Bitcoin and Credit Card Networks: A Disruption Theory Analysis

Mads Krogh

Student thesis: Master thesis


Bitcoin is multi-dimensional by nature, embedding complex economic incentivesand decentralization in code, unlike anything before it. This makes it inherently difficult to grasp, in the context of similar existing centralized systems, and much remains to be understood about its design, dynamics, and use cases. Meanwhile, its low transaction throughput is increasingly used as proof of Bitcoin’s inherent inferiority to credit card networks as well as other “more efficient” cryptocurrencies. Thisanalysis builds on a superficial one-to-one comparison of Bitcoin and credit card networks and assumptions around market demand and technological progress. Such assumptions are at best unrigorous and at worst harmful, leading to potential misunderstandings around the technology, fractioning within the Bitcoin community and misguided investments in overhyped blockchain projects. Following a deductive line of reasoning, this work engages in a rigorous technical comparison of Bitcoin and credit card networks to test theassumptionsaround Bitcoin’s inferiority. Disruption theory is used to analyse the two fundamentally different competing systems, linking technical design with use cases and market needs. Our findings suggest that Bitcoin, at present, is superior to credit card networks in niche markets, where transaction throughput is in lower demand than features such as censorship resistanceand store of value. Moreover, while credit card networks remain superior for mainstream western consumers, where throughput is in high demand, Bitcoin has the potential to grow transaction throughput and market share with innovative solutions such as the lightning network while preserving its unique features. This is almost by definition what describes a disruptive technology. We argue that this disruptive potential is unique and not transferable to other cryptocurrencies. Bitcoin and the surrounding community is special given the refusal to compromise on the core values which makes it unique

EducationsMSc in Business Administration and E-business, (Graduate Programme) Final Thesis
Publication date2019
Number of pages81
SupervisorsRaghava Rao Mukkamala