Question:
Discuss about the Strategic Management for Crypto Currency Market.
The case study deals with investigating the growing use of crypto currency by providing an analysis of this growing world industry (Zhang et al. 2015). The study discuss on at least three crypto currencies such as Bitcoin, ethereum and darkcoin. The current segment properly presents data of crypto currency trends and values over past few years. The study clearly compares the resources and capabilities that are needed to mine crypto currency by small house users as well as large commercial factories. It even highlights the costs and viability of mining Bitcoin. The threat of crypto currencies becomes difficult to handle by the currency banks. Discussion had been done on criminal usage of crypto currencies. Lastly, the interest of the Chinese Government in crypto currency as well as implications of this interest is noted in and across the world (Tschorsch and Scheuermann 2016).
The Crypto Currency market is growing at rapid pace in recent years. Major crypto currencies used in the market are Bitcoin, ethereum and darkcoin. Among these three crypto currencies, Bitcoin dominates over other currencies recently but the data highlights the market share will eventually drop down significantly by next few years (Tarasiewicz and Newman 2015). There is growing trend of crypto currencies that are playing major role in the current market. On analysis, it is even noted that crypto currencies are more complex by nature as compared to public lexicon. There had been several studies that examine the role and future of Bitcoin but few actually explore the broader crypto currency market.
Figure: Trend line of Crypto Currencies (2014 to 2017)
(Source: Rabah 2017)
One of the biggest challenges with digital currency is to prevent unauthorized copying. In addition, crypto currencies mainly use two mechanisms for preventing it. The first mechanism is to publish each transaction in a public record as well as storing numerous copies of ledger online as it allows them to be automatically compared as well as updated. Therefore, these currencies prevent double spending that uses same Bitcoin in purchasing two different things. The second mechanism used will be to protect ledger cryptographically (Osterrieder, Strika and Lorenz 2017). Here, every updates is collected together with wide range of new transactions as well as add to the existing ledger.
The difference between Ethereum and Bitcoin lies in the fact where Bitcoin is nothing more than a currency while Ethereum is a ledger technology where companies are using for building new programs. In addition, both these crypto currencies operates in Blockchain technology where the version used by Bitcoin is 1.0 and for Ethereum is 2.0 as it allows for building decentralized applications (Ong et al. 2015).
Bitcoin can be termed as digital dollar where anyone can create an account for either purchasing or selling the digital currency. The price of digital currency fluctuations as it is based on supply as well as demand (Nakamoto 2016). On the other hand, Ethereum has the potential to overtaking Bitcoin as the dominant coin in the current marketplace.
|
Crypto currency |
Market Capitalization |
|
Bitcoin |
$ 72018984613 |
|
Ethereum |
$ 29125807759 |
Darkcoin was developed and uses X11 algorithm as it claims to be immune that attacks other crypto currencies such as Bitcoin and Ethereum. Darkcoin provides users with security in a way where it blurs the transaction paths and to that users feel confident in knowing ways for moving their finances (Morabito 2017).
The crypto currencies are not controlled by any of the government body. Banks in China and Russia are not accepting these crypto currencies especially Bitcoin. Countries such as United States, Canada and European Union consider Pro-Bitcoin. These crypto Currencies are allows between the private entities (Mandjee 2015).
It is noted that market capitalization of crypto currencies exceed $6,000 billion. There are more than 21 million Bitcoins that exist till date and 15,359,800 are in circulation. Bitcoin are too small that can affect Federal Government as it has the ability to conduct monetary policy. More than 88,000 merchants use Bitcoin (Low and Teo 2017).
These crypto currencies drive forces such as anonymity, savings as well as reach. There is low-level of awareness as well as usage of these crypto currencies among the public. It is noted that merchants today are adopting the payment technology as it increase adoption among the consumers (Lansky 2016).
Bitcoin public ledger is being leveraged in a smooth ways. Technology Life Cycle is presented below where time is taken in the x-axis and adoption rate is taken in the y-axis.
Figure: New Technology Life Cycle
(Source: Halaburda and Sarvary 2016)
If there is growth in demand, there is more need of computational power. It is noted that miners need to find an alternative source of electricity that are mostly cheap in old plants. Therefore, Carbon footprint associates with 1.5 tons of carbon gas emissions (Osterrieder, Strika and Lorenz 2017).
There is decentralized nature of the coin that mainly restricts any type of regulatory effort. Countries like Canada, USA and EU are putting regulations in given form. For instance, Obama Administration partners with private companies such as Blockchain alliance (Folkinshteyn and Lennon 2016).
As there is growth of crypto currencies, it is expected that more central bankers are looking crimping their use. There are few issues in central banking that provokes anxiety as compared to fear of losing control of one’s currency. The Chinese Central bank actually had banned initial coin offerings of digital currencies such as Bitcoin that lead to fall in the value of some crypto currencies by 20% (Chodorow 2017). On analysis, it is noted that there is growing uneasiness regarding how disruptive technology act to the whole banking as well as payments system.
Firstly, banks spend time to remain safe and restrict new entrants. The bankers mainly think of regulation that makes financial services less appealing for the new entrants. Recently, the penny is dropping where the non-bank rivals can target more profitable areas that leave regulated banks less profitable (Chan et al. 2017).
Secondly, more than $600 billion has been raised for funding private debt as shown in the market data. The policymakers are spending too much time for analyzing the non-banking sector. In addition, the growing dependence of bank on large technology firms helps in running their infrastructure in systematic way (Osterrieder, Strika and Lorenz 2017).
Thirdly, the central banks actually had lost control over payments when individuals are privately issuing Bitcoin currencies. Here, issue of currencies considered as lucrative business just like Central bank but it varies with the cost of issuing a coin or bank note as well as its face value (Bashir, Strickland and Bohr 2016).
Low supplier switching costs positively affect crypto currencies. There is less bargaining power of the suppliers.
When exit barrier are low then weak firms likely to enter the market as it increase profit levels for the remaining business. Low exit barriers have positive impact for Bitcoin (Tschorsch and Scheuermann 2016).
When customers have limited choices and the choices are made available. In addition, limited buyer choices have positive impact for Bitcoin.
There is limited number of substitutes where customers find other products or services as it fulfill their needs. Limited substitutes have positive impact for usage of Bitcoin.
There is high threat from new entrants who shows willingness to enter the market. High entry barriers have positive impact for usage of Bitcoin.
The cost of Bitcoin value has been on a free fall from last few months. The coin now costs slightly prompts for every Bitcoin exchange for registering extreme lows. Cryptocoin does not have long life year ahead that is a clear indication (Tschorsch and Scheuermann 2016). The longevity of Bitcoin relies mainly on the direct support from the community in case of mining activities. There is specific cost that is required to sustain this activity and turns to be detrimental to growth of mining in the industry.
Mining considers as an investment that offer rewards to those who actually render service in solving mathematical problems (Osterrieder, Strika and Lorenz 2017). Here, the computation is needed for approving the transactions as well as keeping the public ledger healthy that shows updated and aligned data. In addition, laws of economics highlights that any rational investor will engage in production when return exceed the effort in the short-term and long-term. It is not different from Bitcoin cloud mining or in that case regular crypto mining.
There are different start-up companies such as Coinbase, Blockchain as well as Circle and BitPay uses Bitcoin in their operations. It is essential that the miners such as individuals and business enterprise as it form the core backbone of Bitcoin as it ensures the integrity of digital currency. Bitcoin runs on a Blockchain as it is decentralized as well as public ledger on every transaction made on the network. The user’s shows interest in winning Bitcoin as it creates an arms race of miners that scrambles for assembling ever-more sophisticated as well as powerful equipment to mine new Bitcoin (Osterrieder, Strika and Lorenz 2017).
Crypto currencies are considered to be one of the new technology-driven virtual currencies that had existed from the year 2009. Because of the nature of this digital currency, they are used by the criminal organizations (Tschorsch and Scheuermann 2016). It is important for law enforcement organizations as well as regulations to understand about how these digital currencies work and their use by criminal organizations. Crypto-currencies are a group of virtual currencies that relays upon peer-to-peer system that gets disconnected from central issuing authority as it allows users an anonymous or near-anonymous method for conducting transactions. Bitcoin, Ethereum as well as DogeCoin are some of the existing crypto currencies that have combined market capitalization of $ 90 billion.
The interest of the Chinese Government in crypto currency as well as implications of this interest in and across the world
Chinese Authorities have mainly ordered crypto currency exchanges for ceasing trading as well as notify users of their closure that signals a widening crackdown by authorities on the industry as it contain financial risks. Here, the exchanges actually stopped users to register for overseeing internet finance risks as it circulates online as well as verified by a government. China is cracking down on the crypto currency business as it tries to limit risks where consumers pile into a highly speculative market. Digital currencies such as Bitcoin and Ethereum do not have sovereign endorsement as it is not legal currencies (Osterrieder, Strika and Lorenz 2017).
Conclusion
At the end of the study, it is concluded that crypto currencies are widely used current but has some limitations as well. More than 3 million people are estimated to be actively using crypto currencies such as Bitcoin, Ethereum and Darkcoin. Crypto currency exchanges render on-off ramps for the systems by providing services to users either to buy or sell crypto currency. Central banks are in tension where they feel that their ability to monitor the payment system would fall in the near future. The central bank may even lose control of the money supply and this is an acute concern. The cost of mining is not fixed and decreases and expensive. It is noted that the modern software as well as hardware continues to make the process less costly. Here, miners have the option to hold onto their Bitcoins till there is improvement in the pricing. Therefore, Bitcoin is selling at what it is told as under the cost of mining where the overall system had become unsustainable. There are various factors that need to be considered that mining cost of each of the Bitcoin will have adverse effects on the performance of crypto currencies in different industries even in the Bitcoin gambling market.
Reference List
Bashir, M., Strickland, B. and Bohr, J., 2016, November. What Motivates People to Use Bitcoin?. In International Conference on Social Informatics (pp. 347-367). Springer International Publishing.
Chan, S., Chu, J., Nadarajah, S. and Osterrieder, J., 2017. A statistical analysis of cryptocurrencies. Journal of Risk and Financial Management, 10(2), p.12.
Chodorow, A., 2017. Rethinking Basis in the Age of Virtual Currencies. Va. Tax Rev., 36, p.371.
Folkinshteyn, D. and Lennon, M., 2016. Braving Bitcoin: A technology acceptance model (TAM) analysis. Journal of Information Technology Case and Application Research, 18(4), pp.220-249.
Halaburda, H. and Sarvary, M., 2016. Cryptocurrencies. In Beyond Bitcoin (pp. 97-163). Palgrave Macmillan US.
Lansky, J., 2016. Analysis of Cryptocurrencies Price Development. Acta Informatica Pragensia, 5(2), pp.118-137.
Low, K.F. and Teo, E.G., 2017. Bitcoins and other cryptocurrencies as property?. Law, Innovation and Technology, pp.1-34.
Mandjee, T., 2015. Bitcoin, its legal classification and its regulatory framework. J. Bus. & Sec. L., 15, pp.157-219.
Morabito, V., 2017. Digital Currencies. In Business Innovation Through Blockchain (pp. 81-100). Springer International Publishing.
Nakamoto, S., 2016. Changing the Dominant Monetary Regime, Bit by Bitcoin. The Evolution of Money, p.196.
Ong, B., Lee, T.M., Li, G. and Chuen, D.L.K., 2015. Evaluating the potential of alternative cryptocurrencies. Handbook of digital currency. Amsterdam: Elsevier, pp.81-135.
Osterrieder, J., Strika, M. and Lorenz, J., 2017. Bitcoin and cryptocurrencies—not for the faint-hearted. International Finance and Banking, 4(1), p.56.
Rabah, K., 2017. Digital Cryptoeconomics Powered by Digital Cryptocurrency. Mara Research Journal of Computer Science & Security, 1(1), pp.107-131.
Tarasiewicz, M. and Newman, A., 2015. Cryptocurrencies as distributed community experiments. Handbook of digital currency, pp.201-222.
Tschorsch, F. and Scheuermann, B., 2016. Bitcoin and beyond: A technical survey on decentralized digital currencies. IEEE Communications Surveys & Tutorials, 18(3), pp.2084-2123.
Zhang, B., Wardrop, R., Rau, R. and Gray, M., 2015. Moving mainstream: benchmarking the European alternative finance market. Journal of Financial Perspectives, 3(3), pp.60-76.
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