Disruption theory and cryptocurrencies by market

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The purpose of this study is to explore whether the diffusion of cryptocurrencies represents a disruptive change and what is the potential magnitude of this change.

To this end, we take disruptive innovation theory as our point of departure to scrutinize cryptocurrencies as an instance of socio-technical change. We employ Causal Layered Analysis to develop our four-layer analytical framework to conceptually examine the changes pertained by the diffusion of cryptocurrencies.

We provide examples of changes company-level, industry-level as well as societal changes where cryptocurrencies have played a central role. On a company level, cryptocurrencies provide a cost-efficient means for cross-border money transfer and thus pose a significant threat to the existing intermediary-based business models. On an industry level, many central banks are experimenting with crypto- or digital currencies.

On a societal level, cryptocurrencies play an important role in particularly when the traditional institutions and societal structures collapse. Our study provides an analytical framework to systematically evaluate the potential disruptive nature of cryptocurrencies as well as other blockchain-based technologies. Since the inception of Bitcoin in [ 1 ], thousands of cryptocurrencies also known as Altcoin have emerged that use the blockchain technology [ 2 , 3 ].

The rapid development of blockchain or distributed ledger technologies has paved way for various Financial Technology FinTech innovations. Alongside venture capitalists and FinTech startups, major banks and stock exchanges have rolled out blockchain-based products and services.

Furthermore, according to Barontini and Holden [ 4 ] several central banks have established explorative as well as experimental blockchain-based initiatives as a part of the prospect for central bank-issued crypto- or digital currencies.

All in all, there is vivid debate among practitioners and academics if, or to what extent, applications of blockchain such as cryptocurrencies will have a disruptive impact on the global financial sector, central banks, or the dominant role of traditional currencies [ 5 , 6 , 7 , 8 , 9 , 10 ].

At the same time, however, it is largely unclear what qualifies a change to be disruptive [ 11 , 12 , 13 ], i. As a result, the research question this study addresses is two-fold: 1 does the diffusion of cryptocurrencies represent a disruptive change, and 2 what is the potential magnitude of this change? To this end, we build on disruptive innovation theory [ 14 , 15 , 16 , 17 ] to scrutinize cryptocurrencies as an instance of socio-technical change [ 18 , 19 , 20 , 21 , 22 ] and conceptually explore its disruptiveness through the Causal Layered Analysis [ 23 , 24 , 25 , 26 ].

With this paper, we make two main contributions: first we use our CLA-based analytical framework to discuss and conceptually scrutinize the disruptive potential of cryptocurrencies. Second, we discuss and present a conceptual distinction between normal and disruptive change that potentially allows identifying disruptive potential ex ante.

The paper proceeds as follows: in the second section we discuss the concept of disruptive change. Thereafter we present and discuss the CLA as a method for analyzing ongoing socio-technical change.

The fourth section focuses on cryptocurrencies. In the fifth section we discuss the disruptiveness of cryptocurrencies through our CLA-based analytical framework. The sixth and final section concludes the paper.

The concept of disruption entered the management literature from innovation studies, as Christensen was puzzled about why do successful companies sometimes fail seemingly overnight [ 15 ].

The resulting answer sketched the overview of what has since become known as disruptive innovation theory. In brief, the theory posits that: i incumbents ignore the arrival of innovations that enter the market from niche position originally from the low-end , ii incumbents overshoot their offering aims leaving room for simpler and easier offerings, and iii incumbents invest in sustaining innovations that fit their existing profitability, but ignore investing in potential new openings that would require new, sometimes even cannibalizing business models to become profitable [ 12 , 16 , 17 , 27 , 28 ].

Reflecting the lack of conceptual clarity surrounding what is disruptive and what type of change qualifies as disruption, Kilkki et al. In the realm of digital disruption, Skog et al. Skog et al. The focus of the disruptive innovation theory is on the market events and incumbents. The disruption is identified only ex post, through the wake of destroyed businesses. With respect to scrutinizing the actual disruptive agent, the theory contributes little: in their review of the status quo of the theory, Christensen et al.

This relative nature of disruption was taken further by Schuelke-Leech [ 13 ], who explored the magnitude of disruption and proposed a two-level approach: the first order disruptions impact localized markets, whereas the second order disruptions emerge as enough of the networked first order disruptions diffuse to impact the whole market. Nevertheless, also this approach is still retrospective and does not directly facilitate anticipatory assessment of disruptive potential. In particular, we argue that disruptive change can pertain changes that take place in more than two levels.

To take a multi-level perspective to disruptive change, we employ CLA [ 23 , 24 , 26 ] as the theoretical framework through which to scrutinize the disruptiveness effect of cryptocurrencies. Previous research in futures studies has explored the possibility of forecasting discontinuities on the macro level [ 30 ], the social disruption intertwined with the diffusion of disruptive technological innovations [ 18 ], or the possibility of utilizing diverse foresight methods in identifying disruptions [ 31 , 32 , 33 ].

Against this backdrop, our approach to distinguishing disruptive change from normal change in the context of cryptocurrencies answers the call for understanding the multi-level nature of disruption [ 13 ].

We employ a specific futures research analytical tool, Causal Layered Analysis CLA , which enables assessing the layered nature of diverse phenomena. CLA [ 23 , 34 ] is an analytical tool that enables viewing a phenomenon from four different perspectives conceptualized as four analytical levels. Since its introduction, the CLA has been widely adopted as an analytical aid in theorizing and as a useful tool in workshop environments, utilized in analyzing complex phenomena in a variety of fields [ 31 , 32 , 35 , 36 , 37 ].

The analytical levels of CLA are traversed up and down to understand the phenomenon on each level in addition to tracing the linkages in between them. The first analytical level of CLA is litany.

It is the imminent appearance of a phenomenon, quantitatively approachable, an issue easy to shape into a headline. The litany can also be an entity like United Nations [ 37 ], or the election of Donald Trump as the president of the US [ 38 ].

While the viewpoints on the issue may differ, the phenomenon on the litany level can be easily recognized. Moreover, on the litany level the changes and solutions are fast and seemingly simple. For example, a litany level solution for traffic jams could be reducing the number of cars. The second level of CLA is called systemic causes. Systemic causes is also the level of most analytical endeavors.

For example, terrorism may be analyzed to result from lack of sufficient threat detection or to be resolved through more widely spread Western democratization [ 36 ].

Moreover, on a systemic causes level, traffic jams in turn are caused by improving living standards enabling the ownership of private cars to more individuals, or the flaws in the city planning and road infrastructure [ 35 ]. Systemic causes can be approached from several paradigmatic perspectives: positivist, constructivist, critical and utilizing diverse theoretical frameworks from institutional theory to Marxism, actor-network-theory, among others. Compared to the litany level, identifying the systemic causes is more complex.

Respectively, the solutions on a systemic are complex and require more time and effort. The third level in CLA is worldview. The worldview level stems from postmodern approaches to philosophy and sociology [ 23 ]. It takes the impact of discourses seriously and zooms into the ideologies, assumptions — to the realm of taken-for-granted that shapes social action [ 25 ].

On a worldview level, traffic jams are a consequence of industrialization, which not only mandates the ownership of a car as a symbol of social class, but also dictates work hours, which result in many people being on the streets at the same time. Fundamentally this level explores the mechanisms of meaning, the why of social action. Changes on this level, for example the development of industrial working hours or changes in symbolic value of a private car, are characteristically slow and rarely a result of intentional action [ 26 , 35 , 36 , 37 , 38 ].

The fourth level goes even deeper into meaning, and explores its origins: where do the ideologies and worldviews emerge from? Deci and Ryan [ 39 ] or claiming a private space [ 40 ]. To develop our CLA-based framework for distinguishing disruptive change from normal change we take the definition of disruption by Kilkki et al.

What needs to happen for a notable number of agents in a system to need to do the same? While there are other social, economic and environmental issues that may have an impact, here we view the role of technology. In discussing the emergence of technology-driven social disruption, following Dosi [ 41 ], Carlsen et al. This provides us with two levels of technological advances: developments in technological artefacts, and advances in the field level technological knowledge.

Dosi [ 41 ] elaborates on two additional levels of technological advances. According to Dosi, there are advances that change the paradigm of a given technological field within a given utility and advances that render that whole utility irrelevant through more widespread changes in the needs met with technologies.

The examples of the first type of paradigm change include the shift from analogic music recording technologies to digital recordings and the subsequent transformations in distributing music. The second type of paradigm changes consists of major shifts that accompanied for example industrialization; the technologies essential in farming-based societies gave way to technologies necessary in industrial societies.

Radical innovation that impacts infrastructures, standards, regulation, formal institutions. Technological landscape, paradigm level change within utility, informal institutions. On the level of litany, the technological developments are represented in new technological artefacts resulting from either incremental innovation [ 15 ] or such boundedly radical innovations, which primarily replace one artefact with another, without impacting the overall structures or behavior.

An example of the latter is for example the launch of the iPhone — while it displaced the then dominant mobile phone providers and shaped the subsequent use of phones, its diffusion built on established infrastructures and already adopted behavior. These technological innovations on the level of artefacts are by themselves not enough for initiating disruption, but merely represent the normal change — even in highly competitive market settings.

When the technological artefacts are radical enough to cause changes on the structures or in the behavior of a notable share of individuals, they have the power of supplanting such individual firms that are reliant on the structures or behavior being changed. Additionally, also the developments within a given field of technology, in the constitution of its knowhow, have a similar impact. These impacts can be represented in changes in the infrastructures, standards and regulations [ 42 ].

In short, these changes are systemic level changes and as such have the potential to disrupt a number or firms dependent on the preceding institutional settings. On the level of worldview, the magnitude of disruption encompasses not only individual firms but industries and whole fields of operation. This requires paradigm level changes within the fields of technological knowledge: the shift from analog to digital era being a notable example [ 42 , 43 ].

On this level the technological and social changes are firmly intertwined: the technological affordances drive changes not only in behavior, but also in the informal institutions, and vice versa — the changes in the informal institutions further strengthen the development trajectories of technology.

However, as the changes on this level unfold slowly, driven by the convergence of diverse social, economic, technological and environmental trajectories, the concept of disruption does not apply: the concept of disruption entails a level of surprise, and while we do not here delve the time dimension of disruption, slowly unfolding change, while changing the socio-economic-technological systems profoundly, is incompatible with the current use of the concept.

Cryptocurrencies are digital assets that are featured with strong cryptography and can be used as a medium of secure exchange [ 44 ]. They allow fast and secured peer-to-peer transactions with minimal processing fees without an intermediary such as a bank. In contrast with the traditional currencies that are controlled by central banks, cryptocurrencies use decentralized technology, especially blockchain [ 45 ].

Bitcoin, released in is the first cryptocurrency that used blockchain to record financial transactions [ 1 ]. Bitcoin was developed as a decentralized digital currency to revolutionize the traditional intermediary-based financial industry.

Due to the popularity of Bitcoin, many other digital assets similar to Bitcoin were created using blockchain [ 2 ]. As of October , Coinmarketcap lists altogether cryptocurrencies. The rate of the creation of cryptocurrencies is defined by the technical system or algorithm and is hence publicly known. In the centralized banking system, central banks control the supply of the currency by printing new money.

However, cryptocurrencies have been designed in such a way that the production will decrease by time for some cryptocurrencies. Moreover, a cap is set on the total amount of the currency that would be ever produced for most cryptocurrencies.

For example, the cap is 21 million for Bitcoin [ 46 ]. Therefore, government, central bank or any other centralized authority cannot decide creating new units of the currency. Use of cryptocurrencies is permissionless — that is one does not have to ask anyone to use them [ 3 ].

Can stablecoins bring major disruption to the financial system?

In the second quarter of , blockchain technology has passed the peak of inflated expectations and is now on its way down towards the phase of disillusionment. Regardless of the question whether the hype really has reached its peak, blockchain technology potentially changes how different business processes are executed, e. If you are not familiar with the basic concept of blockchain technology we strongly recommend to first read this post here and then proceed with this post. We will only sum up the key elements of the theoretical concept here and recommend this post for a more detailed introduction of the concept. More recently, Christensen added efficiency innovations to this basic structure. Efficiency innovations aim at cost reductions making more with less and are actually quite important in the age of digitalization and automation.

IFC Education Webinar Series: LEARNING IN THE AGE OF DISRUPTION | World Bank Group.


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disruption theory and cryptocurrencies by market

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Cryptocurrencies have made a strong impact on payments, remittances, and foreign exchange. Initial coin offerings ICOs have challenged stock investing, startup loans, and venture capital.

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Blockchain is transforming everything from payments transactions to how money is raised in the private market. Will the traditional banking industry embrace this technology or be replaced by it? Blockchain technology has received a lot of attention over the last decade, propelling beyond the praise of niche Bitcoin fanatics and into the mainstream conversation of banking experts and investors. Someone is going to get killed. It is a vehicle to perpetrate fraud. Despite the skepticism, the question of whether blockchain and decentralized ledger technology DLT will replace or revolutionize elements of the banking system remains.

Crypto Currency Cognizance: A New Entrant in Financial Heaven

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Even before this transformation began, banks and markets had become cryptocurrencies including bitcoin or other digital coins, or claims such as money.

Under the western sky: the crypto frontier - speech by Carolyn A Wilkins

In recent years, the growth of cryptocurrency has undergone an enormous increase in cryptocurrency markets all around the world. Sadly, only insignificant heed has been paid to the unveiling of determinants of cryptocurrency adoption globally, particularly in emerging markets like Malaysia. The model was further validated by introducing a new path model compared to the original UTAUT2 model and the moderating role of personal innovativeness between performance expectancy and price value, with a sample of respondents.

The purpose of this study is to explore whether the diffusion of cryptocurrencies represents a disruptive change and what is the potential magnitude of this change. To this end, we take disruptive innovation theory as our point of departure to scrutinize cryptocurrencies as an instance of socio-technical change. We employ Causal Layered Analysis to develop our four-layer analytical framework to conceptually examine the changes pertained by the diffusion of cryptocurrencies. We provide examples of changes company-level, industry-level as well as societal changes where cryptocurrencies have played a central role. On a company level, cryptocurrencies provide a cost-efficient means for cross-border money transfer and thus pose a significant threat to the existing intermediary-based business models. On an industry level, many central banks are experimenting with crypto- or digital currencies.

We emphasize and encourage links between academic researchers and practitioners at financial institutions to bring theoretical techniques to bear on real-world issues. Home Research Technology Disruption and Innovations.

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