an investigation of the theory of disruptive innovation...

An Investigation of the Theory of Disruptive Innovation: Does the Cryptocurrency Bitcoin Have the Potential to be a Disruptive Innovation Relative to an

Existing Market?

Mark McDougall

Submitted in partial fulfilment of the requirements of Edinburgh Napier University

for the Degree of Master of Science in Business Information Technology

School of Computing

August 2014

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Abstract

Christensen’s theory of Disruptive Innovation is hugely popular and has been studied in relation to a

variety of different subject areas. One area that has never been investigated relative to the theory is

the cryptocurrency Bitcoin. This dissertation seeks to investigate Disruptive Innovation theory using

Bitcoin as a case study example, thus relating the two previously distinct areas. It will provide a

comprehensive review of the existing academic literature about the theory of Disruptive Innovation.

It will was provide a literature review about Bitcoin using academic literature and reliable online

resources. The secondary data obtained from the two literature reviews will then be used to produce

a primary data collection tool of a consumer survey. The survey will evaluate consumers’ awareness

of and attitude towards Bitcoin, its adoption and future success. By investigating consumers’ attitude

towards a series of potential barriers to the widespread adoption of Bitcoin, as well as a number of

benefits and risks of using Bitcoin, this study will provide an indication of Bitcoin’s potential to disrupt

an existing market – that of payment processors such as Visa and PayPal. Through analysis of the

secondary data obtained from the literature reviews and primary data from the survey responses, it

was found that Bitcoin displays the characteristics of both Low End and New Market Disruptive

Innovations. Furthermore, Bitcoin does indeed have the potential to disrupt the payment processor

market and the organisations operating within the industry. A number of areas of potential further

research are also presented.

List of Figures

Figure 2.1. Timeline Illustrating Evolution of Disruptive Innovation Theory Reproduced from (Yu & Hang, 2009, p. 2)

Figure 2.2. Low End and New Market Disruptions (Yu & Hang, 2009, p. 3)

Figure 2.3. Categorisation of Innovation Adopters (Rogers, 2003, p. 281)

Figure 2.4. The Process of Market Penetration by Disruptive Innovations (Hardman, Steinberger - Wilckens, & van der Horst, 2013, p. 15446)

Figure 3.1. How Bitcoin Works (Wan & Hoblitzell, 2014, p. 4)

Figure 3.2a. Significant Bitcoin Events and Effect on Price, Jan – May 2013 (CoinDesk, 2014c, p. 5)

Figure 3.2b. Significant Bitcoin Events and Effect on Price, Oct – Dec 2013 (CoinDesk, 2014c, p. 6)

Figure 3.2c. Significant Bitcoin Events and Effect on Price, Jan – Mar 2014

(CoinDesk, 2014e, p. 7)

Figure 3.2d. Significant Bitcoin Events and Effect on Price, Apr – Jun 2014 (CoinDesk, 2014d, p. 9)

Figure 3.3. Regulatory Status of Bitcoin by Nation (BitLegal, 2014a)

Figure 3.4. Barriers to Bitcoin Adoption (Hileman, 2013b) in (CoinDesk, 2014c, p. 73)

Figure 3.5. Potential Markets for Bitcoin to Disrupt (CoinDesk, 2014d, p. 16)

Figure 5.1. Fees Charged by Incumbent, Mobile and Bitcoin Payment Processors (PwC, 2014, p. 4)

Figure 5.2. Level of Concern Regarding 10 Bitcoin Adoption Barriers

Figure 5.3. Rankings for 4 Consumer Benefits of Bitcoin Usage

Figure 5.4. Rankings for 4 Consumer Risks of Bitcoin Usage

Figure 5.5. General Public Level of Concern Regarding 10 Bitcoin Adoption Barriers

Figure 5.6. Bitcoin Enthusiast Level of Concern Regarding 10 Bitcoin Adoption Barriers

List of Tables

Table 4.1. 5 Research Sub – questions

Table 4.2. Literature Sources Used to Develop Each RSQX

Table 4.3. Types of Non – Probability Sample. (Robson, 2002, pp. 264-266)

Table 4.4. Data Collection Tools Used to Operationalize the Research Sub –

questions

Table 4.5. Rationale and Justification for Inclusion of Survey Questions

Table 5.1. Full Descriptions of Each Bitcoin Adoption Barrier and Relative Percentages for the 4 Options per Barrier

Table 5.2. Rankings for Bitcoin Benefits and Risks for GP and BE Groups

List of Appendices

Appendix 2.1. Incumbents vs. New Entrants

Appendix 2.2. Success Factors and Inhibitors

Appendix 3.1. The Bitcoin Mining Process

Appendix 3.2. The Bitcoin Ecosystem

Appendix 4.1. Finalised Survey Design Used for Data Collection

Appendix 5.1. General Information / Trends Data for All 377 Survey Respondents. SQ 1 – 5, 8, 14 – 17

Appendix 5.2. Level of Concern about Bitcoin Adoption Barriers: Female Responses

Appendix 5.3. Level of Concern about Bitcoin Adoption Barriers: Male Responses

Appendix 5.4. Benefits vs. Risks for All Survey Respondents

Appendix 5.5. Survey Data for All Respondents Relating to E – commerce Behaviour SQ9 – 12

Appendix 5.6. Survey Data for Bitcoin Related Behaviour and Knowledge Amongst E – commerce Users

Appendix 5.7. Attitude Towards E – commerce Adoption Barriers Amongst Non E – commerce Users

Appendix 5.8. General Information / Trends Data for 169 General Public (GP) Survey Respondents. SQ 1 – 5, 8, 14 – 17

Appendix 5.9. General Information / Trends Data for 208 Bitcoin Enthusiast (BE) Survey Respondents. SQ 1 – 5, 8, 14 – 17

Appendix 5.10. General Public (GP) Adoption Barriers Ranking Survey Data

Appendix 5.11. Bitcoin Enthusiast (BE) Adoption Barriers Ranking Survey Data

Appendix 5.12. General Public (GP) Bitcoin Benefits and Risks Survey Data

Appendix 5.13. Bitcoin Enthusiast (BE) Bitcoin Benefits and Risks Survey Data

Acknowledgements

I would like to sincerely thank my supervisor Colin Smith for all of the help, enthusiasm and guidance

given throughout the course of producing this dissertation. A huge thanks also goes to Peter

Cruickshank for his invaluable feedback and input. I would also like to thank the research participants

for taking the time to complete the survey, especially those who participated in the pilot studies. Last

but in no way least I thank Fern for everything she has done for me while I have been completing this

dissertation and for all of the support given throughout my MSc.

M. McDougall, MSc Business Information Technology, 2014

Table of Contents Chapter One - Introduction ............................................................................ 1

1.1. Project Motivation ....................................................................................................................... 1

1.2. Project Aims, Objectives and Scope ............................................................................................. 2

1.2.1. Aims ................................................................................................................................. 2

1.2.2. Objectives ........................................................................................................................ 2

1.2.3. Research Scope ................................................................................................................ 2

1.3. Report Structure .......................................................................................................................... 3

Chapter Two – Disruptive Innovation Literature Review ................................ 4

2.1. Aim ............................................................................................................................................... 4

2.2. Introduction to Disruptive Innovation Theory ............................................................................. 5

2.3. History, Usage and Evolution of the Term Disruptive Innovation ............................................... 6

2.4. Theory of Disruptive Innovation .................................................................................................. 9

2.4.1. Definition ......................................................................................................................... 9

2.4.2. Types of Disruptive Innovation ........................................................................................ 9

2.5. Characteristics of Disruptive Innovations .................................................................................. 12

2.6. Use of Disruptive Innovation Theory to Make Ex – ante Predictions ........................................ 14

2.7. Conclusion .................................................................................................................................. 15

Chapter Three – Bitcoin Literature Review ................................................... 16

3.1. Aim ............................................................................................................................................. 16

3.2. What is Bitcoin? ......................................................................................................................... 17

3.3. Bitcoin State of Play ................................................................................................................... 19

3.3.1. Significant Events 2013 – Present Day and Effect on Valuation .................................... 19

3.3.2. Uncertain Regulation and Other Challenges to Adoption ............................................. 24

3.4. Identification of Potential Markets for Disruption .................................................................... 27

3.5. Conclusion .................................................................................................................................. 28

Chapter Four – Research Methodology ........................................................ 29

4.1. Aim ............................................................................................................................................. 29

4.2. Development of Research Questions......................................................................................... 30

4.2.1. Principal Research Question and Research Sub - questions .......................................... 30

4.2.2. Development of Research Sub - questions .................................................................... 30

4.3. Choice of Data Collection Tools ................................................................................................. 33

4.4. Survey Sampling ......................................................................................................................... 34

4.5. Design of Data Collection Tools ................................................................................................. 36

4.5.1. Matrix of Data Collection Tools Used Mapped Against Relevant RSQX ........................ 36

M. McDougall, MSc Business Information Technology, 2014

4.5.2. Survey Design ................................................................................................................. 36

4.6. Conclusion .................................................................................................................................. 40

Chapter Five – Data Analysis and Discussion ................................................ 41

5.1. Aim ............................................................................................................................................. 41

5.2. General Survey Information and Trends ................................................................................... 42

5.2.1. Survey Response Rate .................................................................................................... 42

5.2.2. General Information and Trends about Research Participants .................................... 42

5.3. Analysis and Discussion ............................................................................................................. 43

5.3.1. RSQ1 ............................................................................................................................... 43

5.3.2. RSQ2 ............................................................................................................................... 45

5.3.3. RSQ3 ............................................................................................................................... 48

5.3.4. RSQ4 ............................................................................................................................... 51

5.3.5. RSQ5 ............................................................................................................................... 52

5.4. Primary Research Question Assessment and Conclusion .......................................................... 56

Chapter Six – Conclusion and Critical Evaluation .......................................... 57

6.1. Introduction ............................................................................................................................... 57

6.2. Research Overview ..................................................................................................................... 57

6.3. Restatement of Project Aims...................................................................................................... 57

6.4. Summary of Research Findings .................................................................................................. 58

6.5. Critical Evaluation ...................................................................................................................... 59

6.5.1. Project Strengths............................................................................................................ 59

6.5.2. Project Limitations and Identification of Areas of Further Research ............................ 59

6.5.3. Additional Areas of Further Research ............................................................................ 60

6.6. Conclusion .................................................................................................................................. 60

References ................................................................................................... 61

Appendices .................................................................................................. 67

1 M. McDougall, MSc Business Information Technology, 2014

1. Introduction

1.1. Project Motivation

This project aims to investigate the business concept of disruptive innovation using the cryptocurrency Bitcoin as a case study example.

The theory of disruptive innovation has been extensively studied since its inception, receiving broad coverage in business publications and the academic literature for an array of different subject areas including marketing, strategy and technology management (Danneels, 2004, p. 246).

One area that has never been academically investigated is whether or not Bitcoin is / will become a disruptive innovation relative to an existing market. To achieve this novel study, Bitcoin consumer and business adoption will be investigated in this thesis.

Bitcoin entered the public consciousness in 2013 when the value of a single Bitcoin rose exponentially to over $1200 (Christensen N. , 2013). Mainstream media mentions of Bitcoin grew 439% between 2012 / 13 and 2013 / 14 (CoinDesk, 2014d, p. 4) thus maximising the general public’s exposure to both the benefits and risks of Bitcoin usage.

This project is worth doing for a number of reasons. Firstly, it performs a technology adoption study in the context of a popular business theory, thus relating the two previously distinct areas. Secondly, in the run up to the Scottish Referendum there has been an increased contemporary debate regarding currency, with some even musing that Scotland could adopt Bitcoin as its national currency (Hern, 2014), thus an investigation regarding Bitcoin is highly topical.


1.2. Project Aims, Objectives and Scope

1.2.1. Aims

This project aims to:

1. Investigate whether Bitcoin has the potential to be a disruptive innovation relative to an existing market. This is the primary aim.

2. Relate the concepts of disruptive innovation and Bitcoin to provide a novel contribution to the academic literature of both fields of research. This is the secondary aim.

1.2.2. Objectives

The project aims will be achieved through completion of the following objectives.

1. Firstly, a comprehensive literature review of the extant academic literature relating to disruptive innovation will be performed. A second literature review will also be performed which will relate concept and practice with regard to Bitcoin.

2. The secondary data obtained from the literature reviews will be used to produce a data collection tool to gather primary data relating to the disruptive potential of Bitcoin.

3. The primary and secondary data will be used to perform an assessment as to whether or not Bitcoin has the potential to be a disruptive innovation relative to an existing market, thus relating the two previously discrete areas.

Ultimately, an answer is sought to the following research question which succinctly encapsulates the primary aim and objectives of the project:

Does Bitcoin have the potential to become a Disruptive Innovation relative to payment processors such as Visa, MasterCard and PayPal?

1.2.3. Research Scope

Due to the limited time and budget available to perform this thesis, the scope of the project will be limited to the assessment of the disruptive potential of Bitcoin relative to just one market. While there are a number of potential markets that Bitcoin could cause disruption against, as discussed in Chapter 3, a thorough and in depth investigation of one area was favoured over a superficial investigation of many.


1.3. Report Structure

This dissertation will begin with an in depth review of the existing academic literature relating to the theory of disruptive innovation. This is followed by a literature review on Bitcoin.

The secondary data from the two reviews will be used to produce a primary data collection tool. The design process of this tool is illustrated in the methodology chapter.

The primary data collected as well as some secondary data from the literature reviews will then be analysed with a view of obtaining an answer to the research question presented previously.

The report will end with a critical assessment of the strengths and limitations of the project and will recommend areas of further research that were identified throughout the course of producing this dissertation.


2. Disruptive Innovation Literature Review

2.1. Aim

The aim of this chapter is to provide a context of the theory of disruptive innovation (DI) and examine how it is represented in the academic literature. The secondary data gathered here will be used to produce the primary data collection tool outlined in Chapter 4. Section 2.2 briefly introduces the concept. Section 2.3 explores the history, usage and evolution of the term, including identification of important articles, authors and themes. Section 2.4 examines components of the theory in more depth, including discussion surrounding the definition of DI, identification of the different types of DI and provides examples of each type. Section 2.5 explores the key characteristics of the three types of DI. Section 2.6 investigates a key issue – whether it is possible to use DI theory to make predictions about the future success of a potential DI before disruption has occurred. This component forms the basis of the empirical element of this thesis. Finally, section 2.7 provides a summary of the salient points raised in this literature review.


2.2. Introduction to Disruptive Innovation Theory

A DI is an innovation that presents a novel and exceptionally different value proposition than what is available in the current market (Christensen, 1997, p. xv). Products that are considered to be DIs generally underperform in comparison to established products in mainstream markets and are commonly stripped down, smaller, more convenient, have less features and cost less money (Christensen, 1997, p. xv). While they lack many of the features that high value, mainstream customers desire, they often appeal to fringe (and often new) customer groups who are not being satisfied by the mainstream market’s offerings. DIs improve products and services in ways that the market does not anticipate (Grant, Hackney, & Edgar, 2010, p. 79) and over time, through continual improvements and refinement, they often result in the removal of entrenched industry incumbents (Grant, Hackney, & Edgar, 2010, pp. 83-84) causing a disruption of the established mainstream market. However incumbent removal is not a precondition of successful disruption, as discussed in Appendix 2.1.

In comparison, a sustaining innovation (SI) is an innovation that improves established product performance in an established mainstream market, in ways that customers historically value (Christensen, 1997, p. xv). SIs can be incremental (i.e. improvements that customers’ expect) or radical / discontinuous (i.e. unexpected improvements that do not alter existing established markets and hence are not disruptive). SIs rarely lead to the removal of established industry incumbents (Christensen, 1997, p. xv). Traditionally SIs are implemented by industry incumbents and DIs by new entrants (Grant, Hackney, & Edgar, 2010, p. 83), however there are exceptions to this.

The radicalness of an innovation is the extent to which the innovation is based on substantively new technology compared with existing offerings (Dewar & Dutton, 1986, p. 1422). It is a separate concept from disruptiveness and DIs can also be radical in nature as discussed in section 2.4.2 (Govindarajan & Kopalle, 2006a, pp. 13-15).


2.3. History, Usage and Evolution of the Term Disruptive Innovation

The theory of DI built upon a foundation of technological innovation studies as presented in Figure 2.1.

Figure 2.1. Timeline Illustrating Evolution of Disruptive Innovation Theory Reproduced from (Yu & Hang, 2009, p. 2)


The term disruptive technology (DT) was first introduced by Bower and Christensen in their seminal journal article (Bower & Christensen, 1995) and further developed in Christensen’s book The Innovator’s Dilemma (Christensen, 1997). The terminology was changed to DI in Christensen’s second book, co – authored with Michael E. Raynor, The Innovator’s Solution (Christensen & Raynor, 2003) because the concept was extended to apply to service and business model innovation, in addition to the technical product innovation described in his previous works (Yu & Hang, 2009, p. 3). Additionally, Christensen found that people were misinterpreting the concept of DT and using it incorrectly, so the change was also to facilitate clarity of understanding (Christensen & Raynor, 2003, p. 66). Often DT and DI are used synonymously in the literature (Hardman, Steinberger - Wilckens, & van der Horst, 2013, p. 15439). To maintain consistency, DI will henceforth be used here.

Figure 2.1 only illustrates the evolution of DI theory up until 2003, therefore it is imperative to document how the theory has evolved in the literature up until the present day.

In 2002 the IEEE Transactions on Engineering Management journal published a special issue (Various, 2002) which contained seven articles relating to the commercialisation of DIs. An excellent summary of these papers was also provided (Kocaoglu, 2002).

The importance of DI theory is well recognised in the extant literature, with broad coverage in business publications and numerous citations in a wide range of subject areas, such as marketing, strategy and technology management (Danneels, 2004, p. 246). Despite this, a number of authors have criticised elements of the theory. The imprecise nature of the original definition, the choice of case study examples used to illustrate the theory and the strong ex – post perspective (i.e. based on historical examples) form the principal criticisms in the academic literature (Danneels, 2004), (Tellis, 2006), (Husig, Hipp, & Dowling, 2005). These criticisms will be discussed in more detail over the course of this chapter. The primary source of these censures was published in 2004 (Danneels, 2004).

In 2006, the Journal of Product Innovation Management also published a special DI issue (Various, 2006) which contained seven papers, including a guest editorial by Danneels (Danneels, 2006), a paper that contained criticisms of DI theory mentioned previously (Tellis, 2006) and a paper by Christensen responding to the aforementioned criticisms (Christensen, 2006).

An overview of three common themes that were identified from the findings of the articles contained in this issue was provided in the editorial (Danneels, 2006). Firstly, the paradoxical role played by the marketing department in the management of DIs looked at the vital role effective marketing plays due to the fact that DIs are initially targeted towards small niche or new markets. To be successful, organisations must effectively target these unfamiliar markets to develop a foothold that can be built upon to achieve mass market penetration at a later date. The second theme investigated whether it is possible for organisations to be ambidextrous i.e. develop and market SIs and DIs concurrently (Danneels, 2006, pp. 2-3). By doing this, companies would be able to serve their current high value, mainstream market customers as well as keep abreast of DI threats. A number of potential reasons why incumbent organisations may have difficulty doing this were suggested, such as brand dilution and channel conflict (Markides, 2006, pp. 20-21). The final theme addressed one of the key criticisms of DI theory. Namely whether it is possible to use the theory to predict whether a potential DI will be disruptive in the future i.e. make ex – ante predictions (Danneels, 2006, p. 3). This is in contrast to the ex – post explanations Christensen used to facilitate understanding of the concept (Danneels, 2006, p. 3). This point is explored further in section 2.6.

There have been abundant studies and research performed in relation to DI, however the dispersed and often contradictory nature of much of the literature was identified as a possible source of confusion for future research (Yu & Hang, 2009, p. 1). Consequently, a comprehensive review of the literature to date was performed by these authors to provide clarification about the DI construct and some common misconceptions. Additionally, gaps in the research were identified to stimulate future study and a series of potential DI inhibitors and enablers were also identified (Yu & Hang, 2009).


Much of the contemporary research regarding DI focuses on building a model or framework to perform ex – ante predictions regarding candidate DIs (Keller & Husig, 2009), (Hang, Chen, & Yu, 2011), (Hardman, Steinberger - Wilckens, & van der Horst, 2013). Slight variations on this idea also exist, for example one paper built a framework to assess the readiness of existing markets for potential DIs (Klenner, Husig, & Dowling, 2013).


2.4. Theory of Disruptive Innovation

2.4.1. Definition

A key criticism of DI theory is the vagueness of the original definition (Danneels, 2004, pp. 247-250). Christensen counters this point by arguing that rarely does an early researcher manage to describe a novel concept in an unambiguous way and that through a process of evolution, later researchers refine and develop the concept and remove the ambiguity (Christensen, 2006, p. 48).

One of the most valuable additional contributions to the definition of DI is the inclusion of High End disruption (Govindarajan & Kopalle, 2006a, pp. 13-15), which is missing from Christensen’s original definition which only accounted for Low End and New Market disruption (Christensen & Raynor, 2003, pp. 45-49). This definition thus provides a more holistic view that accounts for the multi – faceted nature of the DI construct. The definition is as follows:

“A disruptive innovation introduces a different set of features, performance, and price attributes relative to the existing product, an unattractive combination for mainstream customers at the time of product introduction because of inferior performance on the attributes these customers value and / or a high price – although a different customer segment may value the new attributes. Subsequent developments over time, however, raise the new product’s attributes to a level sufficient to satisfy mainstream customers, thus attracting more of the mainstream market.” (Govindarajan & Kopalle, 2006a, p. 15).

This is the definition of DI henceforth used here.

2.4.2. Types of Disruptive Innovation

There are three types of DI: Low End, New Market (Christensen & Raynor, 2003, pp. 45-49) and High End (Govindarajan & Kopalle, 2006a, pp. 13-15).

In order to continually sell more products and / or services to high value, non – price sensitive customers and thus maximise profits, established firms innovate (SIs) and create technological improvements at a rapid rate (Grant, Hackney, & Edgar, 2010, p. 84). However, in all industries there is a limited rate of product improvements that customers can absorb (represented by the dashed line on Figure 2.2), creating a performance overshoot whereby the new features are not required or utilised by customers. This initially occurs at the low end of the market but over time even at the high end. This creates an opportunity for competing firms to produce inferior, cheaper products, with less features that fulfil the majority of user requirements, initially selling to low end, less demanding customers but over time (by improving product performance) moving up market to serve high value customers as well. This is called Low End disruption (Grant, Hackney, & Edgar, 2010, p. 84) and it is illustrated by the top graph in Figure 2.2. Examples of Low End disruptions include budget airlines such as Ryanair disrupting full service airlines such as British Airways; Amazon.com disrupting traditional book shops; and Dell disrupting established PC manufacturers using a low cost, sell direct to customers business model (Grant, Hackney, & Edgar, 2010, p. 84).

New Market disruptions do not compete against established industry incumbents but rather against non – consumption (Christensen & Raynor, 2003, p. 45). Firms produce inferior, cheaper and simpler products and / or services that convert previous non – customers into active ones, thus creating a new market (Grant, Hackney, & Edgar, 2010, p. 84). Over time, improvements are made and product performance increases, thus pulling customers out of the mainstream market into the new one and disrupting the original mainstream market (Christensen & Raynor, 2003, pp. 45-46). As with Low End, low value customers are initially attracted to the new market but over time high value customers are as well. New Market DI is illustrated by the bottom graph in Figure 2.2. Examples of New Market disruptions include eBay disrupting fully fledged auction houses by providing a cheaper and more convenient way for people to sell their unwanted goods (Grant, Hackney, & Edgar, 2010, p. 84) and


Canon disrupting corporate photocopy centres with desktop photocopiers that could be used directly by the end user rather than by a specialist technician (Christensen & Raynor, 2003, p. 45).

The similarities between Low End and New Market DIs are quite apparent and there are many examples of hybrid Low End / New Market disruptions. For example, Charles Schwab, through the introduction of low cost online trading, performed Low End disruption against full – service brokerage firms by offering significantly reduced trading fees but also created a new market by enabling previous non – customers such as students to trade stocks (Christensen & Raynor, 2003, p. 47). Low End and New Market disruptions are illustrated in Figure 2.2.

Figure 2.2. Low End and New Market Disruptions (Yu & Hang, 2009, p. 3)

With High End DIs, firms offer products and / or services that have initially inferior performance on attributes valued by mainstream customers but that offer superior performance on attributes valued by high value customers that are least price sensitive. Resultantly, these goods command a premium price (Govindarajan & Kopalle, 2006a, p. 14). Over time, these products improve, appealing to more customers and thus diffuse downwards and disrupt the entire mainstream market from above. Examples of High End disruption include the iPod by Apple which disrupted the portable music player market that was previously dominated by Sony (Carr, 2005); hydraulic excavators disrupting cable excavators; and steam powered ships disrupting sailing ships (Hardman, Steinberger - Wilckens, & van der Horst, 2013, p. 15440).

High End DIs are technologically more radical than mainstream offerings and conversely, Low End are less radical (Govindarajan & Kopalle, 2006a, p. 14). At the time of their introduction, radical innovations are initially purchased by the innovators customer segment, closely followed by the early adopter category, before diffusing through the remaining segments over time as customer adoption and thus market penetration increases (Rogers, 2003, pp. 279-285). This process is represented by the parabolic line in Figure 2.3, where the central �̅� represents the mean number of individuals in the system and “sd” represents the standard deviation from �̅� (Rogers, 2003, p. 280).


Figure 2.3. Categorisation of Innovation Adopters (Rogers, 2003, p. 281)

All three types of DIs initially appeal to niche markets as discussed in section 2.5. However this niche market is distinct from the early adopter category described in the diffusion of innovations literature (Govindarajan & Kopalle, 2006b, p. 191). Early adopters share a number of characteristics. They are: respected by their peer group; form an integral part of the social system; are regarded as opinion leaders and role models for other members of the social system; and are much less price sensitive than other members of the market (Rogers, 2003, pp. 283, 287-292). In contrast, members of the niche market for a DI are not considered to have any influence over the rest of the mainstream market and, in the case of Low End and New Market DIs, they are more price sensitive than the mainstream market customers (Govindarajan & Kopalle, 2006b, p. 191).

With High End DIs, customers are much less price sensitive. The High End DI is also more radical than the current mainstream offerings. As Rogers categorises the customer segments in the context of radical innovations, it may be appropriate to describe High End DIs using the concepts from the diffusion of innovations literature but it would be inappropriate for Low End and New Market DIs. Consequently, no further discussion regarding Rogers’ categorisation of innovation adopters will be made in this dissertation unless Bitcoin is identified to display the characteristics of a High End DI in Chapter 5.

An important final point is that disruption is a relative concept (Christensen & Raynor, 2003, p. 41). For example, the internet was a SI for Dell because it improved upon its existing business model of selling computers directly to customers via the phone and mail. However, it was a DI for Dell’s competitors, such as Compaq, who had previously not sold products directly to customers and had instead used traditional sales channels (Christensen & Raynor, 2003, p. 42).


2.5. Characteristics of Disruptive Innovations

In order to better understand the DI concept and to be able to assess if a product, service or business model might be understood to be a DI, the core characteristics must be ascertained.

Five characteristics of Low End DIs were identified through a literature search (Govindarajan & Kopalle, 2006a, p. 13). Firstly, DIs have inferior performance on the attributes valued by mainstream customers. The new features of DIs are not valued by mainstream customers. DIs are cheaper and simpler than mainstream market offerings. They initially appeal to the low end, most price conscious customers thus offering little profit potential for incumbent firms. Finally, over time and through continuous research and development the DI’s performance improves on the attributes that mainstream, high value customers appreciate and thus they start to use it (Govindarajan & Kopalle, 2006a, p. 13). This is the point at which disruption occurs.

Due to the similarities between how Low End and New Market DIs work, as illustrated in section 2.4.2, it is reasonable to extend these characteristics to also apply to New Market DIs. However, as High End and Low End DIs target very different customer segments of the market, it is logical that at least some High End characteristics will be different.

Through ex – post analysis of seven successful High End DIs, seven common characteristics of High End DIs were identified (Hardman, Steinberger - Wilckens, & van der Horst, 2013, pp. 15440-15442). Firstly, the threat posed by High End DIs is often not recognised by incumbent firms, or if it is recognised, no defensive action is taken. High End DIs are initially more expensive than existing mainstream offerings. The quality of High End DIs tends to be initially inferior in some respect compared incumbent products that they seek to replace. The High End DIs provide additional value to customers. For example the iPod, relative to other portable music players, was more user friendly, convenient, could store lots of songs and was regarded by consumers as ‘cool’. High End DIs tend to initially appeal to niche markets, followed by meso and finally mass market penetration, as illustrated in Figure 2.4. The incumbent product that the High End DI replaces is never completely eradicated, but rather it in turn is utilised for niche market applications. For example, horse drawn carts were disrupted by the mass produced car and now they are used for recreational purposes in the developed world. Finally, socio – economic and socio – technical systems are continually evolving. This means that very few firms will remain as a mass market leader indefinitely unless they address the threat of DIs, even if the initially niche markets they are targeting appear to be financially unattractive and unworthy of defending. (Hardman, Steinberger - Wilckens, & van der Horst, 2013, pp. 15440-15442).

Analysis of these two characteristic sets identifies that the majority of the characteristics hold true for all three types of DI. All DIs are of initially inferior quality on the attributes valued by mainstream customers and initially only appeal to niche (or new) market segments who see some value in the DI. Likewise, through continuous improvements, they all penetrate the market from niche to mass levels as demonstrated in Figure 2.4.

The main differences between Low End / New Market and High End are that High End DIs are initially more expensive and that incumbent products replaced by High End DIs still find a place in the market through niche application. This latter point holds true for High End disruption because the product being replaced was often a premium product itself and thus held some intrinsic value. For example, extremely high resolution analogue cameras are still being used for performing surveillance (Yu & Hang, 2009, p. 5). However, it is not applicable to incumbent products replaced by Low End DIs because by definition, the incumbent product was over serving the market in the first place and thus was not worth customer investment. By the time the Low End DI has been accepted by the mass market, it already has equal or better performance than the incumbent product that it replaced. For New Market DI, while the new market has already been created and has disrupted the previous mainstream market, often the two markets can co – exist. For example, despite the growth of eBay


into an enormous multinational business, the real life auction market still operates successfully but itself would not be regarded as a niche market application.

Figure 2.4. The Process of Market Penetration by Disruptive Innovations (Hardman, Steinberger - Wilckens, & van der Horst, 2013, p. 15446)

A closely related area to the characteristics of DIs are the factors that promote its successful implementation and those that inhibit it. Research performed for this literature review did not yield a conclusive source for the success factors. In contrast, to summarise all of the DI inhibitors here would require a significant word count without adding any substantial contribution to the principal focus of this thesis. See Appendix 2.2 for a discussion regarding the success factors and inhibitors.


2.6. Use of Disruptive Innovation Theory to Make Ex – ante Predictions

The value of a theory comes from its ability to be used to make predictions (Christensen, 2006, p. 43). One of the main criticisms of DI theory in the literature is that it cannot be used to make ex – ante predictions i.e. it cannot be used to predict if a new product, service or business model will be disruptive in the future. This is because the theory was developed based on ex – post studies i.e. through retrospective analysis of historic case study examples (Danneels, 2004, pp. 250-251). If the success of a DI cannot be known until after the fact then DI theory is of little use predictively (Tellis, 2006, p. 35).

While the vast number of cases investigated by Christensen in developing DI theory provide an abundant source of empirical data, because they were analysed retrospectively, they are prone to bias (Danneels, 2004, p. 250). Furthermore, Christensen has been accused of actively selecting case study examples that positively supported the theory (Cohan, 2000), adding credence to this criticism. While acknowledging that Christensen never explicitly stated that all DIs succeed, the lack of consideration of failing DIs creates an analytical problem and may account for the reason why many industry incumbents are sceptical of DIs (Danneels, 2004, p. 250). It has also been suggested that some organisations may have just been lucky in their choice of technology and after successfully surviving a technological change, they were subsequently studied and success factors were deduced retrospectively (Barney, 1997, p. 15).

In response to the criticism that DI theory cannot be used to make ex – ante predictions, four successful examples were provided (Christensen, 2006, pp. 45-46). In every example, DI theory was used by established incumbent organisations to detect a disruptive threat and take remedial action to protect against it.

Numerous frameworks, methodologies and theories have been developed to perform ex – ante predictions about potential DIs. For example, hydrogen fuel cell cars relative to internal combustion engine cars were predicted to be a DI (Hardman, Steinberger - Wilckens, & van der Horst, 2013). Conversely, Google’s cloud based office applications, while potentially disruptive in nature, were predicted not to be a DI relative to Microsoft’s Office suite (Keller & Husig, 2009), (Hang, Chen, & Yu, 2011, pp. 10-12). This latter prediction appears to have come true (Gralla, 2013).

Several of the ex – ante frameworks developed build upon previous prediction studies and research identified in the literature (Keller & Husig, 2009, pp. 1046-1047), (Hang, Chen, & Yu, 2011, pp. 5-8). Many, like Christensen in developing DI theory, also make use of historical case study examples (both successes and failures) to develop and test the framework prior to performing the predictive assessment (Hang, Chen, & Yu, 2011, pp. 8-10), (Hardman, Steinberger - Wilckens, & van der Horst, 2013, pp. 15440-15442), (Klenner, Husig, & Dowling, 2013, pp. 916-921). By testing a case with a known outcome, the validity of the proposed framework can be confirmed if it delivers similar results (Hang, Chen, & Yu, 2011, p. 7).

The fact that a number of academics are using DI theory to make ex – ante predictions suggests that the assertion by critics that DI theory cannot be used predictively is wrong or at very least has been overstated.


2.7. Conclusion

In conclusion, the theory of DI as represented in the academic literature has been explored at length. The history, usage and evolution of the term documented the development of DI theory up until present day and provided some key authors and academic articles that have contributed to its development. Three criticisms of DI theory, namely the vague original definition, the choice of case study examples and the strong ex – post perspective / questionable usage for ex – ante predictions have been discussed. The development of numerous frameworks, methodologies and theories for making ex – ante predictions in contemporary literature indicate that the theory can indeed be used for this purpose and that this limitation has, at best, been overstated by critics of DI theory. The three types of DIs were identified, including High End which was missing from Christensen’s original contribution to the field. Examples of each type of DI were also presented. Discussion around the fundamental characteristics of the three types of DI was also made, examining the similarities and differences between each.

The next chapter is a literature review on Bitcoin, which is being used as a case study example to investigate the use of DI theory to make ex – ante predictions. It will provide an overview about what Bitcoin is and how it has developed from inception up until present day. It will also discuss a number of potential barriers to the successful adoption of Bitcoin. Furthermore, it will document the process of choosing an appropriate market to assess the disruptive potential of Bitcoin against. Chapter 4 will then document the methodology used to produce the primary data collection tool used to perform the practical component of this dissertation.


3. Bitcoin Literature Review

3.1. Aim

The aim of this chapter is to review the literature on Bitcoin, which is being used as a case study example to investigate if it has potential to be a disruptive innovation relative to an existing market. It should be noted that much of the extant literature on Bitcoin is in the form of online sources which can be subject to bias and often do not form a reliable academic source, as discussed later in this chapter. The following investigation makes use of the sparingly available academic literature pertaining to Bitcoin as well as numerous reliable online sources in order to produce this literature review. Again, the secondary data gathered here will be used to produce the primary data collection tool outlined in Chapter 4.

Section 3.2 introduces the concept of Bitcoin and explains how it works. Section 3.3 provides a Bitcoin state of play. This investigates the correlation between significant industry events and the fluctuating valuation of Bitcoin, which is a potential adoption barrier. Other potential barriers are also discussed. Section 3.4 identifies prospective markets for assessment of the disruptive potential of Bitcoin against. Finally, section 3.5 concludes the chapter.


3.2. What is Bitcoin?

Bitcoin is a semi – anonymous, decentralised, digital currency which is not backed by any central authority such as national governments or banks (Grinberg, 2011, p. 160). As such it is not regulated (Plassaras, 2013, pp. 2-3), (European Central Bank, 2012, p. 42), although this will soon change, as discussed later. In contrast, fiat currency is regulated legal tender which is issued by a trusted central authority (Rotman Parker, 2014, p. 1). For example, pounds sterling is the fiat currency issued by the Bank of England in the UK (McLeay, Radia, & Thomas, 2014, p. 2).

Bitcoin was invented by Satoshi Nakamoto and was introduced in the seminal self – published paper Bitcoin: A Peer-to-Peer Electronic Cash System (Nakamoto, 2008). Satoshi Nakamoto is believed to be a pseudonym (Barber, Boyen, Shi, & Uzun, 2012, p. 399) and the actual identity of the original creator(s) of the Bitcoin software has been heavily investigated by the media (Vigna, 2014). Bitcoin was first implemented on January 3rd 2009, when the ‘genesis block’ was produced (Barber, Boyen, Shi, & Uzun, 2012, p. 399).

Bitcoin uses a cryptographic proof system in order to circumvent the requirement of a central authority to verify transactions between users and thus provide users trust in the system (Nakamoto, 2008, p. 1). The use of cryptography to provide transaction security is why Bitcoin is known as a ‘cryptocurrency’ (Srinivas, Dillon, & Zagone, 2014, p. 1). This proof system makes it computationally impractical to reverse transactions, thus protecting sellers against fraud (Nakamoto, 2008, p. 1). An escrow system is recommended by Nakamoto to protect buyers.

In order to counteract double spending (spending the same Bitcoin more than once) a peer – to – peer (P2P) distributed timestamp server is used to produce computational proof of the sequential order of all transactions (Nakamoto, 2008, p. 1). This is known as the ‘block chain’ and it acts as a public record of all Bitcoin transactions to date (PwC, 2014, p. 5). The system does not record any identifying personal information relating to the parties involved in the transaction, therefore providing a degree of anonymity (Srinivas, Dillon, & Zagone, 2014, p. 3). However, it is not completely anonymous due to the public nature of the block chain. To receive Bitcoins a user requires a unique Bitcoin address and if this is associated with personal information then a user’s corresponding Bitcoin transaction history can be identified.

Bitcoins can either be mined, received as payment for goods or services or purchased through an exchange organisation (Ford, 2013). They can also be exchanged directly between users. For a description of how the mining process works, see Appendix 3.1.

A more detailed explanation of how Bitcoin works is available (Nakamoto, 2008), (CoinDesk, 2014b), however a brief overview is provided in Figure 3.1.


Figure 3.1. How Bitcoin Works (Wan & Hoblitzell, 2014, p. 4)

For a discussion regarding the Bitcoin ecosystem and types of companies operating within it, see Appendix 3.2.


3.3. Bitcoin State of Play

3.3.1. Significant Events 2013 – Present Day and Effect on Valuation

The valuation of Bitcoin has fluctuated significantly during the last eighteen months, due to a number of significant events occurring throughout this period, as demonstrated in Figure 3.2a – d. Three highly informative state of play documents have been co – authored by CoinDesk and Garrick Hileman (CoinDesk, 2014c), (CoinDesk, 2014e), (CoinDesk, 2014d). The former author is an industry leading Bitcoin news website. The latter is a Bitcoin subject matter expert and economic historian at the London School of Economics. He is regularly interviewed about Bitcoin by news providers such as the BBC and Sky and has appeared as a speaker at numerous Bitcoin conferences around the world (Hileman, 2013a).


Figure 3.2a. Significant Bitcoin Events and Effect on Price, Jan – May 2013 (CoinDesk, 2014c, p. 5)

ASIC (application – specific integrated circuit) is a type of Bitcoin mining hardware (Hutchinson, 2013).

The Bitcoin market cap is the valuation of all Bitcoins in circulation. As of 30/06/14 this was $8.25 billion (CoinDesk, 2014d, p. 8).


Figure 3.2b. Significant Bitcoin Events and Effect on Price, Oct – Dec 2013 (CoinDesk, 2014c, p. 6)

Silk Road was an e – commerce website where users could purchase drugs and other illegal items using Bitcoin. It was exclusively accessible via the TOR network (Greenberg, 2013). While creating an undesirable association of Bitcoin with illicit activities, Silk Road did serve as an early proof of concept that consumers were willing to engage in e – commerce using Bitcoin as a payment medium. The number of legitimate merchants now accepting Bitcoin has grown to 63, 000 in June 2014 (CoinDesk, 2014d, p. 5), with e – commerce early adopter Overstock.com forecasting Bitcoin related sales to reach between $10 – 15 million within one year of adoption (Sidel, 2014).


Figure 3.2c. Significant Bitcoin Events and Effect on Price, Jan – Mar 2014 (CoinDesk, 2014e, p. 7)

Transaction malleability is a bug in the Bitcoin network that effectively allowed for the repeated withdrawal of the same Bitcoins (Bradbury, 2014). It was cited as the reason for the temporary suspension of withdrawals from numerous large Bitcoin exchanges in February 2014 due to a distributed denial of service (DDos) attack exploiting the vulnerability (Spaven, 2014). It was also named as the cause of the bankruptcy and subsequent closure of the enormous Bitcoin exchange Mt. Gox (Decker & Wattenhofer, 2014, p. 2). However, there is a debate as to whether this was the true reason for the company’s demise (Decker & Wattenhofer, 2014, p. 12). Version 0.9.0 of the Bitcoin software brought fixes to address this security issue, however the problem is ongoing and will require further updates (Rizzo, 2014a).


Figure 3.2d. Significant Bitcoin Events and Effect on Price, Apr – Jun 2014 (CoinDesk, 2014d, p. 9)


Since reaching an all – time high of $1242.00 on 29/11/13 (Christensen, 2013), Bitcoin’s value has generally trended downwards, as represented in Figure 3.2b – c. However, the value has recently started to increase again as show in Figure 3.2d. The valuation of a Bitcoin was $643.29 on 30/06/14, compared with a year to date low of $360.84 on 10/04/14 (CoinDesk, 2014d, p. 8). This increase can be attributed to a series of positive events, such as the success of the recent Bitcoin 2014 conference (Hajdarbegovic, 2014a), a record breaking venture capital funding for the payment processor BitPay (Rizzo, 2014b) and the acceptance of Bitcoin by major satellite TV provider DISH, the largest major brand so far to accept Bitcoin (Hajdarbegovic, 2014b). Positive comments regarding Bitcoin made by the US Federal Advisory Council (FAC), who consult with the Federal Reserve on all matters within the jurisdiction of the US central bank, also had a positive effect. They view that the volatile valuation changes will likely lessen over time (Federal Reserve, 2014, p. 11). Additionally, a reduction in negative treatment of Bitcoin from China, once one of the largest Bitcoin markets and a principal driver of the declining valuation (USCC, 2014, pp. 1, 3-4), has also had a positive effect. The correlation between valuation decreases / increases and negative / positive reports from China is illustrated in Figure

3.2b – d. For example, the indication from the People’s Bank of China (PBoC) that Bitcoin would not be banned on 11/04/14 (Figure 3.2d) caused the initial increase from the year to date low mentioned previously.

3.3.2. Uncertain Regulation and Other Challenges to Adoption

In order to succeed at disrupting existing markets, Bitcoin must be adopted by consumers and businesses. However, there are a number of challenges to this happening.

As illustrated in Figure 3.2a – d, the regulatory assessment of Bitcoin by various national governments and state organisations has a strong effect on its valuation (Wan & Hoblitzell, 2014, p. 5). Unfortunately, the global regulatory environment regarding Bitcoin is uncertain at this time. Until definitive regulation is in place, consumers and businesses are less likely to adopt Bitcoin.

The current pricing volatility and security concerns will limit adoption and regulation is needed to protect consumers (Federal Reserve, 2014, pp. 10-11). Consumers need trust in a system to use it and many do not trust Bitcoin because the lack of regulation means that there is no consumer protection, as demonstrated by the recent demise of Mt. Gox and resultant customer losses (Southurst, 2014). Some businesses operating within the Bitcoin ecosystem are taking steps to remedy this issue. For example, Elliptic offers cold (offline) storage of Bitcoin that is insured against theft and loss (Miller, 2014). Universal Bitcoin company Circle has taken this one step further, not only offering insured cold storage but also offering a range of Bitcoin related products to maximise security, privacy and convenience / ease of use (Circle, 2014).

Many businesses are reluctant to adopt Bitcoin while national governments regard it as a fringe movement that is associated with illicit activity such as Silk Road (Wan & Hoblitzell, 2014, p. 5). However, as mentioned previously, this is starting to change and the number of merchants now accepting Bitcoin globally has grown to 63,000, with BitPay, a significant Bitcoin payment processor with in excess of 30,000 merchant clients, adding new merchants to their network at a rate of over a 1,000 per week and processing $1 million of Bitcoin payments daily as of January 2014 (CoinDesk, 2014d, p. 25).

The current regulatory treatment of Bitcoin by each nation is represented in Figure 3.3.


Figure 3.3. Regulatory Status of Bitcoin by Nation (BitLegal, 2014a)

Detailed summaries of each country’s regulatory stance are also available, with only 14% taking a contentious or hostile position against Bitcoin (BitLegal, 2014b). The remaining nations are currently investigating Bitcoin, many of which seem to be waiting for the US to take a formal stance before making their decision (Boring, 2014).

Some regulation has emerged, for example in the US, the Internal Revenues Service (IRS) classified Bitcoin as property rather than currency and stipulated that it should be subject to the appropriate federal property taxes (IRS, 2014). Outside of the US, Bolivia recently banned Bitcoin altogether (Cuthbertson, 2014). A recent report published by a US congress advisory board, named restrictive regulatory action by China as a global threat to Bitcoin’s continuing development and legitimacy (USCC, 2014, pp. 3-4).

In addition to regulatory uncertainty and unstable valuation, a number of additional barriers to Bitcoin’s successful adoption are explained in Figure 3.4.


Figure 3.4. Barriers to Bitcoin Adoption (Hileman, 2013b) in (CoinDesk, 2014c, p. 73)

In addition to the adoption barriers presented in Figure 3.4, uncertainty of the quality of Bitcoin related data and information is another key barrier (Plassaras, 2013, p. 11). Economists and academics require reputable data sources in order to make predictions about Bitcoin’s future growth and mainstream adoption and to write reputable academic articles. Unfortunately, the majority of Bitcoin related data and information is contained on web sites and blogs, or is received directly from the currency issuer and thus is often subject to personal bias. (European Central Bank, 2012, p. 33).

Another adoption barrier relates to network effects (Plassaras, 2013, p. 12). If there are not enough consumers using Bitcoin then merchants will not offer it as a payment medium. Conversely, if there are no merchants accepting Bitcoin then consumers will not be able to or want to use Bitcoin as it offers no benefit over cash or traditional payment methods like Visa or PayPal. As mentioned previously, the number of Bitcoin accepting merchants globally is growing, indicating that this issue is being addressed.

Finally, Bitcoin exchange security issues, such as the transaction malleability problem discussed previously, is another significant barrier which must be addressed (Wan & Hoblitzell, 2014, pp. 5-6) if Bitcoin adoption is to increase.


3.4. Identification of Potential Markets for Disruption

Bitcoin has the potential to disrupt numerous markets, some of which are presented in Figure 3.5, which shows the market capitalisations for six potential markets and some key organisations operating within each market. The cumulative market capitalisation of all six markets is approximately $548 billion. Additional possible markets for disruption include banks and national currencies (PwC, 2014, p. 4), with the latter being particularly relevant in countries with a weak national currency, such as Venezuela, which had 56.2% annual inflation in 2013 (CIA, 2014).

Figure 3.5. Potential Markets for Bitcoin to Disrupt (CoinDesk, 2014d, p. 16)

In the short term, Bitcoin does not pose a significant disruptive threat to banks through disintermediation (Federal Reserve, 2014, p. 10). However, in the long term, it does pose a threat to payment processors, for example, by offering attractive incentives for merchants such as low transaction fees – this is especially useful for processing low value sales cheaply (Federal Reserve, 2014, p. 10). A thorough analysis of the effect of Bitcoin on national currencies would be difficult to perform given the limited time available to complete this dissertation and the varying laws and regulations of different nations that would need to be examined. The market capitalisation for payment processors is significantly larger than the other five potential markets presented in Figure

3.5 combined. If Bitcoin were able to attract just a small percentage of customers from the incumbent payment processors then it would achieve a market capitalisation comparable with the total market capitalisation of some of the other five markets listed in Figure 3.5. Based on this and the fact that the FAC suggested payment processors were the most likely type of traditional financial organisation to be affected by Bitcoin, the focus of this thesis will be on evaluating whether Bitcoin has potential to be a DI relative to payment processors.


3.5. Conclusion

In conclusion, this literature review introduced the concept of Bitcoin and explained how it works. The state of play from January 2013 to June 2014 was discussed; including the identification of the strong correlation between significant industry events and the valuation of Bitcoin which has fluctuated considerably over the last eighteen months. A number of recent positive events, as well as a reduction in negative treatment of Bitcoin by China were attributed to the recent rise in value. The effect of the fluctuating valuation and number of other barriers which may limit Bitcoin adoption and thus hinder its disruptive potential were discussed. This includes the important effect of uncertain and disparate regulation. The payment processor market was identified as the focus for assessment in the empirical component of this thesis.

The next chapter presents the methodology used to produce the primary data collection tool. It also documents the development of the research sub – questions that were used to guide data collection and answer the primary research question presented in Chapter 1.


4. Research Methodology

4.1. Aim

Through the analysis of primary and secondary data, consumer and business adoption of Bitcoin will be explored in the analysis chapter. By investigating Bitcoin adoption by these groups and the pertinent adoption barriers that may prevent widespread uptake, an indication should be gained as to whether Bitcoin is on a trajectory to disrupt the payment processor market in the future. In other words, this work makes an ex – ante prediction about the disruptive potential of Bitcoin relative to the payment processor market.

Chapter 4 outlines how the data that will be used in the analysis will be collected and the design of the tools used for data collection. Section 4.2 restates the principal research question that was outlined in Chapter 1. To answer this question, it is broken down into a number of research sub – questions, which will guide the data collection. Section 4.3 includes a discussion about the different data collection tools that are available. Section 4.4 discusses sampling and the sampling method chosen. Section 4.5 documents the development of the data collection tools used, including a detailed discussion about the design of the consumer survey. Section 4.6 provides a brief summary of the chapter and Appendix 4.1 presents the final design of the survey.


4.2. Development of Research Questions

4.2.1. Principal Research Question and Research Sub - questions

The principal research question that this thesis seeks to answer is:


In order to answer this question, it is broken down into a number of research sub – questions (RSQX), each of which will guide the data collection process. Each RSQX is presented in Table 4.1.

RSQ1: Does Bitcoin display the characteristics of a Disruptive Innovation? If so, which type(s)?

RSQ2: What are the main barriers of adoption for Bitcoin for consumers and businesses?

RSQ3: What are the main benefits and risks to consumers and businesses of using Bitcoin?

RSQ4: Is there a correlation between e – commerce usage and attitude towards Bitcoin? Are e – commerce users more or less likely to adopt Bitcoin?

RSQ5: Do the general public have different attitudes towards Bitcoin, its adoption and future success compared to Bitcoin enthusiasts, users and subject matter experts?

Table 4.1. 5 Research Sub – questions

4.2.2. Development of Research Sub – questions

Table 4.2 tabulates the literature sources used to develop each RSQX. A brief overview of the contribution from each source is provided.

RSQX Literature Source Contribution to Development of RSQX

RSQ1 (Govindarajan & Kopalle, 2006a, p. 13)

(Hardman, Steinberger - Wilckens, & van der Horst, 2013, pp. 15440-15442)

5 Characteristics of Low End DIs. Also identified as applicable to New Market DIs in Chapter 2.

7 Characteristics of High End DIs.

See Chapter 2 for a full explanation of all of the characteristics of the three types of DIs.

RSQ2 (Hileman, 2013b) in (CoinDesk, 2014c, p. 73)

(Plassaras, 2013, pp. 11-12)

(Wan & Hoblitzell, 2014, pp. 5-6)

6 Bitcoin adoption barriers.



See Chapter 3 for a full discussion and explanation of the adoption barriers. Note that some barriers appear in more than one literature source.


RSQ3 (PwC, 2014, p. 1)

(Skelton, 2012)

Numerous consumer and business benefits and risks of Bitcoin usage.

Many potential customers in developing countries are unable to use existing payment processors for example due to high fraud rates or political reasons. Thus a consumer benefit of Bitcoin usage is that it can enable e – commerce payments by customers previously in blacklisted countries.

RSQ4 (Udo, 2001)

(Iglesias-Pradas, Pascual-Miguel, Hernandez-Garcia, & Chaparro-Pelaez, 2013, p. 321)

(Anckar, 2003, p. 54)

2 e – commerce adoption barriers: Privacy and security concerns.

3 e – commerce adoption barriers: Trust and security concerns as well as not being able to physically inspect goods prior to purchase.

5 e – commerce adoption barriers: Security and trust concerns, not being able to evaluate quality of goods prior to purchase, absence of personal service and reduction in enjoyment of shopping experience.

After removing duplicates across multiple literature sources, a total of six distinct adoption barriers were identified.

RSQ5 This question is an important emergent issue resulting from the previous research sub – questions and work presented in Chapters 2 – 3.

--

Table 4.2. Literature Sources Used to Develop Each RSQX

With reference to the literature outlined in Table 4.2, the following section provides the reasoning used to develop the research sub – questions presented in Table 4.1.

RSQ1

In order to assess if Bitcoin has the potential to disrupt payment processors, it must be a DI relative to this market. Consequently, Bitcoin should be evaluated to identify if it possesses the characteristics of a particular type(s) of DI.


RSQ2

In order to disrupt an existing market, Bitcoin must be adopted by consumers and businesses. Thus Bitcoin adoption and adoption barriers will be investigated.

RSQ3

Consumers and businesses will only adopt Bitcoin if it provides added value compared to the current mainstream market offerings. Consequently consumer and business benefits will be investigated. Conversely, the risks of Bitcoin usage to both groups will also be explored.

RSQ4

UK e – commerce spending is estimated at £45 billion in 2014 (Braund, 2014). Before e – commerce was widely accepted, there were a number of adoption barriers that had to be overcome, as presented in Table 4.2. A number of these adoption barriers are similar to issues that may inhibit Bitcoin adoption, such as trust and security concerns as discussed in Chapter 3. Comparison of the attitudes of e – commerce users vs. non e – commerce users towards Bitcoin would be interesting due to these similarities.

RSQ5

DIs initially appeal to niche market customers. For disruption to occur, the mainstream market customers must also adopt the DI. By separating consumer research participants into two groups, the General Public and Bitcoin Enthusiasts one can observe the adoption behaviour of both groups. Should the General Public (mainstream market customers) express a positive attitude towards Bitcoin, its adoption and future success, then this provides an indication that Bitcoin is on a trajectory to disrupt the payment processor market in the future. Consequently this is the most important RSQX as it directly contributes towards answering the primary research question.


4.3. Choice of Data Collection Tools

There are multiple methods for collecting primary data including surveys, interviews and observations, with each method having its respective advantages and disadvantages (Robson, 2002, pp. 230-232, 272-273, 310-311).

Observational methods were inappropriate for this study as the aim is to answer the research sub – questions, not observe peoples’ behaviour in a given situation. Due to the short time scale and low budget available to perform this thesis, face to face interviews with all research participants were not possible. Comprehensive studies use multiple data collection techniques to improve certainty in the results and allow for multiple complimentary research questions to be answered (Robson, 2002, pp. 370-373). Resultantly, a self – administered survey was chosen as the principal data collection tool to be used to obtain consumers’ perspectives regarding RSQ2, RSQ3 and RSQ4.

In order to obtain a business perspective for RSQ2 and RSQ3, interviews with the three Scottish businesses that currently accept Bitcoin and one that was considering adoption were planned. Unfortunately, two of the Bitcoin accepting businesses declined to be interviewed. One provided no reason and the other stated that as a result of receiving copious publicity from adopting Bitcoin, they had been approached for interviews by numerous news providers and students and as a result did not want to participate in any further interviews. The third business failed to respond to numerous interview requests. The business considering adoption initially agreed to be interviewed but then failed to attend and would not reschedule. As a result, it is impossible to investigate Bitcoin business adoption in this dissertation. While it would have presented an interesting area of study, the lack of business adoption of Bitcoin in Scotland meant that there were very limited options for investigation. Consequently, this dissertation will focus on consumer adoption only.

In order to answer RSQ1, secondary data obtained from the literature reviews performed in Chapters 2 and 3 was used to assess if Bitcoin displayed the characteristics of a particular type of DI.


4.4. Survey Sampling

The following sampling terminology is used when producing a survey. Each component is illustrated by making reference to the survey under construction here directly below the definition of the sampling term.

Element: an object about which a measurement is taken (Scheaffer, Mendenhall III, Lyman Ott, & Gerow, 2012, p. 8).

An adult (aged 18+ years) that actively uses a payment processor (e.g. Visa) account.

Sampling Unit: a collection of elements that do not overlap that are taken from the population. These groups cover the entire population (Scheaffer, Mendenhall III, Lyman Ott, & Gerow, 2012, p. 8).

For this survey the sampling unit and element are the same because each sampling unit contains a single element of the population (an adult with a payment processor account). If the sampling unit was a household of adults rather than a single person then the sampling unit and the element would be different (Scheaffer, Mendenhall III, Lyman Ott, & Gerow, 2012, p. 9).

Population: a group of elements about which one wants to make an inference (Scheaffer, Mendenhall III, Lyman Ott, & Gerow, 2012, p. 8). The population refers to all of the elements, whereas a sample (described below) is a selection of elements from this population (Robson, 2002, p. 260).

All adults that actively use a payment processor account.

Sampling Frame: a record of every element contained in the population (Hibberts, Burke Johnson, & Hudson, 2012, p. 54).

A list of all customers of all payment processors.

Sample: a group of elements that is selected from a sampling frame or frames (Scheaffer, Mendenhall III, Lyman Ott, & Gerow, 2012, p. 9).

A selection of payment processor customers selected from the list of all payment processor customers.

There are two types of sampling: probability (where the likelihood of selecting each element / survey respondent from the sampling frame is known) and non – probability (where the prospect of selecting each element is not known) (Robson, 2002, p. 261). Probability sampling is arguably superior because the sample is regarded as representative of the entire population and thus statistical inferences and generalisations can be made from the sample about the population (Robson, 2002, p. 261). In contrast, with non – probability sampling, the sample is not representative and thus statistical generalisations about the entire population cannot be made.

Clearly, in order to make the findings of this thesis of greater value, it would be preferable to produce a survey that used probability sampling as this would allow for generalisations to be made about the entire population based on the survey responses obtained. Unfortunately, there is no way to acquire the customer lists of any payment processor companies. Consequently, a complete sampling frame cannot be obtained and thus a non – probability method must be used. There are a number of non – probability sampling methods available, such as Quota, Dimensional, Convenience, Purposive and Snowball sampling (Robson, 2002, pp. 264-266). A brief explanation of each type is presented in Table

4.3.


Non – probability Sampling Type

Description

Quota A sample is obtained that is representative of the numerous elements of a given population, in the appropriate proportions that they occur in the population.

Dimensional This is related to quota sampling. The researcher identifies which dimensions are important for a given survey, for example by performing a pilot study. A sample is then obtained that includes a representative of all possible combinations of these dimensions.

Convenience The sample is made up of the most convenient and closest persons available.

Purposive A sample is initially obtained that is based on the researcher’s interests and fulfils their specific project requirements. It is further developed as the researcher’s theory emerges over the course of the project.

Snowball Initially a single or multiple people from the population under investigation are interviewed. These participants then identify other population members to be interviewed and so on.

Table 4.3. Types of Non – Probability Sample. (Robson, 2002, pp. 264-266)

For the purposes of the survey being developed here, quota sampling is not possible because in order to obtain the relative proportions of payment processor customers (for example by age, race or sex) access to the complete sampling frame would be required. If this this was available then a probability sampling technique could be employed. Dimensional sampling is impossible in the limited time frame available as it would require substantial pilot work to identify the most pertinent dimensions to investigate. Purposive and snowball sampling methods are inappropriate because they are geared towards other types of fieldwork rather than a survey (Robson, 2002, p. 265).

Consequently convenience sampling was chosen. While this method has its limitations, such as having a greater potential for unspecifiable sample biases (Robson, 2002, p. 265), it is the most appropriate sampling method available when accounting for the strict time and budgetary constraints of this dissertation and the inability to perform a probability sample. The convenience sample chosen for this study is discussed in section 4.5.2.


4.5. Design of Data Collection Tools

4.5.1. Matrix of Data Collection Tools Used Mapped Against Relevant RSQX

Table 4.4 shows which data collection tool (DCT) was used to operationalize each RSQX.

RSQX DCT Used to Operationalize RSQX

RSQ1 Secondary data on the characteristics of the three types of DI from Chapter 2 and relevant Bitcoin related secondary data from Chapter 3 was analysed to identify if Bitcoin displays the characteristics of a particular type(s) of DI.

RSQ2, RSQ3 and RSQ4

Self – administered survey for consumers’ perspective.

RSQ5 Analysis of survey results to identify the differences and similarities between the two target groups. Analysis of survey results for the General Public was used to gain an indication if Bitcoin was likely to cause disruption against the payment processor market. Some survey data was collected to aid analysis.

Table 4.4. Data Collection Tools Used to Operationalize the Research Sub –

questions

4.5.2. Survey Design

A survey was produced to operationalize RSQ2, RSQ3 and RSQ4 and to aid analysis performed for RSQ5. Some general information was also gathered that did not relate to a specific RSQX but will be useful in performing the analysis.

Two pilot studies were performed, the first of which had three research participants from the General Public group and lasted two days. Based on the feedback from the first pilot, improvements were made to the survey design and content. A second pilot was then conducted, this time with six research participants from the General Public and two from the Bitcoin Enthusiast group. An additional research participant from the Bitcoin group failed to respond in the two day window set to perform the pilot. Further improvements were made based on the feedback received.

The final survey went live for a period of fourteen days. With regards to the convenience sample used, a survey link was posted on the Bitcoin subreddit forum, the Bitcoin Talk forum and the Edinburgh Bitcoin Meetup group forum. The link was also posted on Facebook and emailed to a number of survey participants directly. The former three sources collectively form the Bitcoin Enthusiast group while the latter two form the General Public group.

In order to counteract against non – response, a reminder was issued on each medium after seven and twelve days. All surveys were anonymised to encourage participation.

The final survey that was produced is presented in Appendix 4.1.

The rationale behind each survey question (SQX) will now be explained and justification for inclusion of each component made. Each SQX is mapped to its corresponding RSQX in Table 4.5.


SQX RSQX Rationale and Justification for Inclusion of SQX

SQ1, SQ2, SQ5

RSQ5 and general information

To allow for anonymised information about research participants to be collected and comparisons made. Only UK countries were included as options in SQ5 to simplify the analysis process and because this is where the majority of survey respondents were expected to live. Option of “Other” provided for participants out with the UK.

SQ3, SQ4 RSQ5 and general information

As Bitcoin was developed by a software developer(s) in the IT industry, people working in a technical role within this industry are more likely to have heard of and thus adopted Bitcoin early on and thus have stronger opinions about the subject matter and a greater commitment to its future success. The same is expected be true to a lesser extent for those in a non – technical role within the IT industry. Comparisons between these two groups will be made.

SQ6 RSQ5 To allow survey respondents to be categorised into two groups: General Public and Bitcoin Enthusiasts. Options “Social Media” and “E – mail” relate to the former group, “Website Forum” and “Edinburgh Bitcoin Meetup Group” to the latter.

SQ7 None Relates to the prerequisite of the survey – only customers of payment processors could participate. This is because this is the population of interest. Participants that did not meet this requirement were disqualified from the survey because they were out with the population of interest.

SQ8 General information

To rank payment processors by popularity amongst survey participants.

SQ9 RSQ4 To identify if participants use e – commerce.

SQ10, SQ11, SQ12

RSQ4 To gain information regarding participants’ e – commerce usage. Please note that if participants answered “No” to SQ9 then these questions were skipped.

SQ13 RSQ4 The options provided relate to the e – commerce adoption barriers identified through a literature search. The literature used is outlined in Table 4.2 where six adoption barriers were identified. This was included to ascertain which adoption barriers were the greatest inhibitors to e – commerce usage amongst participants who did not use e – commerce. No option regarding the adoption barrier about lack of personal service was provided due to the fact that many websites now offer a personalised shopping experience based on a users’ previous searches and purchases and it was thus deemed irrelevant. Options relating to delivery times and the need for online shopping were added to gain extra information in addition to barriers identified in the academic literature. Please note that if participants answered “Yes” to SQ9 then this question was skipped.

SQ14 RSQ4 and RSQ5

Included to identify the proportion of participants that had previously heard of Bitcoin and to ascertain if there is any link between e – commerce usage and Bitcoin knowledge and usage. Also included to make comparisons between the General Public and


Bitcoin Enthusiast groups. Please note that if participants answered “No” to SQ14 then all remaining Bitcoin related questions were skipped and the survey completed.

SQ15, SQ16, SQ17

RSQ4 and RSQ5

SQ15 was included to gauge participants’ knowledge and understanding of Bitcoin. SQ16 and SQ17 were included to understand purchasing behaviour using Bitcoin. Comparisons will be made between e – commerce users and non – users and also between the General Public and Bitcoin Enthusiast groups.

SQ18, SQ19, SQ20

RSQ3 Four Bitcoin consumer benefits and risks were identified. SQ18 and SQ19 were included to identify which benefits and risks were most important to participants. SQ20 was included to identify if participants believe the benefits of Bitcoin usage outweigh the risks or vice versa.

SQ21 RSQ2 The options provided relate to the Bitcoin adoption barriers identified through a literature search. The literature used is outlined in Table 4.2. See Chapter 3 for a full discussion about the adoption barriers. Please note that some of the adoption barriers included in SQ21 were actually risks of Bitcoin usage that were viewed as being more applicable as barriers to Bitcoin adoption rather than risks. Adoption barriers relating to switching costs and infrastructure were omitted as it was felt these issues would unfamiliar and possibly alienating to the General Public group. This question was included to ascertain which adoption barriers were of greatest concern to participants.

Table 4.5. Rationale and Justification for Inclusion of Survey Questions

In order to obtain reliable and valid survey data, survey questions must be unambiguous and easily understood by the survey participants (Robson, 2002, p. 231). Consequently, despite this thesis dealing with complex business and technical terminology, everyday language was used throughout the survey and business and technical terms were avoided to aid participants’ understanding and help ensure reliable and valid data was collected. Presenting all participants with the same set of standardised questions, produced after piloting, also ensures a high degree of reliability of responses (Robson, 2002, p. 231). Thus two pilot studies were performed prior to the survey going live and all survey participants were presented with identical surveys, with the exception of the order of some question responses as discussed below.

Regarding SQ13 and SQ21, it was impossible to phrase these questions in a positive light because they relate to adoption barriers i.e. negative reasons preventing adoption. This issue created a possible source of bias whereby survey participants may view the content of these questions with a more negative attitude than if neutral language was used. Unfortunately, this issue was unavoidable. In order to remove potential bias relating to the order in which question options were presented, for questions SQ13, SQ18, SQ19 and SQ21 the answer options were randomised for each participant.

Likert scales can be used to measure respondents’ attitude towards a given subject (Cohen, Manion, & Morrison, 2000, p. 253). It is not possible to measure attitude from a response to a single statement, thus multiple statements must be used so that a complete picture of the respondent’s attitude to the subject matter can be built up (Robson, 2002, p. 293). A Likert scale presents a series of scaled responses to these statements, which the survey participant must select an answer from (Cohen, Manion, & Morrison, 2000, p. 253). Likert scales were used for questions SQ13 and SQ21. Often odd numbers of scaled responses are used so that there can be a neutral central point (Cohen, Manion, &


Morrison, 2000, p. 254). However, a four point scale with no central point was utilised in the survey to prevent participants from selecting “do not know” in response to the e - commerce and Bitcoin adoption barrier questions (SQ13 and SQ21). This decision was made out of concern that because Bitcoin is a relatively new and technical subject matter, the General Public may not be fully aware of or understand how it works and thus select the central choice as the easy option. As the focus of the practical component of this thesis is on investigating Bitcoin adoption and also comparing e – commerce usage / non – usage and attitude towards Bitcoin, a four point scale was selected to force a choice and thus ensure usable responses were obtained. While forcing an opinion could arguably form a deficiency in this study, it was viewed that this compromise was better than receiving a large set of responses with all neutral and thus uninformative answers.


4.6. Conclusion

In conclusion, the principal research question under investigation was restated and the development of five research sub – questions that guided the data collection was documented. The choice of available data collection tools was discussed, including the unfortunate finding that this study would be unable to investigate Bitcoin business adoption due to a lack of willing interview participants. A consumer survey was identified as the principal data collection tool to be used. A discussion surrounding the sampling method used for this survey was presented, including identification that a non – probability sampling method had to be employed, limiting the ability to generalise the survey results to the wider population. This was a necessary compromise due to the unavailability of a complete sampling frame. A convenience sample was chosen. The design and development of the survey was discussed at length, including discussion of the rationale behind and justification for the inclusion of each survey question. An indication as to which research sub – question each survey question sought to operationalize was also provided. The finalised survey design is presented in Appendix 4.1.

The next chapter presents the analysis of the survey responses and secondary data. A discussion of the findings relative to the five research sub – questions is made. From there, an answer to the principal research question is obtained.


5. Data Analysis and Discussion

5.1. Aim

In order to answer the five research sub – questions outlined previously, a two pronged approach was used. Firstly, secondary data obtained from the literature reviews in Chapter 2 and 3 was used to answer RSQ1. Then, the responses obtained for the consumer survey outlined in Appendix 4.1 were analysed to answer RSQ2 – RSQ5. Finally, the answers to the research sub – questions were collectively used to obtain an answer to the primary research question:



5.2. General Survey Information and Trends

5.2.1. Survey Response Rate

A total of 402 survey responses were received. 25 were disqualified for being out with the target population. The remaining 377 responses were analysed with the aim of answering RSQ2 – RSQ5.

5.2.2. General Information and Trends about Research Participants

See Appendix 5.1 for the survey data relating to this information.

The majority of respondents were aged 25 – 34 (56%), male (85%), did not work in the IT industry (60%) and lived out with the UK (68%). Visa was the most popular payment processor (86%), closely followed by PayPal (72%) and MasterCard (58%).

93% of respondents had previously heard about Bitcoin, of which 49% regarded themselves as having a thorough understanding about the concept, 25% as subject matter experts and 22% as possessing a basic understanding. The majority of respondents (78%) had not made a Bitcoin offline purchase but had made an online purchase (61%).

Unfortunately there was a general misunderstanding amongst survey participants regarding SQ4. If respondents answered “No” to SQ3 (Do you work in IT?) then they were meant to answer “Not Applicable” for SQ4 (Do you work in a Technical or Non Technical role? If you answered No to Question 3 then please choose Not Applicable). Unfortunately this did not happen. As a consequence, the results from SQ4 were invalid and thus no comparison between technical and non – technical IT workers regarding Bitcoin was possible in this analysis.


5.3. Analysis and Discussion

5.3.1. RSQ1

Does Bitcoin display the characteristics of a Disruptive Innovation? If so, which type(s)?

The characteristics of Low End, New Market and High End DIs were examined in Chapter 2. A multitude of different areas pertaining to Bitcoin were discussed in Chapter 3. Reference is made to both of these chapters in the following analysis.

Bitcoin is less convenient / more difficult to use than existing payment processor offerings and with the exception of a limited number of companies operating within the Bitcoin ecosystem, generally there is little to no consumer protection offered against theft or losses. In contrast, all UK credit card customers are offered consumer protection under the Consumer Credit Act 2006 (The National Archives, 2006). Thus Bitcoin has inferior performance on the attributes valued by mainstream customers, such as ease of use and consumer protection.

One of the novel benefits of Bitcoin usage is that it can offer semi – anonymous payments (PwC, 2014, p. 1). However, many users value convenience and ease of use more than anonymity, thus this new feature is not valued by many mainstream customers.

Bitcoin has little to no fees associated with its usage (PwC, 2014, p. 3). A comparison of the fees charged by two significant Bitcoin payment processors, Coinbase and BitPay, the mobile payment processor Square and five highly successful incumbent payment processors is provided in Figure 5.1.

Figure 5.1. Fees Charged by Incumbent, Mobile and Bitcoin Payment Processors (PwC, 2014, p. 4)

Consequently Bitcoin is cheaper to use than the existing mainstream payment processor offerings. However, by being less convenient / more difficult to use than existing methods, Bitcoin is more complex than current offerings.

Bitcoin satisfies the Low End / New Market DI characteristic of initially appealing to the low end, most price conscious customers. For example, by charging merchants (who must keep costs low to maximise profits) lower fees, Bitcoin has the potential to cause Low End disruption to the payment processor market. Similarly, low fees also enable micropayments, which are not possible via traditional payment processors due to prohibitive costs. This allows payment for very low value content such as single news stories (Rizzo, 2014c). Thus Bitcoin has the potential to cause New Market disruption against payment processors by enabling cheap micropayments for users unwilling to sign up to expensive content subscriptions.


Furthermore, although traditional payment processors have significant global payment networks in place, these primarily cover the developed world (Federal Reserve, 2014, p. 10) rather than developing countries. In fact, a number of developing countries are actually blocked from using traditional processors such as Visa and PayPal, for example due to political reasons or high fraud rates (Skelton, 2012). Consequently, use of Bitcoin could result in New Market disruption against payment processors by allowing a number of previously banned countries’ populations to participate in e – commerce.

While Bitcoin’s performance is still inferior to the mainstream market offerings, continuous research and development (R+D) is improving its performance. For example, the transaction malleability bug is being addressed by Bitcoin’s software developers in order to improve security and hence trust in the cryptocurrency. Companies such as Circle are continually developing their offerings to improve performance and ease of use / convenience. Finally, organisations such as Elliptic are now providing consumer protection against losses and theft. This indicates that over time, there is potential that Bitcoin will improve its performance to a level that it will start to attract high value mainstream customers as well.

Widespread Bitcoin adoption will not be achieved until the previously discussed adoption barriers are overcome. Consequently, Bitcoin is currently being adopted by a niche market of enthusiasts who can see value in it, a characteristic of all three types of DI.

As already discussed, Bitcoin is less expensive than existing offerings. Also, even if Bitcoin achieves successful incumbent disruption, it is highly unlikely that traditional payment processors will become niche market applications in the aftermath. For example, Visa processes over 150 million transactions daily (Visa, 2013, p. 3), compared with 102,010 daily Bitcoin transactions at the time of its peak valuation in late 2013 (Blockchain, 2014). On this basis, Bitcoin is not a High End DI.

Consequently, while Bitcoin may be more complex to use, on balance of all of the characteristics of each type of DI, it is the finding of this assessment that Bitcoin displays the characteristics of Low End and New Market DIs.


5.3.2. RSQ2

What are the main barriers of adoption for Bitcoin for consumers?

Respondents were asked to indicate their level of concern regarding 10 Bitcoin adoption barriers from options of “Not Concerned”, “Slightly Concerned”, “Concerned” and “Very Concerned”, as illustrated in Figure 5.2. Henceforth these options are respectively represented by the terms NC, SC, C and VC. The relative weightings applied to each of these options were 1, 2, 3 and 4. Full descriptions of each adoption barrier and the relative percentages for each of the 4 options per barrier are provided in Table 5.1.

Figure 5.2. Level of Concern Regarding 10 Bitcoin Adoption Barriers


Table 5.1. Full Descriptions of Each Bitcoin Adoption Barrier and Relative Percentages for the 4 Options per Barrier


The weighted average rating for each adoption barrier corresponds to the level of concern respondents felt regarding a particular barrier. Thus a value of 1.00 – 1.99 corresponds to NC, 2.00 – 2.99 to SC, 3.00 – 3.99 to C and 4.00 – 4.99 to VC.

There was a general lack of concern regarding all 10 adoption barriers, with weighted average ratings ranging between 1.59 – 2.69 (i.e. values ranging from NC – SC), as illustrated in Table 5.1.

The two options relating to lack of concern (NC and SC) and the two options relating to concern (C and VC) were paired to gain an indication as to whether respondents generally felt less or more concerned about a particular barrier. Using this criteria, the adoption barriers It is quite inconvenient and difficult to buy, use and sell Bitcoin (Inconvenient) and Poor Bitcoin exchange security (and the resultant customer losses) reduces peoples' trust in the digital currency (Poor Security / Trust) received a greater percentage of C / VC votes than NC / SC. This is illustrated in Figure 5.2 by the presence of a greater percentage of grey and orange than blue and green for these barriers.

Of these two, Poor Security / Trust received the greatest percentage of both C and VC votes indicating that it was the most important barrier to respondents. It also had the highest weighted average rating of all the barriers, confirming the validity of this assessment. In the wake of the transaction malleability security breach that lead to the highly publicised bankruptcy of Mt. Gox and consequent customer losses, it is unsurprising that this issue was at the forefront of consumers’ minds.

Curiously, the barrier Consumers do not have the same level of protection using Bitcoin as they do using credit cards or PayPal (Consumer Protection) did not significantly concern respondents, despite arguably being directly related to Poor Security / Trust due to the associated customer losses that often accompany security breaches.

Using the same criteria, the adoption barrier that was of least concern to respondents was It's a bit of a "boys toy" - there are not many women involved (Gender Imbalance). This was followed by Many owners of Bitcoin are keeping them, waiting for the value to increase, rather than spending them (Hoarding) and There is a lack of sound academic knowledge regarding Bitcoin which makes it difficult to make predictions about its future with certainty (Academic Knowledge). The weighted average ratings for these barriers correspond with this assessment, with Gender Imbalance having the lowest value of all the ratings.

When the responses were separated by gender, the results for the female respondents were significantly different, with 7 of the 10 adoption barriers receiving more C / VC votes and the weighted averages for these barriers generally tending towards 3, indicating a much higher level of concern amongst woman. This is represented in Appendix 5.2.

The male responses are presented in Appendix 5.3, which show that only 1 adoption barrier was of concern. Comparison of Figure 5.2 and page 1 of Appendix 5.3 illustrates that the results for the male respondents were similar to the generalised results. This was expected due to the number of male respondents that were aware of Bitcoin significantly outnumbering the number of female respondents (313:37).

Consequently, while the differences between the genders are interesting, the female results are insignificant in their own right due to women being substantially underrepresented in the sample. Subsequently, no further separation by gender is made in this analysis.


5.3.3. RSQ3

What are the main benefits and risks to consumers of using Bitcoin?

Respondents were asked to rank 4 consumer benefits of Bitcoin use in order of importance, where 1 was the most important. This is represented in Figure

5.3. Rankings for 4 consumer risks, using the same criteria, are presented in Figure 5.4. The relative weightings for each ranking matches the ranking number (i.e. ranking 1 had a weighting of 1), hence the smaller the weighted average was, the more important the benefit or risk was to the respondents.

Figure 5.3. Rankings for 4 Consumer Benefits of Bitcoin Usage


Figure 5.4. Rankings for 4 Consumer Risks of Bitcoin Usage


The consumer benefits in order of importance to respondents were:

1. Banks and Governments have no control over / involvement with your money.

2. No / lower fees.

3. It is possible to make payments globally to areas currently not served by credit / debit cards and PayPal e.g. many African countries.

4. Semi - anonymous transactions can help protect your identity when making purchases.

Interestingly, despite being a novel feature of Bitcoin compared with traditional payment processor offerings, the potential to make semi – anonymous payments was actually the least important benefit to respondents.

Conversely, lack of Bank and Government involvement was ranked the most important, possibly due to many consumers’ feelings of frustration towards these bodies in the wake of the global recession.

The consumer risks in order of importance to respondents were:

1. Uncertain regulatory status means that the future treatment of Bitcoin is unknown, for example regarding taxation.

2. Unstable Bitcoin valuation - the price has fluctuated a lot over the last 18 months.

3. Payments are irreversible - funds can only be returned by the recipient if they choose to do so.

4. Lack of regulation means that there is currently no consumer protection against losses e.g. due to theft or fraud.

There was only a very small difference between the weighted average values for each risk, indicating an almost equal level of importance to respondents.

Based on their responses to these two survey questions, respondents were asked to evaluate whether they thought the benefits of Bitcoin use outweighed the risks or vice versa. 82% said that the benefits outweighed the risks, indicating that the majority of respondents viewed Bitcoin in a more positive than negative light. This is illustrated in Appendix 5.4.


5.3.4. RSQ4

Is there a correlation between e – commerce usage and attitude towards Bitcoin? Are e – commerce users more or less likely to adopt Bitcoin?

99% of survey respondents used e – commerce. As a result, all respondent percentages for awareness and knowledge about Bitcoin and online and offline purchasing behaviour using Bitcoin were identical to those outlined for all survey respondents in section 5.2.2. See Appendix 5.5 and 5.6 for the relevant survey data.

As the percentage of respondents that do not use e – commerce was only 1%, the sample size for this group is minute in comparison to those that do use e – commerce (3:374). Consequently, these results are insignificant in their own right and very little information can be gained from investigating the differences between e – commerce users and non e – commerce users. It appears that e – commerce usage has become so common place that comparisons between e – commerce and non – ecommerce users is no longer necessary or informative.

As a result, the survey responses provided no usable information from which conclusions regarding RSQ4 could be made and thus this line of enquiry will not be investigated any further.

For a breakdown of the attitude assessment towards the e – commerce adoption barriers for the 3 non e – commerce users, see Appendix 5.7.


5.3.5. RSQ5

Do the general public have different attitudes towards Bitcoin, its adoption and future success compared to Bitcoin enthusiasts, users and subject matter experts?

The general lack of concern regarding most Bitcoin adoption barriers and the assessment that the benefits of Bitcoin usage outweigh the risks are indicative of the majority of respondents’ positive attitude towards Bitcoin.

However, it is important to separate the respondents into two groups, the General Public (GP) and Bitcoin Enthusiasts (BE). Categorisation of respondents into these groups was made in Chapter 4. In the context of DIs, the BE group represents the niche market that Bitcoin initially appeals to, whereas the GP group represents the mainstream market who will adopt Bitcoin if its performance is good enough. Thus if the majority of GP members display a positive attitude towards Bitcoin then this provides an indication that Bitcoin is on a trajectory to disrupt the payment processor market in the future.

Of the 377 responses, 169 were categorised as GP and 208 as BE, a 45:55 split. This ratio should be sufficiently equal that neither group is overrepresented in the sample, thus mitigating against sampling bias and ensuring that the findings from both groups are of comparable significance.

In order to investigate the differences in attitude towards Bitcoin adoption and its future success between these two groups, identification of which Bitcoin adoption barriers were important to each group (cf. RSQ2) and which benefits and risks were of greatest significance (cf. RSQ3) was made. However, first some general information / trends data was evaluated.

For GP, the majority of respondents were aged 25 – 34 (59%), male (70%), do not work in the IT industry (74%) and lived out with the UK (46%), although this was only marginally higher than those that lived in Scotland (44%). Visa was the most popular payment processor (91%), followed by PayPal (66%) and MasterCard (57%). 85% of GP had heard about Bitcoin previously, of which 42% considered themselves to possess a thorough understanding of the concept, 36% possessed a basic understanding and 13% identified themselves as subject matter experts. 83% had never made an offline Bitcoin purchase, while 60% had never made an online purchase. The relevant survey data is contained in Appendix 5.8.

For BE, most respondents were aged 25 – 34 (54%), male (96%) and worked in the IT industry, although only two more people worked in IT compared to those that did not, a negligible difference. 86% of BEs lived out with the UK. Visa was the most popular payment processor (83%), then PayPal (76%) and MasterCard (59%). All but one BE respondents had a previous awareness of Bitcoin. This was an anomaly as the expectation was that all BEs would have heard of Bitcoin previously. Thus this respondent must have answered SQ6 (How did you hear about this survey?) incorrectly and therefore was categorised into the BE group rather than the GP. 54% considered themselves to have a thorough understanding of Bitcoin, 33% as subject matter experts and 12% had a basic understanding. 74% had not made an offline Bitcoin purchase, while 75% had made an online purchase. The pertinent survey data is presented in Appendix 5.9.

Predictably BE members were more aware of Bitcoin, although there was a very high level of awareness amongst GP members, most likely due to the massive increase in mainstream media coverage of Bitcoin in 2013 / 14. BEs also possessed a greater level of Bitcoin knowledge and had made more purchases using the cryptocurrency. More BE members also worked in the IT industry, although the split of BE members working / not working in this field was effectively 50:50.

Figure 5.5 represents the GP’s level of concern towards the 10 Bitcoin adoption barriers. The survey data for this is in Appendix 5.10. Figure 5.6 represents the BE’s concern level and the pertinent


survey data is contained in Appendix 5.11.

Figure 5.5. General Public Level of Concern Regarding 10 Bitcoin Adoption Barriers

Figure 5.6. Bitcoin Enthusiast Level of Concern Regarding 10 Bitcoin Adoption Barriers

As was the case previously for all survey participants, respondents from the GP mostly had a low level of concern regarding all 10 adoption barriers, with weighted average ratings ranging from 1.57 – 2.78 (i.e. NC – SC). For BE members, this was 1.61 – 2.63, also indicating a general lack of concern.


Using the same method as previously discussed in section 5.3.2, the following 3 adoption barriers received a higher percentage C / VC votes than NC / SC, thus indicating their importance to the GP. Presented in order of decreasing concern they are: Poor Security / Trust, Inconvenience and Consumer Protection. The adoption barrier The valuation of Bitcoin is still very volatile and strongly affected by industry events was borderline, receiving slightly more than 50% NC / SC votes. Figure 5.5 provides a graphical representation of these percentages.

In comparison, the only adoption barrier of concern to BEs was Poor Security / Trust, as represented by the greater proportion of grey and orange than blue and green for this barrier in Figure 5.6.

As mentioned previously in section 5.3.2, it is highly likely that this adoption barrier was most concerning to survey participants (of both groups) because of the highly publicised hacking and subsequent bankruptcy of the once industry leading exchange Mt. Gox. Interesting, the GP viewed Consumer Protection as an important issue, the omission of which (from the results for all respondents) was identified previously as being odd due to the correlation between this and Poor Security / Trust.

Unsurprisingly the BE group had a lower level of concern regarding the Bitcoin adoption barriers than the GP. However most GP members did not find the majority of adoption barriers overly concerning. The adoption barriers that were identified as concerning relate to issues that companies operating within the Bitcoin ecosystem are currently addressing through continuous R+D. As a result, GP members concern should reduce over time as the performance of Bitcoin improves to a level that becomes attractive to them thus providing a positive indication that potential disruption is likely.

Table 5.2 presents the relative ranking of benefits and risks of Bitcoin use for each group. The pertinent survey data is contained in Appendix 5.12 and 5.13.


Ranking GP Benefits BE Benefits GP Risks BE Risks

1 No / lower fees Banks and Governments have no control over / involvement with your money

Lack of regulation means that there is currently no consumer protection against losses e.g. due to theft or fraud

Uncertain regulatory status means that the future treatment of Bitcoin is unknown, for example regarding taxation

2 Banks and Governments have no control over / involvement with your money

No / lower fees Unstable Bitcoin valuation - the price has fluctuated a lot over the last 18 months

Unstable Bitcoin valuation - the price has fluctuated a lot over the last 18 months

3 Semi - anonymous transactions can help protect your identity when making purchases

It is possible to make payments globally to areas currently not served by credit / debit cards and PayPal e.g. many African countries

Uncertain regulatory status means that the future treatment of Bitcoin is unknown, for example regarding taxation

Payments are irreversible - funds can only be returned by the recipient if they choose to do so

4 It is possible to make payments globally to areas currently not served by credit / debit cards and PayPal e.g. many African countries

Semi - anonymous transactions can help protect your identity when making purchases

Payments are irreversible - funds can only be returned by the recipient if they choose to do so

Lack of regulation means that there is currently no consumer protection against losses e.g. due to theft or fraud

Table 5.2. Rankings for Bitcoin Benefits and Risks for GP and BE Groups

Table 5.2 illustrates that there was almost no agreement between the GP and BE groups regarding the ranking of benefits and risks of Bitcoin usage. Surprisingly, BEs ranked the potential anonymous usage of Bitcoin even lower than the GP did.

Both groups viewed the volatile valuation of Bitcoin as the second most important risk, however it is worth noting that for the GP, the lack of consumer protection was of significantly greater concern than any of the other 3 risks, which were all of comparably equal concern.

Unsurprisingly, 95% of BEs viewed that the benefits of Bitcoin use outweigh the risks. The majority of GP respondents (64%) also viewed that the benefits outweigh the risks, indicating an overall positive attitude towards Bitcoin amongst the GP.


5.4. Primary Research Question Assessment and Conclusion


Through the assessment of secondary data, Bitcoin was identified to display the characteristics of Low End and New Market DIs. Some potential ways in which it could cause disruption against the payment processor market were discussed in section 5.3.1.

The general public were identified as the mainstream customers who would have to adopt Bitcoin for disruption to occur. Bitcoin users and enthusiasts were identified as the niche market to which Bitcoin initially appealed to.

While the general public showed a greater level of concern regarding the potential Bitcoin adoption barriers, there was a generally positive attitude regarding Bitcoin from this group, with only 3 out of 10 adoption barriers being regarded as of concern. Furthermore, these 3 barriers were already identified in section 5.3.1 as areas being improved by companies operating in the Bitcoin ecosystem through continuous R+D. Thus with time, Bitcoin performance will be enhanced to the point where it is also attractive to mainstream customers as well as niche customers. The generally low ranking of Bitcoin related risks, the assessment that the benefits of Bitcoin usage outweigh the risks, as well as the generally high level of Bitcoin awareness and knowledge amongst the general public, all point towards a positive attitude regarding Bitcoin and its future success.

Consequently, the results of this primary and secondary data analysis imply that Bitcoin may be on a trajectory to cause disruption against the payment processor market in the future and Bitcoin does indeed have to potential to be a disruptive innovation relative to this market.


6. Conclusion and Critical Evaluation

6.1. Introduction

This chapter provides a conclusion to this thesis. It first presents an overview of the previous chapters, restates the original project aims and summarises the salient research findings. This is followed by a critical appraisal of the project, including identification of strengths and limitations of the work and possible areas of further research.

6.2. Research Overview

Chapter 1 outlined the motivation for this work, the project aims and objectives and introduced the primary research question that this thesis sought to answer. Chapter 2 provided a comprehensive review of the extant academic literature relating to the theory of disruptive innovation. Chapter 3 provided a second literature review about the cryptocurrency Bitcoin. The two literature reviews were the source of the secondary data used later in the analysis. Chapter 4 outlined the research methodology used to produce the data collection tool, the consumer survey, which was the source of the primary data. The development of the research sub – questions, that were used to guide the data collection and perform the primary and secondary data analysis, was also presented here. Chapter 5 documented the data analysis using the research sub – questions which were collectively employed to answer the primary research question. Chapter 6 provides a conclusion by summarising the key research findings and performing a critical analysis of the strengths and limitations of this project, including identification of areas of further research identified over the course of producing this thesis.

6.3. Restatement of Project Aims

The two aims of the project were to:

1. Investigate whether Bitcoin has the potential to be a disruptive innovation relative to an existing market. This was the primary aim.

2. Relate the concepts of disruptive innovation and Bitcoin to provide a novel contribution to the academic literature of both fields of research. This was the secondary aim.


6.4. Summary of Research Findings

Analysis of the secondary data obtained from the literature reviews identified that Bitcoin displays the characteristics of Low End and New Market disruptive innovations but not High End disruptive innovations. Some potential ways in which Bitcoin could disrupt the payment processor market were:

By offering price conscious merchants lower fees than traditional payment processor methods (Low End disruption);

By enabling micropayments, which are not possible via traditional payment processors due to prohibitive costs, thus allowing users unwilling to sign up to expensive content subscriptions to purchase very low value content such as single news stories (New Market disruption);

By circumventing restrictions imposed on a number of developing countries by traditional payment processors, for example due to high fraud rates or for political reasons, Bitcoin could allow previously blacklisted countries’ populations to participate in e – commerce (New Market disruption).

For a product, service or business model to be a disruptive innovation, after initially being adopted by a niche market who can see added value in the innovation, the mainstream market must also adopt it. This is when disruption occurs. This only happens once continuous R+D improves the performance of the disruptive innovation to a level that satisfies the needs of the mainstream market customers.

The respondents to the consumer survey were separated into two groups – Bitcoin Enthusiasts (niche market customers) and General Public (mainstream market customers).

Analysis of the survey results indicated:

A high level of awareness of and knowledge about Bitcoin from both groups;

A low level of concern about the ten Bitcoin adoption barriers from both groups. Although the General Public were concerned about more of the barriers (3 vs. 1), all of the identified barriers related to issues that were identified as being improved by companies operating within the Bitcoin ecosystem through continuous R+D. This indicates that over time, the performance of Bitcoin should improve to a level that satisfies the needs of the General Public mainstream market customers;

The majority of respondents from both groups felt that the benefits of Bitcoin usage outweighed the risks – indicating a positive attitude regarding Bitcoin from both niche and mainstream market customers.

On the basis of these findings, the conclusion of this thesis is that Bitcoin does indeed have the potential to be a disruptive innovation relative to the payment processor market. Thus the primary project aim was achieved.

Discussion regarding the secondary project aim is presented in section 6.5.1.


6.5. Critical Evaluation

6.5.1. Project Strengths

This project produced a comprehensive review of the extant academic literature on the field of disruptive innovation. The last such review was produced in 2009 so this work serves as a contemporary update.

The concept of Bitcoin was also thoroughly investigated. While there is plenty information regarding Bitcoin published online, for example in blogs and websites, it is often subject to bias and does not form a reliable academic source. Using the sparsely available academic literature and information obtained from reliable online sources, a comprehensive and up to date literature review on Bitcoin was also produced.

In performing the preliminary research for this study it was identified that the concepts of disruptive innovation and Bitcoin had never previously been jointly investigated in an academic context. Consequently, this thesis provides a valuable novel contribution to the field of disruptive innovation research by relating these two concepts. It also positively contributes to the field of Bitcoin research by adding a reliable academic source to the dearth of available academic literature. Hence the secondary project aim was achieved.

6.5.2. Project Limitations and Identification of Areas of Further Research

The principal limitation of this project is that a non – probability convenience sample had to be used due to the unavailability of a complete sampling frame. As a result great care should be taken if generalising the results of the consumer survey to the wider population as the sample may not be a true representation of said population. The large sample size obtained works towards mitigating such concerns, however any generalisations or statistical inferences using the results of this project should be made with caution. With this in mind, a potential area of further research would be to perform the same study using a probability sampling method. As the primary issue with doing this related to the unavailability of a complete list of all payment processors’ customers (i.e. the complete sampling frame), arguably only those positioned within a payment processor organisation would be in the position to access and use such data. This implies a requirement of co – operation between all payment processors in order to assess the disruptive potential of Bitcoin against the industry. Alternatively, the scope of the study could be limited to a single company trying to assess if Bitcoin has the potential to disrupt their specific organisation, instead of the entire industry, thus negating the requirement of co – operation between competitors.

There was a distinct lack of female respondents to the consumer survey, with a ratio of male to female respondents of 319:58. As there are often differences of opinion between genders (for example female respondents were found to be much more concerned regarding the Bitcoin adoption barriers than the male respondents were) further work could repeat this study using a ratio of male to female respondents that is representative of the population of interest. Arguably this would only be possible if the researcher had access to the complete sampling frame. If the present study had just investigated Bitcoin enthusiasts’ adoption behaviour and not compared this group to the general public, then the ratio of male to female respondents would have been satisfactory as it is representative of the predominantly male dominated Bitcoin community.

The final limitation of this study relates to the omission of the business perspective. In assessing the adoption of Bitcoin, consumer adoption is really only half of the story – investigation of business adoption is also necessary. Despite intending to do this, the limited number of Scottish businesses that accept Bitcoin meant that a convenience sample of businesses contained very limited options for investigation. Unfortunately no willing participants were obtained and hence this study instead only focussed on the consumer perspective. Ironically a lack of Bitcoin business adoption in Scotland


prevented a study of Bitcoin business adoption. Future work could look at businesses over a wider area, such as throughout the UK or abroad in order to investigate this perspective. Alternatively, the study could be repeated at a later date if more Scottish businesses were found to have adopted Bitcoin.

6.5.3. Additional Areas of Further Research

Two additional areas of further research are now discussed. Firstly the scope of this thesis was deliberately narrow, only focussing on the potential disruption of the payment processor market. This was due to the limited time frame available to perform this dissertation. A number of other prospective markets were identified in Chapter 3. Further work could involve assessing whether these markets could potentially be disrupted by Bitcoin also.

Secondly, a number of disruptive innovation ex – ante frameworks and methodologies were identified in Chapter 2. Future work could involving testing whether Bitcoin is a disruptive innovation relative to the payment processor market using such frameworks. Furthermore, the work performed in this study could form the basis for the development of a new framework to assess the disruptive potential of Bitcoin.

6.6. Conclusion

In conclusion, this thesis sought to investigate the business theory of disruptive innovation using Bitcoin as a case study example. An academic literature review about disruptive innovation was produced. A literature review about Bitcoin was also produced, although it is noted that this mainly had to make use of reliable online sources due to an unavailability of sound academic literature on the subject. The contents of the two literature reviews were used to develop a consumer survey to assess consumers’ attitudes towards Bitcoin, its adoption and future success. The results of said survey, as well as secondary data from the literature reviews were used to perform an analysis to answer the primary research question about the disruptive potential of Bitcoin relative to the payment processor market. As indicated previously, Bitcoin does have the potential to be a disruptive innovation relative to this market. The two project aims were achieved and a number of strengths and limitations of this thesis were presented. A number of areas of further research were also identified and discussed here.


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Appendices

Appendix 2.1. Incumbents vs. New Entrants

Through analysis of historical cases, Christensen found that in situations where companies implement SIs, incumbent organisations nearly almost always triumph. In contrast, new entrants are highly likely to defeat established industry incumbents through introduction of DIs (Christensen & Raynor, 2003, p. 32). Numerous examples support this finding. For example the introduction of quartz watches lead to the significant downfall of the Swiss watch industry (Young, 1999), digital cameras disrupted the film camera industry and key player Polaroid (Tripsas & Gavetti, 2000) and the mass produced car by Ford lead to the disruption and removal of horse drawn carriages from the mainstream transportation market (Geels, 2005). The Innovator’s Dilemma and The Innovator’s Solution contain numerous other examples of this phenomenon.

However, this finding has been challenged and it has been asserted that the failure of industry incumbents may have been overstated (Danneels, 2004, pp. 251-252). There are many examples of incumbents successfully defending their position against DIs. For example banks defended against the aggressive entry of internet only banks by establishing their own separate online banking units or by introducing online banking as an additional business channel to complement existing channels (Grant, Hackney, & Edgar, 2010, pp. 89-90). Similarly, Hasselblad, an established incumbent manufacturer of high end cameras, used acquisitions and collaborations to successfully transition from analogue to digital cameras (Sandstrom, Magnusson, & Jornmark, 2009).

It has been implied that this disparity detracts from the validity of the concept of DI (Danneels, 2004, pp. 251-255). Christensen counters this point by arguing that while the removal of established incumbent organisations is often observed, this is not automatically the outcome of every case of DI and that incumbents are not always replaced as a prerequisite of DI (Christensen, 2006, p. 41).


Appendix 2.2. Success Factors and Inhibitors

Success Factors

To effectively implement DIs, the fundamental success factors that enable them should be identified. Authors often make reference to these factors without actually elaborating on what they are. For example one academic refers to fourteen years (1990 – 2004) of literature that focussed on success factors but does not state what they are or provide references to the literature they are contained in (Assink, 2006, p. 216). In another article, reference is made to Christensen’s two books and the fact that they contain all of the fundamental success factors (Hang, Chen, & Yu, 2011, p. 5) but investigation of these two titles failed to deliver a definitive list of factors that enable successful DI across all industries.

The latter authors, in development of a framework to assess DIs, categorise what they view as the important success factors into three groups: market positioning; technology; and additional favourable drivers (Hang, Chen, & Yu, 2011, pp. 5-7). Unfortunately, there are minimal academic references contained within this categorisation thus raising questions about the accuracy and objectivity of the identified factors. As a result, this avenue will not be explored any further here.

Inhibitors

Through performance of a literature review, a comprehensive list of DI inhibitors and their corresponding enablers (i.e. success factors) were identified (Yu & Hang, 2009, pp. 7-12). These have been separated into four categories: internal, external, marketing and technology. Each perspective is summarised below. Please note that the identified enablers form specific responses to inhibitors which is why they were not discussed previously as success factors.

Another author focussed on identifying DI inhibitors in large organisations (Assink, 2006). The scope of this study is too limited for the purpose of this thesis which is investigating DI generally hence this point will not be elaborated upon any further.


Inhibitors and Corresponding Enablers of Disruptive Innovations (Yu & Hang, 2009, pp. 14-15)


Appendix 3.1. The Bitcoin Mining Process

All transactions occurring on the Bitcoin network over a set time period are collected into a list called a block (CoinDesk, 2014a). Miners confirm these transactions and add them to the block chain, which is a long list of blocks. Each block is confirmed by converting it into a unique hash. The block and its corresponding hash (which also includes the hash of the previous block in the chain) as well as some additional information, are then added to the block chain. Due to the incorporation of the previous block’s hash, when successfully added, this confirms the legitimacy of the transactions in the block and those that occurred in previous blocks. If any of the transaction information relating to previous blocks is altered, this will also alter the hash and hence indicate a fake transaction. Every time a hash is produced and the block is successfully added to the block chain, the miner receives 25 Bitcoins as payment (CoinDesk, 2014a).


Appendix 3.2. The Bitcoin Ecosystem

When ecosystems form, disruption soon follows (PwC, 2014, p. 2). The Bitcoin ecosystem is continually evolving at a rapid pace with new types of companies frequently forming and respective industry leaders being replaced. For example, three separate exchange organisations were market leaders in 2013 (CoinDesk, 2014c, pp. 9, 36 - 39). The different types of company that operate in the Bitcoin ecosystem are presented below.

As discussed in Chapter 2, a DI must provide consumers with some form of added value that they are not receiving from current mainstream offerings. The value proposition of Bitcoin will become more evident as the ecosystem matures, however it currently includes semi – anonymous payments, low transfer fees, global P2P money transfers and high level security protocols which are based on open standards (PwC, 2014, p. 4).

Categories of Companies Operating within the Bitcoin Ecosystem (CoinDesk, 2014d, p. 37)

Wallets provide users a place to store their cryptocurrency either online or offline in ‘cold storage’ (Wan & Hoblitzell, 2014, p. 4). The latter option is considered more secure due to the protection against hacking gained from not being connected to the internet (O'Hear, 2014). The role of mining hardware producers is self-explanatory. Exchanges allow people to buy and sell Bitcoin in exchange for fiat currencies (Wan & Hoblitzell, 2014, p. 4). Financial service providers offer insurance and other Bitcoin related financial instruments. Payment processors provide merchants with a way to accept Bitcoin as a medium of payment akin to companies such as Visa and PayPal with fiat currency. Finally, universal companies operate across multiple areas of the Bitcoin value chain, for example offering wallets, payment processing and ATM devices (CoinDesk, 2014d, p. 39).


Appendix 4.1. Finalised Survey Design Used for Data Collection


Appendix 5.1. General Information / Trends Data for All 377 Survey Respondents. SQ 1 – 5, 8, 14 – 17

SQ1: What is your age?

SQ2: What is your gender?

SQ3: Do you work in IT?


SQ4: Do you work in a Technical or Non Technical role? If you answered No to Question 3 then please choose Not Applicable.

SQ5: Where do you live?

SQ8: Tick all card providers that you hold a credit or debit card with. If you have a PayPal account then also indicate this here.


SQ14: Have you heard of Bitcoin before?

SQ15: What level of knowledge do you have about Bitcoin?

SQ16: Have you made a purchase offline using Bitcoin?

SQ17: Have you made a purchase online using Bitcoin?


Appendix 5.2. Level of Concern about Bitcoin Adoption Barriers: Female Responses

Page 1 of 2. Graphical Representation of Data


Page 2 of 2. Survey Data for Level of Concern about Bitcoin Adoption Barriers: Female Responses


Appendix 5.3. Level of Concern about Bitcoin Adoption Barriers: Male Responses

Page 1 of 2. Graphical Representation of Data


Page 2 of 2. Survey Data for Level of Concern about Bitcoin Adoption Barriers: Male Responses


Appendix 5.4. Benefits vs. Risks for All Survey Respondents


Appendix 5.5. Survey Data for All Respondents Relating to E – commerce Behaviour SQ9 - 12

SQ9: Do you purchase any goods and / or services online?

SQ10: When did you last purchase a product or service online?


SQ11: What sort of goods do you buy online? Please select all that are applicable.

SQ12: Roughly what percentage of your total purchases do you make online?


Appendix 5.6. Survey Data for Bitcoin Related Behaviour and Knowledge Amongst E – commerce Users






Appendix 5.7. Attitude Towards E – commerce Adoption Barriers Amongst Non E – commerce Users

Relative weightings for each option: Strongly Disagree = 1, Disagree = 2, Agree = 3 and Strongly Agree = 4. Weighted average values of between 3 and 4 for the majority of adoption barriers indicates agreement / strong agreement with all adoption barrier statements with the exception of the last one.


Appendix 5.8. General Information / Trends Data for 169 General Public (GP) Survey Respondents. SQ 1 – 5, 8, 14 – 17





Appendix 5.9. General Information / Trends Data for 208 Bitcoin Enthusiast (BE) Survey Respondents. SQ 1 – 5, 8, 14 – 17





Appendix 5.10. General Public (GP) Adoption Barriers Ranking Survey Data


Appendix 5.11. Bitcoin Enthusiast (BE) Adoption Barriers Ranking Survey Data


Appendix 5.12. General Public (GP) Bitcoin Benefits and Risks Survey Data

Benefits

Risks

Benefits vs. Risks


Appendix 5.13. Bitcoin Enthusiast (BE) Bitcoin Benefits and Risks Survey Data

Benefits

Risks

Benefits vs. Risks

an investigation of the theory of disruptive innovation...

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