Critical success factors for bitcoin economics

Abstract

Bitcoin is a relatively new topic with limited research into its economic and financial implications. While originally described as a peer-to-peer electronic cash system, Bitcoin has popularly come to be known as the world’s first cryptocurrency – an assertion that has generated controversy, yet has received little academic scrutiny. To better understand Bitcoin economics, this thesis led exploratory research identifying Critical Success Factors driving Bitcoin growth and adoption as currency by businesses and individuals. The Critical Success Factors identified were transaction costs, technical efficiency, governance, payment security, distribution, quantity and velocity. Although Bitcoin successfully serves as a fungible medium of exchange, it lacks enough widespread adoption and trading volume to achieve price stabilization – a shortfall significantly diminishing its function as a reliable storage of value. In practice, many merchants also choose to convert bitcoins at the point of sale into other traditional currencies, effectively leveraging Bitcoin as a payment system, rather than a currency on its own accord. In light of these findings, we conclude that Bitcoin is best described as a cryptocommodity rather than a cryptocurrency.