Cryptocurrency Brings New Battles into the Currency Market Yingjie - PowerPoint PPT Presentation

Lehrstuhl Netzarchitekturen und Netzdienste Institut für Informatik Technische Universität München Cryptocurrency Brings New Battles into the Currency Market Yingjie Zhao Betreuer: Heiko Niedermayer

Content • Brief introduction to cryptocurrency • Cryptocurrency as a new competitor in the currency market • Bitcoin • Competition among cryptocurrencies • Competition betwenn cryptocurrencies and fiat currencies • Will cryptocurrencies replace fiat currencies sometime? • Will cryptocurrencies coexist with fiat currencies? • Competition among currency exchanges • Competition among different exchanges • Competition between digital wallet and bank • Conclusion 2 Cryptocurrencies

Brief introduction to cryptocurrency Definition: A cryptocurrency is a medium of exchange using cryptography to  secure the transactions and to control the creation of new units. Cryptocurrencies are a subset of alternative currencies or specifically of digital currencies. Common features   Decentralized control  Transactions are anonymous and will be recorded in a public transparent ledger Historical Background   Bitcoin as the first cryptocurrency was created in 2009  Then, Namecoin and Litecoin appeared in 2011  Two significant periods • First period: 2 May 2013 --- 30 September 2013 • Second period: 1 Oct 2013 --- 28 February 2014. 3 Cryptocurrencies

Brief introduction to cryptocurrency Price of Bitcoin in USD First period Second period Price today: about $250 4 Cryptocurrencies

Cryptocurrency  Bitcoin, the most important cryptocurency in the moment  The first decentralized digital currency, that can be send in the internet  Limited amount: 21 million  How does it work? • People can buy and sell Bitcoins for dollars, euros and more • Bitcoins can be kept in digital wallet on computers or moblie devices • Sending a Bitcoin is very simple just like sending an email • People can purchase anything with Bitcoin • All verified transactions are recorded in a transparent ledger.  Advantages • Can be transfered directly from person to person without going bank • The fees are much lower • Can be used in every country • The account will not be frozen 5 Cryptocurrencies

Cryptocurrency Competition among cryptocurrencies   There are nearly 500 different kinds of cryptocurrencies in the market  Bitcoin: approximately 90%;  Litecoin: approximately 5%; and  Peercoin: about 1% of total digital currency market capitalization. Where does the competition come from?   Fixing shortcoming of Bitcoin  Capitalising on potential popularity of other cryptocurrencies 1. period: less competitive  2. period: more keen competition  Influence factors of competition   Reinforcement effect: dominant in 1.period  Subtitution effect: dominant in 2.period 1.period 2.period 6 Cryptocurrencies

Competition: Cryptocurrencies and Fiat Currencies  The enter of cryptocurrencies into the market is a double-edged sword.  Advantage of cryptocurrency in comparison with fiat currencies  Direct transfer from one person to another person without bank or clearinghouse  Free payment  Fewer risks due to anonymity  Not be controlled by government  Disadvantage of cryptocurency in comparison with fiat currencies  Low adoption  Volatile price  Security risks due to technical issues • e.g. In February 2014 $350 million worth of Bitcoins were stolen from Mt.Gox 7 Cryptocurrencies

Competition: Cryptocurrencies and Fiat Currencies  Will cryptocurrencies replace fiat currencies?  At least, it is impossible at this moment.  Cryptocurrency has limitation, e.g. Bitcoin has only 21 million in total to be mined.  Cryptocurrency has higher requirements on technology.  It is getting more difficult to get cryptocurrencies like Bitcoin as more Bitcoin has been mined.  Merchant treats cryptocurrencies more as financial asset not as currency  Will cryptocurrencies coexist with fiat currencies?  International transaction with cryptocurrencies  Bank account is not necessary  Sending money via SMS like sending Bitcoin  Reduce volatility of cryptocurrencies Cryptocurrencies fix shortcomings of fiat currencies Fiat currencies fix shortcomings of cryptocurrencies 8 Cryptocurrencies

Competition among Currency Exchanges  Competition among different currency exchanges  Top 3: BTCChina, OKCoin, Bitfinex  Cryptocurrency • Bitcoin is the dominant coin  Fiat currency • USD is the dominant coin • CNY and EUR play an important roles as well Competitiveness strength= BTC+USD+CNY+EUR 9 Cryptocurrencies

Competition among Currency Exchanges  Competition in Bitcoin market  BTCChina: 168,959.56 BTC  Bitfinex: 20,789.19 BTC  OKCoin: 19,969.77 BTC  Bitstamp: 12,111.22 BTC  BTC-e: 7,108.91 BTC 10 Cryptocurrencies

Competition among Currency Exchange  Competition in Litecoin market  OKCoin: $ 2,047,790  BTC-e: $ 287,866 11 Cryptocurrencies

Competition among Currency Exchanges  Influence factors  motivation of arbitrage • E.g. Bitcoin was cheaper on BTC-e than on Bitstamp with more than 2% and sometimes even more than 4% • Merchants buy Bitcoin on BTC-e and sell them on Bitstamp  “ winner take all ” effect • More market capitalization, more reliability  Prospect of cryptocurrency exchanges  More kinds of fiat currencies, cryptocurrencies will have more popularity  More sorts of cryptocurrencies, more opportunities  Diversification strengthen competitiveness  Improvement of security and popularity under the competition 12 Cryptocurrencies

Competition among Currency Exchanges  Competition Between Digital Wallet and Bank  Digital wallet, be your own bank • Two kinds: local wallet and online wallet • No additional transaction fees • Quick and safe • Enable transaction world wide  Bank • Absolute high acceptance • interest • But the trust between customers and banks is getting weaker, especially after financial crisis  Generally, the advantage of banks is much greater than disadvantage of banks, people are used to own a bank account or even more, and it is too hard to change the way people used to behave. 13 Cryptocurrencies

Conclusion  In the competition among cryptocurrencies, Bitcoin is no doubt the dominant cryptocurrency, but the other altcoin like Litecoin should not be underestimated due to their increased values  In the competition between cryptocurrency and fiat currency, cryptocurrency is not able to replace fiat currency, it is still in infancy. But they can coexist with each other.  In the competition among cryptocurrency exchanges, OKCoin has a top position not only in the Bitcoin market but also in the Litecoin market. China is now one of the biggest market for cryptocurrency, the transaction of BTCChina is the best prove.  As more and more payment systems such as Paypal support the payment with cryptocurrencies, the financial market starts to change as well as people‘s lifestyle 14 Cryptocurrencies

Thank you for your attention! 15 Cryptocurrencies