Analysis of the Bitcoin Industry Using Porter’s Diamond Model

4. Application of Framework

Michael Porter developed the Diamond Model, which is a set of ideas that tries to explain why certain sectors of a country are globally competitive while others are not. According to Porter, an industry’s ability to compete successfully on the global market is essentially based on a network of interconnected geographical advantages possessed by diverse areas of the economy in different countries (Bakan & Doğan, 2012). These include: Factor Conditions; Firm Strategy, Structure and Rivalry; Demand Conditions; and Related and Supporting Industries.

Figure 1: Porter’s Diamond Model

(Adapted from Bakan & Doğan, 2012)

Bitcoin versus Traditional Currency

There have been several forms of currencies throughout human history. Evolution has come a long way since   barter trade, which included the exchange of tangible things such as pebbles or shells, the more recent use of precious metals, modern use of bank notes, paper bills, digital money, and most recently the invention and use of decentralized digital currencies such as Bitcoin. Bitcoin and traditional forms of cash are naturally in conflict since Bitcoin is intended to undercut the customary manner of dealing with money (DeVries, 2016). People have become more conscious of the most desired features that money should have throughout time. Money must be fungible, divisible, non-consumable, portable, secure, identifiable, rare, and durable in order to be practical and easy to use. It must also be rare and readily transferrable.

Figure 2: Summary of money traits over human history

(Adapted from DeVries, 2016)

Company Structure, Rivalry, and Strategy

Competition facing the Bitcoin sector comes from other cryptocurrencies such as Ethereum, Tether, USD Coin, Litecoin, Binance, and Dogecoin. However, despite the popularity of Bitcoin, not every region in the world accepts its usage and legality. Even then, Bitcoin uses a uniform approach across all nations in the world.

Factor Conditions

One of the most important requirements is the availability of resources that benefit Bitcoin’s performance. Aside from natural factors, capabilities, objectives, and infrastructure all have a role in shaping resource availability. Bitcoin, for example, is desirable because of its ease of use and liquidity, user privacy and transparency, independence from central authorities, high return potential, volatility, lack of government restrictions, irreversible transactions, and limited usage (Lee, Kim, & Park, 2018).

Demand Conditions

The level of consumer interest in Bitcoin is another crucial component (DeVries, 2016). Porter illustrates how the rise in demand for a product, such as Bitcoin, across regional consumers contributes to the expansion of that commodity’s market.

Supporting and Related Industries

In addition to this, the supplementary services that offer support to the national advantage are another aspect that promotes Bitcoin’s development. The Bitcoin industry is supported by the accessibility and expansion of the internet as well as the infrastructure in place for doing business online.

Government

By providing an atmosphere that is beneficial for Bitcoin’s development, the government plays an important part in the process of creating and maintaining the competitive edge. Among these steps is the construction of a solid infrastructure.

Chance

Furthermore, chance plays a part in a sector’s competitive disadvantage or advantage, such as the Bitcoin industry. Natural disasters, political upheavals, and the COVID-19 outbreak, for example, have had both positive and negative impacts on the Bitcoin industry at different periods in time.

5. Insights

Bitcoin continues to pique the curiosity of financiers, entrepreneurs, and officials at all levels of government, as well as ordinary individuals. Price swings, allegations that the Bitcoin market is a speculative bubble with little real worth, and worries about escaping legal and regulatory supervision have all led, as of late, to a rise in the number of public arguments about Bitcoin. Because of these worries, a number of nations have urged for stricter controls, or even a total ban on the practice. As a direct consequence of this, the market for items has become less saturated. The question of whether cryptocurrencies should be regarded to as goods, monetary units, or something else is one that is currently being actively discussed. There are also further risks, like as the possibility of derivatives and credit contracts being based on bitcoin.

It is possible that in the future, technological progress may make it possible for cryptocurrencies to circumvent some of the challenges that they are now encountering. One of these problems is that a person’s whole digital fortune might be lost if their computer crashes, or a hacker could steal everything from a virtual vault if it is not properly protected (Wang et al., 2021). What will be more difficult to overcome is Bitcoin’s core flaw, which is the fact that the more popular it grows, the greater the likelihood that it will be regulated and monitored by the government. This is something that will be more difficult to overcome. This is against to the core tenet of Bitcoin, which is that it should be decentralized and should not be controlled by a single entity.

References

Bakan, I., & Doğan, İ. F. (2012). Competitiveness of the industries based on the Porter’s diamond model: An empirical study. International Journal of Research and Reviews in Applied Sciences, 11(3), 441-455.

DeVries, P. D. (2016). An analysis of cryptocurrency, bitcoin, and the future. International Journal of Business Management and Commerce, 1(2), 1-9.

Lee, J., Kim, K. W., & Park, D. H. (2018). Empirical analysis on Bitcoin price change by consumer, industry and macro-economy variables. Journal of Intelligence and Information Systems, 24(2), 195-220.

Wang, K., Pang, J., Chen, D., Zhao, Y., Huang, D., Chen, C., & Han, W. (2021). A large-scale empirical analysis of ransomware activities in bitcoin. ACM Transactions on the Web (TWEB), 16(2), 1-29.