DIGITAL CURRENCIES AND THEIR POTENTIAL TO DISRUPT AND REPLACE FIAT MONEY: THE CASE OF BITCOINS

Virginia Kirigo Wachira, Esther Wanjiru Wachira

Abstract


This paper aims to investigate how digital currencies have caused a drastic evolution, especially in the payment sector. It aims to further studies on how bitcoin is the most conspicuous digital currency and is perceived as disruptive innovation with the potential of replacing fiat currency. The study was employed through a case study to examine whether bitcoins are disruptive innovation or a threat to the Central Banks and Fiat money. The study adopted a mixed approach research design by using qualitative and quantitative research approaches. The literature reviewed journals were published in credible journals in various databases. The Time series analysis approach was used to forecast the future prices of bitcoins. The study used an in-sample and out-of-sample time series forecasting using the Gretl software. The ARIMA (1,2,1) Model was found to be a good fit with 85% accuracy (the Mean Absolute Percentage Error -MAPE was 15%) to forecast the future of bitcoin prices. The outcome of the forecast suggested that bitcoin price will have a gradual but insignificant increase. The results of this study also suggest that bitcoins fail to fulfill the functions of money as a store of value, medium of exchange, and unit of account. This is attributed to high price volatility, lack of centralization, and exposure to hackers and fraudsters. The study further suggests that bitcoins are not disruptive innovations and do not pose any threat to the Central banks and the Fiat currency in the future. The results support that bitcoin can benefit the community as well as attracting investors as a speculative investment mainly because the bitcoins are limited in transactions. The study recommends more research on the potential impact of the Central bank's digital currencies on National and Global currencies particularly because China launched its digital Yuan recently.

JEL: G21; E58; E51; 031; C10

Article visualizations:

Hit counter


Keywords


digital currency, bitcoins, fiat money, disruptive innovations, disruptive technologies

Full Text:

PDF

References


Abramova S, Böhme R, 2016. Perceived benefit and risk as multidimensional determinants of bitcoin use: A quantitative exploratory study. International Conference on Information Systems, ICIS 2016, Zohar 2015, 1–20. doi: 10.17705/4icis.00001

Ally M, Gardiner M, Lane M, 2015. The Potential Impact of Digital Currencies on the Australian Economy. Australasian Conference on Information Systems.

Böhme R, Christin N, Edelman B, Moore T, 2015. Bitcoin: Economics, Technology, and Governance. 29(2), 213–238.

Brunnermeier M.K, James H, 2019. The Digitalization of Money. NBER Working Paper No. 26300 1–31.

Chan S, Chu J, Nadarajah S, Osterrieder J, 2017. A Statistical Analysis of Cryptocurrencies. Journal of Risk and Financial Management, 10(2), 12. doi: 10.3390/jrfm10020012

Christensen C. M, 1997. Innovator's Dilemma in Business. When New Technologies Cause Great Firms to Fail. Harvard Business School Press.

Ciaian P, Rajcaniova M, & Kancs d’Artis, 2016. The economics of BitCoin price formation. Applied Economics, 48(19), 1799–1815. doi:10.1080/00036846.2015.1109038

Ciaian P, Rajcaniova M, & Kancs, d’Artis. 2018. Virtual relationships: Short- and long-run evidence from BitCoin and altcoin markets. Journal of International Financial Markets, Institutions and Money, 52, 173–195. doi:.10.1016/j.intfin.2017.11.001

Danneels E, 2004. Disruptive Technology Reconsidered: A Critique and Research Agenda. Journal of Product Innovation Management 21 pp 246–258

Dwyer G.P, 2014. The Economics of Bitcoin and Similar Private Digital Currencies. Munich Personal RePEc Archive 57360.

EBA. 2014. EBA Opinion on ‘virtual currencies’ (Issue July).

Eigbe O. E, 2018. Investigating the Levels of Awareness and Adoption of Digital Currency in Nigeria: a Case Study of Bitcoin. Information Technologist, 15(1), 75. http://search.ebscohost.com/login.aspx?direct=true&AuthType=cookie,ip,uid&db=edb&AN=131994334&amp%0Alang=de&site=eds-live&authtype=uid〈=de

European Central Bank. 2015. Virtual currency schemes – a further analysis. In European Central Bank (Issue February). http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf

Faulkner P, Runde, J 2014. « The Social, the material, and the ontology of non-material technological objects ». May.

Fiammetta D, Piazza S, 2017. Bitcoin and the Blockchain as Possible Corporate Governance Tools: Strengths and Weaknesses. Bocconi Legal Papers, 9, 5(2), 125–156.

Frascaroli B. F, (2019). Bitcoin’s innovative aspects , return volatility and uncertainty shocks. October.

Gilbert S, Loi H, 2018. Digital Currency Risk. International Journal of Economics and Finance, 10(2), 108. doi:10.5539/ijef.v10n2p108

Giudici G, Milne A, Vinogradov D, 2020. Cryptocurrencies: market analysis and perspectives. Journal of Industrial and Business Economics, 47(1), 1–18. doi:10.1007/s40812-019-00138-6

Giungato P, 2017. Current Trends in Sustainability of Bitcoins and Related Blockchain Technology. doi:10.3390/su9122214

Latzer M, 2009. Information and communication technology innovations: Radical and disruptive?. New Media & Society 11. 599-619. 10.1177/1461444809102964.

Markides C, 2006. Disruptive Innovation: In Need of Better Theory. Journal of Product Innovation Management 23 pp 19-25

Moore T, 2013. The promise and perils of digital currencies. International Journal of Critical Infrastructure Protection, 6(3–4), 147–149. doi:10.1016/j.ijcip.2013.08.002

Nakamato S, 2009. Bitcoin: A Peer-to Peer Electronic Cash System. 1–9. https://bitcoin.org/bitcoin.pdf

Narayanan H, 2020. Is Future a Rule of Digital Currency ??? International Journal of Research, 8, 96–106. doi:10.29121/granthaalayah.v8.i8.2020.935

Nelson B, 2018. Financial stability and monetary policy issues associated with digital currencies. Journal of Economics and Business, 100(December 2017), 76–78. doi:10.1016/j.jeconbus.2018.06.002

Peters G. W, Panayi E, 2016. Understanding modern banking ledgers through blockchain technologies: Future of transaction processing and smart contracts on the internet of money. New Economic Windows, 239–278. doi:10.1007/978-3-319-42448-4_13

Presthus W, O’Malley N. O, 2017. Motivations and Barriers for End-User Adoption of Bitcoin as Digital Currency. Procedia Computer Science, 121, 89–97. doi:10.1016/j.procs.2017.11.013

Robleh A, Barrdear J, Roger C, Southgate J, 2014. Bank of England Quarterly Bulletin 2014 Q3. 1, 276–286.

Rose C, 2015. The Evolution Of Digital Currencies : Bitcoin , A Cryptocurrency Causing A Monetary Revolution. International Business & Economics Research Journal, 14(4), 617–622.

Roussou I, Stiakakis E, 2016. Adoption of Digital Currencies by Companies in the European Union: A Research Model combining DOI and TAM. 4th International Conference on Contemporary Marketing Issues (ICCMI) 2016, June 2016, 163–168.

Saito K, Iwamura M, 2019. How to make a digital currency on a blockchain stable. Future Generation Computer Systems, 100, 58–69. doi.10.1016/j.future.2019.05.019

Stevens A, 2017. Digital currencies : Threats and opportunities for monetary policy. Economic Review, I, 79–92.

Tatjana B, 2018. Blockchain and Digital Currency in the World of Finance (pp. 1–17).

White R, Marinakis Y, Islam N, Walsh S, 2020. Is Bitcoin a currency, a technology-based product, or something else? Technological Forecasting and Social Change, 151 (November 2019). doi:10.1016/j.techfore.2019.119877

Wu C. Y, Pandey V. K, 2014. The Value of Bitcoin in Enhancing the Efficiency of an Investor’s Portfolio. Journal of Financial Planning, 27(9), 44–52.

Yermack D, 2013. Is Bitcoin a Real Currency? An economic appraisal. In NBER Working Paper No. 19747.

Yu D, & Hang C.C, 2010. A Reflective Review of Disruptive Innovation Theory. International Journal of Management Reviews, Vol. 12, 435–452.




DOI: http://dx.doi.org/10.46827/ejefr.v5i1.1052

Refbacks

  • There are currently no refbacks.


Copyright (c) 2021 Virginia Kirigo Wachira, Esther Wanjiru Wachira

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2016 - 2023. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing Group. All rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.