CRYPTOCURRENCY: SHOULD GOVERNMENTS BE WORRIED ABOUT IT?

 

Introduction:

A Cryptocurrency is not a currency. Yeah! You get it right . It is a digital asset, which works through cryptography. A distinguishing feature about Cryptocurrency is that they are not issued by any Central Government. And so, they are outside the purview of any legislation or legal criteria. There are large number of Cryptos in circulation, however, while some are immensely popular, many of them have very little or “zero” trading volume. Of all the Cryptocurrencies, Bitcoin leads the pack, followed by Ethereum, Biance coin, Cardano, Tether and so on. Different Cryptocurrencies have different specifications. Some are easily detectable while others are not. Some have vey less transaction time.

All the Cryptocurrency works through the technology, called Block-Chain. But what exactly is Block-Chain? A Block-Chain is a digital record-keeper of all the transactions. It is decentralized in nature and distributed across network of computer systems. So, the moment transactions took place, they need to be verified. The people ,who are active on the network, are supposed to verify it. This process is called “mining”. It requires massive amount of computing power and complicated algorithms. After the verification, the transactions are added to the “chain” in the form of “Blocks”. And people who have successfully verified it are given rewards in the form of underlying Cryptocurrency.

Comparing it with Fiat Currency, which is backed by governments, Cryptos has some inherent  advantages as well as some disadvantages which are discussed below:

Advantage:

1.     No Intermediary Required: When we transact through money, the overall transaction from beginning to completion is under the vigil of Bank. But, in transactions through Cryptocurrency there is not any involvement of the third party, i.e., only sender and receiver will be there. Due to this the transaction charges are minimal.

2.     No Geographical Barriers: The transactions are conducted on peer-to-peer basis i.e., you can send and receive payments to or from anyone on the network around globe.

3.  Privacy: Since, there is not any involvement of any third party in between , you can bypass the inconvenience of authorization requirement, giving you more privacy.

Disadvantage:

1.The biggest flaw with the Cryptos is that they are very volatile in nature. It is a very “ high risk high return” proposition. For example – if you follow the market trends of Bitcoin, you will see a very sharp jump in its prices.

Also, there is no definite correlation between state of global economy and its price.

2.The transactions are irreversible in nature. In case, you have transferred money to a wrong person, you cannot get it back. It depends on the whims and fancies of the person who received it.

3.Their semi-anonymous nature encourages their usage in host of illegal activities.

The bone of Contention:

The Governments across the globe barring El Salvador, are hostile towards Cryptos. Some even questioning its legitimacy.

There are two major reasons for that:

1.Disruption of Existing Financial Structure: The Governments and Central banks have the monopoly over regulation and issuance of money. And Cryptos are undermining their monopoly by offering us an alternative system of monetary transaction.

2.Illegal activities: There is a prevailing belief that money, through Cryptos, are involved in a lot of nefarious activities like Tax evasion and Money Laundering. It gives them the ability to bypass financial scrutiny and encourages them to camouflage their involvement in such activities.

Cryptocurrency block-chains are highly secure but it’s other facilities like wallets, exchanges are not much immune to the threat of hacking. There are multiple instances where several exchanges have been hacked in the recent past. Although in India, there is not any law that prohibits trading in Cryptocurrencies, yet at the same time they are not recognized as legal tender of money. In April 2018, RBI issued a circular banning financial institutions from providing services to people dealing with Cryptos. However, Supreme Court of India overruled that order.

Presently, we are getting a mix of responses from people. Many prominent people, like Gita Gopinathan (IMF) and Warren Buffett, have expressed their skepticism about the Cryptos. They claimed that it is a bubble which will  eventually burst. However, proponents ,like Jack Dorsey (CEO, Twitter), feels that it will protect against currency devaluation and expedite transfers. They think that it will bring more freedom.

However, there are some of challenges that Cryptocurrencies currently faces such as computer crash, thefts by hackers and fraudsters etc. While they can overcome these challenges through technological advances in coming time, but the main problem is that the more popular they become, the more liable they are to attract government restrictions.

 So, for them to be a part of mainstream financial system, they must satisfy a wide range of divergent criteria. For example- they need to be very complex enough for hackers and fraudsters to break, but very easy for common people to understand. Also, they should provide anonymity to its users, but at the same time do not become a heaven for tax evasion and money laundering. Though, these criteria are not easy to satisfy, yet they are the only way forward………

About The Writer

Praveen Kumar

Pursuing PGDM at IMT, Hyderabad

A Finance enthusiast person loves to deconstruct and explore the field of finance, talks about the complex world of cryptos.

THE RISING FALL OF TINY OWL

 

Around 2014, there were many startups who were looking for the opportunity to maximize the customer-centric business that would transfer the traditional business into techno-friendly business. In that, there was one startup that was into the food delivery logistics business known as TinyOwl.

TinyOwl, regarded as one of India's most prominent startups, began operations with five members: Harshvardhan Mandad, Tanuj Khandelwal, Gaurav Choudhary, Shikhar Paliwal, and Sourabh Goyal. They wanted to create an app that combined food and technology to provide outstanding food delivery alternatives. The company intended to enter the market at a period when investors were eager to invest, and the Indian market was relatively new in this field.

In the initial period, they were doing very good as they were able to raise four different funding rounds from 2014 to 2015. Investors aided them by financing $27.7 million by the end of 2016, giving the company a promising start. With a large pool of money in their pocket, they went all-in on hiring, scaling, and expansion, regardless of their capacity. As a result of their careless approach, the company now has operations in 11 locations, employing over 600 people.

So, what led to the company downfall from being an investor’s eyeball- Here are some reasons according to me that lead to the downfall of the organizations:

1. Charging high margin rate: Tinyowl used to charge 20% to 25% from the restaurant and hotels per order but the problem was that they were not able to bring as many orders as the hotel and restaurant has expected. The order volume was low that lead to dissatisfaction between hotels and restaurants.
2.  Scaling up the business: whenever we start the business, we need to check whether the business is feasible in the long run. Can it give a good profit in the long term? There was a lack of clarity in Tinyowl, without measuring it they started to expand the business in other cities.
3.  Immature management: All of the co-founders were under the age of 25, and when they got the money, they blew it all up since they had 600 people and different cities to manage, but there were two things missing: education and experience to handle it all. With so much money coming from the investor the founder’s started to live a lavish life, as they were immature to handle so much money.
4. Hiring more than required: With such a large investment in their hands, the company and its founders were under a lot of pressure to deliver, and they decided that the best way to do so would be to hire more people and spend more money on more resources. They overhired and overexpanded, but didn't have the necessary management systems in place.

These were the reasons that led to the downfall of Tinyowl and in mid-2016 they got merged with the logistics company Roadrunnr as both have the same investor in both companies.

Now according to me, they might have survived if they would have followed these strategies:

1.    Product-Market Fit: For any organization who wants to grow higher fastly they should first check their product in a limited market. This would give them a good idea of how much their product is valuable in the market. In the case of tinyowl, the same goes with them they didn’t check their product in a niche market and went on to expand in various cities.

2.  Human Resource: Human resource management plays a big role in the success of any organization. How efficiently the H.R management is using their employees is a prominent factor in the success of the organization. In their case, they were hiring without measuring the workload factor and when things didn’t go their way they started firing people, this led to a bad impression of the company in eyes of its employees.

3.  Vision Alignment: one of the major factors of organizational success is vision alignment where every employee of the organization working in a single direction under one leader. This was something that was lacking in Tinyowl which can be seen in the hiring and firing of employees, the tussle between the founders in the various decisions.

About The Writer

Vinit Prasad

Pursuing PGDM at IMT, Hyderabad

A keen observer, love to read geopolitics and investment strategies, talks about TinyOwl

MAGICPIN AND ITS UNIQUE BUSINESS PROPOSITION

 

India has witnessed a rapid increase in the number of startups in the last 5 years. The country is now home to the 2nd largest number of startups in the world after the USA. In this era of new ideas and new business propositions, a unique startup, “Magicpin App” was founded in the year 2015 by two young IIM graduates who give rewards and coupons to its users for posting selfies in this app.

You must be wondering how this business makes money if it gives discounts and cashback to its users for only uploading selfies?

 Here’s the answer! Let’s start by understanding the business model of Magicpin that would give better insights and the strategy behind such an unusual startup.

 Business Model of Magicpin

Anshoo Sharma and Brij Bhushan founded ‘Magicpin’ in the year 2015 headquartered in Gurugram, Haryana in India. The sole idea was to give rewards such as discounts, cashback, coupons, and other rewards to the consumers using its platform for discovering local retail businesses such as restaurants, fashion stores, grocery, and other business outlets in the nearby areas. This would help in strengthening the retail business when online shopping (E-commerce) is growing rapidly.

‘Magicpin’ has tie-ups with the retail stores and local merchants who pay “processing and transaction fee” which is the main source of revenue for this startup. Magicpin provides a platform for these local merchants to engage with their customers and provide personalized marketing.

 For instance, you are a consumer visiting a nearby grocery shop. After making the payment, you first check if the shop is a participating merchant on the Magicpin App. Once confirmed, take a selfie at the same outlet and a copy of the bill invoice. This selfie-and-bill invoice should be uploaded on the Magicpin app. Once, the location intelligence technology validates the transaction, the customer can earn “Magicpin Points”. These Magicpin points can be used for availing discounts at the Magicpin partnered retail outlets. Thus, with the implementation of technology in the offline retail sector, Magicpin has truly transformed the local business by operating in 12 Indian cities as of August 2021.

Long road ahead for the success of Magicpin

This tech startup was in news recently when Deepinder Goyal, CEO of India’s largest food-tech startup Zomato, joined the board of Magicpin as an independent director. According to August 2021 reports, Magicpin was valued at $165 million after raising funds from Oyo’s founder Ritesh Agarwal. Though a unique business idea, Magicpin is yet to taste success and has to re-innovate its strategies to sustain the competition from well-established companies like Nearbuy, The Blue Book, CashKaro.com, and other rival companies.

 Magicpin definitely has associations with a few top names in the industry. However, in my opinion, it has not gained enough popularity due to inefficient marketing techniques. To increase awareness about the Magicpin app, Magicpin can use aggressive advertisements to make the consumers aware of its one-stop app to avail of amazing offers. Moreover, the company has to develop a way to gain the trust of the local merchants and rope in more stores to use Magicpin for more personalized marketing. Nevertheless, we have to agree Magicpin has an unusual business proposition and for the Indian economy to grow, such startups and ideas are required to boost the local businesses and retail stores.

Our country has witnessed a lot of startups, but it is an undeniable fact that such startups also require “magic” to be able to sustain themselves in the market. It would be interesting to watch if Magicpin will be able to create that “magic” and “pin” its company to the top in the near future.

Until then, keep creating magic with your unique strategies!

About the Writer

Sanjana Nahata

Pursuing PGDM at IMT, Hyderabad

An ambitious and result-oriented person, keen on self-learning finance and financial management puts forward her opinion on Magicpin.

ESG: THE NEW WAY OF SUSTAINABLE BUSINESS

 

The onset of the Covid-19 pandemic has led more investors to seek sustainable investing. How does a company treat its employees? Do the companies we choose for investments do anything for the betterment of our society and its people?

Today, in response to this demand for responsible investing, more and more companies are reporting their performances under ESG standards. In fact, in June 2021, CRISIL released ESG Scores for 225 Indian companies to gauge the compliance of companies across eighteen sectors.

What are the ESG criteria?

The ESG or Environmental, Social, and corporate Governance criteria is a business reporting method that helps a company, its stakeholders, and shareholders understand how the company manages its responsibilities to its consumers, the environment, and maintains its ethics. The term came into existence in a UN report in 2005.

Fulfilling the ESG criteria can mean different things to different companies, depending on the offerings it sells to the market. For example, fulfilling ESG standards for a manufacturing business can mean using more renewable energy in its factories.

In a world that is becoming more and more concerned with caring for the environment, ethics, and people, measuring company performances against ESG standards can be equally beneficial to companies and our society.

Benefits to Companies

Due to the rising trend of responsible investing, mutual funds have been pouring money into ESG-compliant companies. Inflows in the ESG mutual funds surged to Rs. 3,686 crores in FY-2021. These funds comprise companies that comply with ESG criteria.

Retail investors choosing ESG funds are usually long-term investors with goals that extend profit-earning. These investors choose ESG companies to represent their consciousness; this long-term outlook can provide companies with more stock liquidity.

ESG-compliant firms practice business responsibly, making them a safe avenue for retail investors. Apart from investors, suppliers and lenders consider it much better to be associated with an ESG-compliant company with a better chance of not being involved in any malpractices.

Companies that identify the ESG criteria they can apply to their business and stick with them attract a positive brand value among consumers. Also, these companies can attract and retain a talented millennial workforce, most of whom will always be concerned about the stance of their employer in ESG-related concerns.

There is a competitive and strategic edge hidden in the identification of the right way of implementing ESG. Companies that find the most befitting methods of compliance will be able to stay committed to ESG and make the switch to this reporting method faster than others.

For example, while a chemical manufacturing company can utilize better waste disposal methods for ESG compliance, the same might not work for a service-providing firm. Asian Paints launched new eco-friendly manufacturing facilities. Maruti Suzuki gave away scholarships to students from economically weaker communities.

Each company’s strategic benefit from ESG lies in its ability to find the best way to operate sustainably without making changes that become too hard to follow or implement.

Where does India stand with ESG Reporting?

In India, while ESG reporting had not been made mandatory for the Financial Year 2021-22, it was made compulsory for the top 1,000 listed companies by market capitalization for the Financial Year 2022-23. This disclosure will be mandatory as a part of the company’s Business Responsibility and Sustainability Report (BRSR). As of 2019, India had already earned $29 billion from investments in such funds.

Indian companies adhering to ESG standards have also been added to the Dow Jones Sustainability Index rankings in 2020, with Hindalco being the only Indian company to appear as an industry leader in these rankings.

Companies previously ranked in the DJSI include Havells, Godrej, etc. Majorly, these companies are Indian market leaders, offering high ROE and stable dividend payouts, among other performance indicators.

The future of ESG

While ESG is faring well in the markets today, the success of ESG reporting will depend on three things. Mainly –

1. The adaptation of ESG criteria in India and across the world;
2. Whether companies consider it helpful for the society or a sacrifice of returns; and
3. The accuracy and quality of reporting done.

For the ESG criteria to become a household name worldwide, a standard of adherence is essential to ensure quality reporting. Until then, companies can take the first step to become the standard of ESG reporting in their sector and economy.

Considering that the ESG criteria might just become mandatory across nations, the faster companies adapt their reporting to ESG, the better it will be for them.

About the Writer

Simaran Sinha

Pursuing PGDM at IMT Hyderabad

An avid reader with an interest in business research, personal finance, and investing writes about ESG in the business world.