Video link: https://www.youtube.com/watch?v=WuxBKOROjKU&feature=youtu.be
Looking into history, the very first sight of electronic markets appeared in 1970 with the creation of the single-source electronic sales channels; linked customers to the products of the single vendor owning the market channel. Since then, the electronic have changed dramatically thanks to new technologies but their primary function as remained the one of traditional markets, namely matching buyers and sellers, enforcing contracts and providing a price mechanism. The advances in IT have greatly reduce both the time and the cost of these exchanges between both sides of the market. Named electronic communication effect, it affected almost all businesses in a profound and lasting manner.
In our ‘Technology of the Week’ video, we decided to focus on a special category of electronic markets with very defining characteristics: currency exchange markets. We looked into the most common and used one, Forex, as well as a relatively new but promising one, the crypto-currency exchange, focusing on bitcoins.
Forex, or the Foreign Exchange Market deals with currencies of other countries. All trading takes place on the over-the-counter market, a non-transparent and decentralized market open all day long on weekdays.
Cryptocurrencies arose in 2009, as a reaction to the 2008 financial crisis. They are a generic name that covers all types of currencies that are not operated by a central bank. Encryption techniques are used to regulate the generation of units of these currencies and verify the transfer of funds using them. Satoshi Nakamoto invented the bitcoin, the most popular cryptocurrency at the moment, with the idea of cutting the middleman from the process while still offering a secure and effortless currency. A digital wallet is needed to store bitcoins while transactions are verified by digital signature and blockchain. The blockchain technology is basically an online ledger that records all transactions and is open to everyone. It is worth mentioning that despite all benefits offered by greater privacy, bitcoins have helped criminals and terrorists transact online.
The PEST analysis shows that the environments in which both markets operate are subjected to different influences. At the political level, the main difference is the regulation. Forex is governmentally regulated which provides a safety net to traders while Bitcoin markets are much less protected. The economic landscape has a direct influence on Forex, while bitcoins are much more volatile and rely on speculation theories. Regarding social factors, the anonymity of bitcoin traders is differentiating this market greatly from Forex, where all traders are personally identified. On the technological side, the technologies behind both markets are rather similar, the only difference being in the density of players and integration of back-and front-end.
Summarizing the findings, Forex has the benefits of being regulated, and hence safer, having a relatively low volatility while still allowing informed traders to make profits. When it comes to the bitcoin market, privacy, low costs, and high availability are its great advantages.
