Bitcoin Case Study

Bitcoin – The Future of Digital Payments

Contents page

Introduction

This report will analyse the case study, “Bitcoin: The future of digital payments” by Andrei Hagiu and Nathan Beach (2014). This case study describes the chequered history, the underlying technology and the ecosystem that supports Bitcoin (BTC). Additionally, it looks at the myriad of established digital payment systems with which BTC competes for merchant and consumer support. The analysis will concentrate on the major issues responsible for mitigating the widespread adoption of BTC as a digital currency and assuming these can be overcome, how BTC firms can protect themselves and the BTC brand and maintain a competitive advantage over later entrants into the market.

Despite significant progress in gaining broader acceptance of the digital currency technology by merchants and consumers and significant venture capital investment in companies in the BTC ecosystem recent speculation still has the international business community wondering if BTC represents a truly unique breakthrough in the history of money, or whether it is a passing fad that is doomed to repeat past mistakes. BTC is one of many digital currencies in use around the world today but is by far the largest in terms of market capitalisation (see Appendix 1).

What is Bitcoin ?

BTC was first introduced in 2009 and is a digital cryptocurrency designed to reinvent the way that money works. Cryptocurrency in its purest form is a peer to peer version of electronic cash and allows online payments to be initiated between party’s without going through a financial institution. The complexity and over-regulation of the fiat currency system combined with the loss of trust following the global financial crisis and subsequent quantitative easing (printing of money by governments) and huge government debts make a deflationary currency like Bitcoin attractive to many.

BTC are created through the process known as “mining” where individuals...