The main objective of the study is to highlight the growing use of crypto currencies. In this particular assignment, proper emphasis has been given on discussing a least three crypto currencies and some of the crypto currencies are Bitcoin, Darkcoin and Ethereum (Wilmoth, 2017). In addition, the study elucidates present data of crypto currency trends as well as values by taking relevance from past few years. The current segment even compares both resources and capabilities as it is required to mine crypto currency by small house users and large commercial factors. Furthermore, the study even explains about the cost and viability of mining Bitcoin. The next segment illustrate about threat of crypto currencies that become difficult for handling by the currency banks. The last segment explains about the interest of the Chinese Government in crypto currency and implications of this interest in and across the world (Tschorsch & Scheuermann, 2016).
A purely peer-to-peer version of electronic cash will definitely allow online payments to be sent directly from one party to other without going through a financial institution (Bashir, Strickland & Bohr, 2016). In addition, digital signatures help in a great way but the major advantages are lost of a trusted party is still required to prevent double spending. The crypto currency market is growing at faster pace nowadays. Most of the crypto currencies that are popularly used in the market are Bitcoin, Darkcoin and Ethereum. Furthermore, there is growing trend of crypto currencies that plays major role especially in the current market. However, it is seen that crypto currencies are more complex to understand and it is compared with public lexicon. Therefore, several studies shows examining the role as well as future of Bitcoin as it help in exploring the broader crypto currency market.
Figure: Trend line of Crypto Currencies (2014 to 2017)
(Source: Bitcoin.org 2017)
There are several challenges on using digital currency. One of such challenge is to prevent unauthorized copying (Bashir, Strickland & Bohr, 2016). Addition to that, these crypto currencies help in using two different mechanisms for preventing the actions. Here, the first mechanism relies upon publishing each of the transaction in public record and even storing several copies of ledger through online medium. Furthermore, these currencies actually restrict double spending. Next, the second mechanism will be sued for protecting the ledger cryptographically. Therefore, each of the updates will be collected together by using wide variety of new transactions and adding to the existing ledger (Tschorsch & Scheuermann, 2016).
There is difference between two crypto currencies such as Bitcoin and Ethereum. Here, Bitcoin is nothing more than a currency whereas Ethereum is one of the ledger technologies that are used by companies to build new programs. Furthermore, both Bitcoin and Ethereum operate in Blockchain technology, as it is the version used. Bitcoin version is 1.0 whereas Ethereum version is 2.0 where it helps ways in order to build decentralized applications.
|
Crypto currency |
Market Capitalization |
|
Bitcoin |
$ 72018984613 |
|
Ethereum |
$ 29125807759 |
Bitcoin is one of the revolutionary system that is quite complex as well as has a high learning curve (Chan et al., 2017). It is a known fact that successful trading is all about taking correct decisions based on quality information. It is essential to conduct research and analysis by informing traders where they will be involved in undertaking trading decisions as it produces higher return. Several resources are needed to mine crypto currency by small home user as well as large commercial factories. Bitcoin wisdom is one of the charting website that helps in monitoring the price of Bitcoin in and across several exchanges. In addition, traders can make use of Bitcoin Wisdom for performing a wide range of tasks that include monitoring price trends as well as volume and ordering book bids or asks (Darkcoin is Now Dash, and Not a Moment Too Soon. 2017).
Strategic environment (PEST analysis)
Political factors- It is important to understand the fact that crypto currencies are not controlled by any of the government body. In addition, banks in China and Russia until now are not accepting these crypto currencies such as Bitcoin. On the contrary, countries like United States, European Union and Canada make use of Pro-Bitcoin (Tschorsch & Scheuermann, 2016).
Economical factors- It is important to understand the fact that market capitalization of crypto currencies had exceeded for more than $6,000 billion. Crypto currency such as Bitcoin is too small that can easily affect Federal Government as it has the capability for conducting monetary policy.
Social factors-It is important to understand the fact that these crypto currencies aims at driving forces like savings, reach and anonymity. In addition, there is even low awareness and usage of these crypto currencies. However, the merchants involves nowadays are adopting the payment technology as it increase adoption among the customers or clientele.
Technological factors- It is important to understand that Bitcoin public ledger is used in smoother terms. In addition, Technology Life Cycle is mentioned below where time is taken in the x-axis and adoption rate is taken in the y-axis (Tschorsch & Scheuermann, 2016).
Figure: New Technology Life Cycle
(Source: Biggs, 2017)
Competitive environment (Porter’s Five Forces Model)
Bargaining power of suppliers- There is less bargaining power from the suppliers as the switching costs is low and it positively affect crypto currencies.
Bargaining power of customers- There is limited choice from customers that positively affect crypto currencies (Bitcoin). When customers has limited choices as well as choices are made available (Folkinshteyn and Lennon, 2016).
Competitive rivalry- There is low exit barriers that positively affect crypto currencies (Bitcoin). When exit barrier is low, then it is shown that weak firms aims at entering the market as it increases level of profits for the business enterprise (Lansky, 2016).
Threat from new entrants- There is high entry barriers that positively have an impact on usage of Bitcoin. In addition, there is high threat present from new entrants that have an interest to enter the market (Bashir, Strickland & Bohr, 2016).
Threat from substitute products- There is limited substitutes that positively have an impact on usage of Bitcoin. In addition, there is limited number of substitutes available where the customers select other products or services as it aims at fulfilling the needs or expectations (Morabito, 2017).
It is noted that the cost of Bitcoin had been falling from last few months. It clearly indicates that for every Bitcoin exchange, the cost for registration is low. Bitcoin is a crypto currency that gets direct support from the community especially at the time of undertaking mining activities (Zhang et al., 2015). Therefore, the cost incurred help in sustaining the activities as well as turning to be detrimental for growing the mining in given industry. Here, mining act as an investment as it offer rewards those who relies upon rendering service at the time of solving mathematical problems. Furthermore, it is needed to compute given transactions and keep updated with the public ledger as it indicates reliable data. However, laws of economics explain the concept where any rational investor will work in production when the return exceeds the efforts in both long-term as well as short-term activities (Ong et al., 2015).
There is constant growth of crypto currencies recently where it is noted that central bankers are looking ways to crimp its usage (Why banks fear bitcoin. 2017). On analysis, there are several issues found in central banking as it provoke anxiety and compared to fear of losing main control over other currency. Furthermore, banks are spending too much time to remain safe and restrict new entrants. Earlier, Bitcoin was treated as a fringe technology especially for libertarians as well as computer geeks. Recently, Bitcoin as well as other crypto currencies like Ethereum are gaining mainstream adoption. Furthermore, mainstream adoption had been implemented by financial speculation for a privately minted as well as deflationary medium of exchange. For instance, Bitcoin dropped by 16% in value but other coins dropped by approximately 25%. Therefore, the price of Bitcoin recovered to the previous high within a time span of 18 hours (Tschorsch & Scheuermann, 2016).
The reaction of the crypto market to the Federal Reserve announcement mainly aims at providing evidence where crypto currencies are viewed as a safe-haven investment at the time of flat significant fiat currency dilution (Bashir, Strickland & Bohr, 2016).
Reacting to Fed Policy- In situation when Fed continues to raise rates, it is noted that the demand for these crypto currencies may decrease. In addition, when Fed closes the faucet especially on new printed money, then there is less newly printed money as it helps in viewing the flow into asset classes like real estate as well as crypto currencies and stocks (Rabah, 2017).
Bitcoin Inflation- It is a well-known fact that Bitcoin is deflationary when the currency has an annual inflation rate for approximately 4%. In addition, Bitcoin help investors for hedging the expansionary monetary policies as it is adhered to by central banks due to demand for Bitcoin as it is growing at rapid pace that is higher as compared to increase in the supply of Bitcoin.
It is noted that crypto currencies is treated as one of the new technology-driven virtual currencies. It is due to the nature of digital currency, these crypto currencies are used by the criminal business enterprise. Furthermore, it is essential for law enforcement enterprise and regulations for understanding work of digital currency and its use by the criminal organizations. In addition, crypto currencies belong to a group of virtual currencies as it relies upon peer-to-peer system as it get disconnected from Central that issue authority as it allow users for conducting transactions on crypto currencies. These crypto currencies such as Bitcoin and ethereum have combined market capitalization of $90 billion (Staff, 2017).
After analysis, it is noted that Chinese authorities were involved in ordering for crypto currency exchange for ceasing trading and explaining users to their closure that signals a widening crackdown by these authorities on this industry as it involves financial risks (Reiff, 2017). In addition, the exchanges restrict users for registering for overseeing internet finance risks as it uses it online and as verified by the government. Furthermore, China is involved in cracking down on the crypto currency business as it looks at the risk where the consumers start piling it up into a highly speculative market. Therefore, digital currencies like Bitcoin and Ethereum do not have sovereign endorsement, as it does not come under legal currencies (Bashir, Strickland & Bohr, 2016).
Conclusion
From the above analysis, it is noted that crypto currencies are popularly used nowadays but has some disadvantages associated with it. Most of the people are now interested to use these crypto currencies like Bitcoin, Darkcoin and Ethereum. Furthermore, these crypto currencies provides on-off ramps that help users who are interested to either buy or sell these crypto currency. In addition, central banks are now in tension when they start monitoring the payment system that adequately fall in the upcoming financial years. However, the cost of mining is not fixed as well as it decreases and it is equally expensive. Nevertheless, the modern software and hardware makes the whole process less costly. Miners here have the option to hold on Bitcoin digital currency as it helps in bringing improvement in the pricing structure. Thus, Bitcoin is selling under cost of mining where the entire system had become unsustainable. Several factors are taken into consideration when the mining cost for each of the Bitcoin has negative effect on the performance of crypto currencies in various industries especially in case of Bitcoin gambling market.
Reference List
Bashir, M., Strickland, B. & Bohr, J., (2016), November. What Motivates People to Use Bitcoin?. In International Conference on Social Informatics (pp. 347-367). Springer International Publishing.
Biggs, J. (2017). A Rare Look Inside A Massive Bitcoin Mine. TechCrunch. Retrieved 11 December 2017, from https://techcrunch.com/2015/02/06/a-rare-look-inside-a-massive-bitcoin-mine/
Bitcoin.org (2017)- Bitcoin.org.. Bitcoin.org. Retrieved 11 December 2017, from https://bitcoin.org/bitcoin.pdf
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.
Darkcoin is Now Dash, and Not a Moment Too Soon. (2017). Cointelegraph. Retrieved 11 December 2017, from https://cointelegraph.com/news/darkcoin-is-now-dash-and-not-a-moment-too-soon
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.
Lansky, J., (2016). Analysis of Cryptocurrencies Price Development. Acta Informatica Pragensia, 5(2), pp.118-137.
Morabito, V., (2017). Digital Currencies. In Business Innovation Through Blockchain (pp. 81-100). Springer International Publishing.
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.
Rabah, K., (2017). Digital Cryptoeconomics Powered by Digital Cryptocurrency. Mara Research Journal of Computer Science & Security, 1(1), pp.107-131.
Reiff, N. (2017). Chinese Government is Developing its Own Cryptocurrency. Investopedia. Retrieved 11 December 2017, from https://www.investopedia.com/news/chinese-government-developing-its-own-cryptocurrency/?lgl=rira-baseline-vertical
Staff, W. (2017). Darkcoin, the Shadowy Cousin of Bitcoin, Is Booming. WIRED. Retrieved 11 December 2017, from https://www.wired.com/2014/05/darkcoin-is-booming/
Tschorsch, F. & Scheuermann, B., (2016). Bitcoin and beyond: A technical survey on decentralized digital currencies. IEEE Communications Surveys & Tutorials, 18(3), pp.2084-2123.
Why banks fear bitcoin. (2017). MIT Sloan Experts. Retrieved 11 December 2017, from https://mitsloanexperts.mit.edu/why-banks-fear-bitcoin/
Wilmoth, J. (2017). Darkcoin News. CryptoCoinsNews. Retrieved 11 December 2017, from https://www.cryptocoinsnews.com/darkcoin-news/
Zhang, B., Wardrop, R., Rau, R. & Gray, M., (2015). Moving mainstream: benchmarking the European alternative finance market. Journal of Financial Perspectives, 3(3), pp.60-76.
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