Bitcoin and the Future of Traditional Monetary Systems Case Study

Introduction

This article will provide an analysis of Bitcoin case using appropriate critical thinking tools including six thinking hats, PESTLE and SWOT analysis. Critical thinking, the study of clear and reasoned thinking, enables business managers to make clear and more reasoned judgments. In the process of critical thinking, your judgments should be well thought. The paper will start with an overview of the case study whereby the issues involved in Britcoin case are briefed. The next part is to evaluate the case using six thinking hats, PESTLE and SWOT analysis in order to make decision on the type of regulation to be imposed on Britcoin. The report will then provide recommendations based on the evaluation, and conclude on the key issues addressed.

Bitcoin Case Study Overview

Bitcoin is a virtual, decentralized monetary system based on digital tokens without intrinsic value and has no central bank; it relies on the users who are recording transaction on a publicly available ledger. Most major retailers have accepted Bitcoin to be part currency and are now exchanged with physical goods purchased online and most authorities worldwide have recognized its legitimacy (Pagliery 2013, P.14).

Bitcoins is still new in the market, and its workability is still being used and understood in the market. After four years of its inception, Bitcoin capabilities are still being figured out especially during economic uncertainties and stock market fluctuations, and major economies. Most governments are skeptical about this system, but it is open to debate and may bring regulation for transaction between users (Botelho 2013, p.54). The main conundrum surrounding Bitcoin has made most companies who wanted to adopt Bitcoin in their transaction to slow down because fear of backfire. Well, obtaining Bitcoin involve a process of that is not understood by most people. Therefore, the lack of knowledge especially the practical knowledge of obtaining the Bitcoin, as kept financial and telecommunication experts at bay.

Evaluation

The Six Thinking Hats

According to Bono (2000), the six thinking hats method is mostly used in critical thinking in order to be become more focused and more disciplined in their thinking habits resulting in a greater systematic and structured critical thinking.

The six thinking hats is a group thinking tool used to plan thinking processes in a cohesive and detailed manner in order to come up with a viable group decision effectively. It involves six colored hats which enable the human brain to think in a structured manner. These six hats involve six different directions through which the brain can be challenged. The six directions are provided and assigned colors to enable the brain to identify and bring into focus the aspects of key issues being addressed.

The white colored hat represents needed or known information only – just the facts. In order to make decisions information is needed. The yellow hat is a symbol of optimism which allows the brain to focus mainly on positive aspects and explore the values of benefits of the decision. The black hat represents judgment – this explains why something may not work by determining challenges and difficulties. The red hat represents feelings and instincts. This hat allows group members to share fears, love, feelings and emotions. The green hat symbolizes creativity whereby the new concepts and perceptions are provided. Lastly, the blue hat represents management; it determines how the thinking process is managed in order to ensure that the guidelines under the six hats are adhered to.

With respect to Bitcoin, the white hat includes information such as number of users of the service, the technology used, etc. In terms of the yellow hat, the decision makers of the case may consider the benefits of the service e.g. reduced costs of borrowing, easy access of funds, and easy and quick commercial transactions. In terms of black hat, room is provided for opposing ideas on why the Bitcoin may not work effectively. The green hat will invite new concepts or creative ideas on how to improve Bitcoin. The red color can then be used to bring in feelings and emotions that may affect Bitcom networks. Lastly, the blue hat will be used to manage all the decision processes.

PESTLE Analysis

PESTLE analysis involves the analysis of Political, Economic, Socio-Cultural, Technological, Legal and Environmental factors. The table below summarizes these factors.

Positive Negative
Political –          Government support

–          Political stability

–          Unpredictable elections

–          Corruption

Economic –          Increased demand

–          Free trade

–          Volatile cryptocurrency

–          Competition from traditional monetary systems

Social –          Positive attitude and interests towards the Bitcoin

–          Rising middle class

–          Increased online use

–          Possibility of betrayal and manipulation of figures
Technological –          Skilled personnel create good technology

–          Increased transfer of technology across countries

–          Poor technology

–          Rigidity of traditional technologies

Environmental –          Global warming –          Availability of resources
Legal –          Free trade

–          Trade unions

–          Taxation

Bitcoin presents a lot of benefits as well as possible pitfalls based on the Pestle analysis. There is increased government support for the project, and users have developed social interest for Bitcoin services because they have embraced online transactions which lead to easy transactions as it only require internet connection and no need for bank accounts and allows its users to transfer to anyone overseas without the need for expensive middlemen such as banks, middlemen and agents’ commissions. Gandal and Halaburda (2014) suggest that competition is the most problematic economic issue affecting the emergence of Bitcoin.

SWOT Analysis

This includes strengths, weaknesses, opportunities and threats facing an organisation, an industry, a market, a country or a business system.

Strengths

Since the system allows the users to transfer money in form of Bitcoins across the international boundaries, most users view the system as a time saving system, which allow them to transfer money with the lowest cost form one country to another unlike other online banking system. The system is also an easy and quick way of making commercial transactions; hence making business exchanges easy and the economy becomes more efficient.

Weaknesses

On the other hand, Bitcoin market is still on the conceptual age and is volatile in terms of value of the currency.  Bitcoin is also not a main exchange tool like money that is mainly used for exchange in the market for the main commodity such as food and gas. Although some companies have adopted the use of the Bitcoin system, it is still limited.  Expected demands are also expected to bush Bitcoin value higher, therefore, speculation about its stability and overall acceptance is still not clear, and for instance, China has banned the use of Bitcoin throughout the country. Bitcoin is also the first independent internet currency that is governed and maintained by its users. Therefore, there are some speculations that heavy mandatory tax and higher payment fees might be introduced to the system.

Opportunities

The Cryptocurency was invented in 2009 and as gathered a strong, thriving pace since that time (Gervais 2013). Although the thriving phase is still slow, with the modern digital world, the system is turning to be the next step in money transfer, online bookings and payments, and exchange by using digitally signed messages that transfer ownership of Bitcoin (Babaioff et al 2011). Addresses that authenticate payee’s identity for the recipient are normally used as digitally signed messages.

Bitcoin payment transfer is done digitally without the need for exchange rate fees, which make it the best solution for users who are growing day by day. Bitcoin appeal in most part of the world is slowly revealing some opportunist and techno libertarians all over the world (Guttmann 2013). The main reason is due to the fact that it allows users to make online purchases in retail stores without having to reveal their identity (Forrester, Daniel, and Mark 2013, P.30). It does the same thing as credit card with your name and a number on it but does everything online (Forrester, Daniel, and Mark 2013, P.31). With Bitcoin, one can avoid paying high transaction fees without having to worry about their account getting compromised due to hacking or fraudulent results of charge-backs.

Moreover, Bitcoin users receive a lot of discount from various shops, which make the use of the currency more appealing (Gervais 2013). Along with these benefits, Bitcoin users utilize opportunities offered by Bitcoin to spend their money internationally or in foreign where worries about converting the hard or electronic money to local are avoided. By using Bitcoin someone avoid converting money from one currency to another ensuring that they avoid conversion fees (Forrester, Daniel, and Mark 2013, P.31).

Threats

Mölleken and Dirk (2012) suggest that it is normal for an innovation to go through the hurdle of rejection stage, speculation, skeptic, and finally acceptance. Bitcoin industry ever since its inception has been going through phases of uncertainties, and it is expected to remain it the same state for a longer time (Bergesen 2014). Bitcoin has been in the market for only short period of time, and its wave is still new to most techies, finance enthusiast and governments. Ever since its inception in 2009, the Bitcoin digital currency’s proxies is spiking at a rate which some considers a good boost while some think that it is a major disaster waiting to explode (Gandal and Halaburda 2014). However, since it does not include authentically approval or regulated terms and condition, the threats of misuse and exploitation are severe.

Although a number of agencies have acknowledge its legitimacy, of its decentralized status, the Department of Home Security (USA) view Bitcoin as one of the emerging threat and an imminent dangerous tool for payment that criminals can use the money exchange tool for payment of assassinations without any trace (Gandal and Halaburda 2014). According to Bergesen, Kevin (2014), Bitcoin has also been blamed for its ability to provide anonymity in cyberspace, which calls for an aggressive posture to deal with Bitcoin and other cryptocurrencies.

Recommendation

In addressing issues related to Bitcoin, the government should recognize it as a property, and it involves and should involve Bitcoin stakeholders when creating regulation governing the system. Presently, there are only two opinions explaining Bitcoin’s status in the law. One of the available opinions defines it as a medium of exchange that operates like currency, but does not have all attribute of a currency. In another opinion, a USA district court ruled it as a currency that can be used to trade for goods and services and even pay for individual good and services (Barski, Conrad, and Chris 2014, p.31)

Bitcoin is in an embryonic state for both technology and community users (Forrester and Solomon 2013). Any government and intervention or regulation runs the risk of being prosecuted of acting as unregistered MSBs user. Such great risk may end up in a massive freezing effect on Bitcoin users (Babaioff, Moshe, Shahar, Sigal, and Aviv 2009, p. 9).

According to Gandal, Neil, and Hanna (2013), another great problem facing Bitcoin usage in most part of the world is a lack of legislation that clarify whether the Bitcoin operation and maintenance is confined under the law. In order to make the currency useful in most part of the world, the US government needs to make some key changes on how federal agencies and state government approaches decentralized Bitcoin and other virtual currencies.

It is highly recommended that the U.S. federal government should help to stabilize the currency by maintaining a reserve for Bitcoins. They could then trade on Bitcoin to serve the moderate supply and demand of the Bitcoin, stabilizing the dramatic shift of the market. Some clear evidence show that the government is already holding about 3% of the global Bitcoin supply. Therefore, the government should help to ensure that the Bitcoin Network remains honest by provide computational power to honest nodes in the network (Yermack 2013, P.61).

 Conclusion

For a short period that has been in the market, Bitcoin has demonstrated a great promising deal as a cryptocurrency technology that is capable of shaving how we view and use the money. Despite its challenging inception in the black market, the currency holds many legitimate functions and strengths over conventional and legal tender, especially in online transactions (Guttmann 2013, p53).

The U.S. is currently among the most prominent nations in accordance to the total number of transactions and the sheer number of transactions involving Bitcoin.

Koch (2001) recommends that, to ensure that Bitcoin is still performing in the U.S, various sections of federal laws and enforcement require amendment. They include that the decentralized currency should be acknowledged, and Bitcoin stakeholders should be included in the decision-making process. The existing FinCEN guidelines, federal TAX code, and state licensing requirement should be altered to make the legal aspects of Maintaining Bitcoin money services Business clear and tenable. If the U.S. does not clarify its stance on the Bitcoin, they risk losing the next decade of financial innovation.

References list

Babaioff, M., Dobzinski, S., Oren, S. and Zohar, A. 2011, ‘On Bitcoin and red balloons’, ACM SIGecom Exchanges, vol. 10, no. 3, pp. 5-9.

Barski, C. and Wilmer, C. 2014, Bitcoin for the Befuddled, No Starch Press, London.

Bergesen, K. 2014, ‘Bitcoin Report ability and Taxation’, Mondaq Business Briefing, pp. 1-34.

Bono, de Edward. 2000, Six thinking hats. Revised and updated ed, Penguin, London.

Botelho, A. 2013, ‘Bitcoin value smashes records in China and US’, New Scientist, vol. 220, no. 2944, p. 5.

Böhme, Rainer. 2013, The Economics of Information Security and Privacy, Springer Berlin Heidelberg, Berlin, Heidelberg.

Elwell, C.K., and Murphy, M.M. 2013, Bitcoin questions, answers, and analysis of legal issues, Congressional Research Service, Washington, DC.

Forrester, D. and Solomon, M. 2013, Bitcoin exposed: today’s complete guide to tomorrow’s currency: learn the ins and outs of Bitcoin and how you can profit from it,           GrassRootBooks, Marston Gate.

Gandal, N. and Halaburda, H. 2014, Competition in the cryptocurrency market. Bank of Canada, Ottawa.

Gervais, A. 2013, Double-Spending Fast Payments in Bitcoin due to Client versions 0.8.1. ETH, Department of Computer Science, Institute of Information Security, Zürich.

Guttmann, B. 2013, The Bitcoin Bible All you need to know about bitcoins. Books on Demand, Norderstedt.

Koch, R. 2001, The natural laws of business: applying the theories of Darwin, Einstein, and Newton to achieve business success, Currency/Doubleday, New York.

Moore, B.N. and Parker, R. 2007, Critical thinking. 8th ed., McGraw Hill, Boston.

Mölleken, D. 2012, Bitcoin, Diplomica Verlag, Hamburg.

Mullan, P.C. 2012, The digital currency challenge: shaping online payment systems through US financial regulations, Revised and Updated Edition, London.

Pagliery, J. 2014, Bitcoin and the future of money, Triumph Books LLC, Chicago, Illinois.

Raza, A. 2014, ‘Bitcoin, Currency of Digital Economy’, The Nation (Karachi, Pakistan), vol. 22, no. 35, pp. 32-56.

Somerville, H. 2014, ‘Bitcoin Gets Easier for Consumers to Buy, Spend’, The Seattle Times, 14 Apr, p. 21.

Yermack, D. 2013, Is Bitcoin a Real Currency? An economic appraisal, National Bureau of Economic Research Cambridge, Mass.

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