Reference no: EM133641587

Discussion Post

Scenario

Wherever there is a market failure there are entrepreneurial opportunities. A long-standing problem in the used car market was the sellers of used cars had better information about the cars than the buyers of the cars. This asymmetric information problem dubbed the market for lemons, set off something of a revolution. One solution to the ‘lemon problem' is to improve information. Today buyers of used cars can quickly access information about used cars via such systems as Carfax.

In 2021 a group of experts began investigating how to hack into a Bitcoin wallet for which the owner had lost the password. In the process, they discovered that it was possible to crack into about $1 billion worth of accounts. Wallets set up before 2016 were vulnerable because of flawed open-source code. The original designer of the password verification code for the wallets was a hobbyist who relied on some code that had been written by a student for a paper. There is much more to this story. "If You Created a Bitcoin Wallet Before 2016, Your Money May Be at Risk."

The group of experts who conducted the investigation has now formed a new company to facilitate cleaning up the existing problem and to investigate other potential security problems in crypto-finance markets. The new company is named Unciphered, LLC.

For your discussion post, address the following within the context of the above scenario:

Question I. Is the problem in this scenario an example of moral hazard or adverse selection? Why

Question II. Identify at least one other possible market failure that may be present in the cryptocurrency market. Is the failure due to moral hazard or adverse selection?

Question III. Suggest at least one possible source of market failure that may be present in the generative AI market.