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EU study: crypto-currencies in the FinTech competition

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A European Parliament commissioned study examines the competition in the Fintech area. When considering also Blockchain-companies play a crucial role, accounting for an increasingly larger part of the Fintech industry.

The report “Competition Issues in the Area of Financial Technology (Fintech)” was created on behalf of the Committee on economic and monetary Affairs of the European Parliament’s Policy Department A and. This is dealing with the new competitive situation caused by the rise of service providers in the Fintech area. Here new Start-ups apply to traditional financial institutions, and large technology corporations. The aim of the study is to show fields in which the competition is failing.

Digital currencies in the competitive analysis

The study begins with a General growth of the FinTech sector and the benefits that arise for the European consumers. The new type of financial services can reduce costs, increase efficiencies and increase transparency. Subsequently, the authors distinguish between different categories of FinTech providers, including digital currencies. In contrast to a previous study, a distinction is made not currencies between digital currencies and Crypto, as both terms are therefore used synonymously.

For digital currencies, according to the study, two main competition, fields: competition among various crypto Inter-crypto-market) and the competition among crypto-Exchanges (Intra-crypto-market) currencies (. The latter also includes a provider of Mining Hardware, Wallets, and payment providers.

The Inter-Crypto-Market

The Inter-crypto market is still dominated by Bitcoin, even if the trend is falling. The report identifies two reference sizes. In March 2015, the United Bitcoin, 86% of the crypto market capitalization, in March 2017, there were only 72 percent. Currently, the BTC-dominance is under 50 percent, in the meantime, she was fallen in the year 2018 to around 30 percent.

As a barrier to competition among crypto-currencies, the authors of network effects to identify. The fact that many crypto-currencies are designed to function within a specific Ecosystem, they are not substitutes for each other. In addition, the acceptance is not for all crypto-currencies, which has put approximately in the range of purses, Wallets, or General acceptance.

For the European Union a Problem of the fact that crypto-currencies, international work, and no jurisdiction are adjacent. This is the investigation and sanctioning of competition injurious behaviour is extremely difficult. Specifically, the concentration of Mining activities outside of Europe therefore constitutes a challenge.

The Intra-Crypto-Market

As a potential obstacle to competitiveness, the report identifies the market power of commercial banks. This could freeze the stock exchanges or Wallet providers, for example, the opening of an account, refuse or deposits, in case of inconsistencies. As a result, the hurdle for the market entry is very high.

The Mining market is not characterized according to the analysts as a classic market, since the Reward is calculated not from the market, but the Mining algorithm. Generally, Mining is not considered as a competitive market, since it promotes economies of scale and energy-efficient locations. In the advent of Mining Pools is also recognized a cartel.

In the case of Wallets and exchanges, the situation is much more relaxed, since there is significantly more competition. Low barriers to market entry here. However, the Report warns that it is not Readily possible to switch between individual providers. Furthermore, Wallet providers and exchanges are linked partly to each other, and could thus be of the competition.

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