Instructor: David Schuff, Section 003

Is Bitcoin Disruptive Innovation?


It is well known that the increase of the cryptocurrency, Bitcoin has made remarkable changes to the banking industry, but are those changes so remarkable that they were disruptive? Bitcoin would probably be an example of new-market disruption because although there are already monetary products available, the nature of the game is changed to be something intangible. There are also some concerns due to the authenticated cryptology that is used in the transactions, specifically the ability to ask for a refund in the case of fraud. Additionally, the places that accept Bitcoin is very low compared to traditional stores. This creates a barrier to entry due to the need for an increased knowledge of the technology related to the cryptocurrency. I do not believe that Bitcoin is a true example of disruptive innovation, but I do believe that with the addition of block-chain technology, the banking industry could be changed. Is Bitcoin disruptive innovation? Will block-chain technology change how we view the banking industry? Will Bitcoin overtake the banking industry or not due to barriers to entry?


3 Responses to Is Bitcoin Disruptive Innovation?

  • Hi Leah, Bitcoin is a fascinating topic of discussion and I’m glad you wrote about it. While bitcoin is an innovation, I don’t believe that it is necessarily a disruptive innovation. Bitcoin depending on the time of day, is most often more expensive than other types of currency which makes it mainly accessible for high end consumers. Additionally, the Bitcoin Blockchain is so slow, it can only validate about 7 transactions per minute, thus not make it easier for consumers to more effectively carry out transactions.

    However, I do think that Blockchain is a disruptive innovation. A private Blockchain, such as Hyperledger Fabric, can cut out costly middlemen for financial services industries and save significant amounts of money. Blockchain also helps with fraud protection due to it’s immutable ledger, which makes this process more efficient and effective than their current fraud protection processes. Blockchain, at this point in time, also lacks key functionalities compared to legacy processes, specifically transaction speeds. Blockchain’s current transaction model relies on proof of work, which is a time consuming process and slows down the validation process for transactions. For these reasons, I think that Blockchain contains some elements of a disruptive innovation, specifically in the financial services industry and will disrupt the industry within 10 years.

  • I agree with your point that bitcoin could be considered new-market disruption because of the intangible nature of it. Bitcoin cannot be reversed, as all transactions are authenticated cryptographically, and there is no risk accepting payments. This is something that is not true of traditional financial networks. I also thought it was an interesting point you brought up about block-chain technology. I do think bitcoin and block-chain technology have the power to fundamentally transform the business models of banks and other financial institutions. Block-chain and bitcoin together create an unforgeable record of asset ownership. This, combined with the open source code allows it to be widely distributed, and therefore decentralized and nearly impossible to change. Because of the security of bitcoin and block-chain, I do think it has the ability to transform the banking industry, despite the current barriers to entry.

  • I believe the underlying blockchain technology that Bitcoin is built on will change the financial industry. Even though the technology in relatively new, it has the ability to reduce fraud which 45% of financial intermediaries like stock exchanges and money transfer services suffer from each year. Most banking systems are built on a centralized database that is vulnerable to a cyber attack. This could be solved with blockchain, which is essentially a distributed ledger where each block contains a timestamp and holds batches of individual transactions which are linked to the previous block. These transactions are shared and confirmed by computers in the system that are running algorithms to confirm the accuracy of the ledger. If one ledger is incorrectly changed or hacked, the other computers on the network would deny that ledger, ensuring the security of the data in the blockchain. Financial institutions like banks are slow to adopt this technology because it eliminated the need for a middle man for transactions, which could essentially hurt their business.

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