Using the Blockchain to Estimate UpDown's Profitability

UpDown is a popular Bitcoin binary options platform. A player can take either an "up" or "down" position on the price of an asset (e.g. gold or oil), a currency-pair (e.g. EUR/USD) or even something more esoteric (e.g. a random walk) where the resulting payout is either some multiple of the amount wagered or nothing. For example, UpDown offers a gold market. If you believe the price of gold will increase in the next sixty seconds, you can make a bet by sending bitcoins to the address specifically for the Gold Up market. If you are correct, you will receive 1.75 times the amount you wagered, otherwise you receive nothing.

Every bet and payout is recorded on the block chain. For each market, we can identify the vast majority of relevant bets and payouts and plot their cumulative value in bitcoins over time. The following is one such plot for the Gold Up market from its opening in mid-April 2014 to the end of May 2014:

For the period shown, we estimate that UpDown received 3,536 bets on the Gold Up market. The total amount wagered was 94.36 BTC. UpDown paid out 81.27 BTC in winnings and was left with a profit of 13.09 BTC. This does not include operating costs. We can see from the plot that the market was profitable from inception. We can also observe that this market was closed at weekends.

We can repeat the exercise for each market. The results are summarised in the tables below. You can click on any of the market names to see a similar plot to the one above.

Asset Markets # Bets Wagered (BTC) Payouts (BTC) Profit (BTC)
Gold Up 3,536 94.35768169 81.27439612 13.08328557
Gold Down 3,420 87.95203982 74.95382596 12.99821386
Silver Up 3,215 104.04224196 87.70476703 16.33747493
Silver Down 3,054 79.77713535 68.57847705 11.19865830
Oil Up 586 14.80848748 14.31758509 0.49090239
Oil Down 442 12.33853876 10.35946225 1.97907651

Currency-Pair Markets # Bets Wagered (BTC) Payouts (BTC) Profit (BTC)
EUR/USD Up 3,293 98.45726087 85.94384575 12.51341512
EUR/USD Down 2,970 63.16867601 51.72954467 11.43913134
GBP/USD Up 3,010 57.11467860 46.81658901 10.29808959
GBP/USD Down 2,844 54.40708202 46.39458244 8.01249958
USD/CHF Up 2,764 51.71120343 39.91836947 11.79283396
USD/CHF Down 2,805 51.61590052 41.01838617 10.59751435
AUD/USD Up 2,921 53.83228691 42.48009601 11.35219090
AUD/USD Down 9,790 190.67501382 165.10146280 25.57355102
JPY/USD Up 2,874 55.25482414 45.49762326 9.75720088
JPY/USD Down 3,063 59.17775206 49.40593911 9.77181295
NZD/USD Up 2,703 50.23935205 41.10382731 9.13552474
NZD/USD Down 2,732 51.48715990 43.84757781 7.63958209

Novelty Markets # Bets Wagered (BTC) Payouts (BTC) Profit (BTC)
Planes in the Air Up 1,459 68.10460676 53.39359623 14.71101053
Planes in the Air Down 3,909 87.62287060 60.82408107 26.79878953
White Noise Up 4,279 87.52495407 74.89993607 12.62501800
White Noise Down 4,363 88.96360352 77.79944896 11.16415456
Random Walk Up 4,594 109.58409857 94.64430783 14.93979074
Random Walk Down 4,339 87.07268781 77.61538650 9.45730131

In total, we estimate that UpDown received 78,965 bets from mid-April 2014 to the end of May 2014. Players wagered 1,759.28 BTC and UpDown paid out 1,474.57 BTC in winnings. This leaves a profit of 284.81 BTC before operating expenses. This is an estimate based entirely on publicly available information: the addresses are shown on UpDown's website along with enough information to identify payouts and the transactions are all available on the block chain.

This is a sample analysis. It can be extended to the present day. However, the available markets, the payout multiples and the addresses occasionally change. There is also evidence of double-spending attacks against UpDown's service which require more careful analysis. It is possible to extend this analysis in many other ways, for example, to estimate the number of repeat players, identify lucky and unlucky streaks, or identify martingales.

A Note on Financial Privacy

The block chain is, in many ways, a double-edged sword for financial privacy. It allows us to conduct a financial transaction with anyone else in the world without the need to divulge identifying information to an intermediary. However, it does require that we broadcast the transaction to the world. The contents of the transaction, its relationship with other transactions, and the act of broadcasting the transaction itself combine to muddy the issue.