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Business students of 13 universities from different countries competed in a crypto-currency investment challenge sponsored by Kraken, a digital currency exchange (Bitcoin and Litecoin), and publicized by The Economist Magazine. Kraken operates in the United States, Canada, The European Union, and Japan. Dubbed as the Kraken Case Study Competition, the objective was to determine which Blockchain platform is a better buy in the long-term. As of now, The Economist said Bitcoin is a 2-1 choice to outperform Ethereum.

The prize money in USD for the winning teams is as follows:

  • $10,000 – 1st place
  • $5,000 – 2nd place
  • $3,000 – 3rd place
  • $3,000 – People’s Choice for the proposal garnering the most number of public votes
  • $21,000 – Total

Winners will be announced next month.

Question for Students

The competing students were asked how much they will invest in each of the two Blockchain technologies if 1 million USD were given to them. The premise is they are not allowed to touch the money for five years.  They must also state the reason for this decision.

The Kraken Case Study was meant to find out how the participating teams will formulate the most effective technique for investing a fortune in a cryptocurrency portfolio. They were asked to select from Bitcoin, Ethereum or a combination of both. Students have to defend their preference for the short-term and long-term. According to the rules, it is imperative to wait for five years before returns are fulfilled. The case should be presented through videos that will be uploaded online.

Submissions were hosted on the website of The Economist, “Which MBA?” This is a division under The Economist Newspaper Group which offers web-based commodities serving potential MBA students as well as business schools. Jesse Kraken, chief executive officer and founder of Kraken, speculated whether the first-mover advantage and status gives it an advantage over its counterparts. The bottom line is how investors should assess opportunities with regards to exploit advantages and variation of portfolios.

The teams weighed strengths and weaknesses of each technology, reactions and feelings of investors as well as developers, project management, regulatory concerns, acceptance, use cases, and performance based on history.

The following universities were represented:

  • FIA Business School International MBA (Brazil)
  • Tulane University (USA)
  • Ryerson University, Ted Rogers School of Management (Canada)
  • Porto Business School (Portugal)
  • Ivey Business School at Western University (Canada)
  • Rutgers Business School (USA)
  • Middlebury Institute of International Studies (USA)
  • BYU Marriott School of Management (USA)
  • Johns Hopkins Carey Business School (USA)
  • Worcester Polytechnic Institute (USA)
  • Tuck School of Business at Dartmouth (USA)
  • Creighton University, Heider College of Business (USA)
  • University of North Texas (USA)

Kraken and The Economist

Kraken is the first-ever digital asset exchange that displayed trading volume and price on the Bloomberg terminal. It is among the first to put forward leveraged margin trading for Bitcoin, distribute proof of reserve audit which is cryptographically certifiable, and currently partner of the first crypto-currency bank in the world.  Kraken ranks consistently as the top and most protected digital asset exchange by an independent news media outlet.

Kraken started its operations in 2011. It is the biggest Bitcoin exchange in terms of liquidity and Euro currency volume. Kraken also trades US and Canadian dollars, UK pound sterling, and Japanese yen. It has earned the trust of numerous traders and prominent financial institutions which include BaFIn-regulated Fidor bank of Germany and the court-designated trustee of the Tokyo Government.

The Economist is a weekly news magazine published in the English language. The publication’s editorial office is located in London (United Kingdom). The news magazine is owned by the Economist Group. Each edition is printed on glossy paper. The average weekly circulation is estimated at more than 1.5 million. ½ of this number is sold in the USA.

Bitcoin versus Ethereum

Bitcoin was developed as a monetary system option. On the contrary, Ethereum was envisioned to build and implement smart contract applications.

Bitcoin is the original virtual currency. Under this Blockchain, transaction fees are lower compared to the usual web-based payment systems. Bitcoin is run by a decentralized authority not like the traditional currencies. Bitcoin balances are kept using private and public fees. Since it was introduced seven years ago, the digital currency has become popular among many bureaucracies and regulators. Bitcoin is not a recognized payment medium or asset that can be saved, retrieved and used at a later time.  However, it still co-exists in the global financial system notwithstanding the strict regulation and scrutiny.

Ethereum was unveiled only last year. It is the biggest and most stable, open-ended and decentralized platform that facilitates development of Smart Contracts and Distributed Applications (DAPP). There is no control, downtime, intervention, and fraud from any third party. Ethereum is not simply a platform but programming language as well. It runs on Blockchain and helps apps developers to come up with and publish DAPPs.

Potential apps of Ethereum are extensive. These operate on the chain’s cryptographic token (Ether) which has a specific platform. This can be likened to a vehicle for going around on the Ethereum platform. Ether is utilized for trading as a cryptocurrency exchange and put inside the Ethereum platform for running apps and monetization. Just recently, Microsoft Corporation entered into a partnership with Consensus Systems (Consensys), a Blockchain technology firm based in the United States. Consensus Systems offers the so-called Ethereum Blockchain as a Service on Microsoft Enterprise so the latter’s developers as well as clients can have access to a Blockchain developer bionetwork which is cloud-based.

Bitcoin and Ethereum currencies are based on the principles of cryptography (codes) and distributed ledgers, but the two vary in many ways.  Bitcoin is in a stack-oriented programming language like Forth, PostScript and reverse Polish Lip or RPL. It depends on a stack-machine model to pass parameters. Ethereum uses Turing Complete or computationally universal programming language. Transactions in Ethereum are verified within a few seconds while it takes several minutes for confirmation of Bitcoin transactions.

Mining Matters

Bitcoin was built on SHA or Secure Hash cryptographic algorithm. It uses the proof-of-work formula which depends on the amount of processing power used by miners to detect and decode new blocks. This enables miners to shift from Personal Computers and Graphics Processing Units to Application-Specific Integrated Circuits. So far, high-performance mining equipment resulted in an upsurge in terms of mining difficulties. This left miners without any choice but to use PCs and obsolete mining gear.

The Ethereum platform started with its own adaptation of the proof-of-work algorithm known as Ethash. It was designed to avoid the use of Application-Specific Integrated Circuits (ASICs) because of higher memory requirement. At present, miners available in the market do not match Ethash. Yet, it may soon become available due to the declining costs of computer hardware. The proof-of-stake blueprint is impervious to ASIC resistant because miners can only deal with a particular portion of the blocks. It depends on the percentage of cryptocoins they own. This controls the difficulty level while maintaining stable hashrate for a longer duration.

What is the Bottom Line?

Ethereum is regarded as an innovation anchored on the principle of Blockchain (Bitcoin) but it is not competing with Bitcoin. It is the attractiveness and increasing market capitalization of Ether that leads to the competition with other digital currencies. This is seen from the point of view of trading. At present, the market ceiling of Ether is above LiteCoin and Bitcoin even as it lags behind Bitcoin.

The original Blockchain is public and open. BTC tokens cost more than 9 billion USD. The system running Bitcoin attracted more than 1 billion USD in extra investment infrastructure aside from the original market capital. It is the only platform safe enough for transactions and possesses the required liquidity to operate live commercial apps. These are Bitwage (payment processor) and global wage payments.

Anything can still happen. The future of digital currencies and Blockchain system remains tentative. Various forecasts will be made regarding this novel technology that can impact the industry and its stakeholders in the future. Blockchain and Bitcoin are in each other’s pocket. Bitcoin will not exist without Blockchain, but the latter can thrive even without Bitcoin.

Multinational corporations, like Microsoft, are thrilled by the potential of Ethereum. Nevertheless, the technology must integrate with KNOW YOUR CUSTOMER (KYC) which is the business process of identifying and confirming clients’ identities as well as Anti-Money Laundering (AML). AML is the set of legislation and procedures enacted to stop the practice of earning income illegally. Money launderers make it appear that illegal money was earned legally. AML laws require due diligence to make sure institutions are not involved in making money illicitly. Some of these unlawful acts are trading of illegal commodities, manipulation of markets, tax evasion, and embezzlement of public finances.

Things will begin to change as soon as people realize and understand the functions and benefits of Blockchain technologies and virtual currencies. There is a big possibility that many consumers will try this platform and find them to be cost-effective and useful.

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By Kewl

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