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1. Competitive Strategy & Crypto
– Dealing with Disruption in
the Decentralised Digital
Economy
Competitive Strategy within the digital
currency mining industry (using Bitcoin as an
illustrative example)
Hass McCook
Hashers United – Las Vegas, October 2014

2. Analysing Markets – The Porter’s Six Forces
THREAT OF
NEW
ENTRANTS
THREAT OF
SUBSTITUTE
PRODUCTS
BARGAINING
POWER OF
BUYERS
BARGAINING
POWER OF
SUPPLIERS
RIVALRY WITHIN
INDUSTRY
COLLABORATORS/
COMPLIMENTARY
PRODUCTS
 Porter, M., 1980. Competitive Strategy. 1st ed. New York: Free Press.

3. Crypto’s Macroeconomic Context
RIVALRY WITHIN INDUSTRY
HIGH
Currencies
Physical
Investment
Vehicles
Commodities

4. Crypto’s Macroeconomic Context
Currencies
Physical
Investment
Vehicles
Commodities
THREAT OF NEW
ENTRANTS
LOW
THREAT OF SUBSTITUTE
PRODUCTS
EXTREME
HIGH
BARGAINING POWER
OF SUPPLIERS
MEDIUM
BARGAINING POWER
OF BUYERS
RIVALRY WITHIN INDUSTRY
HIGH
COLLABORATORS/
COMPLIMENTARY PRODUCTS

5. Crypto Mining’s Microeconomic Context
RIVALRY WITHIN
INDUSTRY
HIGH
THREAT OF NEW
ENTRANTS
MEDIUM
HIGH
BARGAINING POWER
OF SUPPLIERS
THREAT OF SUBSTITUTE
PRODUCTS
VERY LOW
EXTREME
BARGAINING POWER
OF BUYERS
COLLABORATORS/
COMPLIMENTARY PRODUCTS

6. Perfect Competition & Bitcoin
Market
Characteristic
Application to Bitcoin (short-to-medium-term: 0 – 3 years)
Application to Bitcoin (long-term: 3
years+)
All market
participants
are “price
takers”
“Temporary price makers” dump/buy vast amounts of coins on
an exchange, causing dramatic instantaneous negative/positive
price movement, respectively. Once done however, market
power and future effects are proportionately permanently
reduced.
As bitcoins become less
concentrated due to inherent
scarcity, the gross majority of all
market participants will become
price takers
Homogeneous
Products
All bitcoins are homogenous and identical for the gross majority of practical intents and purposes, and
will always be.
No barriers of
entry and exit
No onerous barriers to entry or exit can by created by incumbents to restrict competition due to
Bitcoin’s open-source and global nature, and impracticality of unified global regulation or licencing
requirements, and this will always be the case
Property
Rights
The Blockchain ensures that there is no doubt about ownership of Bitcoins and their owner’s rights,
and this will always be the case

7. Perfect Competition & Bitcoin
Market
Characteristic
Application to Bitcoin (short-to-medium-term: 0 – 3 years)
Application to Bitcoin (long-term:
3 years+)
A Large number of
buyers and sellers
There is currently only a relatively small number of buyers and
sellers compared to traditional markets, however, this
number is increasing exponentially in an analogous way to
other network-effect based disruptive technologies
Large number of different types
of buyers and sellers (investors,
merchants, exchanges,
remittance, etc.)
Zero transaction
costs
Transactions are theoretically free – but free transactions are
subject to the possibility of delays. Fees are not set by the
market, and are voluntary based on desired transaction
speed.
Transaction costs will be near
zero
Perfect Factor
Mobility
Factors of production (Location, Labour & Capital) are almost
perfectly mobile, allowing for adjustments to changing market
conditions
Factors of production are
perfectly mobile in the long term
Non-increasing
returns to scale
Non-increasing returns to scale when an individual miner or
pool of miners approach 50% of network power. Huge
disincentives to exceed 50% of network hashing power.
Non-increasing returns to scale

8. Perfect Competition & Bitcoin
Market
Characteristic
Application to Bitcoin (short-to-medium-term:
0 – 3 years)
Application to Bitcoin (long-term: 3 years+)
Profit Maximisation
Miners will sell at the intersection of Marginal
Cost and Marginal Revenue, except during
positive/negative hype cycles, where sales
strategy differs wildly across the industry
Miners will sell at the intersection of Marginal
Cost and Marginal Revenue
Perfect Information
In the short term, “Price Makers” prevent the
overall market from having access to perfect
information, as they can individually influence
market price.
Due to the open-source nature of Bitcoin, in the
long term, all consumers and producers are
assumed to have perfect knowledge of price,
utility, quality and mining methods.
No externalities
The only externalities are emissions due to
proportion of network using fossil-fuel to
provide electricity for mining, and waste
produced by obsolete mining equipment.
Externalities trending to zero due to
decentralised low-emission electricity (Solar,
Fuel Cell), and improvements in recycling

9. Bitcoin Mining’s Microeconomic Context
THREAT OF NEW
ENTRANTS
HIGH
THREAT OF SUBSTITUTE
PRODUCTS
LOW
HIGH EXTREME
BARGAINING POWER
OF SUPPLIERS
BARGAINING POWER
OF BUYERS
RIVALRY WITHIN
INDUSTRY
HIGH
COLLABORATORS/
COMPLIMENTARY PRODUCTS

10. Mining – The Organisational
Context:
Crypto and the Comprehensive
Company Analysis Framework

11. Profit – Simple Answers to Complex Questions
 Question: How can we be profitable?
 Answer: Make sure our revenues are greater than our costs
 Question: How can we be MORE profitable?
 Answer: Increase our revenues and decrease our costs
 Question: How can we increase our revenues?
 Answer: Make more sales and/or charge more money for our
products
 Question: How can we reduce our costs?
 Answer: Sweat our assets more, and screw down our
suppliers
 Question: How can we capture the most market share?
 Answer: Do things better and cheaper than our competitors
can

12. It gets a lot more
complicated in practice!

13. Cost Drivers

14. Fixed & Variable Costs Variable Costs Fixed Costs
Plant – “Upkeep”
Hardware, Cooling
Plant – Mining Hardware,
Rent of premises
Human Capital –
Operations &
Maintenance Crew
Human Capital –
Executive Salaries,
Training, Recruitment,
Sales & Marketing
Material – Electricity
(mining), Wiring &
Sundries, Rack space
Material – Electricity
(premises)
Compliance/Process –
Quality Auditing,
Planned/Unplanned
Maintenace
Compliance – Insurance,
Security, Taxes, Interest
Payments
Variable
Fixed
Costs
+ Costs Cost/
Unit
Units
Produced x
Plant Human Capital Material Compliance
FIXED AND VARIABLE COST ANALYSES
PRODUCTIVITY ANALYSIS
Plant
Human
Capital
Material Process

15. Revenue Drivers

16. Price External Market
Factors
Internal Factors
Prevailing Market Price Brand Strength
Customer Type &
Willingness/Capacity
to Pay
Relationships with
Customers
Competitor Pricing
Differentiated /
Diverse Product
Offering
Utility of
Complimentary
Products
Cost to Produce
5 (6) Forces S.W.O.T / B.W.O.T
Price
External
Market
Factors
Internal
Factors
INTERNAL & EXTERNAL
FACTORS ANALYSES

17. Sales Volume
Organic Sales Inorganic Sales
The 4Ps – Price,
Placement, Promotion,
Product
Key Partnerships
with Collaborators
Ability of development
team to consistently
deliver high quality
products
Mergers &
Acquisitions
Ability of Marketing Team
to successfully execute
sales & marketing strategy
“Synergy” /s
Ability of Customer Service
Team to Comprehensively
Satisfy Customers
Units Sold
Organic
Sales
Inorganic
Sales

18. Revenues Costs
Variable
Fixed
Costs
+ Costs Price x
External
Market
Factors
Internal
Factors
INTERNAL & EXTERNAL
FACTORS ANALYSES
Units Sold
Organic
Sales
Profitability
Inorganic
Sales
Cost/
Unit
Units
Produced x
Plant Human Capital Material Compliance
FIXED AND VARIABLE COST ANALYSES
+
MARKETING ANALYSIS
Promotion
Product /
Service
Price
Placement
INORGANIC (M&A) SALES
Customers
ANALYSIS
MARKET ANALYSIS
Competitors /
Collaborators
Suppliers
Barriers to
Entry
Substitutes/
Complimentors
Mergers &
Acquisitions
Partnering
ORGANIC SALES ANALYSIS
Products /
Markets
Services
Placement Productivity
PRODUCTIVITY ANALYSIS
Plant
Human
Capital
Material Process

19. Short-to-Medium Term Trends (0 – 3 Years)
 Majority of Start-ups will fail. It’s not enough to just be young, bright, a
very early adopter, and have a good idea; implementation, execution,
funding and adoption are critical.
 Further Price Discovery in the face of currency inflation & hype cycles
 Regulatory Landscape will become clearer, with several discrete
jurisdictions (both hostile and accommodating) coming into existence.
Operations will obviously gravitate to the accommodating jurisdictions.
 Product Development will continue at existing pace, leading to
heightened usability and discovery of new use cases
 Vertical & Horizontal Integration will start being witnessed much more
frequently. A good example would be a company that has an ASIC
manufacturing division, a cloud-mining service, a brokerage/exchange
service, processes payments on the network, and provides “usability”
services such as managed online wallets and physical wallets

20. Long Term Trends (3+ Years) – The Rule of 3
 Bruce Henderson, Founder of Boston Consulting Group,
suggested that in a competitive market place, there is a
natural tendency for the market to be dominated by three or
four players – known as “The Rule of Three” (Henderson,
1976).
 This hypothesis was tested and supported by Sheth and
Sisodia, who observed the evolution of roughly 200
competitive markets (Sheth & Sisodia, 2002).
 So what should we expect from The Bitcoin Market…?

21. Long-term Trends (3+ years) – c. 2018
 State of Perfect/Monopolistic Competition consisting of 3 to 4 “Super-
Integrated” companies, plus a very large amount of differentiated niche
providers. 80% of mining will be done by these 3 or 4 fiercely competing
companies, with the other 20% being done by the public.
 Further Price Discovery in the face of currency inflation & hype cycles.
Supply at start of 2018 will be about 16.5 million BTC
 More even distribution of Bitcoin (depending on increased adoption from
new ecosystem participants) making more people in the ecosystem
“price-takers”. Some “whales” will still exist.
 Product Development, to continue, leading to heightened usability and
discovery of new use cases

22. Long-term Trends (10+ years) – c. 2024
 State of Perfect/Monopolistic Competition consisting of 3 to 4 “Super-
Integrated” companies, plus a very large amount of differentiated niche
providers. 80% of mining will be done by these 3 or 4 fiercely competing
companies, with the other 20% being done by the public. Depending on
price/cost of the asset, the Super-Integrated Companies may even branch
out into electricity provision (solar, fuel cell, off-the-grid systems) in the
10+ year horizon.
 More consistent pricing in the face of currency inflation & hype cycles.
Supply at start of 2024 will be about 19.7 million BTC
 More even distribution of Bitcoin (depending on increased adoption from
new ecosystem participants) making more people in the ecosystem
“price-takers”. Some “whales” will still exist.
 Product Development, to continue, leading to heightened usability and
discovery of new use cases

23. Conclusion
 When ignoring “Price” as the main key success indicator, there is
little doubt about the future of math-based digital currencies
such as Bitcoin. They will be perpetually useful and result in the
least economic waste and externalities possible, due to the
forces of near perfect competition.
 There is nothing really new about crypto-currencies in the
context of competitive strategy and disruption. This also applies
to the basic underlying economics of crypto as an asset,
currency or payment system.
 The truly unique and ground-breaking difference is the concept
of the Blockchain, which inherently prevents the gravitation of
markets towards monopoly, duopoly, or oligopoly, and drastically
reduces the likelihood of the use of corruption, collusion or
force to crowd out new market entrants.

24. Questions, Feedback, and Constructive
Criticism…