VOLUME 04BEACONJAN 2016

iISSUE 01

VOLUME 04BEACON ISSUE 01JAN 2016

ContentsABOUT US

OUR TEAM

INDUSTRY ANALYSIS

TOPIC OF THE MONTH

CASE STUDY ANALYSIS

CONCEPT OF THE MONTH:BITCOIN

VOLUME 04BEACONJAN 2016

1ISSUE 01

OUR PRESENCE

ABOUT US

VISION

The SIMCON - SIMSREE consulting club is an initiative started in 2012 for those students in pursuit of excellence in management consulting and strategic management. Aimed at creating awareness among the students about consultancy as a discipline, the club strives to maintain strong relations with top consultancy firms and provide platform to craft highly skilled & competent consultants from SIMSREE. The club is a resource for information about consulting and a place for students to obtain real-world consulting experience.

SIMCON provides an avenue of interaction among faculty, students and alumni through competitions, live projects, guest lectures, and conclaves. For this purpose the club has also been publishing its monthly newsletter – BEACON (BE A CONSULTANT) and maintains a FACEBOOK PAGE where latest news and development in the consulting industry are posted.

MISSIONTo create awareness amongst the students about consulting industry & its latest trends.

To maintain strong relations with top consultancy firms.

To provide platform to craft highly skilled & competent consultants from SIMSREE.

To provide exposure to students via competitions, live projects, guest lectures & conclaves.

Contributions invited:To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to simcon.simsree@gmail.com.

Best Regards,SIMCON - SIMSREE CONSULTING CLUB

VOLUME 04BEACONJAN 2016

2ISSUE 01

OUR TEAM

SANANDAN DESHPANDE

NIKHIL RAO

AMEYA MAHABAL

CHITRA WANI

deepesh jethwani

prathamesh indani

Sushil Gurav

VOLUME 04BEACONJAN 2016

3ISSUE 01

OUR TEAM

ARPIT agrawal

ASHAY DHURI

HUZEFA BODABHAIWALA

KARAN CHOPRA

NAMAN CHANDAK

praCHI KORE

SARANG KULKARNI

YOGESH MOHATA

VOLUME 04BEACONJAN 2016

4ISSUE 01

REAL ESTATEINDUSTRY ANALYSIS

VOLUME 04BEACONJAN 2016

5ISSUE 01

REAL ESTATEINDUSTRY ANALYSIS

Industry Overview

Real Estate sector is one of the acknowledged sectors in the world. Real Estate sector is the 2nd largest employer in India after Agriculture sector. Real Estate sector is expected to grow at 30% over the period of next 10 years.

In the year 2014, overseas funds accounted for more than 50% for all investment activities in India and this figure was around 26% in the year 2013. So, Indian real estate market has become one of the most preferred destinations in Asia Pacific region. It is also expected that there will be more number of NRI (Non-Resident Indian) investments in both short term and long term. Most favored property investment destination is expected to be Bengaluru followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.

Real Estate sector mainly comprises of 4 sub-sectors and these sectors are Housing, Retail, Hospitality and Commercial. The growth of real estate sector is also complemented by growth of some other factors like corporate environment and demand for office space as well as urban and semi-urban accommodations. The construction industry ranks 3rd among the 14 major sectors in terms direct, indirect and induced effects in all sectors of economy.

Segments

Market Size

Real Estate sector in India is expected to touch $180 billion by the year 2020. From the financial year 2008 to 2020 this market is expected to grow at the Compounded Annual Growth Rate of 11.2%. Much needed infrastructure for India’s growing needs is being provided by the growing sub-sectors like Retail, Hospitality and Commercial real estate.

During the first nine months of 2015, Private Equity funds have invested $2.4 billion in real estate sector across 53 transactions compared to $1.3 billion across 57 transactions in the same period last year. Deal sizes have also increased in the year 2015. Residential projects both luxurious & affordable have attracted substantial amount of capital. Private Equity and Non-Banking Finance Companies are increasingly investing in real estate sector in order to hedge risk and undertake bigger transactions.

India’s office space absorption stood at 35 million square feet during 2015, which is second highest figure in India’s history after 2011 and it was driven by corporates implementing their growth plans. India had the strongest activity in office leasing space in Asia and accounted for half of Asia’s total office leasing in third quarter of 2015, with Delhi being the most active market.

Mumbai is considered to be the best city in India for commercial real estate investment, with returns 12-19% likely in next 5 years followed by Bangaluru and Delhi-National Capital Region. Delhi-NCR was also the biggest office market in India with 110 million square feet, out of which 88 million square feet were occupied. Sectors like IT & ITeS, Retail, Consulting and E-Commerce have registered high demand for office space in recent times. Delhi’s Central Business District (CBD) of Connaught Place has been ranked as the sixth most expensive prime office market in the world with occupancy costs at $160 per square foot per annum.

Major Domestic Players 1. DLF Limited

DLF is a leading real estate developer in India since 1946. DLF has been instrumental in putting Gurgaon on the urban landscape of India. DLF has over 220 million square feet of existing development projects and 574 million square feet of planned projects. DLF has so far developed 22 urban colonies and an entire integrated 3000 acre township called DLF City.

Others

Government

Education

Transport

Trade

Manufacturing

Real Estate

Agriculture

11%

53%

9%

14%

Sector wise Employment

5%2%2%4%

VOLUME 04BEACONJAN 2016

6ISSUE 01

2. UNITECH

Established in 1972, UNITECH is India’s leading real estate developer. It is the first developer to have been certified ISO 9001:2000 in North India. UNITECH offers diversified projects across residential, commercial IT parks, retail, hotels, amusement parks and SEZs segments. UNITECH was the first real estate company to be a part of the National Stock Exchange’s NIFTY 50 index.

3. Ansal API

Established in 1967 as a family business, Ansal API today is clearly amongst the real estate leaders of India. Ansal API till date developed and delivered more than 190 million square feet. The company currently has a land reserve of about 9335 acres.

Project Spectrum: Integrated townships, Condominiums, Group Housing Malls, Shopping Complex, Hotels, SEZs, IT parks and Utility services.

Porters Five Forces

• Threat of new entrants- LowInitial investment in setting up a real estate company is very high since the raw material costs have to be arranged by the developer in the earlier stage i.e. there is no advance payment from the customer. New players in this sector find it difficult to win projects since the real estate sector projects also consider the track record of the developer. Economic downturn across the globe and increase in the number of real estate construction and development companies has reduced the profitability of the business. Cost reduction plans in terms of real estate for office space are being carried out by many companies. So this is kind of a dampener for new companies as well as existing companies. The new players in this sector are expected to be affected the most.

On account of the above points, there is weak/low threat of new entrants.

• Bargaining power of buyers- ModerateThe products (i.e. real estate space) are standardized. Switching costs are very high. People look for developers with good track record i.e. brand identity. The bargaining power of buyers was low. But because of poor economic condition of 2013 and 2014, the property rates were unaffordable to the people of the

country. RBI has disallowed the 80:20 ponzi scheme being run by real estate developers. Also the property rates were too high and sellers were not ready to bring down the prices. So the real estate sector became cash crunched.This resulted in builders trying to woo buyers with discounts and offers.The bargaining power of buyers which was low earlier, later on it increased and now can be termed as moderate.

• Bargaining power of suppliers- LowThere is lower switching cost in changing suppliers for raw material (cement, bricks, paint, etc.). There is negligible threat of forward integration by suppliers. There are a large number of suppliers of raw materials for the real estate sector. The bargaining power of suppliers is low in this case.

• Threat of substitutes- No threatThere is no substitute for real estate sector from the point of view of real estate construction and development. So the threat of substitutes for real estate sector is seemingly nil.

• Intensity of rivalry- HighRivalry is strong because of the large number of real estate firms operating in India and around 40 companies are listed on BSE in Construction and Contracting- Real estate. The product (i.e real estate space) cannot be differentiated. There is minimal profitability considering the status of current economy and so only companies with high cash reserves would survive. The intensity of rivalry is, therefore, high.

Government Initiatives

The Government of India along with the governments of the respective states has taken several initiatives to encourage the development in the sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies. Below are some of the other major Government Initiatives:

• The Government of Rajasthan became the first state to initiate private investments in affordable housing by signing four Memoranda of Understanding (MoUs) with private players for an investment of Rs 5,400 crore (US$ 810 million).

• The Ministry of Housing and Urban Poverty Alleviation (HUPA) has commissioned a study by Indian Institute of Technology, Kanpur

VOLUME 04BEACONJAN 2016

7ISSUE 01

on testing of new construction technologies, with the objective of promoting new housing technologies in the country.

• India’s Prime Minister Mr NarendraModi approved the launch of Housing for All by 2022. Under the Sardar Patel Urban Housing Mission, 30 million houses will be built in India by 2022, mostly for the economically weaker sections and low-income groups, through public-private-partnership (PPP) and interest subsidy.

• The Government of India has relaxed the norms to allow Foreign Direct Investment (FDI) in the construction development sector. This move should boost affordable housing projects and smart cities across the country.

• The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). This move will enable easier access to funds for cash-strapped developers and create a new investment avenue for institutions and high net worth individuals, and eventually ordinary investors.

• The Government of Maharashtra announced a series of measures to bring transparency and increase the ease of doing business in the real estate sector.

• The State Government of Kerala has decided to make the process of securing permits from local bodies for construction of houses smoother, as it plans to make the process online with the launch of software called 'Sanketham'. This will ensure a more standardized procedure, more transparency, and less corruption and bribery.

Road Ahead

Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalization, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralized processes to source material and organize manpower and hiring qualified professionals in areas like project management, architecture and engineering.The growing flow of FDI into Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due

diligence standards.India’s real estate market is expected to reach US$ 180 billion by 2020 from US$ 93.8 billion in 2014. Emergence of nuclear families, rapid urbanization and rising household income are likely to remain the key drivers for growth in all spheres of real estate, including residential, commercial and retail. 

Real estate is currently the fourth-largest sector in the country in terms of Foreign Direct Investment (FDI) inflows. Total FDI in the construction development sector during April 2000–May 2015 stood at around US$ 24.07 billion.The Government of India has been supportive to the real estate sector. In August 2015, the Union Cabinet approved 100 Smart City Projects in India. The Government has also raised FDI limits for townships and settlements development projects to 100 per cent. Real estate projects within the Special Economic Zone (SEZ) are also permitted 100 per cent FDI. In Union Budget 2015-16, the government allocated US$ 3.72 billion for housing and urban development. The government has also released draft guidelines for investments by Real Estate Investment Trusts (REITs) in non-residential segment.

VOLUME 04BEACONJAN 2016

8ISSUE 01

Global Outlook

In many ways, the commercial real estate (CRE) industry is on more solid footing. The U.S. economy continues to progress and investors are generally seeing robust performance across most property types and markets. Availability of financing through traditional and nontraditional channels is likely to continue to drive domestic and international investor interest in U.S. CRE. Together, these should further strengthen transactions and pricing across primary, secondary, and tertiary markets. However, concerns — some new, some old — are keeping industry executives on their toes. Whether it’s the pressure coming from nontraditional competitors, the evolving threat of cybercrime, the imperative to be sustainable, or the rising cost of regulatory compliance, CRE executives have ever evolving challenges.Based on the premise of “on demand,” technology advancements, consumption and lifestyle patterns,

and societal factors are driving the rapid growth of the collaborative economy. Companies such as Uber and Lyft are leveraging technology to offer on-demand taxi services, reducing the need for car ownership. This trend can be equally applied to CRE, as collaborative space usage is gaining prominence in places where one lives, works, and plays.The growth of the collaborative economy will have far reaching implications for traditional CRE players. The collaborative economy is coming to real estate sector sooner than expected. There will be higher demand for dynamically configurable spaces. Leasing approaches and lease administration will undergo significant transformation.

ReferencesIBEF, KPMG, EY-Trends

VOLUME 04BEACONJAN 2016

9ISSUE 01

TURMOIL IN OIL INDUSTRY TOPIC OF THE MONTH

VOLUME 04BEACONJAN 2016

10ISSUE 01

In the first half of twentieth century, oil had importance because of its need for military. Anyone who had control over oil had ruling power. During World War I and World War II it played an important role. Also, it was important for industrial growth in U.S. and other powerful nations. It was used for energy consumption. As this all has wide impact on every nation, oil price has importance in the international market.

Difference between Brent crude oil and WTI crude oilBrent crude oil and West Texas intermediate are 2 major benchmarks in world market. The oil explored in Central U.S., Northern Region of Europe and Asia –Pacific region is ‘Sweet’ oil i.e. content of sulfur is less that 50%. If the content of sulfur is less, then it is easier for refiners to refine it. Though Brent and WTI both are sweet and lighter oil types, WTI is a bit sweeter than Brent oil and it makes WTI costlier than Brent. But, if a supply glut is there at Oklahoma, Texas then prices of WTI tumbles down. Still, currently around two thirds of world oil trade happens with Brent crude as benchmark.

1930’s oil glutDiscovery of new oil field in Oklahoma, Texas caused abundance of oil in 1930’s. In late 20’s and early 30’s world was in fear of low oil supply which in turn led to discovery of new oil fields. This caused overproduction of oil which was stockpiled and this led to excess supply of oil and gasoline at refineries. This led to price fall. Also, this further exacerbated the deflation.

To curb the tumbling oil prices, authorities tried to shut oil wells in oil producing states. But, it was not much successful.

1980’s oil glutThere were 3 factors responsible for 1980’s oil glut: increase in oil prices in 1979, excess production and decline in demand due to recession. Excess production took place due to the rise in prices of oil. All 3 factors are intertwined with each other. In 1982, supply was more than the demand of oil. This led to the price war and in turn around 67% fall in oil prices. To curb the fall in oil prices, Saudi reduced the production of oil. But due to this, Saudi and other OPEC countries lost the market share. This resulted in the gain of market share by U.S. and non-OPEC countries. Also, after learning from 1973 oil crisis and 1979 oil shock, European countries focused more on stable, alternative oil supplies from non-OPEC countries. This crisis ended with loss of market share by OPEC nations and reduced their importance.

Current Turmoil In The Oil IndustryPrice of a barrel of oil has fallen more than 70% since June 2014.The oil industry, with its history of booms and busts, is in its darkest phase since the 1990s.

Oil production in the US has nearly doubled over the last few years because of the Shale boom. This lead to a substantial decline in oil imports in the US. Saudi, Nigerian and Algerian oil that once was sold in the United States was suddenly competing for Asian markets, and the producers were forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.

The consequent increase of oil in the market due to the rise in oil production in the US has lead to the supply outpacing the demand by quite some margin. The OPEC and Non OPEC members are trying to hold on to their positions and not cutting productions in a bid to run their competitors out of business. But this has put a lot of economic strain on all the oil producing countries as prices have dropped substantially and they cannot carry on like this for a very long time. Many of the US shale producers until now could carry on producing oil because of contracts signed at higher prices. But these contracts are getting over this year and many producers will have to shut down operations simply because they will become unprofitable.

Meanwhile, projects capable of producing more than a half million barrels a day of oil were cancelled, delayed or shelved by OPEC countries alone last year, and this year promises more of the same.Also there are signs that production is falling because of the drop in exploration investments. A international consulting firm,  identified 68 large oil and natural gas projects worldwide, with a combined value of $380 billion, that have been put on hold around the world since prices started coming down, halting the production of 2.9 million barrels a day.But still the drop in production is not happening swiftly enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects come online. On the demand side, the economy of Europe is weak. China unexpectedly is going through a slowdown of its own and its oil consumption isn’t increasing the way it was expected to increase. Other emerging economies are also stable and there is not any extra demand for oil.A Major factor in the sharp price drops is due to the continuing unwillingness of OPEC to intervene to stabilize markets that are widely oversupplied.

VOLUME 04BEACONJAN 2016

11ISSUE 01

Venezuela, Ecuador and Algeria have been pressing the cartel to cut production to shore up prices, but Saudi Arabia, the United Arab Emirates and other gulf allies are refusing to do so. At the same time, Iraq is actually pumping more, and Iran is expected to become a major exporter again. Saudis fear that if they cut production and prices go up, they will lose market share to their competitors (mainly US). The IMF estimates $300 billion decline in the revenues of Saudi Arabia and its Persian Gulf allies this year.Oil prices are unlikely to increase anytime soon as this game of brinkmanship continues. Oil production is not declining fast enough in the US and other countries but that could begin to change this year. There are signs that suggest relative parity between demand and supply along with the prices could be achieved by the end of 2016. Demand for fuel is recovering in some countries, and that could help crude prices recover in the next year or two. But there is now little or no spare production capacity to give the market a cushion in case of any crisis in a crucial oil-producing country.

Oil Price Forecast For 2020 And 2040The average price of a barrel of Brent crude oil will rise to $79/bbl by 2020(without considering Inflation). Shale oil production is going to slow down after 2021 there by contributing to a decline in total U.S. oil production through 2040.

According to Annual Energy Outlook (EIA), after 2020, world demand will start driving oil prices to the equivalent of $141.28/barrel in 2040. By then, the cheap sources of oil will have been exhausted, making it more expensive to extract oil.This all depends on what happens with U.S. shale oil production, how OPEC responds to it, and how fast the global economy grows. Also EIA is uncertain about its own forecast. What will happen to the oil prices in the long term is anybody’s guess.

ReferencesPeak Oil Barrel, Use-conomy, NY times

VOLUME 04BEACONJAN 2016

12ISSUE 01

MTVBRAND ANALYSIS

CADBURY OREOCASE STUDY ANALYSIS

VOLUME 04BEACONJAN 2016

13ISSUE 01

MTVBRAND ANALYSIS

CADBURY OREOCASE STUDY ANALYSIS

Introduction To Case For most of its 100-year existence, Oreo was consistently America's best loved cookie, but today it is a global brand. Faced with stagnation in the domestic market, Kraft Foods moved it into emerging markets where it made some mistakes, learned from them changed its strategy and ultimately triumphed in winning over customers. This case illustrates a complete re-evaluation of the product, pricing, packaging, communication and distribution strategy of an existing Oreo brand in an international market. It can also be used to explore the global versus local mix that is needed for success in an international market, and to illustrate the strategies necessary to succeed in emerging markets like India and China.

Background And Company ProfileThe "Oreo Biscuit" was first developed and produced by the National Biscuit Company (today known as Nabisco) in 1912 at its Chelsea, Manhattan factory in the current-day Chelsea Market complex, located on Ninth Avenue between 15th and 16th Streets. Today, this same location of Ninth Avenue is known as "Oreo Way." The name Oreo was first trademarked on March 14, 1912. It was launched that time as an imitation of the Hydrox cookie manufactured by Sunshine Company, introduced in 1908.

On March 6, 2012, the famous cookie brand, Oreo, celebrated its 100th birthday. From humble beginnings in a Nabisco bakery in New York City, Oreo has grown to become the bestselling cookie brand of the 21st century generating $1.5 billion in global annual revenues. Currently owned by Kraft Foods Inc., Oreo is one of the company's dozen billion dollar brands.

Until the mid-1990s, Oreo largely focused on the US market - as reflected in one of its popular advertising slogans from the 1980s, "America's Best Loved Cookie". But the dominant position in the US limited growth opportunities and spurred Kraft to turn to international markets. With China and India representing possibly the jewels in the crown of international target markets due to their sheer size, Oreo was launched in China in 1996.

Problem Faced In Entering Emerging MarketsOreos haven’t always been popular outside the U.S. Kraft struggled for years in China after being launched in China, for instance, and considered exiting Chinese market several times. The cookie was spectacularly underperforming once said Sanjay Khosla, Kraft’s president of developing markets. One problem: Kraft offered Chinese consumers the same type of Oreos that it sold in the U.S. Kraft believed that what was good for the U.S. was good for the world.

After surveys showed that Chinese consumers found Oreos too sweet, Kraft put Andrade to work coming

up with a new formula to better suit local tastes. In India, Kraft encountered the opposite problem: The American-style cookie was too bitter, Indians told researchers.

Adjusting for local preferences isn’t a matter of just removing one ingredient said Andrade. It’s about making sure you balance the flavors. You almost have to reconstruct the product.

Strategy For Turnaround In ChinaOreo had been an iconic product in US having been in the country for over 100 years. Kraft expected the brand to achieve similar success in China after its launch in 1996. But this was not the case as a result of which, Kraft had to rethink about adapting the product according to the needs of the Chinese.

The cookie when launches in China did OK but wasn’t a hit. The company even considered pulling out the brand out of China, but before doing so that they thought of conducting a research about why the Chinese consumers did not like Oreo. Kraft concluded from the research that Chinese found the cookie a little bit too sweet and a little bit too bitter and this is where the turnaround strategy of Kraft was focused.

The multi-pronged approach adopted by Oreo in China can be summarized as follows:

• Kraft’s Chinese division asked its headquarters to change the ingredients of Oreo so as to make it biscuits suitable for local tastes. Accordingly, 20 prototypes were developed and were tested on Chinese consumers and the formula which was most preferred was selected.

• Kraft also observed that the Chinese consumers were value conscious and considered the Oreo packets to be expensive. As a result of which the size of the packets was reduced so as to suit the buying habits of consumers. Moreover, very small packets were also introduced so as to give the consumers a first taste of the cookie.

• The introduction of smaller packs required

VOLUME 04BEACONJAN 2016

14ISSUE 01

adjustments in manufacturing plant. Similarly, marketing campaigns also had to be adjusted accordingly.

• Initially, the distribution was through grocery stores and hypermarkets. But later the convenience stores were used to enhance the distribution network. In Shanghai, Carrefour even offered Oreos by weight so as to give customers more control over the quantity that they buy.

• Recognizing the wafers were very popular amongst the Chinese, the team introduced chocolate covered wafer sticks. Convincing the senior management was a tough task, but eventually the product turned out to be big hit and was subsequently launched in other markets.

• Americans have tradition of pairing milk with cookies. Kraft began a grassroots marketing campaign so as to educate the Chinese consumers about this habit.

Strategy Used In IndiaThe learning from Chinese markets were used by Kraft when they entered Indian markets. Initially Oreo was available in India only in imported form. As a result of this, it was priced at Rs 50 for a pack of 14. Due to prohibitive price coupled with lack of awareness, the sales were very low. At this point of time, global CEO Irene Rosenfeld decided to adopt localization strategy similar to the one used in China. This was helped partly by the acquisition of Cadbury in 2009.As opposed to the Chinese, Indians love biscuits. India is world’s largest market for biscuits. But the market is dominated by low-cost glucose biscuits, and premium cream biscuits only occupy a small share. As a result, in order to capture the Indian market, competitive pricing and strong distribution were important

components.

Oreo developed a strategy to take on the existing market leaders which included Britannia, ITC and Parle. Internally, they referred to this strategy as TLD (Take Leaders Down). Its focus was to target the 10 million households which consumed 70 per cent of the cream biscuits. It entered the Indian market as Cadbury Oreos as Cadbury had a better brand recognition among the Indian consumers when compared to Kraft. It has targeted the small towns and Kirana stores along with modern stores in big cities. As a result of this strategy its market share has grown from one per cent after its debut to 30 per cent.

ConclusionToday, Oreo has become a global brand. It has presence in more than 100 countries. China is currently its No.2 market. This would have been highly impossible had there been no clear strategy from Kraft about approaching the Chinese markets. Manufacturing, marketing, distribution and packaging were properly aligned as per the market requirements. The decision to reformulate the Oreos according to the Chinese taste was a significant decision.This case is a classic example of the dilemma which is faced by multinational corporations when entering foreign markets. The firms should be able to adjust to the local tastes. Oreo achieved success by integrating its global brand with local preferences.

ReferencesBusiness today, ET, Canadian Business, WSJ, Forbes

VOLUME 04BEACONJAN 2016

15ISSUE 01

BITCOINCONCEPT OF THE MONTH

VOLUME 04BEACONJAN 2016

16ISSUE 01

IntroductionBitcoin was introduced in year 2009 by developer Sa-toshi Nakamoto as open source software; it is a peer-to-peer payment system. The digital currency used in the system is also called bitcoin and it is also referred as an electronic money, virtual currency, or cryp-to-currency. The bitcoin is a decentralized currency as it is not controlled by a single entity/authority, like a central bank. Economists generally agree that bitcoin does not meet the definition of money. Bitcoins are generated as a reward for payment processing work in which users who offer their computing power record and verify payments into a public ledger called mining, individuals do this activity in exchange for transaction fees and newly minted bitcoins. Apart from mining, bitcoins can be obtained in exchange for products, other currencies, and services. Users can send, receive and buy bitcoins electronically for a nominal fee using wallet software on a mobile device, personal computer or a web application.

Working Of BitcoinA new user can get started with Bitcoin without un-derstanding the technical details. Once user have installed a Bitcoin wallet on his computer or mobile phone, it will generate first Bitcoin address and user

can create more whenever he need one. He can dis-close his addresses to his friends so that they can pay him or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.

The entire Bitcoin network relies on the block chain, which is a shared public ledger. All confirmed transac-tions are recorded in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be done by using bitcoins that are ac-tually available with the spender. The chronological order and the integrity of the block chain are enforced with cryptography.

What Is The Value Of A Bitcoin?Bitcoins are like diamonds or gold i.e. it doesn’t intrin-sic value. As more people want to buy Bitcoins, sellers can charge more. It’s a free market and as wild as one can imagine.

If 21 million Bitcoins are in circulation and current price is $500, then total market value is ~$10 Billion. Bitcoin Value – 1 Year History

Advantages & Disadvantages Of BitcoinAdvantages

• Payment freedom - It is possible to receive and

send any amount of money instantly at any-time, anywhere in the world. No bank holidays, no imposed limits, no borders. Bitcoin allows its users to have full control on their money. 

• Very low fees - Bitcoin payments are currently processed with either extremely small fees or no fees.

• Security and control - Bitcoin users are in full control of their transactions; it is impossible for merchants to force unnoticed or unwant-ed charges which can happen with most of the other payment methods. Bitcoin transactions can be done without personal information tied to the transaction. This offers very strong pro-tection against identity theft. Bitcoin users can also protect their money with encryption and backup.

VOLUME 04BEACONJAN 2016

17ISSUE 01

Bitcoin Value – 1 Year History

• Transparent and neutral - All information regarding the Bitcoin money supply is easily available on the block chain for anybody to verify and use in real-time. No individual or organization can manipulate or control the Bitcoin protocol because it is cryptographical-ly secure.

Disadvantages• Degree of acceptance - Many people are still

not aware of Bitcoin. Every day, more busi-nesses accept bitcoins because they want the advantages of doing so, but the list still remains small and needs to grow in order to benefit from network effects. 

• Volatility - The number of businesses using Bitcoin and the total value of bitcoins in circu-lation and are currently very small compared to what they could be. Therefore, relatively

small trades, events, or business activities can significantly affect the price. This volatility will decrease with time as Bitcoin markets and the technology matures.

• Ongoing development - Bitcoin software is still in beta stage with many incomplete features which is in active development. New features, services, and tools and are being developed to make Bitcoin more secure and accessible to the masses.

ReferencesBitcoin, Raszl, Reddit