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State of Bitcoin 2014
26 February 2014
Contents

1. Overview

Page 3 .

2. Price and Valuation

Page 14

3. Media and Brand

Page 23

4. Ecosystem

Page 34

5. VC and M&A

Page 49

6. Technology and Mining

Page 61

7. Regulation and Risk Factors

Page 69

8. Other Alt-currencies

Page 77

9. Appendix

Page 88

2
Overview

3
The largest annual asset price appreciation in history

$1,200

Bitcoin price up
$1,000

56X

$800

$600

in 2013

$400

2011-13 CAGR of 84,066%
$200

$0
01/01/2013

01/02/2013

01/03/2013

01/04/2013

1/05/2013

1/06/2013

1/07/2013

1/08/2013

1/09/2013

1/10/2013

1/11/2013

1/12/2013

Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT)

4
Key Bitcoin events and price response Jan – Jun 2013

Apr 10
Mar 28
Bitcoin
market cap
breaks $1bn

Bitcoin crashes due
to hacks and
exchange crashes

May 17-19

May 7
Coinbase raises $5m
from Union Square
Ventures

Mar 16

First official Bitcoin
conference in San
Jose

Eurogroup/Cypriot gov.
announce 10% tax on
Cyprus depositors

Jan 31
First ASICs are
shipped

Mar 12

May 15

Block chain forks

Dwolla, a popular source of
funding for Mt. Gox, receives
US seizure warrant

Mar 18
US Treasury FinCEN
issues virtual currency
guidance

Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT)

5
Key Bitcoin events and price response Oct – Dec 2013

Dec 5
Nov 27

People‟s Bank of China
issues statement, Baidu
and China Telecom stop
accepting bitcoin

Bitcoin breaks
$1,000

Oct 2
Silk Road shut
down

Oct 15
China‟s Baidu
announces it will
accept bitcoin

Dec 16

Nov 17-18
Congressional hearings on
Bitcoin strike positive tone

China‟s payment
processors told not to
deal with bitcoin

Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT)

6
Venture capital interest in Bitcoin is growing

Total VC investment
in cryptocurrency
startups of >

$98M

$25M
Largest VC deal to date

(Series B) in November 2013

7
Mixed global regulatory picture for Bitcoin

US

Investigative

China

Contentious

Russia

Hostile

8
Bitcoin‟s ecosystem is evolving rapidly with many new entrants

Battle for bitcoin exchange supremacy

Mt. Gox was dethroned by BTC
China, which was then dethroned by
Bitstamp

9
Bitcoin‟s progress as medium of exchange vs store of value

Early interest in bitcoin
was primarily as an
investment asset

$

Recently there has
been growing
merchant/consumer
adoption
Time

10
Bitcoin teething pains still garner widespread media attention

11
CoinDesk 2014 outlook

Adoption by more large consumer-facing
companies (eg Overstock and Zynga) will
introduce Bitcoin to a wider audience

„2nd generation‟ Bitcoin startups, more
Series-B rounds, ecosystem M&A
(eg Blockchain acquires ZeroBlock)

Growing interest in other
altcoins (eg Litecoin, Dogecoin)

General Bitcoin bullishness (eg 56%
of CoinDesk survey respondents feel
bitcoin price will reach $10,000 this
year)

More institutional money interest
(eg Fortress fund)

Regulatory uncertainty remains and will
influence adoption and price

12
As big as the PC and Internet?

―

Eventually mainstream products, companies and industries emerge to
commercialize it; its effects become profound; and later, many people
wonder why its powerful promise wasn’t more obvious from the start.

What technology am I talking about? Personal computers in 1975, the
Internet in 1993, and – I believe – Bitcoin in 2014.
- Marc Andreessen, Andreessen Horowitz

‖

13
Price and Valuation

14
CoinDesk Bitcoin Price Index:
2013 by the numbers

2013 Open

$13.51

2013 Close

$756.79

2013 % Δ

5,507%
2013 YE Market Cap $9.2bn

2013 High (4 Dec)

$1,147.25

2013 Low (2 Jan)

$13.28

2013 Average

$188.58

2013 Median

$112.01

Source: CoinDesk Bitcoin Price Index

15
Strong correlation between media publicity
and bitcoin‟s price swings

China regulation
Online black market
Silk Road hacked

US Senate
hearings

Price crash

Source: LexisNexis, BBC http://www.bbc.co.uk/news/magazine-25332746

16
Value of bitcoins exchanged daily
grew markedly towards end of 2013
Total daily volume

Source: CoinDesk Bitcoin Price Index exchange volume

17
Wall Street is taking notice of Bitcoin

5 Dec 2013

―

We get a (market capitalization) number that is
somewhere around $15bn.

Although this does not mean that bitcoin price
cannot rise further (as an object of speculation), we
think the recent rise of bitcoin price could soon run
ahead of its fundamentals.
Our current view implies a maximum fair value
of bitcoin = 1,300 USD.

‖

David Woo
Bank of America Securities

18
Wall Street is taking notice of Bitcoin

Figure 1: Implied 1-Year Bitcoin Price

Years to achieving peak penetration

1 Dec 2013

―

Scenarios exist by which a
bitcoin could be worth 10-100X
its current price.

‖

Gil Luria & Aaron Turner
Wedbush Securities

19
Ancillary Bitcoin financial services

Hedge funds – Exante ($45m AUM), Pantera
Bitcoin Advisors (Fortress; $150m AUM)
Bitcoin Exchange Traded Funds (ETFs) –
Winklevoss Twins, and others

Investment Trusts - SecondMarket Bitcoin
Investment Trust (BIT) has amassed $61.1m
(67,300 BTC) as of Dec 2013
Derivatives exchanges – Predictious (Ireland),
ICBIT (Russia); German bank
Fidor recently announced interest

20
Bitcoin now 20x larger market cap than closest altcoin,
up from 10x in December

Bitcoin represents
76% of total altcoin
market cap
Market capitalization
$7.3bn - bitcoin
$9.6bn - all altcoins

Source: CoinMarketCap.com 20 Feb 2014

21
Bitcoin aiming to disrupt an industry
with $314bn+ in total market cap
Processors

Market Cap

Money Transfer/ATMs

Market Cap

Visa Inc
MasterCard Inc
Alliance Data Systems Corp
Total System Services Inc
Global Payments Inc
Euronet Worldwide Inc
Heartland Payment Systems Inc
Netspend Holdings Inc
Green Dot Corp

112,253
97,690
12,615
6,213
4,822
2,325
1,814
1,158
912

Western Union Co

9,421

Euronet Worldwide Inc

2,325

Cardtronics Inc

1,936

MoneyGram International Inc

1,061

TOTAL

239,803

Payment Hardware

TOTAL

69,682

Market Cap

NCR Corp
MICROS Systems Inc
Bank Software

Market Cap

5,837
4,391

VeriFone Systems Inc

2,898

Fidelity National Information Services Inc

15,436

Diebold Inc

2,119

Fiserv Inc

15,118

Outerwall Inc

1,904

Jack Henry & Associates Inc

5,115

INGENICO

1,454

ACI Worldwide Inc

2,433

WINCOR-NIXDORF

1,006

S1 Corp

577

Online Resources Corp

146

TOTAL

38,824

RETALIX LTD
Agilysys Inc
ON TRACK INNOVATIONS LTD
TOTAL

732
333
116
20,789

Source: CoinDesk, Wedbush Securities. Market caps ($m) as of 10 Jan 2014

22
Media and Brand

23
In 2013, the narrative surrounding
Bitcoin began shifting

From this …

24
In 2013, the narrative surrounding
Bitcoin began shifting (contd.)

To this …
Bitcoin “may hold promise”
―Economists say smallbusiness owners —
especially farmers dealing in
high volume and low profit
margins — are more likely to
accept a volatile currency
like bitcoin than bigger
businesses.‖

25
Search interest in „bitcoin‟ spiked in April 2013,
and again near the end of the year

Oct 2013
Apr 2013

Jul 2013

Source: Google Trends

26
2013 top „bitcoin‟ related and rising search terms

Queries

Top

Queries

Rising (%)

bitcoin mining

100

coinbase

450

bitcoins

55

litecoin mining

450

bitcoin price

45

litecoin

400

bitcoin miner

35

bitcoin price

200

bitcoin exchange

35

bitcoin asic

130

bitcoin stock

110

bitcoin value

90

bitcoin chart

80

bitcoin news

80

bitcoin value

35

what is bitcoin

30

buy bitcoin

30

bitcoin wallet

30

bitcoin calculator

25

Above numbers represent search volume
relative to the highest point, which is 100
Source: Google Trends

27
2013 „bitcoin‟ search interest by region

Darker shades = greater
relative search frequency

Source: Google Trends

28
2013 „bitcoin‟ search interest by location

Queries

Top

Queries

Top

Estonia

100

Vancouver

100

Netherlands

96

Amsterdam

99

Hong Kong

88

San Francisco

90

Czech Republic

88

Austin

79

Finland

87

New York

73

United States

79

Toronto

71

Canada

77

San Diego

69

Slovenia

76

Seattle

68

Sweden

74

Stockholm

66

Slovakia

72

Sydney

63

Numbers represent search volume relative to the highest point, which is 100
Source: Google Trends

29
Bitcoin is becoming something people can see and touch

30
Bitcoin has gained a foothold in pop culture

―

The first time in history that you
could see someone holding up
a sign, in person or on TV or in
a photo, and then send them
money with two clicks on your
smartphone.
Bitcoin is a financial
technology dream come true
for even the most hardened
anti-capitalist political
organizer.

College football TV payday: $24,000

‖

- Marc Andreessen

Source: http://www.dailymail.co.uk/news/article-2516708/Savvy-student-gets-24-000-strangers-holding-sign.html

31
The number of noteworthy Bitcoin conferences …

2013
May

Jul

Sep

Dec

Bitcoin 2013

BTC London

Inside Bitcoins

The Future of
Payments

London, UK

European
Bitcoin
Convention

San Jose, US

New York, US

Inside Bitcoins

Las Vegas, US

Amsterdam, The
Netherlands

32
… has increased significantly in 2014

2014
Jan 25th

Feb 12th

North American
Bitcoin
Conference

Inside Bitcoins
Berlin, Germany

Miami, USA

Mar 3 – 7th
Financial
Cryptography
and Data
Security 2014

Mar 5 – 6th

Mar 25 – 26th

2014 Texas
Bitcoin
Conference

CoinSummit
San Francisco, US

Austin, US

Barbados

Apr 7 – 8th

Apr 11th

May 15 – 17th

Jun 20 – 22th

Nov 2 – 6th

Inside Bitcoins
NYC

Bitcoin Expo
2014

Bitcoin 2014

Bitcoin in the
Beltway

Money2020

New York, US

Toronto, Canada

Amsterdam, The
Netherlands

Las Vegas, US

Washington DC, US

33
Ecosystem

34
Bitcoin companies can be grouped into
distinct categories
Payment processors

Mining hardware
Mining hardware

Financial services

Exchanges

Wallets

Unknown

35
Top bitcoin exchanges by volume

China

Rest of World

Sources: CoinDesk, Bitcoincharts.com, Bitcoinity.org

36
Mt. Gox dominated volume trading in first six months of 2013, but …

Sources: CoinDesk, Bitcoincharts.com

37
… was dethroned in Nov by BTC China, which was then …

Sources: CoinDesk, Bitcoincharts.com

38
… dethroned by Bitstamp in December

Average* Median*

1

23,936

14,997

2

20,327

12,782

3

15,209

7,051

*Average and median daily bitcoin volume for the period from 18 Dec 2013 - 6 Jan 2014

Sources: CoinDesk, Bitcoincharts.com

39
Exchange volume distribution by market and currency value

By market

By currency
mtgox USD

USD

bitstamp USD
btce USD
btcn CNY
11%

mtgox USD
31%

btcn CNY
mtgox EUR

EUR
JPY

CNY
11%

mtgox JPY
btce USD
20%

CNY

EUR
6%

GBP
USD
77%

CAD

bitcure PLN
btcde EUR
bitstamp USD
28%

HKD
PLN

anxhk HKD
kraken EUR

Sources: CoinDesk, Bitcoincharts.com 18 Feb 2014. Note that Mt. Gox halted all trading as of 25 Feb 2014.

40
Different types of bitcoin wallets

Desktop
Bitcoin-QT

MultiBit

Bitcoin Wallet

Mycelium

Coinbase

Armory

Electrum

Blockchain

Mobile
Blockchain

Coinbase

Cloud

41
Top consumer bitcoin wallets

Installs

1

Blockchain

1,277,618

2

Coinbase

970,000

3

Bitcoin Wallet*

500,000

4

Mycelium*

10,000 - 50,000

Sources: Blockchain.info, Coinbase. *Bitcoin Wallet figures provided by developer; Mycelium figures
obtained from Google Play Store Jan 2013

42
Bitcoin hacks and fraud are still significant problems

Oct 2013

Nov 2013

Nov 2013

$4.1m goes missing
as Chinese bitcoin
trading platform GBL
vanishes

Hackers steal $1.2m of
bitcoins from Inputs.io, a
supposedly secure wallet
service

Czech bitcoin exchange
Bitcash.cz hacked and
up to 4,000 user wallets
emptied

With many more …

43
Total number of merchants around the globe
accepting bitcoin recently tripled to 3,000+

Source: CoinMap.org Jan 2014

44
Offline

Online

45
Top bitcoin payment processors

• 24,000 merchants
(including Overstock.com)

•
•

20,000 merchants
$2.51m in VC funding

• 960,000 consumer wallets
• 4,000 API applications
• US bank integration
• $31.7m in VC funding
Sources: Company websites 18 Feb 2013

46
>$200 million has been invested in mining equipment

ASIC mining manufacturers
21e6 - raised $5 million in April
from Silicon Valley Who‟s Who

Black Arrow

ASIC Miner

Cointerra – $20 million
in presales

Avalon

Butterfly Labs

Bitburner

HashFast – presold $15
million worth of mining rigs

Bitfury

KnCMiner

BitMain

Mitten Mining
Virtual Mining

Bitmine

Visionman
Source: Mining equipment investment estimate from Wedbush Securities

47
Top bitcoin ATM operators

BitAccess

Lamassu

Robocoin
48
VC and
M&A activity

49
What VCs are saying about Bitcoin

―

We believe that bitcoin represents something
fundamental and powerful, an open and distributed
Internet peer to peer protocol for transferring purchasing
power. It reminds us of SMTP, HTTP, RSS, and
BitTorrent in its architecture and openness.

Fred Wilson
Union Square Ventures

‖

―

I'm confident you will see major worldwide
retailers adopting systems built on bitcoin.

‖

Jim Breyer
Accel Partners

50
What VCs are saying about Bitcoin

―

If the technology industry wants to change
the financial services industry, it can‟t just build new
services on top of existing financial services
companies.

‖

―

Chris Dixon
Andreessen Horowitz

It is worth thinking about money as the bubble
that never ends. There is this sort of potential that
bitcoin could become this new phenomenon.

‖

Peter Thiel
Founders Fund

51
Geographic distribution of Bitcoin VC investment:
regional analysis
No. of companies

USD invested

North
America
81%

Value
($m)

No. of
companies

Asia

13.3

9

5.6

3

N. America

Europe 6%

Regions

Europe

Asia 14%

78.6

18

Total

97.5

30

Asia 30%

North
America
60%

Europe
10%

81% of all bitcoin VC $s have been invested in North America to
date, but only 60% of the companies are based there
52
Geographic distribution of Bitcoin VC investment:
country analysis
No. of companies

USD invested

Australia
7%

Australia
1%

Canada 7%
Canada
11%

Singapore
4%

Sweden
1%
United
Kingdom
5%

0.7

2

Canada

10.5

2

China

8.0

3

3.8

2

South Korea

United
States 70%

No. of
companies

Singapore

South
Korea
1%

Value
($m)

Australia

China 8%

Countries

0.8

2

Sweden

0.6

1

United Kingdom

5.0

2

United States

68.1

16

China 10%
United
States 53%

Singapore
7%

South
Korea 7%
Sweden
United 3%
Kingdom
7%

Greatest number of Bitcoin companies are in the US and China,
over two-thirds of all Bitcoin VC investment is in the US
53
Geographic distribution of Bitcoin VC investment:
Silicon Valley vs rest of the world
No. of companies

USD invested
Tech Hub
Concentration

Rest of
World 49%

No. of
companies

Silicon Valley
Silicon
Valley 51%

Value ($m)

50.1

8

Rest of World

47.4

22

Silicon
Valley 27%

Rest of
World 73%

Total

97.5

30

While nearly 75% of VC-backed Bitcoin companies are based
outside Silicon Valley, more than half of all Bitcoin VC money
has been invested in the Valley
54
Sector distribution of Bitcoin VC investment

No. of companies

USD invested
Wallet 1%

No. of
companies

Avg./
company
($m)

36.7

6

3.62

Exchange

14.0

9

4.9

Financial
Services

22.5

7

3.9

Mining
Hardware

13.1

3

0.4

Unknown

10.0

2

0.3

Wallet

1.3

3

0.8

Total

Mining
Hardware
13%

Value
($m)

Payment
Processor

Unknown
10%

88.5

30

3.25

Sector

Payment
Processor
38%

Financial
Services
23%
Exchange
14%

Unknown
7%

Wallet
10%

Payment
Processor
20%

Mining
Hardware
10%

Financial
Services
23%

Exchange
30%

• 38% of all VC investment is in payment processors
• Mining hardware has only received 13% investment even though
there is over $200m in mining hardware revenue to date
55
2014 YTD Bitcoin venture investment of $18m
Close Date

Company

Round Size ($m)

Select investors

Headquartered

17/2/14

Safello

Seed

0.60

Individual Investors

Stockholm

5/2/14

BitAccess

Seed

10.00

BiT Capital

Ottawa

31/1/14

HKCex

First

2.00

Individual Investors

Hong Kong

24/1/14

BitFury

Seed

5.00

Undisclosed Venture Investor(s)

Bristol

20/1/14

Korbit

Seed

0.40

Dream Bank, SK Planet, Strong Ventures, Individual Investors

South Korea

2014 VC investment run rate of $108m, or 140% of
total 2013 VC investment in Bitcoin startups of $77.5m

Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com

56
$77.5m in 2013 Bitcoin venture investment; $98m all time
Close Date

Company

Round Size ($m)

Select investors

Headquartered

13/12/13

Coinsetter Inc.

Seed

0.26

Undisclosed Debt/Loan

New York

12/12/13

Coinbase Inc.

Second

25.00

Andreessen Horowitz, Ribbit Capital, Union Square Ventures

San Francisco

2/12/13

CoinJar Pty Ltd.

First

0.50

Blackbird Ventures, Individual Investors

Richmond,
Australia

1/12/13

Bex.io / Spawngrid Inc.

Seed

0.50

CrossPacific Capital Partners, Individual Investors

Vancouver

25/11/13

Coinplug Inc.

Seed

0.40

Silverblue Inc.

Seoul

18/11/13

BTC China (Shanghai Satuxi Network Co. Ltd.)

First

5.00

Lightspeed China Partners, Lightspeed Venture Partners

Shanghai

17/11/13

21E6

First

5.05

Individual Investors

San Francisco

12/11/13

Ripple Labs Inc.

Seed

3.50

Camp One Ventures, Core Innovation Capital, Google Ventures,
IDG Capital Partners, Individual Investors, Venture51

San Francisco

11/11/13

itBit PTE. Ltd.

First

3.25

Canaan Partners, Individual Investors, Liberty City Ventures, RRE
Ventures

Singapore

7/11/13

GoCoin Pte. Ltd.

Seed

0.55

BitAngels, Demarest Ventures, Individual Investors, Ruvento
Ventures

Singapore

31/10/13

Circle Internet Financial Inc.

First

9.00

Accel Partners, General Catalyst Partners, Jim Breyer

Boston

29/10/13

Coinfloor Ltd.

N/A

N/A

Passion Capital, Individual Investors

London

Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com

57
2013 Bitcoin venture investment (contd.)
Close Date

Company

Round Size ($m)

Select Investors

Headquartered

1/10/13

GogoCoin

Seed

0.005

Dream Ventures

San Francisco

19/9/13

Gliph Inc.

First

0.20

Boost Fund LLC, Individual Investors

Portland

4/9/13

Beijing Lekuda Network Technology Co. Ltd.

First

1.00

Ventures Labs

Beijing

1/9/13

Vaurum

First

2.00

Boost Fund LLC

San Mateo

1/9/13

Buttercoin

First

1.25

Alexis Ohanian, Centralway, FLOODGATE, Google Ventures,
Initialized Capital, Rothenberg Ventures, Y Combinator

Palo Alto

1/9/13

Armory Technologies

Seed

0.60

Kevin Bombino, Jim Smith, Trace Mayer

Baltimore

19/8/13

Digital Currencies FinTech Co.

First

1.25

Centralway AG, Floodgate, Google Ventures, Individual Investors,
Initialized Capital, Y Combinator

Palo Alto

22/7/13

Avalon Clones

First

3.00

Undisclosed Investors

Scottsdale

16/5/13

BitPay Inc.

Seed

2.00

Founders Fund, Heisenberg Capital

Atlanta

14/5/13

Ripple Labs Inc.

Bridge

3.00

Camp One Ventures, Core Innovation Capital, Google Ventures,
IDG Capital Partners, Individual Investors, Venture51

San Francisco

Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com

58
2012 – 2013 Bitcoin venture investment (contd.)
Close Date

Company

Round

Size ($m)

Select investors

Headquartered

26/4/13

Coinbase Inc.

First

6.11

Ribbit Capital, Union Square Ventures

San Francisco

11/4/13

Ripple Labs Inc.

Bridge

2.5

Andreessen Horowitz, Bitcoin Opportunity Fund, FF Angel IV,
Lightspeed Venture Partners, Vast Ventures

San Francisco

31/3/13

Coinsetter Inc.

Seed

0.50

Bitcoin Opportunity Fund, Barry Silbert,
Tribeca Venture Partners

New York

Mar-13

BTC.sx

Seed

0.15

Joe Lee

Sydney

Mar-13

TradeHill

Seed

0.40

Individual Investors

San Francisco

7/1/13

BitPay Inc.

Seed

0.51

Shakil Khan, Barry Silbert, Roger Ver, Ashton Kutcher, Matt
Mullenweg, Ben Davenport, Trace Mayer

Atlanta

Oct-12

BitInstant

First

1.50

Winklevoss Capital

New York

1/9/12

Coinbase

Seed

0.60

Alexis Ohanian, Y Combinator, Greg Kidd, Garry Tan,
FundersClub

San Francisco

N/A

COINFIRMA

Seed

0.50

Undisclosed Venture Investor(s)

Atlanta

Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com

59
Only two noteworthy Bitcoin M&A deals to date …

Satoshi DICE acquired
by undisclosed company

Date:
Jul 2013
Amount: $11.5m

?

ZeroBlock acquired
by Blockchain.info

Date:
Dec 2013
Amount: Undisclosed

… but as the current land-grab subsides and the winners and also-rans
become clear, we anticipate further consolidation
60
Technology
and Mining

61
Features in forthcoming Bitcoin software release (version 0.9)

Payment protocol
Replaces tortuous bitcoin
addresses with human-readable
addresses; also enables refunds
and memos (eg „payment
received‟ message)

Autotools protocol
Makes it easier for
experienced open source
developers to contribute to
the project

Provably prune-able outputs
Provide users the ability to add
some new data (such as a
distributed contract) to be
included via a hash

―0.9 will be released …
when it is ready‖ - Gavin Andresen

Sources: https://bitcoinfoundation.org/blog/?p=290 and https://bitcointalk.org/index.php?topic=300809.msg3225143#msg3225143

62
Bitcoin software development roadmap (contd.)

Gavin Andresen:

The below will ―hopefully
make it into the 0.9 release‖
Headers-First, parallel
download chain sync
Further optimizing downloading
the block chain, will enable
future work that makes
downloading the entire chain
optional

No-wallet mode and “bitcoincli”
“Disablewallet” mode, which lets
bitcoind run entirely without a
wallet, making startup faster and
using less run-time memory

Smarter transaction fees
Dynamic, streamlined approach
to determining transaction fees
paid to miners; fees will be based
on the lowest fee that will be
accepted

Sources: https://bitcoinfoundation.org/blog/?p=290 and https://bitcointalk.org/index.php?topic=300809.msg3225143#msg3225143

63
Other innovative uses of Bitcoin technology and the
block chain

Notary service

Provides proof that a
given document
existed at a particular
date/time

Bonded identity
service
Secure identities verified
by the block chain and
backed by „fidelity bonds‟

Smart contracts

Computer protocols that
facilitate, verify, or
enforce the negotiation
or performance of a
contract

Smart property

Property that can be
atomically traded and
loaned via the block
chain

64
Network speed exceeds 14 petahashes per second,
up 560x from a year ago

Source: The Genesis Block Jan 2014

65
Bitcoin mining pool market share

Hashrate distribution of
largest mining pools

Source: Blockchain.info 10 Jan 2014

66
$319.4m total mining revenue in 2013 …

Daily mining revenue*

Historical chart showing (number of bitcoins mined per day + transaction fees) * market price. Source: Blockchain.info

67
… but mining revenue/operation is falling

Mining revenue

Mining work
Has risen even faster, as
more miners enter the fray

Has risen dramatically
with bitcoin’s price

$6m

$0

Value of all bitcoins
mined per day

2011

2014

Revenue per
operation

1

0

Sextillion mining
operations per day

2011

2014

Has fallen

$1

$0

Revenue
per trillion mining
operations

2011

2014

Source: Bloomberg BusinessWeek, Blockchain.info

68
Regulation and
Risk Factors

69
Bitcoin is attracting significant regulatory
attention around the globe

70
Bitcoin regulatory heat map

Investigative

Contentious

Hostile

Unknown

Source: CoinDesk, BitLegal.net

71
Only 13% of countries which have issued Bitcoin regulatory
guidance can be described as hostile or contentious

Australia

Investigative

Malaysia

Investigative

United Kingdom

Investigative

Belgium

Investigative

Netherlands

Investigative

United States

Investigative

Canada

Investigative

New Zealand

Investigative

China

Contentious

Norway

Investigative

Czech Republic

Investigative

Poland

Investigative

Denmark

Investigative

Russia

Hostile

Finland

Investigative

Singapore

Investigative

France

Investigative

Slovakia

Investigative

Germany

Investigative

South Korea

Investigative

Greenland

Investigative

Sweden

Investigative

Hong Kong

Investigative

Switzerland

Investigative

Iceland

Hostile

Taiwan

Investigative

India

Contentious

Thailand

Investigative

Ireland

Investigative

Turkey

Investigative

Source: BitLegal.net

72
Bitcoin faces numerous challenges …

Regulatory
uncertainty

Switching costs

Convenience

Avoidance by traditional
financial institutions

Both real and perceived

Convenience trumps
anonymity for most
consumers

Slower adoption by
consumers/merchants

Few women
involved
Very few women
involved in Bitcoin to
date, yet women have
significant and often
dominant influence on
financial decisions in
many households

Infrastructure
Bitcoin technical
infrastructure
(ie cost, latency)

Hoarding
Desirability of bitcoin
as a store of value works
against use as a
medium of exchange

Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, LSE working paper

73
… sentiment and movements can be difficult to sustain …

74
… highly concentrated ownership could lead to significant price
swings and feelings of inequity …
Lost

Distribution of
the 12m
bitcoins in
circulation

1 million
individuals

10,000 individuals

20.7%

24.8%

28.9%

21.5%

47 individuals

880 individuals

Source: Business Insider

75
… but Bitcoin can draw on many positives

Expensive,
inefficient
financial system:
High fees: 3%
credit card, > 10%
wire/currency
Slow,
cumbersome
money transfers

Merchants and
consumers both
benefit from change
to status quo, make
for powerful allies

May prove
difficult for
regulators to
ban bitcoin

Bitcoin innovation
transcends
currency‟s use as
a medium of
exchange/store of
value

Silicon Valley‟s
large investment
and proven track
record in changing
behavior and
driving technology
adoption

Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper

76
Other Alternative
Currencies

77
Four types of alternative currencies

Digital

Physical

Type

Historical

Contemporary

Intrinsic
value

Token

Closed
Centralized

Open
Decentralized

N/A

Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper

78
Seven forces driving alt-currency growth

Economic uncertainty
High levels of debt, QE

Sustainability

Technology

Ecological concerns, „peak oil‟

Improved software,
low entry barriers

$
Outrage

Local

Banker backlash, TBTF, etc

Globalization concerns,
save „high street‟

Financial repression

Inefficiency

Eurozone, China, etc

Financial system is expensive

Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper

79
What can Bitcoin learn from the Brixton £?

Brixton £ overview
• London-based, started five years ago
• A „complementary currency‟
• Digital and physical currency

• 10% bonus for converting £ into B£
Unusually…
• Local government officials collect
part of salaries in B£s
• Can be used to pay some
local taxes and fees

The Brixton £ has made government into a friend, not foe
Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper

80
Top 10 mineable cryptocurrencies

Source: CoinMarketCap.com 18 Feb 2014

81
Litecoin – the silver to bitcoin‟s gold

4X more potential currency
units than Bitcoin
(84m vs 21m).
Litecoin mining is more
accessible than bitcoin
mining – only requires a
relatively low-end graphics
card.

Litecoin‟s biggest
advantage over
Bitcoin may be
sentiment derived
from its creation story
– creator did not try to
personally profit by
retaining litecoins.

82
Dogecoin – the cute coin

Created as a joke but jumped
more than 300% in value.
Has spawned an active
development community.
Highlights how people are
seeking to form an emotional
connection to currency and
money.

83
Namecoin – the dark web coin

Acts as an alternative, decentralized
Domain Name System (DNS).
Avoids domain name seizure and or
censorship by making a new top level
domain outside of ICANN control.
Has suffered from significant technical
problems.

84
WorldCoin – a faster coin

30-60 second transaction
confirmation time significantly
improves on Bitcoin‟s 10-minute
confirmation time.
However, neither WorldCoin‟s
nor Bitcoin‟s times are as fast
as cash or a credit card.
Involved with PhenixCoin and
FeatherCoin in UNOCS, the
abortive attempt to create
a bridge between altcoins.

85
Peercoin – not just a Bitcoin clone

Uses modified „proof-ofstake‟ protocol vs
Bitcoin‟s „proof of work‟.
Mints new coins based
on the number of coins
a person already has in
their possession.

Arguably more energy
efficient than Bitcoin.
No limit on number of
possible coins.

Designed to eventually
attain an annual inflation
rate of 1%.

86
Ripple – a new payment network (and coin)

Backed by Andreessen
Horowitz, Lightspeed
Venture Partners, and
Founders Fund.

Payment network
and currency
(XRP).

Different security
features - every
Ripple transaction
destroys a tiny
amount of XRP.

No mining
required – all 100
billion coins
already created.

Controversial
profit model –
retained 50 billion
coins.

87
Appendix

88
CoinDesk.com: news, data and analysis

89
CoinDesk Bitcoin Price Index

90
CoinDesk Beginner‟s Guide to Bitcoin

91

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CoinDesk State of Bitcoin 2014

  • 1. State of Bitcoin 2014 26 February 2014
  • 2. Contents 1. Overview Page 3 . 2. Price and Valuation Page 14 3. Media and Brand Page 23 4. Ecosystem Page 34 5. VC and M&A Page 49 6. Technology and Mining Page 61 7. Regulation and Risk Factors Page 69 8. Other Alt-currencies Page 77 9. Appendix Page 88 2
  • 4. The largest annual asset price appreciation in history $1,200 Bitcoin price up $1,000 56X $800 $600 in 2013 $400 2011-13 CAGR of 84,066% $200 $0 01/01/2013 01/02/2013 01/03/2013 01/04/2013 1/05/2013 1/06/2013 1/07/2013 1/08/2013 1/09/2013 1/10/2013 1/11/2013 1/12/2013 Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT) 4
  • 5. Key Bitcoin events and price response Jan – Jun 2013 Apr 10 Mar 28 Bitcoin market cap breaks $1bn Bitcoin crashes due to hacks and exchange crashes May 17-19 May 7 Coinbase raises $5m from Union Square Ventures Mar 16 First official Bitcoin conference in San Jose Eurogroup/Cypriot gov. announce 10% tax on Cyprus depositors Jan 31 First ASICs are shipped Mar 12 May 15 Block chain forks Dwolla, a popular source of funding for Mt. Gox, receives US seizure warrant Mar 18 US Treasury FinCEN issues virtual currency guidance Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT) 5
  • 6. Key Bitcoin events and price response Oct – Dec 2013 Dec 5 Nov 27 People‟s Bank of China issues statement, Baidu and China Telecom stop accepting bitcoin Bitcoin breaks $1,000 Oct 2 Silk Road shut down Oct 15 China‟s Baidu announces it will accept bitcoin Dec 16 Nov 17-18 Congressional hearings on Bitcoin strike positive tone China‟s payment processors told not to deal with bitcoin Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT) 6
  • 7. Venture capital interest in Bitcoin is growing Total VC investment in cryptocurrency startups of > $98M $25M Largest VC deal to date (Series B) in November 2013 7
  • 8. Mixed global regulatory picture for Bitcoin US Investigative China Contentious Russia Hostile 8
  • 9. Bitcoin‟s ecosystem is evolving rapidly with many new entrants Battle for bitcoin exchange supremacy Mt. Gox was dethroned by BTC China, which was then dethroned by Bitstamp 9
  • 10. Bitcoin‟s progress as medium of exchange vs store of value Early interest in bitcoin was primarily as an investment asset $ Recently there has been growing merchant/consumer adoption Time 10
  • 11. Bitcoin teething pains still garner widespread media attention 11
  • 12. CoinDesk 2014 outlook Adoption by more large consumer-facing companies (eg Overstock and Zynga) will introduce Bitcoin to a wider audience „2nd generation‟ Bitcoin startups, more Series-B rounds, ecosystem M&A (eg Blockchain acquires ZeroBlock) Growing interest in other altcoins (eg Litecoin, Dogecoin) General Bitcoin bullishness (eg 56% of CoinDesk survey respondents feel bitcoin price will reach $10,000 this year) More institutional money interest (eg Fortress fund) Regulatory uncertainty remains and will influence adoption and price 12
  • 13. As big as the PC and Internet? ― Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start. What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014. - Marc Andreessen, Andreessen Horowitz ‖ 13
  • 15. CoinDesk Bitcoin Price Index: 2013 by the numbers 2013 Open $13.51 2013 Close $756.79 2013 % Δ 5,507% 2013 YE Market Cap $9.2bn 2013 High (4 Dec) $1,147.25 2013 Low (2 Jan) $13.28 2013 Average $188.58 2013 Median $112.01 Source: CoinDesk Bitcoin Price Index 15
  • 16. Strong correlation between media publicity and bitcoin‟s price swings China regulation Online black market Silk Road hacked US Senate hearings Price crash Source: LexisNexis, BBC http://www.bbc.co.uk/news/magazine-25332746 16
  • 17. Value of bitcoins exchanged daily grew markedly towards end of 2013 Total daily volume Source: CoinDesk Bitcoin Price Index exchange volume 17
  • 18. Wall Street is taking notice of Bitcoin 5 Dec 2013 ― We get a (market capitalization) number that is somewhere around $15bn. Although this does not mean that bitcoin price cannot rise further (as an object of speculation), we think the recent rise of bitcoin price could soon run ahead of its fundamentals. Our current view implies a maximum fair value of bitcoin = 1,300 USD. ‖ David Woo Bank of America Securities 18
  • 19. Wall Street is taking notice of Bitcoin Figure 1: Implied 1-Year Bitcoin Price Years to achieving peak penetration 1 Dec 2013 ― Scenarios exist by which a bitcoin could be worth 10-100X its current price. ‖ Gil Luria & Aaron Turner Wedbush Securities 19
  • 20. Ancillary Bitcoin financial services Hedge funds – Exante ($45m AUM), Pantera Bitcoin Advisors (Fortress; $150m AUM) Bitcoin Exchange Traded Funds (ETFs) – Winklevoss Twins, and others Investment Trusts - SecondMarket Bitcoin Investment Trust (BIT) has amassed $61.1m (67,300 BTC) as of Dec 2013 Derivatives exchanges – Predictious (Ireland), ICBIT (Russia); German bank Fidor recently announced interest 20
  • 21. Bitcoin now 20x larger market cap than closest altcoin, up from 10x in December Bitcoin represents 76% of total altcoin market cap Market capitalization $7.3bn - bitcoin $9.6bn - all altcoins Source: CoinMarketCap.com 20 Feb 2014 21
  • 22. Bitcoin aiming to disrupt an industry with $314bn+ in total market cap Processors Market Cap Money Transfer/ATMs Market Cap Visa Inc MasterCard Inc Alliance Data Systems Corp Total System Services Inc Global Payments Inc Euronet Worldwide Inc Heartland Payment Systems Inc Netspend Holdings Inc Green Dot Corp 112,253 97,690 12,615 6,213 4,822 2,325 1,814 1,158 912 Western Union Co 9,421 Euronet Worldwide Inc 2,325 Cardtronics Inc 1,936 MoneyGram International Inc 1,061 TOTAL 239,803 Payment Hardware TOTAL 69,682 Market Cap NCR Corp MICROS Systems Inc Bank Software Market Cap 5,837 4,391 VeriFone Systems Inc 2,898 Fidelity National Information Services Inc 15,436 Diebold Inc 2,119 Fiserv Inc 15,118 Outerwall Inc 1,904 Jack Henry & Associates Inc 5,115 INGENICO 1,454 ACI Worldwide Inc 2,433 WINCOR-NIXDORF 1,006 S1 Corp 577 Online Resources Corp 146 TOTAL 38,824 RETALIX LTD Agilysys Inc ON TRACK INNOVATIONS LTD TOTAL 732 333 116 20,789 Source: CoinDesk, Wedbush Securities. Market caps ($m) as of 10 Jan 2014 22
  • 24. In 2013, the narrative surrounding Bitcoin began shifting From this … 24
  • 25. In 2013, the narrative surrounding Bitcoin began shifting (contd.) To this … Bitcoin “may hold promise” ―Economists say smallbusiness owners — especially farmers dealing in high volume and low profit margins — are more likely to accept a volatile currency like bitcoin than bigger businesses.‖ 25
  • 26. Search interest in „bitcoin‟ spiked in April 2013, and again near the end of the year Oct 2013 Apr 2013 Jul 2013 Source: Google Trends 26
  • 27. 2013 top „bitcoin‟ related and rising search terms Queries Top Queries Rising (%) bitcoin mining 100 coinbase 450 bitcoins 55 litecoin mining 450 bitcoin price 45 litecoin 400 bitcoin miner 35 bitcoin price 200 bitcoin exchange 35 bitcoin asic 130 bitcoin stock 110 bitcoin value 90 bitcoin chart 80 bitcoin news 80 bitcoin value 35 what is bitcoin 30 buy bitcoin 30 bitcoin wallet 30 bitcoin calculator 25 Above numbers represent search volume relative to the highest point, which is 100 Source: Google Trends 27
  • 28. 2013 „bitcoin‟ search interest by region Darker shades = greater relative search frequency Source: Google Trends 28
  • 29. 2013 „bitcoin‟ search interest by location Queries Top Queries Top Estonia 100 Vancouver 100 Netherlands 96 Amsterdam 99 Hong Kong 88 San Francisco 90 Czech Republic 88 Austin 79 Finland 87 New York 73 United States 79 Toronto 71 Canada 77 San Diego 69 Slovenia 76 Seattle 68 Sweden 74 Stockholm 66 Slovakia 72 Sydney 63 Numbers represent search volume relative to the highest point, which is 100 Source: Google Trends 29
  • 30. Bitcoin is becoming something people can see and touch 30
  • 31. Bitcoin has gained a foothold in pop culture ― The first time in history that you could see someone holding up a sign, in person or on TV or in a photo, and then send them money with two clicks on your smartphone. Bitcoin is a financial technology dream come true for even the most hardened anti-capitalist political organizer. College football TV payday: $24,000 ‖ - Marc Andreessen Source: http://www.dailymail.co.uk/news/article-2516708/Savvy-student-gets-24-000-strangers-holding-sign.html 31
  • 32. The number of noteworthy Bitcoin conferences … 2013 May Jul Sep Dec Bitcoin 2013 BTC London Inside Bitcoins The Future of Payments London, UK European Bitcoin Convention San Jose, US New York, US Inside Bitcoins Las Vegas, US Amsterdam, The Netherlands 32
  • 33. … has increased significantly in 2014 2014 Jan 25th Feb 12th North American Bitcoin Conference Inside Bitcoins Berlin, Germany Miami, USA Mar 3 – 7th Financial Cryptography and Data Security 2014 Mar 5 – 6th Mar 25 – 26th 2014 Texas Bitcoin Conference CoinSummit San Francisco, US Austin, US Barbados Apr 7 – 8th Apr 11th May 15 – 17th Jun 20 – 22th Nov 2 – 6th Inside Bitcoins NYC Bitcoin Expo 2014 Bitcoin 2014 Bitcoin in the Beltway Money2020 New York, US Toronto, Canada Amsterdam, The Netherlands Las Vegas, US Washington DC, US 33
  • 35. Bitcoin companies can be grouped into distinct categories Payment processors Mining hardware Mining hardware Financial services Exchanges Wallets Unknown 35
  • 36. Top bitcoin exchanges by volume China Rest of World Sources: CoinDesk, Bitcoincharts.com, Bitcoinity.org 36
  • 37. Mt. Gox dominated volume trading in first six months of 2013, but … Sources: CoinDesk, Bitcoincharts.com 37
  • 38. … was dethroned in Nov by BTC China, which was then … Sources: CoinDesk, Bitcoincharts.com 38
  • 39. … dethroned by Bitstamp in December Average* Median* 1 23,936 14,997 2 20,327 12,782 3 15,209 7,051 *Average and median daily bitcoin volume for the period from 18 Dec 2013 - 6 Jan 2014 Sources: CoinDesk, Bitcoincharts.com 39
  • 40. Exchange volume distribution by market and currency value By market By currency mtgox USD USD bitstamp USD btce USD btcn CNY 11% mtgox USD 31% btcn CNY mtgox EUR EUR JPY CNY 11% mtgox JPY btce USD 20% CNY EUR 6% GBP USD 77% CAD bitcure PLN btcde EUR bitstamp USD 28% HKD PLN anxhk HKD kraken EUR Sources: CoinDesk, Bitcoincharts.com 18 Feb 2014. Note that Mt. Gox halted all trading as of 25 Feb 2014. 40
  • 41. Different types of bitcoin wallets Desktop Bitcoin-QT MultiBit Bitcoin Wallet Mycelium Coinbase Armory Electrum Blockchain Mobile Blockchain Coinbase Cloud 41
  • 42. Top consumer bitcoin wallets Installs 1 Blockchain 1,277,618 2 Coinbase 970,000 3 Bitcoin Wallet* 500,000 4 Mycelium* 10,000 - 50,000 Sources: Blockchain.info, Coinbase. *Bitcoin Wallet figures provided by developer; Mycelium figures obtained from Google Play Store Jan 2013 42
  • 43. Bitcoin hacks and fraud are still significant problems Oct 2013 Nov 2013 Nov 2013 $4.1m goes missing as Chinese bitcoin trading platform GBL vanishes Hackers steal $1.2m of bitcoins from Inputs.io, a supposedly secure wallet service Czech bitcoin exchange Bitcash.cz hacked and up to 4,000 user wallets emptied With many more … 43
  • 44. Total number of merchants around the globe accepting bitcoin recently tripled to 3,000+ Source: CoinMap.org Jan 2014 44
  • 46. Top bitcoin payment processors • 24,000 merchants (including Overstock.com) • • 20,000 merchants $2.51m in VC funding • 960,000 consumer wallets • 4,000 API applications • US bank integration • $31.7m in VC funding Sources: Company websites 18 Feb 2013 46
  • 47. >$200 million has been invested in mining equipment ASIC mining manufacturers 21e6 - raised $5 million in April from Silicon Valley Who‟s Who Black Arrow ASIC Miner Cointerra – $20 million in presales Avalon Butterfly Labs Bitburner HashFast – presold $15 million worth of mining rigs Bitfury KnCMiner BitMain Mitten Mining Virtual Mining Bitmine Visionman Source: Mining equipment investment estimate from Wedbush Securities 47
  • 48. Top bitcoin ATM operators BitAccess Lamassu Robocoin 48
  • 50. What VCs are saying about Bitcoin ― We believe that bitcoin represents something fundamental and powerful, an open and distributed Internet peer to peer protocol for transferring purchasing power. It reminds us of SMTP, HTTP, RSS, and BitTorrent in its architecture and openness. Fred Wilson Union Square Ventures ‖ ― I'm confident you will see major worldwide retailers adopting systems built on bitcoin. ‖ Jim Breyer Accel Partners 50
  • 51. What VCs are saying about Bitcoin ― If the technology industry wants to change the financial services industry, it can‟t just build new services on top of existing financial services companies. ‖ ― Chris Dixon Andreessen Horowitz It is worth thinking about money as the bubble that never ends. There is this sort of potential that bitcoin could become this new phenomenon. ‖ Peter Thiel Founders Fund 51
  • 52. Geographic distribution of Bitcoin VC investment: regional analysis No. of companies USD invested North America 81% Value ($m) No. of companies Asia 13.3 9 5.6 3 N. America Europe 6% Regions Europe Asia 14% 78.6 18 Total 97.5 30 Asia 30% North America 60% Europe 10% 81% of all bitcoin VC $s have been invested in North America to date, but only 60% of the companies are based there 52
  • 53. Geographic distribution of Bitcoin VC investment: country analysis No. of companies USD invested Australia 7% Australia 1% Canada 7% Canada 11% Singapore 4% Sweden 1% United Kingdom 5% 0.7 2 Canada 10.5 2 China 8.0 3 3.8 2 South Korea United States 70% No. of companies Singapore South Korea 1% Value ($m) Australia China 8% Countries 0.8 2 Sweden 0.6 1 United Kingdom 5.0 2 United States 68.1 16 China 10% United States 53% Singapore 7% South Korea 7% Sweden United 3% Kingdom 7% Greatest number of Bitcoin companies are in the US and China, over two-thirds of all Bitcoin VC investment is in the US 53
  • 54. Geographic distribution of Bitcoin VC investment: Silicon Valley vs rest of the world No. of companies USD invested Tech Hub Concentration Rest of World 49% No. of companies Silicon Valley Silicon Valley 51% Value ($m) 50.1 8 Rest of World 47.4 22 Silicon Valley 27% Rest of World 73% Total 97.5 30 While nearly 75% of VC-backed Bitcoin companies are based outside Silicon Valley, more than half of all Bitcoin VC money has been invested in the Valley 54
  • 55. Sector distribution of Bitcoin VC investment No. of companies USD invested Wallet 1% No. of companies Avg./ company ($m) 36.7 6 3.62 Exchange 14.0 9 4.9 Financial Services 22.5 7 3.9 Mining Hardware 13.1 3 0.4 Unknown 10.0 2 0.3 Wallet 1.3 3 0.8 Total Mining Hardware 13% Value ($m) Payment Processor Unknown 10% 88.5 30 3.25 Sector Payment Processor 38% Financial Services 23% Exchange 14% Unknown 7% Wallet 10% Payment Processor 20% Mining Hardware 10% Financial Services 23% Exchange 30% • 38% of all VC investment is in payment processors • Mining hardware has only received 13% investment even though there is over $200m in mining hardware revenue to date 55
  • 56. 2014 YTD Bitcoin venture investment of $18m Close Date Company Round Size ($m) Select investors Headquartered 17/2/14 Safello Seed 0.60 Individual Investors Stockholm 5/2/14 BitAccess Seed 10.00 BiT Capital Ottawa 31/1/14 HKCex First 2.00 Individual Investors Hong Kong 24/1/14 BitFury Seed 5.00 Undisclosed Venture Investor(s) Bristol 20/1/14 Korbit Seed 0.40 Dream Bank, SK Planet, Strong Ventures, Individual Investors South Korea 2014 VC investment run rate of $108m, or 140% of total 2013 VC investment in Bitcoin startups of $77.5m Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com 56
  • 57. $77.5m in 2013 Bitcoin venture investment; $98m all time Close Date Company Round Size ($m) Select investors Headquartered 13/12/13 Coinsetter Inc. Seed 0.26 Undisclosed Debt/Loan New York 12/12/13 Coinbase Inc. Second 25.00 Andreessen Horowitz, Ribbit Capital, Union Square Ventures San Francisco 2/12/13 CoinJar Pty Ltd. First 0.50 Blackbird Ventures, Individual Investors Richmond, Australia 1/12/13 Bex.io / Spawngrid Inc. Seed 0.50 CrossPacific Capital Partners, Individual Investors Vancouver 25/11/13 Coinplug Inc. Seed 0.40 Silverblue Inc. Seoul 18/11/13 BTC China (Shanghai Satuxi Network Co. Ltd.) First 5.00 Lightspeed China Partners, Lightspeed Venture Partners Shanghai 17/11/13 21E6 First 5.05 Individual Investors San Francisco 12/11/13 Ripple Labs Inc. Seed 3.50 Camp One Ventures, Core Innovation Capital, Google Ventures, IDG Capital Partners, Individual Investors, Venture51 San Francisco 11/11/13 itBit PTE. Ltd. First 3.25 Canaan Partners, Individual Investors, Liberty City Ventures, RRE Ventures Singapore 7/11/13 GoCoin Pte. Ltd. Seed 0.55 BitAngels, Demarest Ventures, Individual Investors, Ruvento Ventures Singapore 31/10/13 Circle Internet Financial Inc. First 9.00 Accel Partners, General Catalyst Partners, Jim Breyer Boston 29/10/13 Coinfloor Ltd. N/A N/A Passion Capital, Individual Investors London Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com 57
  • 58. 2013 Bitcoin venture investment (contd.) Close Date Company Round Size ($m) Select Investors Headquartered 1/10/13 GogoCoin Seed 0.005 Dream Ventures San Francisco 19/9/13 Gliph Inc. First 0.20 Boost Fund LLC, Individual Investors Portland 4/9/13 Beijing Lekuda Network Technology Co. Ltd. First 1.00 Ventures Labs Beijing 1/9/13 Vaurum First 2.00 Boost Fund LLC San Mateo 1/9/13 Buttercoin First 1.25 Alexis Ohanian, Centralway, FLOODGATE, Google Ventures, Initialized Capital, Rothenberg Ventures, Y Combinator Palo Alto 1/9/13 Armory Technologies Seed 0.60 Kevin Bombino, Jim Smith, Trace Mayer Baltimore 19/8/13 Digital Currencies FinTech Co. First 1.25 Centralway AG, Floodgate, Google Ventures, Individual Investors, Initialized Capital, Y Combinator Palo Alto 22/7/13 Avalon Clones First 3.00 Undisclosed Investors Scottsdale 16/5/13 BitPay Inc. Seed 2.00 Founders Fund, Heisenberg Capital Atlanta 14/5/13 Ripple Labs Inc. Bridge 3.00 Camp One Ventures, Core Innovation Capital, Google Ventures, IDG Capital Partners, Individual Investors, Venture51 San Francisco Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com 58
  • 59. 2012 – 2013 Bitcoin venture investment (contd.) Close Date Company Round Size ($m) Select investors Headquartered 26/4/13 Coinbase Inc. First 6.11 Ribbit Capital, Union Square Ventures San Francisco 11/4/13 Ripple Labs Inc. Bridge 2.5 Andreessen Horowitz, Bitcoin Opportunity Fund, FF Angel IV, Lightspeed Venture Partners, Vast Ventures San Francisco 31/3/13 Coinsetter Inc. Seed 0.50 Bitcoin Opportunity Fund, Barry Silbert, Tribeca Venture Partners New York Mar-13 BTC.sx Seed 0.15 Joe Lee Sydney Mar-13 TradeHill Seed 0.40 Individual Investors San Francisco 7/1/13 BitPay Inc. Seed 0.51 Shakil Khan, Barry Silbert, Roger Ver, Ashton Kutcher, Matt Mullenweg, Ben Davenport, Trace Mayer Atlanta Oct-12 BitInstant First 1.50 Winklevoss Capital New York 1/9/12 Coinbase Seed 0.60 Alexis Ohanian, Y Combinator, Greg Kidd, Garry Tan, FundersClub San Francisco N/A COINFIRMA Seed 0.50 Undisclosed Venture Investor(s) Atlanta Source: CoinDesk, Dow Jones VentureSource, VentureScanner.com 59
  • 60. Only two noteworthy Bitcoin M&A deals to date … Satoshi DICE acquired by undisclosed company Date: Jul 2013 Amount: $11.5m ? ZeroBlock acquired by Blockchain.info Date: Dec 2013 Amount: Undisclosed … but as the current land-grab subsides and the winners and also-rans become clear, we anticipate further consolidation 60
  • 62. Features in forthcoming Bitcoin software release (version 0.9) Payment protocol Replaces tortuous bitcoin addresses with human-readable addresses; also enables refunds and memos (eg „payment received‟ message) Autotools protocol Makes it easier for experienced open source developers to contribute to the project Provably prune-able outputs Provide users the ability to add some new data (such as a distributed contract) to be included via a hash ―0.9 will be released … when it is ready‖ - Gavin Andresen Sources: https://bitcoinfoundation.org/blog/?p=290 and https://bitcointalk.org/index.php?topic=300809.msg3225143#msg3225143 62
  • 63. Bitcoin software development roadmap (contd.) Gavin Andresen: The below will ―hopefully make it into the 0.9 release‖ Headers-First, parallel download chain sync Further optimizing downloading the block chain, will enable future work that makes downloading the entire chain optional No-wallet mode and “bitcoincli” “Disablewallet” mode, which lets bitcoind run entirely without a wallet, making startup faster and using less run-time memory Smarter transaction fees Dynamic, streamlined approach to determining transaction fees paid to miners; fees will be based on the lowest fee that will be accepted Sources: https://bitcoinfoundation.org/blog/?p=290 and https://bitcointalk.org/index.php?topic=300809.msg3225143#msg3225143 63
  • 64. Other innovative uses of Bitcoin technology and the block chain Notary service Provides proof that a given document existed at a particular date/time Bonded identity service Secure identities verified by the block chain and backed by „fidelity bonds‟ Smart contracts Computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract Smart property Property that can be atomically traded and loaned via the block chain 64
  • 65. Network speed exceeds 14 petahashes per second, up 560x from a year ago Source: The Genesis Block Jan 2014 65
  • 66. Bitcoin mining pool market share Hashrate distribution of largest mining pools Source: Blockchain.info 10 Jan 2014 66
  • 67. $319.4m total mining revenue in 2013 … Daily mining revenue* Historical chart showing (number of bitcoins mined per day + transaction fees) * market price. Source: Blockchain.info 67
  • 68. … but mining revenue/operation is falling Mining revenue Mining work Has risen even faster, as more miners enter the fray Has risen dramatically with bitcoin’s price $6m $0 Value of all bitcoins mined per day 2011 2014 Revenue per operation 1 0 Sextillion mining operations per day 2011 2014 Has fallen $1 $0 Revenue per trillion mining operations 2011 2014 Source: Bloomberg BusinessWeek, Blockchain.info 68
  • 70. Bitcoin is attracting significant regulatory attention around the globe 70
  • 71. Bitcoin regulatory heat map Investigative Contentious Hostile Unknown Source: CoinDesk, BitLegal.net 71
  • 72. Only 13% of countries which have issued Bitcoin regulatory guidance can be described as hostile or contentious Australia Investigative Malaysia Investigative United Kingdom Investigative Belgium Investigative Netherlands Investigative United States Investigative Canada Investigative New Zealand Investigative China Contentious Norway Investigative Czech Republic Investigative Poland Investigative Denmark Investigative Russia Hostile Finland Investigative Singapore Investigative France Investigative Slovakia Investigative Germany Investigative South Korea Investigative Greenland Investigative Sweden Investigative Hong Kong Investigative Switzerland Investigative Iceland Hostile Taiwan Investigative India Contentious Thailand Investigative Ireland Investigative Turkey Investigative Source: BitLegal.net 72
  • 73. Bitcoin faces numerous challenges … Regulatory uncertainty Switching costs Convenience Avoidance by traditional financial institutions Both real and perceived Convenience trumps anonymity for most consumers Slower adoption by consumers/merchants Few women involved Very few women involved in Bitcoin to date, yet women have significant and often dominant influence on financial decisions in many households Infrastructure Bitcoin technical infrastructure (ie cost, latency) Hoarding Desirability of bitcoin as a store of value works against use as a medium of exchange Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, LSE working paper 73
  • 74. … sentiment and movements can be difficult to sustain … 74
  • 75. … highly concentrated ownership could lead to significant price swings and feelings of inequity … Lost Distribution of the 12m bitcoins in circulation 1 million individuals 10,000 individuals 20.7% 24.8% 28.9% 21.5% 47 individuals 880 individuals Source: Business Insider 75
  • 76. … but Bitcoin can draw on many positives Expensive, inefficient financial system: High fees: 3% credit card, > 10% wire/currency Slow, cumbersome money transfers Merchants and consumers both benefit from change to status quo, make for powerful allies May prove difficult for regulators to ban bitcoin Bitcoin innovation transcends currency‟s use as a medium of exchange/store of value Silicon Valley‟s large investment and proven track record in changing behavior and driving technology adoption Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper 76
  • 78. Four types of alternative currencies Digital Physical Type Historical Contemporary Intrinsic value Token Closed Centralized Open Decentralized N/A Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper 78
  • 79. Seven forces driving alt-currency growth Economic uncertainty High levels of debt, QE Sustainability Technology Ecological concerns, „peak oil‟ Improved software, low entry barriers $ Outrage Local Banker backlash, TBTF, etc Globalization concerns, save „high street‟ Financial repression Inefficiency Eurozone, China, etc Financial system is expensive Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper 79
  • 80. What can Bitcoin learn from the Brixton £? Brixton £ overview • London-based, started five years ago • A „complementary currency‟ • Digital and physical currency • 10% bonus for converting £ into B£ Unusually… • Local government officials collect part of salaries in B£s • Can be used to pay some local taxes and fees The Brixton £ has made government into a friend, not foe Source: Hileman (2013) „History and Prospects for Alternative Currencies‟, London School of Economics working paper 80
  • 81. Top 10 mineable cryptocurrencies Source: CoinMarketCap.com 18 Feb 2014 81
  • 82. Litecoin – the silver to bitcoin‟s gold 4X more potential currency units than Bitcoin (84m vs 21m). Litecoin mining is more accessible than bitcoin mining – only requires a relatively low-end graphics card. Litecoin‟s biggest advantage over Bitcoin may be sentiment derived from its creation story – creator did not try to personally profit by retaining litecoins. 82
  • 83. Dogecoin – the cute coin Created as a joke but jumped more than 300% in value. Has spawned an active development community. Highlights how people are seeking to form an emotional connection to currency and money. 83
  • 84. Namecoin – the dark web coin Acts as an alternative, decentralized Domain Name System (DNS). Avoids domain name seizure and or censorship by making a new top level domain outside of ICANN control. Has suffered from significant technical problems. 84
  • 85. WorldCoin – a faster coin 30-60 second transaction confirmation time significantly improves on Bitcoin‟s 10-minute confirmation time. However, neither WorldCoin‟s nor Bitcoin‟s times are as fast as cash or a credit card. Involved with PhenixCoin and FeatherCoin in UNOCS, the abortive attempt to create a bridge between altcoins. 85
  • 86. Peercoin – not just a Bitcoin clone Uses modified „proof-ofstake‟ protocol vs Bitcoin‟s „proof of work‟. Mints new coins based on the number of coins a person already has in their possession. Arguably more energy efficient than Bitcoin. No limit on number of possible coins. Designed to eventually attain an annual inflation rate of 1%. 86
  • 87. Ripple – a new payment network (and coin) Backed by Andreessen Horowitz, Lightspeed Venture Partners, and Founders Fund. Payment network and currency (XRP). Different security features - every Ripple transaction destroys a tiny amount of XRP. No mining required – all 100 billion coins already created. Controversial profit model – retained 50 billion coins. 87
  • 89. CoinDesk.com: news, data and analysis 89