Strategic Management - Cryptocurrencies: A Comparative Analysis

This report presents a strategic management analysis of cryptocurrencies, focusing on Bitcoin, Ethereum, and Litecoin. It begins with an executive summary that introduces cryptography and its applications, then delves into the origins of cryptocurrencies and the foundational paper by Satoshi Nakamoto. The report conducts a PESTLE analysis, examining political, economic, social, technological, environmental, and legal factors impacting the cryptocurrency market. It also applies Porter's Five Forces model to assess industry rivalry, threats of substitutes, new entrants, and the bargaining power of suppliers and customers. The report then compares resources and capabilities, including the cost and viability of mining, and discusses the threats posed by criminal use and government interests, particularly in China. The report concludes by analyzing the popularity and usage of cryptocurrencies in various industries.

Running head: STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
Name of the Student
Name of the University
Author Note

1STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
EXECUTIVE SUMMARY
The study and the practice of the techniques that are used for ensuring a secure
communication between selected members under the presence of third parties, commonly
known as the adversaries during the transaction might be termed as cryptography. In simpler
words, cryptography refers to the construction and the analysis of the codes of data that
allows the secrecy of the intended information. In modern days, cryptography tends to leave
its mark in almost every field of the human life. It generally finds application in the fields that
deal with the confidentiality of data, the authentication factors, the integrity and the non-
repudiation of the data. The following report attempted a comparative study of three such
cryptocurrencies – Bitcions, Ethereums, and Litecoins.

2STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
Table of Contents
Introduction....................................................................................................................4
Paper by Satoshi Nakamoto...........................................................................................4
PESTLE Analysis...........................................................................................................9
Political factors...........................................................................................................9
Economic factors........................................................................................................9
Social factors............................................................................................................10
Technological factors...............................................................................................10
Environmental factors..............................................................................................10
Legal factors.............................................................................................................10
Porter’s Five Force Analysis........................................................................................10
Industry Rivalry.......................................................................................................11
Threats of the Substitutes.........................................................................................11
Threats of the New Entrants.....................................................................................11
Bargaining power of the suppliers...........................................................................11
Bargaining power of the customers..........................................................................12
Comparison of the resources and capabilities..............................................................12
Cost and viability of mining.....................................................................................13
Threats posed...........................................................................................................14
Criminal uses............................................................................................................14
Interest of the Chinese government..........................................................................15

3STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
Enhancement of the popularity of Bitcoins..............................................................16
Usage of the Bitcoins and its popularity in the industries........................................17
Conclusion....................................................................................................................18
References....................................................................................................................19

4STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
Introduction
A digital asset that might be used as a medium for the exchange abiding by the
methods of cryptography in order to conduct transactions in a secured fashion might be
referred to as a cryptocurrency (Delmolino et al. 2016). The cryptocurrencies might help to
keep the creation of the additional units of currency. The various cryptocurrencies are
considered to be a part of the currencies that are exchanged virtually, over the digital
platforms and as an alternate to the currencies that are generally used. The following report
attempts to investigate the huge increase in the use of the cryptocurrencies. The report
attempts to analyze the growth in the cryptocurrency and the effect that the condition might
create in the worldwide scenario. The following report aims to discuss the origin of the
cryptocurrency concepts and also aims to discuss three cryptocurrencies that have been
present in the virtual economy. The report opens to the readers with the discussion of the
paper of Satoshi Nakamoto on the cryptocurrency of Bitcoin wherein is discussed the origin
of the cryptocurrencies. The report also discusses the ways in which these cryptocurrencies
might affect the financial institutions that operate in the hard currency, the ways in which
these currencies are put to use by people who have criminal intentions. The report on its
ending note deals with the interest of the Chinese government in the matters pertaining to the
use of these cryptocurrencies and the implications that it might have on the global economy.
Paper by Satoshi Nakamoto
The cryptocurrencies are known to be produced in a collective manner by the
completely decentralized system that is dedicated to the cryptocurrencies. The basic technical
system that underlies the system of cryptocurrencies was created by an individual or a group
of individuals bearing the name Satoshi Nakamoto (Lemieux 2013). The production of the
cryptocurrencies experience a gradual decrease till the time when there is a capping over the

5STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
total amount of the cryptocurrencies that have been circulating in the market. There have
been various cryptocurrencies that have been in circulation in the recent times like the
Auroracoins, the Bitcoins, the Ethereum and the Litecoins (Narayanan et al. 2016). The main
reason for the existence of the cryptocurrencies is the demand for trusted parties in the
financial transactions over the e-commerce platforms rather than the financial institutions that
deal in the hard currencies. The mediation cost that is involved in the transaction varies with
the variance in the cost incurred in the transactions. The electronic payments do involve a
certain amount of the fraudulent practices which cannot be avoided. There is a need for a
trustworthy medium of transaction that might allow the concerning parties to be engaged in
direct transactions without any third party between them.
The e-payments, in this case, are made using the virtual coins that are defined with the
help of a chain of digital signatures. These coins are generally passed from one owner to the
other using the digitally signed previous transaction hash and the public key to the
transaction. The payee has all rights to verify the signatures but cannot ensure as to whether
the same coin has been doubly spent by the earlier owners. The only way to solve the
problems might be granting transaction history access to the concerned parties who are
involved in the transaction. In order to guarantee the safety of the transactions that are held
virtually, there must be included a system that might provide with a proof-of-work that needs
to be redone in case of any dishonest handling of the given node of transaction.
The user should be allowed to verify the acceptance of the transactional nodes after
their linkage with the concerned network chain. The reliability of the transaction node is valid
till the time it is controlled by the honest nodes that have been functioning in the concerned
transaction chain. In order to prevent the transactions from being linked to a single IP
address, a separate key pair should be used for each transaction (Nakamoto 2018). This might

6STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
help to prevent the transactions to get linked to the same owner who has been operating from
the concerned IP address.

9STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
PESTLE Analysis
The PESTEL analysis of the first ever decentralized cryptocurrency, Bitcoin is
demonstrated below.
Political factors
The cryptocurrencies are not controlled by any governmental bodies. The financial
institutions of a number of countries have banned the use of the cryptocurrencies. There are
countries in the world that are considered to be Pro-bitcoin. The transactions that involve the
cryptocurrencies are usually confined between two parties operating in private.
According to a report published by Kim (2018), the government of South Korea has
decided to put a ban on the various anonymous accounts at the banks that deal with the
trading in the cryptocurrencies. The government aims to put a check on the crimes that are
related to money laundering and other such similar activities. These virtual currencies are
generally used by the criminals in order to deal with huge sums of money that might be used
for facilitating illegal as well as criminal activities. there has been a huge rise in the number
of the investors in the field of the cryptocurrencies despite the warnings that were given by
the government of the country. The investment in the cryptocurrencies lacks the broader
regulatory oversight that the investors must possess in order to gain profit from the
investment that they might have made in the concerned field.
Economic factors
The market capitalization of the Bitcoins has extended beyond the global GDP of
almost 78 trillion dollars making it almost 6 billion dollars. There are almost 15359800
Bitcoins in circulation of the total number of 21 million existent Bitcoins (Bitcoin.org 2018).
The cryptocurrencies fail to affect the monetary abilities conduction policies of the

10STRATEGIC MANAGEMENT -A STUDY ON CRYPTOCURRENCIES
government. A huge number of the merchants amounting to almost 88000 of them use the
cryptocurrencies in their dealings (Baek and Elbeck 2015).
Social factors
The anonymity in the operations is one of the driving forces behind the high
popularity of the cryptocurrencies. The cryptocurrencies might be used in a wide number of
activities, thereby aiding in the savings of the users by helping them to skip the processing
methods that are to be followed in the traditional methods for payment.
Technological factors
The public ledger, better known as the block chains, that is maintained by Bitcoin
needs to be leveraged (Li and Wang 2017).
Environmental factors
The need for the computational power has faced an increase due to the increment in
the demand for the cryptocurrency. The miners do search for the cheap varieties of coal that
are available in order to generate the needed electricity. This has led to a huge amount of
carbon-dioxide emission that might prove harmful for the environment.
Legal factors
The decentralized nature of the cryptocurrency has proved to be a hindrance to the
regulatory measures that should have been taken against Bitcoin (Srokosz and Kopyściański
2015). The countries such as USA, EU and Canada, however, have been on their way to
finding measures in order to impose the regulations on the usage of the cryptocurrency.
Porter’s Five Force Analysis
The cryptocurrencies must follow the five forces management model that has been put
forth by Michael Porter (Dobbs 2014). This model states that any business organization must

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primarily aim to remove the threats that they might face due to the new entrants in the
market. The model also deals with the threats that a company faces due to the substitutes that
have been operating in the same market (Rothaermel 2015). This model might also aim to
keep a look out for the bargaining power of the suppliers and the customers of the concerned
business. The analysis of the Bitcoin industry on the basis of the Porter’s Five Forces model
is discussed below.
Industry Rivalry
The new entrants to the industry do pose a threat due to the various technological
implications that they might pose towards the existing organizations in the market. There are
a number of industries that have been dealing with the cryptocurrencies. Thus, it might be
safely said that the rivalry of the different companies in the industry is high.
Threats of the Substitutes
The number of the substitutes in the industry of the cryptocurrencies is very high and
is seen to be on the rise for the past years.
Threats of the New Entrants
The financial market had been dominated by the traditional system of hard currency
over a long period of time. The entry of the cryptocurrencies in the market is a relatively
current matter thus there have been lower chances of facing threats due to the other new
entrants (Böhme et al.2015). Thus, the threats that the industry might suffer due to the new
entrants is comparatively low.
Bargaining power of the suppliers
The suppliers in the case of the cryptocurrencies mainly refer to the providers of the
internet connection. The internet service providers do have a huge role to play in the
cryptocurrency industry. The hike in their prices that they offer might lead to the lowering of

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the mining of the currencies leading to the lesser amount of the currencies that have been
floating in the market. The supplier bargaining power thus might be said to be very high.
Bargaining power of the customers
The customers in case of the cryptocurrencies refer generally to those individuals who
demonstrate huge interest in the virtual financial market. The clients might have the option to
switch between the various types of cryptocurrencies that are available to them via the market
(Extance 2015). The bargaining power depicted by the customers might thus be said to be
high for the virtual financial market.
Comparison of the resources and capabilities
In the present times, investments in the equipments needed for the profitable mining
of the digital currencies or the cryptocurrencies are considered to be profitable. The miners
generally launch the mining set up and then wait for the returns of their investments to set in.
The income generated by these digitalized currencies is very low as compared to the
investments that need to be done. There are some cryptocurrencies that are comparatively
easier to mine than the others.
The mining equipments include the items that are enlisted below.
 A private and free coin base.
 A mining software package (CryptoSource.org 2018).
 The membership of a mining pool and a currency exchange.
 A high-speed internet connection which delivers a speed of not less than
2mbps.
 A cool place is needed for establishing the set up of the required system. The
miner needs to have a computer that is tailored for the activity of mining. The
miner needs to have an ASIC chip that is necessary for mining and a

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motherboard that might hold up to three PCI-E slots that are needed for the
video cards (CryptoSource.org 2018).
Bitcoins can only be mined on larger scales and involves a number of steps. The
miners are required to solve mathematical problems with the help of a special software
(Bitcoin.org 2018). The Bitcoins are issued to them for providing the solutions to those
problems.
Cryptocurrency Date of
Introduction
Values (In terms of
USD)
Current Market
Trends
Bitcoin 3rd January, 2009 I Bitcoin = 11,312.53
USD (approx.)
It had reached its peak
in December 2017 and
has been fluctuating till
date
(Worldcoinindex.com
2018).
Ethereum 7th October, 2011 1 Ethereum = 1071.03
USD (approx.)
It had reached its peak
during the first week of
January, 2018 and is
fluctuating till date
(Worldcoinindex.com
2018).
Litecoin 30th July, 2015 1 Litecoin = 181.04
USD (approx.)
It was at its peak in
December 2017 and has
been fluctuating ever
since
(Worldcoinindex.com
2018).
Cost and viability of mining
The first cryptocurrency that have been totally implemented in the global financial
market is the Bitcoin. This digital currency is open-source and requires no one to either own
or control the system. The electronic payments that take the help of the cryptocurrencies are
facilitated on the basis of mathematical proofs and other such validations. The Bitcions and
other such digital currencies might be exchanged with the other currencies, products, services
and other such things. The transactions that involve cryptocurrencies do transpire between