. Appl. Electron. Commer. Res. 2022, 17 314

in blocks to create a canonical chain through consensus. Others employ a directed acyclic
graph based data structures, where there is no single canonical chain. Instead, transactions
reference and confirm previous transactions in order to increase the system’s throughput
by sacrificing some security features. Moreover, transaction structure can be changed to
achieve privacy, i.e., using ring signatures in Monero [3]. Regardless of the underlying data
structure, consensus mechanism, or network protocol, cryptocurrencies are decentralized
and permissionless computer networks that maintain a transparent ledger of transactions.
Unlike cryptocurrencies, where a user can have an arbitrary number of wallets (identities),
centralized and permissioned systems are easier to monitor, detecting suspicious behaviour
or anomalies where approaches are analogue to traditional banking systems, as users are
assumed to have a verifiable identity.
A report from The World Economics Forum [4] predicts 10% of the global domestic
product to be stored on blockchain based public ledgers. The growing interest has made
many developers, research, and innovators dedicate their time in an effort to improve on
the existing systems. The effects can be observed through the thousands of cryptocurrencies
and networks that exist presently. The growing velocity of these networks further increases
the risk for the regulator to protect the consumer and the stability of the financial system.
The United Nations Office on Drugs and Crime estimated up to 5% of the global GDP
of laundered money [5]. Assuming frauds grow in parallel with the velocity and total
value locked in the underlying network, a method for fast and efficient anomaly detection
is paramount. However, with the growth of innovation in this space, the techniques
employed must search for a generic solution that makes little or no assumptions about the
underlying network.
Our approach attempts to provide a technology agnostic tool to analyze open ledgers
to alert of potential suspicious behaviour which requires further, more fine-grained anal-
ysis. Although more than 12 years have passed since the first transaction of the first
cryptocurrency—Bitcoin (BTC) [6]—only the last few years have seen a big enough number
of transactions and a large enough time frame for some statistical analysis to be carried out.
Our research focused on empirical proof whether Benford law [1], a law of anomalous num-
bers, could be used in a non-altered form for discovering fraudulent or at least suspicious
activity on cryptocurrencies in the same way it is used in standard financial forensics.
Although we could observe the cryptocurrency transactions as just another financial
tool that should comply to all the used mechanisms (among them also the Benford law
conformity for identifying frauds and other anomalous behavior), there are some properties
that must be addressed or at least be observed:
• Mining transactions (mostly with mining pools) for all cryptocurrency assets that are
based on the Proof of Work (PoW) [7] consensus mechanism, by which the cryptocur-
rency blockchain network achieves distributed consensus. Mining pools, where most
of the miners are concentrated, pay out rewards to miners based on the computing
power contributed. The payouts are mostly scheduled to occur once the miner is owed
more than the threshold to save up on transaction fees. As many miners keep the
default threshold, many transactions are possibly of the same value;
• Default transaction fees (GAS) are the same. GAS refers to the pricing value re-
quired to successfully conduct a transaction or execute a contract on the Ethereum
blockchain platform.
The basic idea of the research was to test if Benford’s law conformity can be used as a
tool to detect anomalies in cryptocurrencies. The paper is structured as follows: Section 2
presents the basic properties of Benford’s law and its usages, Section 3 presents the state
of the art, followed by Methods and Materials in Section 4. The results are presented in
Section 5 and are discussed in Section 6.

2. Benford’s Law
Benford’s law, also called the Newcomb–Benford law or the first-digit law, is an
observation about the frequency distribution of leading digits. The observation was first
J. Theor. Appl. Electron. Commer. Res. 2022, 17 315

discovered by [8] and later rediscovered by [1]. Benford’s law defines a fixed probability
distribution for leading digits of any kind of numeric data with the following properties [9]:
• Data with values from several distributions;
• Data that has a wide variety in the number of digits (e.g., data with plenty of values in
the hundreds, thousands, tens of thousands, etc.);
• A data set that is fairly large, as a rule of a thumb consisting of at least 50–100
observations [10], although usually thousands of observations;
• Data is right-skewed (i.e., the mean is greater than the median), and the distribution
has a long right-tail rather than being symmetric;
• Data has no predefined maximum or minimum value (with the exception of a zero
minimum).
The distribution of digits is presented in Figure 1; the digit 1 occurs in roughly 30%
of the cases, and the other digits follow in a logarithmic curve. It has been shown that
this result applies to a wide variety of data sets [9]. Some examples are presented in
Section 3. The equation for the distribution of the first digits of observed data is presented
in Equation (1).
1
P(d) = log10 (d + 1) − log10 (d) = log10 (1 + ) (1)
d
The quantity P(d) is proportional to the space between d and d + 1 on a logarithmic
scale. Therefore, this is the distribution expected if the logarithms of the numbers (but not
the numbers themselves) are uniformly and randomly distributed.

Benford's Distribution

0.3

0.2
Percentage

0.1

0.0

1 2 3 4 5 6 7 8 9
Digit

Figure 1. The distribution of digits in accordance to Benford’s law [9]. Blue colored bars represent
digits that conform to Benford’s law.

3. State of the Art

Benford’s law has been thoroughly researched and its theoretical grounds have been
proved in many scientific papers. The methodology and basic mathematical grounds are
discussed in greater detail by [11]. Many researchers have verified for themselves that the
law is widely obeyed but have also noted that the popular explanations are not completely
satisfying [12]. To the authors’ knowledge, there has been no research in using Benford’s
law as a tool for the detection of anomalies in cryptocurrency transactions.
Benford’s law has been extensively used in the accountant fraud detection and preven-
tion, and there has been a lot of research in the area, such as [13,14], who present a literature
overview of the area. Ref. [15] introduces Benford’s Law and Digital Analysis (analysis of
J. Theor. Appl. Electron. Commer. Res. 2022, 17 316

digit and number patterns of a data set), which can be used as an analytical procedure and
fraud detection tool. Ref. [16] presents Benford’s law as a simple and effective tool for the
detection of fraud. The purpose of the paper is to assist auditors in the most effective use of
digital analysis based on Benford’s law by identifying data sets, which can be expected to
follow Benford’s distribution, and presenting types of frauds that would be “detected/not
detected” by such analysis. However, there are some research findings that point out some
inherent problems that potentially arise in the use of Benford’s law in the auditing process
such as [17].
The simplicity of Benford’s law as a tool allows for a broad range of uses. Ref. [18]
examined crime statistics at the USA National, State, and local level in order to test the
conformity to Benford’s law distribution. Ref. [19] observed the distribution of initial digits
of physical constants; however, their results were inconclusive.
One of the more recent researches involving Benford’s law is [20]. The authors pro-
posed a test of the reported number of cases of coronavirus disease in 2019 in China
with Benford’s law and report that the reported numbers of affected people abide to
Benford’s law.
Ref. [21] presented an overview of identified frauds that can be committed in the cryp-
tocurency paradigm. Identified frauds include Ponzi schemes [22], fake initial coin offering
schemes, pump and dump schemes, as well as cryptocurrency theft. Ref. [23] identified the
main reasons for frauds and manipulation in cryptocurrencies: lack of consistent regulation,
relative anonymity, low barriers of entry, exchange standards, and sophistication. Ref. [24]
performed an end-to-end characterization of the counterfeit token in the Ethereum net-
work, targeting Erc20 coins. Ref. [25] aimed to demonstrate that Bitcoin, the most known
cryptocurrency, constitutes a substantial danger in terms of criminal enterprise. Ref. [26]
presented an economic analysis of money laundering schemes utilizing cryptocurrencies,
which aims at providing an answer to the open question of whether cryptocurrencies
constitute a driver for money laundering. Ref. [27] proposed an approach to detect illicit ac-
counts on the Ethereum blockchain using well proven machine learning techniques. Recent
anomaly detection makes use of machine learning approaches. Support Vector Machines
(SVM) were used to detect anomalies in the Bitcoin network [28]. However, the analysis
is on the network level, and not on individual transactions. A clustering approach with
Random Forest (RF) was used to detect wallets with anomalous behaviour [29]. However,
the approach makes assumptions on the underlying structure of transactions to extract the
features needed, and thereby lacks generality. A recent study showed that neural networks
can be used to detect abnormalities with good stability and effectiveness, but the technique
is limited to smart contract platforms, and not general transaction networks. Kamišalić et
al. [30] presented a detailed overview of various techniques used for anomaly detection.
This highlights the need for a simpler implementation agnostic technique for preliminary
screening of public ledgers.

4. Methodology
As mentioned in Section 1, this paper proposes a methodology for identifying out-of-
the-ordinary behavior and possibly detect frauds in blockchain-based currency. As such,
the purpose is to present scientific grounds that allow feasibility and usefulness of the
method as well as to propose a set of usage guidelines and a use case where our hypotheses
were confirmed.
Our research experiment started with gathering all transactions on the Ethereum (ETH)
network. Ethereum was chosen for these properties: It is one of the biggest cryptocurrencies
by market capitalization and number of transactions processed; the network houses multi-
ple cryptocurrencies (tokens) that could be compared directly (this part of the experiment
is still open); and it is a well-documented and accessible blockchain. The first preliminary
results revealed that transaction values (non-aggregated) of the whole Ethereum network
do not conform to Benford’s law [1] as is presented in Figure 2. Blue color depicts the
leading digits that conform to Benford’s law, red color depicts the non-conforming digits.
The reasoning is further discussed in Section 4.1.
J. Theor. Appl. Electron. Commer. Res. 2022, 17 317

ETH

0.3

Percentage
0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 2. The leading digits of all ETH transaction values do not conform to Benford’s law. The daily
aggregated values conform to the same metric (see Figure 3), leading to a possible conclusion that
there are too many automatic transactions in the network, but the aggregated values avoid this effect.

Although this does not mean that there was any artificial manipulation or any other
kind of anomaly, we investigated further. According to [31] Benford’s law metric can be
used to achieve similar goals on aggregated data. We explored the same phenomenon on
aggregated values (number of transactions in an observed period, aggregated transaction
values, . . .). Most of the aggregated values conform to Benford’s law according to goodness
of fit chi square (χ̃2 ) test [32], which in most literature, such as [16], is considered as a
suitable tool to test Benford’s law conformity. We extended our research to all major
cryptocurrencies with enough transactions in the selected time-period.

Ethereum

0.3
Percentage

0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 3. The leading digits of daily aggregated ETH transaction values in USD conform to Benford’s
law. Blue colored bars represent digits that conform and red colored bars represent digits that do not
conform to Benford’s law.

4.1. Methods
The observation sets need to conform to all the basic prerequisites for Benford’s law as
described in Section 2. This is the agenda for the executed research:
• Take all major cryptocurrencies into consideration;
• Express all aggregated daily transactions in one currency—we selected USD ($) as the
most used fiat currency in comparisons;
• Select a viable observation period:
– Starting date for each currency was the date of the first successful transaction;
– Ending date for the observation period was set long enough into the past so that
the frauds or abnormal behavior were well documented (in the forms of law-
suits, scandals, vanished cryptocurrencies, well-documented special properties of
specific currencies). We selected the year as the end of 2018, almost three years
in the past;
J. Theor. Appl. Electron. Commer. Res. 2022, 17 318

– A long enough observation period that makes Benford’s law conformity obser-
vation feasible (as presented in Section 2). In the body of surveyed literature,
the sample size varies from 200 [33] to a few hundred thousand. We opted for
doubling the minimum sample size—selecting all cryptocurrencies with 400 or
more transaction days;
– Perform the MAD test [34] and classify all the cryptocurrencies according to [35]
and visually observe all conformity graphs;
– Perform a literature review for all the currencies that do not conform to Benford’s
law and establish if there are any abnormalities documented for the selected
time frame.
Testing conformity to Benford’s law distribution has been done with many goodness
of fit tests ranging from Pearson’s Chi squared [36], Kolmogorov-Smirnov D statistics [37],
Freedman’s modification of Watson U 2 statistics [38], euclidean distance d statistics, and
many others. However, no real data will ever follow the exact distribution; hence, most
analysis supplements statistical testing with graphical representations that help in pointing
out suspicious patterns in the data for further investigation. Additionally, different tests
have different reactions on sample sizes. The Chi square test suffers from an excess
power problem in that when the number of observations becomes large (above 5000
records estimated by [35]) it becomes more sensitive to insignificant spikes, leading to the
conclusion that the data does not conform. Ref. [39] suggested that some statistical tests
can render misleading results when applied to large number of observations. On the other
hand, ref. [40] conclude that the Mean Absolute Deviation MAD test [34] is reliable with as
low as 200 observations (as additional safety measure, we opted doubling that value to 400
in our experiment). Ref. [41] proposed the Mantissa Arc test, which is a very interesting
geometrical test. Unfortunately, it tolerates little deviation from Benford’s distributions.
Ref. [35] concluded that the best test is Mean Absolute Deviation (MAD), and a lot
of the state-of-the art literature agrees with this proposal. Ref. [35] also presents a list of
thresholds to classify the observed conformity:
• Conformity (0.000);
• Acceptable conformity (0.006);
• Marginally acceptable conformity (0.012);
• Nonconformity (0.015 and above).
The adapted MAD is used to measure the average deviation between the heights of
the bars and the Benford line. The higher the MAD, the lower the conformity. We opted to
perform conformity tests using all three of the aforementioned tests as our sample sizes
are well within the acceptable ranges. All presented statistical tests are also supplemented
with graphical representations; the results are presented in Section 5.

The Criteria That the Objects under Scrutiny Must Meet

Select a big enough set of aggregated data that conforms to Benford’s law prerequisites
described in Section 2. Observing only ledgers, the prerequisites that must be met are:
• The ledger must have support querying for transactions that contain the sending
address, receiving address, amount, and timestamp;
• The assets being transferred must be denominated in any universally comparable
form (any fiat currency (i.e., US Dollars) meets this criterion) at the time of transfer.
Count leading digits and perform Mean Absolute Deviation (MAD) conformity [35]
on the gathered data. Plot simple bar charts with the numbers for each leading digit and
visually and manually observe the distribution. If the data does not conform to Benford’s
law, investigate further.

4.2. Materials
DataHub cryptocurrency datasets (DataHub cryptocurrency datasets: https://datahub.
io/cryptocurrency accessed on 1 March 2021) hosts daily aggregated data about all transac-
J. Theor. Appl. Electron. Commer. Res. 2022, 17 319

tions on all crypto coin networks from the first mined block on the Bitcoin network till the
end of 2018. As such, it presents the perfect data source for our research. The problem that
arises is how to get more recent data. The problem is further discussed in Section 6.
The data that support the findings of this study are openly available on Zenodo
(Zenodo: https://zenodo.org/record/4682976 accessed on 1 January 2022, doi:10.5281/
zenodo.4682976).

5. Results
This section presents the results of the experiment following the methodology from
Section 4. All the figures in this section have the same format: a graph showing the
distribution of leading digits. Red colored bars represent suspect values, which skew the
distribution the most. Suspects are classified where the mean absolute deviation is above
the threshold of 4. The threshold can be adjusted to increase the sensitivity. Suspects are
useful as a starting point for further investigation in the case of nonconformity.
The time interval selected was between 2009 and 2018. Most of the cryptocurrencies
were in an early development phase without a use-case or product, and consequently the
amount of transactions recorded was negligible. Table 1 presents all cryptocurrencies that
conformed to the prerequisites presented in Sections 2 and 4. The most discriminating
factor in this phase was the minimum number of observations, which was set to 400 days
(roughly double the minimal number of observations for Benford’s law to be meaningful).
This property eliminated all currencies that were started later than the last quarter of
2017. Each cryptocurrency is presented by its name and the ticker, number of observations
(equal to the number of days), starting and ending date of the observation period and all
the values from Benford’s law conformance test. The currencies were grouped into four
groups according to [35] and were also sorted according to this grouping from best to
worst conformance.
All non-conformant cryptocurrencies were thoroughly observed and a list of pub-
licly announced anomalies and even frauds was compiled for each of these cryptocur-
rencies. The two best performing and two cryptocurrencies with the biggest market
cap were also observed in details. The results are presented in the remainder of the
section. All the other cryptocurrencies can be further analyzed using the available ac-
companying data (Zenodo: https://zenodo.org/record/4682976 accessed on 1 January
2022, doi:10.5281/zenodo.4682976) in the raw aggregated data form, a list of Benford’s law
conformity values and charts.
Two “best conforming” cryptocurrencies, Ethereum classic (ETC) and Vertcoin (VTC),
both still respectable projects, were classified as “Close conformity”. The two biggest
blockchain platforms regarding market capitalization, Bitcoin (BTC) and Ethereum (ETH),
were classified as “Acceptable conformity” and “Marginally acceptable conformity”, re-
spectively. Figure 4 shows Benford’s law conformance chart for further visual examination
for all four cryptocurrencies.
Six of the currencies from Table 1 were classified as “non-conformant” to Benford’s
law: EOS (EOS), TENX token (TENX), Veritaseum (VERI), Basic Atention Token (BAT),
PIVX (PIVX), and Dogecoin (DOGE). Each of the cryptocurrencies from this list will be
presented and discussed.
J. Theor. Appl. Electron. Commer. Res. 2022, 17 320

Table 1. Conformity tests for all major cryptocurrencies in the observed time-period with more than 400 days of transactions on the blockchain. The records are
sorted according to MAD Conformity column, from close conforming to nonconforming.

Pearson’s Chi-Squared Test Mantissa Arc Test

Currency Obs. MAD MAD Conformity Distortion Factor Start Date End Date
X-Squared p-Value L2 p-Value
Ethereum Classic (ETC) 750 1.766027 0.9873638 0.0000861 0.9374726 0.00351481 Close −0.1409321 2015-07-30 2018-08-12
Vertcoin (VTC) 1666 7.30948 0.5036398 0.000165673 0.7588044 0.005795195 Close −1.621333 2014-01-10 2018-08-12
Metal (MTL) 400 5.15115 0.7413057 0.001522525 0.543889 0.01089584 Acceptable −0.1257945 2017-06-29 2018-08-12
Status (SNT) 411 7.692396 0.4640798 0.001050824 0.6492816 0.01005221 Acceptable −1.560401 2017-06-19 2018-08-12
Aragon (ANT) 452 5.696092 0.6812311 0.005388913 0.08752867 0.01078389 Acceptable 3.448495 2017-05-15 2018-08-12
Waves (WAVES) 603 5.14964 0.7414692 0.003501951 0.1210349 0.008216651 Acceptable −1.721726 2016-06-02 2018-08-12
Iconomi (ICN) 658 10.17673 0.2528404 0.0008252317 0.5810012 0.0104604 Acceptable 0.8235436 2016-09-30 2018-08-12
NEO (NEO) 665 3.823118 0.8727192 0.0008927334 0.5522979 0.006478303 Acceptable 1.316035 2016-09-09 2018-08-12
Lisk (LSK) 811 11.45478 0.1772377 0.001803885 0.231552 0.009606102 Acceptable 3.072645 2016-04-06 2018-08-12
Stellar (XLM) 1009 9.622045 0.2925614 0.002200075 0.1086226 0.007992198 Acceptable 1.221268 2014-08-05 2018-08-12
Verge (XVG) 1387 8.300241 0.4047048 0.002115592 0.05316656 0.007575786 Acceptable −2.84182 2014-10-09 2018-08-12
MaidSafeCoin (MAID) 1560 10.43771 0.2356377 0.003279288 0.006001835 0.007513696 Acceptable 3.73407 2014-04-22 2018-08-12
Dash (DASH) 1641 5.958045 0.6519316 0.001418531 0.09750916 0.00621291 Acceptable 0.8615983 2014-01-19 2018-08-12
DigiByte (DGB) 1649 25.9 0.00111 0.003.21 0.005 0.01088511 Acceptable −2.4136 2014-01-10 2018-08-12
Bitcoin (BTC) 1933 30.8193 0.0001512958 0.0006696828 0.2740357 0.01158613 Acceptable 5.881506 2013-04-28 2018-08-12
Gnosis (GNO) 468 8.754344 0.3634412 0.006937894 0.03889326 0.01312756 Marginally acc. 1.135551 2017-04-18 2018-08-12
Golem (GLM) 633 11.07461 0.1975074 0.003690431 0.0967096 0.0129236 Marginally acc. 6.131378 2016-11-11 2018-08-12
Zcash (ZEC) 653 20.82315 0.007632357 0.001029657 0.5104994 0.01293599 Marginally acc. −0.9372237 2016-10-28 2018-08-12
Decred (DCR) 915 17.6832 0.02373108 0.0005975181 0.5788401 0.01375337 Marginally acc. −1.586765 2016-02-08 2018-08-12
Ethereum (ETH) 1102 25.77399 0.00115 0.000378 0.658996 0.01482756 Marginally acc. −0.08431323 2015-08-07 2018-08-12
NEM (XEM) 1230 27.13364 0.0006703807 0.008295528 0.000037 0.01417723 Marginally acc. 3.19854 2015-03-29 2018-08-12
Tether (USDT) 1258 34.91683 0.0000277 0.0138 0.00000003 0.01391653 Marginally acc. −5.969747 2014-10-06 2018-08-12
EOS (EOS) 401 15.36398 0.05244271 0.003494984 0.2462301 0.0200535 Nonconformity −2.819878 2017-06-20 2018-08-12
TENX token (TENX) 402 10.5 0.234 0.00808 0.0389 0.01539412 Nonconformity −7.119347 2017-06-27 2018-08-12
Veritaseum (VERI) 431 11.32151 0.1841391 0.01211339 0.005402612 0.01726905 Nonconformity −1.603899 2017-04-25 2018-08-12
Basic Atention T. (BAT) 438 19.05523 0.01456707 0.01293943 0.003456598 0.02196946 Nonconformity 0.2319942 2017-05-29 2018-08-12
PIVX (PIVX) 903 28.08438 0.0004584671 0.01199764 0.0000197 0.01890993 Nonconformity −7.031687 2016-01-30 2018-08-12
Dogecoin (DOGE) 1702 83.1755 1.1210−14 0.02422157 1.2510−18 0.0214206 Nonconformity −9.527495 2013-12-08 2018-08-12
J. Theor. Appl. Electron. Commer. Res. 2022, 17 321

Ethereum Classic VertCoin

Percentage

Percentage
0.3 0.3
0.2 0.2
0.1 0.1
0.0 0.0
1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9
Digit Digit

Percentage Ethereum Bitcoin

Percentage
0.3 0.3
0.2 0.2
0.1 0.1
0.0 0.0
1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9
Digit Digit

Figure 4. The two best conforming (ETC) and (VTC) currencies with “Close conformity” and the
two biggest cryptocurrencies (BTC)—“Acceptable conformity” and (ETH)—“Marginally acceptable
conformity” for aggregated value in USD transaction history.

5.1. TENX Token (TENX)

Figure 5 shows the TENX aggregated transactions and the conformance to Benford’s
law. The MAD value, a well documented Wirecard scandal (Crypto.com, TenX crypto
debit cards were frozen following the Wirecard scandal: https://decrypt.co/33695/crypto-
debit-cards-frozen-following-wirecard-scandal accessed on 1 March 2021) shows a possible
reason for non-conformity.

Tenx

0.3
Percentage

0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 5. TENX aggregated transactions and the conformance to Benford’s law. Digit 1 overflows,
digit 4 (almost) underflows. Overall, the daily aggregated transaction values do not conform.

5.2. Veritaseum (VERI)

Figure 6 shows the VERI aggregated transactions and the conformance to Benford’s law.
The U.S. Securities and Exchange Commission (SEC) said it has reached a settle-
ment with Reggie Middleton, organizer of the fraught $14.8 million Veritaseum (VERI)
initial coin offering (ICO) (Analysis of the Veritaseum Scam: https://steemit.com/money/
@financialcritic/analysis-of-the-veritaseum-scam accessed on 1 March 2021). The case was
closed on October 2019, but the frauds were committed well within the observation period
of our research.
J. Theor. Appl. Electron. Commer. Res. 2022, 17 322

Veritaseum

0.3

Percentage
0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 6. VERI aggregated transactions and the conformance to Benford’s law. Digit 1 overflows.
Overall the daily aggregated transaction values do not conform.

5.3. Dogecoin (DOGE)

Figure 7 shows the DOGE aggregated transactions and the conformance to Benford’s
law. The coin was introduced as a satire initially in December 2013 and included an image
of the Doge meme as its logo. The author of this coin/crypto currency revealed this
motivation publicly. Some properties showing the soundness of our decision are as follows:
• On the 24 September 2018 (a randomly chosen date on a working day at the end of
our observation period): the last tweet from the official Tweeter account on 14 July
2018 (80 days) (Dogecoin twitter account: https://twitter.com/Dodgecoin accessed
on 1 March 2021);
• Fun and friendly internet currency, the dogecoin logo is a dog from a meme;
• 24 h trading volume on all exchanges according to CoinCodex (Concodex: https://
coincodex.com/crypto/XXX/exchanges/ accessed on 1 March 2021) was USD 42.51
million dollars.
In the last years Dogecoin has gained a lot of positive reputation as being a “lost cause”
founding platform, and, especially in 2021, the value of the coin has seen a rapid increase
in price with the help of celebrity exposure [42]. However, these recent developments
were excluded from our analysis as we fixed the observation period from the start of the
crypto-assets till the end of 2018.

DOGE

0.3
Percentage

0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 7. DOGE aggregated transactions and the conformance to Benford’s law. Digit 1 overflows,
digit 3 underflows. Overall the daily aggregated transaction values do not conform.

5.4. Basic Attention Token (BAT)

Figure 8 shows the BAT aggregated transactions and the conformance to Benford’s
law. The transactions of the BAT coin are mostly automatically generated as this coin is the
basis of a digital marketing platform that periodically rewards users for participation, and
as such break Benford’s law prerequisites.
J. Theor. Appl. Electron. Commer. Res. 2022, 17 323

Basic Attention Token

0.3

Percentage
0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 8. BAT aggregated transactions and the conformance to Benford’s law. Digit 1 overflows,
digit 2 underflows, digit 7 (almost) overflows. Overall the daily aggregated transaction values do
not conform.

5.5. PIVX (PIVX)

Figure 9 shows the PIVX aggregated transactions and the conformance to Benford’s
law. There was no scandal reported for the PIVX project in the observation period (in
fact, the authors could not find any notable anomaly for this cryptocurrency). The only
speculation that the authors could give is that the PIVX network relies on anonymous
transactions that could be used to hide anomalies.

Pivx

0.3
Percentage

0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 9. PIVX aggregated transactions and the conformance to Benford’s law. Digit 1 overflows,
digit 3 underflows. Overall the daily aggregated transaction values do not conform.

5.6. EOS (EOS)

Figure 10 shows the EOS aggregated transactions and the conformance to Benford’s
law. EOS is regarded as a valid project and survived until 2021. The only drawback is that
in 2018, the project was in the starting phase and the backing capital risen by the backers of
the project was an order of magnitude bigger than what the proposed project promised
to accomplish (“Why EOS Failed to Kill Ethereum: The Fatal Flaw of Centralization
in a Decentralized Market”: https://coincodex.com/article/10454/why-eos-failed-to-
kill-ethereum-the-fatal-flaw-of-centralization-in-a-decentralized-market/ accessed on 1
March 2021).
J. Theor. Appl. Electron. Commer. Res. 2022, 17 324

EOS

0.3

Percentage
0.2

0.1

0.0
1 2 3 4 5 6 7 8 9
Digit

Figure 10. TENX aggregated transactions and the conformance to Benford’s law. Digit 1 overflows,
digits 2 and 4 (almost) underflow. Overall the daily aggregated transaction values do not conform.

5.7. Additional Currencies

An examination of all remaining cryptocurrencies that did not meet the criteria
presented in Section 4, mainly due to the lack of data, show additional cases that sup-
port the validity of the presented method. By lowering the requirement for the min-
imum number of observations to 300 days, we can observe additional cryptocurren-
cies that do not conform to Benford’s law that have documented scams and scandals
attributed to the observation period, such as: the Enigma (ENG) (Enigma Ethereum
marketplace was hijacked, its investors duped by phishing scam: https://www.zdnet.
com/article/enigma-ethereum-marketplace-hijacked-by-attackers/ accessed on 1 March
2021); SALT (SALT) (SALT COIN EXIT SCAM! Massive selloff predicted by Morgan
Stanley: https://www.youtube.com/watch?v=E2iNt3Z6qaY accessed on 1 March 2021);
and Waltonchain (WTC) (Monumentall stupid tweet blows up in blockchain company’s
face: https://mashable.com/2018/02/28/waltonchain-twitter-scam-wtc/?europe=true
accessed on 1 March 2021).

6. Discussion and Future Work

The main goal of the presented research was to test the applicability of Benford’s law
to the cryptocurrency transaction networks as a preliminary screening tool. The research
focused on some well-documented anomalies and frauds from the past and compared the
proposed metric on proven ecosystems that performed normally in the same time period.
We focused on the time period between 2009 (time of the first transaction on the Bitcoin
network) and 2018, as there were already enough transactions to meet all of Benford’s
law prerequisites, but also enough time had passed so that the anomalies and frauds had
already emerged to the public.
The results show that the proposed method is suitable for the proposed domain. All
the big blockchain platforms by market capitalization that were not biased by any big
scandal or lawsuit and that are still functioning three years after the observation time-
frame, such as Bitcoin (BTC), Ethereum (ETH), or OmiseGo (OMG), conform to Benford’s
law. However, failing to comfort to Benfords distribution does not necessarily imply fraud.
The method can produce false positives in the form of non-conformity of a cryptocurrency
and no particular fraudulent reason can be found. This can result from the nature of the
transactions of the observed currency. The method does not find the actual anomaly, but it
can be used as a preliminary screening that should always lead into fine-grained methods
such as Machine Learning methods and graph-based searching. The inspection of the
six cryptocurrencies that were classified as non-conforming to Benford’s law revealed
three currencies with well-documented anomalies: two (TENX and VERI) were tainted by
scandals and lawsuits and one (DOGE) was invented as a joke—and in the first years it was
regarded so. As an additional observation, Dogecoin is now a respected cryptocurrency
and in the last year grew to USD $50B market capitalization. The method is obviously not
J. Theor. Appl. Electron. Commer. Res. 2022, 17 325

suitable to predict the future of an observed cryptocurrency. The transactions of the BAT
coin are mostly automatically generated, as this coin is the basis of a digital marketing
platform. The two remaining cryptocurrencies that were identified by the method as
possible candidates for anomalous behaviour were EOS and PIVX, and although we could
speculate to some extension why these two did not conform to Benford’s law, the results
are inconclusive.
All major cryptocurrencies that existed in the selected time-frame (2009–2018) were
tested for the conformity to Benford’s law. The data availability statement is presented in
Section 4.2.
Future work, which is already underway, will focus on newer data. One such possible
source has already been identified: Kaggle (Cryptocurrency Historical Prices: https://
www.kaggle.com/sudalairajkumar/cryptocurrencypricehistory accessed on 1 March 2021).
Another open issue that can be tackled with the same methodology is a comparison of all
ERC20 tokens [43]. Ethereum-based cryptocurrencies were selected to ensure a common
(thus fair) technical basis—all these cryptocurrencies use the same technological platform,
so all possible reasons for differences that arise from basic technology are eliminated.

Author Contributions: Conceptualization, A.T. and J.V.; methodology: A.T. and J.V.; software, A.T.;
validation, A.T. and J.V.; formal analysis, A.T. and J.V.; investigation, A.T. and J.V.; funding acquisition
and resources, J.V.; data curation, A.T.; writing–original draft preparation, A.T. and J.V.; writing–
review and editing, A.T. and J.V.; visualization, A.T. and J.V. All authors have read and agreed to the
published version of the manuscript.
Funding: This research was funded by H2020 grant number 739574 and by the Slovenian Research
Agency (ARRS) grant number J2-2504.
Institutional Review Board Statement: The data gathering process did not involve the use of
human subjects.
Informed Consent Statement: Not applicable.
Data Availability Statement: The data that support the findings of this study are openly available
on Zenodo (Zenodo: https://zenodo.org/record/4682976 accessed on 1 January 2022, doi:10.5281/
zenodo.4682976).
Acknowledgments: The authors gratefully acknowledge the European Commission for funding
the InnoRenew project (Grant Agreement #739574) under the Horizon2020 Widespread-Teaming
program and the Republic of Slovenia (Investment funding of the Republic of Slovenia and the
European Regional Development Fund). They also acknowledge the Slovenian Research Agency
ARRS for funding the project J2-2504.
Conflicts of Interest: The authors declare no conflict of interest.

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