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Proof-of-work versus proof-of-stake coins as possible hedges against green and dirty energy

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  • Kliber, Agata
  • Będowska-Sójka, Barbara

Abstract

This article examines whether high- and low-environmental impact cryptocurrencies play a role as hedging instruments for green and non-green energy instruments. We differentiate between cryptocurrencies with two types of consensus mechanisms, proof-of-work and proof-of-stake, which reflect the energy demand used for the coins’ confirmation. We obtain volatilities and dynamic conditional correlations from stochastic volatility models and apply them to calculate hedge ratios. Based on the sample from 15 January 2019 to 15 September 2022, we find that clean coins provide equally good protection, measured by the hedge effectiveness, as compared to dirty coins. Yet, in each case, such effectiveness was time-varying and insignificant in some periods. Overall, cryptocurrencies are more effective hedges for oil than for clean energy assets.

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  • Kliber, Agata & Będowska-Sójka, Barbara, 2024. "Proof-of-work versus proof-of-stake coins as possible hedges against green and dirty energy," Energy Economics, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:eneeco:v:138:y:2024:i:c:s0140988324005280
    DOI: 10.1016/j.eneco.2024.107820
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    More about this item

    Keywords

    Cryptocurrencies; Oil; Green energy; Hedge; Proof-of-work; Proof-of-stake;
    All these keywords.

    JEL classification:

    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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