The Adoption Process of Cryptocurrencies Identifying Factors That Influence the Adoption of Cryptocurrencies from a Multiple Stakeholder Perspective
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The adoption process of cryptocurrencies Identifying factors that influence the adoption of cryptocurrencies from a multiple stakeholder perspective. Hardwin Spenkelink Master’s thesis Industrial Engineering and Management (Track: Information Technology and Management) Faculty of Management and Governance University of Twente Identifying factors that influence the adoption of cryptocurrencies from a multiple stakeholder perspective Amstelveen, August 2014 Author Name: Hardwin Spenkelink Email: [email protected] Student number: s0162930 Supervisory committee Internal supervisors Prof. Dr. Jos van Hillegersberg Dr. Berend Roorda External supervisor Dennis Voges, Msc (KPMG) The adoption process of cryptocurrencies I Management Summary Cryptocurrencies1 are rapidly gaining more and more interest as a technology that is potentially groundbreaking and disruptive for the whole payments industry on a global scale. However the future of cryptocurrencies is very unclear as there are many different usage scenarios and different stakeholders have different needs. In order to be able to give a better future perspective and to determine possibilities for improvement of cryptocurrencies factors that influence adoption will have to be determined. To achieve this the following main research question was formulated: What are factors influencing the adoption of cryptocurrencies in different usage scenarios for different stakeholders? The way current payment systems work throughout the world varies widely. The added value of cryptocurrencies therefore also hugely differs per geographical area. In order to be able to give clear and concise conclusions this research is scoped towards looking at the European market and the Dutch market in particular. Based on the Diffusion of Innovations Theory, which defines characteristics necessary for an innovation in order to be successfully adopted, a conceptual model to describe the adoption of cryptocurrencies was formulated. This model was based on academic literature resulting from a literature review. The model was then validated by means of qualitative semi‐structured interviews with subject experts. To make sure that a balanced view was obtained stakeholders from a wide range of industries were interviewed: employees from the four biggest Dutch banks, the Dutch Central Bank, the three largest Dutch cryptocurrency exchanges, senior payments consultants, Payment Service Providers, a cryptography expert and the largest Dutch company that accepts cryptocurrency, Thuisbezorgd.nl. During the interviews barriers were identified that have to be overcome in order for cryptocurrencies to be adopted on a large scale. The three main pillars which are important for future mass adoption are: 1. Ease of use: at the moment there is a lack of user‐friendliness when using bitcoins. Sending and receiving bitcoin is still cumbersome and holding bitcoins is prone to many risks. Users need to be able to have more confidence in the safety of their funds. 2. Price stability: the current price volatility driven by speculation and a lack of liquidity makes that it is very risky for a user to keep his funds in cryptocurrency as the value varies wildly. This undermines the function of cryptocurrency as a store of value. 3. Governance: the current bitcoin foundation undermines ideological aspects of cryptocurrencies by being very centralized and intransparent. There is increasingly less democracy in the bitcoin ecosystem with large mining companies entering the system and big investors holding large amounts of bitcoin. Solutions to future problems as scalability and the height of transaction fees are not being dealt with efficiently and no clear roadmap to solving these problems is available. The security risks associated with stealing cryptocurrency of users by a direct attack or by hacking of exchanges turned out to not be a real problem according to the interviewees. This was mostly seen as a minor problem, something that also can happen with other payment methods. The expectation is that in the future the security of exchanges and private wallets will increase when higher adoption levels are reached. Cryptocurrencies also have benefits over existing payment methods. The low transaction costs and low barriers to entry of the system make that it is very easy for newcomers to enter the cryptocurrency ecosystem and start using it; either as a payer or payee. The fast worldwide, cross‐border transactions and partial anonymity can also be an advantage depending on the stakeholder and the usage scenario. In the paradigm of globalization and online shopping a global currency fits very well; cryptocurrencies can play this role. Removing the aforementioned barriers is necessary but not sufficient to guarantee success. Whether the adoption of cryptocurrencies will take off and reach mass adoption is something that remains to be seen. 1 A cryptocurrency is a digital medium of exchange that relies on a decentralized network, that facilitates a peer‐to‐peer exchange of transactions secured by public‐key cryptography. The adoption process of cryptocurrencies II Acknowledgements Writing this thesis is my final task as a master student at the University of Twente. It signifies the end of the life as a student and the beginning of starting with the first fulltime job. When thinking of graduating I immediately thought of graduating on a topic which intersects between IT and Finance. These two worlds have always interested me and are a good fit with the master‐track IT & Management as part of my study Industrial Engineering and Management at the University of Twente. After careful deliberation I came to the topic of cryptocurrencies. This topic had already caught my interest in the spring of 2013, when I first got involved with cryptocurrencies by mining and buying them. What better way to graduate than on your favorite topic? At that time I had already decided to ask Prof. Dr. Jos van Hillegersberg to be my first supervisor, the choice to ask Dr. Berend Roorda as second supervisor was a logical one as he has affinity with Finance whereas the affinity of Van Hillegersberg with IT. This proved to be a good combination and during the process of graduating they both had very useful and to the point feedback. Therefore I am very grateful for their help and supervision during the past months. I did not conduct the research at the university; during the period I was an intern at KPMG ‐ Risk Consulting ‐ IT Advisory, department Financial Services. I am very thankful for KPMG to provide me with the chance to do this internship at the Financial Services department. It proved to be a very good fit between the department and the topic of my research. I would like to thank all my colleagues for their feedback and help during the process. In specific I want to thank Dennis Voges. As my external supervisor at KPMG he was involved in the whole process from start to finish and helped me find a direction for my research. The quality of the research is for a large part dependent on the interviewees that contributed to this thesis. I was positively surprised by the cooperation of all the interviewees and the fact that they allocated a part of their time to me during their busy schedules. I had the fortune to be able to speak to many very interesting stakeholders during the research and for this I want to thank all of them (alphabetically): Gaston Aussems, Jochem Baars, Jacob Boersma, Kim Gunnink, Laurens Hamerlinck, Jouke Hofman, Richard Kohl, Simon Lelieveldt, Robert‐Reinder Nederhoed, Mirjam Plooij, Imad Qutob, Sander Regtuijt, Berry Schoenmakers, Mirjam Verhoeven, Rob Voster and Dennis de Vries. The adoption process of cryptocurrencies III Table of Contents Management Summary ........................................................................................................................................... II Acknowledgements ................................................................................................................................................ III List of Figures .......................................................................................................................................................... VI List of Tables ........................................................................................................................................................... VI 1 Project Description ......................................................................................................................................... 1 1.1 Core problem and its background ......................................................................................................... 1 1.2 Problem statement ............................................................................................................................... 1 1.3 Possible causes of the problem ............................................................................................................. 2 1.4 Objective ............................................................................................................................................... 2 1.5 Research Questions ............................................................................................................................... 2 1.6 Scientific motivation ............................................................................................................................. 3 2 Literature review ...........................................................................................................................................