State of Bitcoin Q2 2015

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  1. 1. 1State of Bitcoin Q2 2015 State of Bitcoin Q2 2015 16th July 2015
  2. 2. About CoinDesk • World leader in digital currency news, prices and information • The Bitcoin Price Index serves as an industry reference point • International team headquartered in London • Editors based in the UK and US 2State of Bitcoin Q2 2015
  3. 3. State of Bitcoin Credits • Creator and producer: Garrick Hileman • Statistical assistance: Danqing Ying 3State of Bitcoin Q2 2015 @GarrickHileman @DanqingYing
  4. 4. Contents 1. Summary and Adoption Dashboard 2. Price and Valuation 3. Media and Sentiment 4. Investment and M&A 5. Use Cases and Commerce 6. Technology 7. Regulation and Macro 4State of Bitcoin Q2 2015
  5. 5. 5State of Bitcoin Q2 2015 1. Summary and Adoption Dashboard
  6. 6. Q2 2015 Summary 6State of Bitcoin Q2 2015 Increasing competition and cost pressure are driving consolidation in the bitcoin ecosystem, a trend we anticipate continuing VC investment remained robust in Q2 with average deal size comparable to Q1 Notable financial institutions like Nasdaq began trialing bitcoin technology; many major banks actively examining blockchain use cases Mixed industry view of final NY BitLicense regulations; Xapo decamps from US to Switzerland citing customer privacy concerns Merchant adoption continues to lag due to bitcoin’s underwhelming value proposition for mainstream consumers First positive quarter since Q2 2014 for bitcoin’s price amid a return of macroeconomic and banking system concerns
  7. 7. Key Bitcoin Adoption Metrics 7State of Bitcoin Q2 2015 Data sources and notes: CoinDesk, Blockchain.info, BitcoinPulse, Github, Coin ATM Radar. Figures are cumulative from start of records, except unique bitcoin addresses and media mentions, which are figures for the quarter ending that month. Number of VC-backed startups and VC investment unadjusted for closed companies: Melotic, Buttercoin, BitInstant, and TradeHill. Quarterly Year Ago June-15 March-15 Q2/Q1Δ Q1/Q4Δ June-14 Δ Commerce Wallets 9,345,510 8,457,207 11% 14% 5,467,263 2x Merchants 100,000 88,000 14% 7% 65,640 2x Merchants’ annual revenue ($bn) 187 187 0% 4% 30 6x ATMs 426 374 14% 9% 126 3x Unique bitcoin addresses 261,770 203,189 29% 29% 136,152 2x Industry All-time VC investment ($m) $832 $687 21% 50% $252 3x Number of VC-backed startups 113 105 8% 15% 58 2x Media Mainstream media mentions 371 458 -19% -10% 1035 -64% Technology Network hash rate (billion/second) 351,177,610 346,028,956 1% 11% 104,506,281 3x Valuation Bitcoin market capitalization ($bn) $3.8 $3.4 11% -22% $8.0 -53%
  8. 8. 8State of Bitcoin Q2 2015 2. Price and Valuation
  9. 9. CoinDesk Bitcoin Price Index – Q2 & YTD by the Numbers 9State of Bitcoin Q2 2015 Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC
  10. 10. $200 $210 $220 $230 $240 $250 $260 $270 1-Apr 8-Apr 15-Apr 22-Apr 29-Apr 6-May 13-May 20-May 27-May 3-Jun 10-Jun 17-Jun 24-Jun Bitcoin’s Price Was Less Volatile Amid a Mix of Positive and Negative News 10State of Bitcoin Q2 2015 29 May Silk Road operator Ross Ulbricht sentenced to life in prison Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC 6 April Bitcoin marketplace Buttercoin folds despite having raised capital from high-profile investors Xapo moves HQ to Switzerland citing customer privacy concerns 15 May 3 June Final BitLicense regulations released amid generally negative industry feedback 7 May ItBit nets $25m investment, launches NYDFS-licensed bitcoin exchange 11 May Nasdaq becomes latest firm to trial blockchain technology 6 June Overstock to issue ‘digital corporate bond’ on bitcoin’s blockchain 7 May Isle of Man trials first government- run blockchain project
  11. 11. Bitcoin’s Price in Q2 Saw the Lowest Peak-to-Trough Price Variation of Any Recent Quarter 11State of Bitcoin Q2 2015 Source: CoinDesk Date Quarterly Price High Quarterly Price Low Peak-to-Trough Percentage Δ Q1 2014 $951.39 (6 January) $458.50 (31 March) 52% Q2 2014 $665.73 (3 June) $360.84 (10 April) 84% Q3 2014 $647.34 (2 July) $374.73 (29 September) 42% Q4 2014 $427.24 (12 November) $309.87 (30 December) 27% Q1 2015 $314.59 (2 January) $177.28 (14 January) 44% Q2 2015 $262.48 (30 June) $218.27 (14 April) 20%
  12. 12. Reduced Bitcoin Price Volatility = Lower Exchange Trading Volume, Which Continues Downward Trend 12State of Bitcoin Q2 2015 Data sources: CoinDesk, Bitcoinity Monthly Bitcoin Trading Volume 0 5 10 15 20 25 0 1 2 3 4 5 6 7 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 BTCMillions $Billions Monthly bitcoin trading volume (USD) Monthly bitcoin trading volume (BTC)
  13. 13. 13State of Bitcoin Q2 2015 2015Apr May Jun Melotic shut down its digital asset exchange 4 May itBit raised $25m 7 May Bitso closed a funding round led by Bitcoin Opportunity Corp 26 June Buttercoin closed 6 Apr Cryex raised $10m 7 May BTCXIndia to close after losing bank account 8 May Exchange Sector in Flux: New Exchanges are Still Raising Money Even as Others Close, Merge or Pivot Source: CoinDesk • The ‘no fee’ business model employed by many Asian exchanges is unsustainable • Many exchanges are diversifying their products and services (eg BTC China added a mining pool and merchant payment services last year)
  14. 14. What is Behind the Recent Surge in Bitcoin’s Price? 14State of Bitcoin Q2 2015 Sources: CoinDesk, Dizzynomics, Hileman (2013) ‘History and Prospects for Alternative Currencies’, LSE working paper Alternative currencies act as a hedge against banking system problems and uncertainty surrounding national currencies Turmoil in the China’s stock market appears to have re-ignited Chinese interest in bitcoin Regulated exchanges and new publicly traded investment options now exist, opening the door to new investors • Another tailwind behind bitcoin’s price is the upcoming reduction in new bitcoin supply, scheduled to take place by approximately summer 2016, when the block reward will halve from 25 new bitcoins to 12.5 new bitcoins
  15. 15. Wedbush Securities Projects the Bitcoin Price Will Reach $400 by 2016 15State of Bitcoin Q2 2015 Source: Wedbush Equity Research Report • Wedbush expects bitcoin to account for 10% of the $5.9tn online payments market, 20% of the $744bn remittance market and 20% of the $924bn micro-transactions market by 2025. Bitcoin Valuation Framework Outcome $/BTC Probability Probability Weighed ‘Napster’ Outcome - Overtaken by another coin - Fatal flaw uncovered - Broadly made illegal with strict enforcement $0 50% $0 ‘PayPal’ Outcome - Specific use cases take hold (eg remittance, micro-transactions, machine-to-machine, etc.) $400 49.98% $200 ‘Internet’ Outcome - Bitcoin becomes global working capital of trade ($20tn monetary base) $1m 0.02% $200 Probability weighed outcome $400
  16. 16. Bitcoin’s Market Cap is Still Well Below Peak, but Total ‘Industry Value’ Remains High 16State of Bitcoin Q2 2015 Source: Pantera • With over $800m in venture investment, the value of bitcoin’s currency alone is not a complete reflection of bitcoin’s total value
  17. 17. In Q2, Number of New Altcoins Increased by 9%, Market Value Share Increased 2% 17State of Bitcoin Q2 2015 Data source: CoinMarketCap *Note: Altcoin market cap share is calculated by dividing the sum of all non-bitcoin cryptocurrency market caps by all cryptocurrency market caps (including bitcoin). For example, a market value share of 7% for altcoins indicates that bitcoin by itself represents 93% of the market cap of all cryptocurrencies combined. 64 216 347 483 590 594 648 9% 23% 7% 8% 9% 7% 9% 0% 5% 10% 15% 20% 25% 0 100 200 300 400 500 600 700 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Total Number of Altcoins Altcoin Market Cap Share (%)
  18. 18. Relatively Little Change in Q2 Amongst Top 10 Altcoins; Paycoin was Q2’s Biggest Loser 18State of Bitcoin Q2 2015 Data source: CoinMarketCap data as end of quarter (ie 31 March and 30 June 2015, respectively) Q2 Rank Name Market Cap Q1 Rank Δ 1 Bitcoin $3,764,067,688 - 2 Ripple $377,494,120 - 3 Litecoin $166,725,659 - 4 Dogecoin $20,653,353 +2 5 BitShares $17,342,951 - 6 Stellar $16,864,960 +1 7 Dash $15,362,982 -3 8 Nxt $12,765,963 - 9 Peercoin $10,864,693 +2 10 BanxShares $10,412,582 +3
  19. 19. 19State of Bitcoin Q2 2015 3. Media and Sentiment
  20. 20. Q2 Positive News 20State of Bitcoin Q2 2015 NASDAQ follows other Wall Street firms such as UBS in employing blockchain technology ItBit became first US-based exchange to receive a New York banking charter, granting it approval from the NYDFS to launch services nationwide Banks and Wall Street executives are embracing blockchain technology Source: CoinDesk. Images from business2community and LinkedIn
  21. 21. Q2 Negative News 21State of Bitcoin Q2 2015 Bitcoin marketplace Buttercoin folded despite $1.3m in venture funding from Google and other high-profile investors The FBI received reports of more than $18m in losses in the past year stemming from the spread of bitcoin ransomware Cryptowall Source: CoinDesk Ross Ulbricht’s high-profile trial and sentencing continued, drawing attention to illegal bitcoin use
  22. 22. Q2 Most-Viewed CoinDesk Articles; Only One Article is Related to Bitcoin’s Price 22State of Bitcoin Q2 2015 Rank Title Date 1 Inside 21's Plans to Bring Bitcoin to the Masses 12 May 2 Richard Branson to Host Bitcoin Summit on Private Island 28 April 3 My Life Inside a Remote Chinese Bitcoin Mine 8 June 4 State of Bitcoin Q1 2015: Record Investment Buoys Ecosystem 10 April 5 New York Stock Exchange Launches Bitcoin Price Index 19 May 6 Dogecoin Founder Exits Crypto Community Citing ‘Toxic’ Culture 24 April 7 Is Greece Really Behind Bitcoin's Latest Price Surge? 18 June 8 New CoinDesk Report Reveals Who Really Uses Bitcoin 10 June 9 Payments VP: One Thing Stands Between Bitcoin and Mass Adoption 8 April 10 Bitfury to Release Light Bulbs that Mine Bitcoin in 2015 2 June Source: CoinDesk top 10 Q2 stories based on page views CoinDesk’s Top 10 Most Viewed Stories in Q2
  23. 23. Mainstream Media Coverage of Bitcoin Dropped Quarter-Over-Quarter 23State of Bitcoin Q2 2015 News Published Mentioning Bitcoin Note: Numbers of stories obtained by searching ‘bitcoin’ on respective publishers’ websites Sources: Financial Times, New York Times, Wall Street Journal and Sina 180 127 73 78 144 121 59 47 0 20 40 60 80 100 120 140 160 180 200 Sina WSJ NYT FT Q2 2015 Q1 2015
  24. 24. Google Searches: ‘Bitcoin Greece’ and ‘Bitcoin Argentina’ Rising Fast in Past Three Months 24State of Bitcoin Q2 2015 Past 90 Days Related Searches: Top Related Searches: Rising Past 12 Months Source: Google Trends data as of 30 June 2015
  25. 25. 5% of Millennials Surveyed Said They Had Used Bitcoin, But Did Not Intend to Use it Again 25State of Bitcoin Q2 2015 51% of respondents had never used bitcoin nor did they have any plans to do so 22% of respondents used it at the time or had used it in the past, and intended to use it again 22% of respondents had never used bitcoin before, but planned on using the digital currency 5% of respondents said they had used bitcoin, but did not intend to use it again Source: Goldman Sachs Survey
  26. 26. ‘Cost’ is Major Factor in Financial Preferences of Millennials, ‘Privacy’ Less Important 26State of Bitcoin Q2 2015 Source: Goldman Sachs Survey Fees Security Privacy • 22% favored sacrificing privacy for the sake of security • 13% were happy to accept loss of privacy for higher security • 11% didn’t care about privacy because they presumed the government was already monitoring their transactions • 20% weren’t willing to give up financial privacy Order of Importance
  27. 27. Who Uses Bitcoin: Almost 60% of Bitcoin Users are Under 35 Years Old 27State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  28. 28. Who Uses Bitcoin: Largely Balanced Spread Across Different Earning Brackets 28State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  29. 29. Who Uses Bitcoin: Many Bitcoin Users are Well Educated, >20% Possess Advanced Degrees 29State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  30. 30. Who Uses Bitcoin: Estimated <10% of All Bitcoin Users are Female 30State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  31. 31. 31State of Bitcoin Q2 2015 4. Investment and M&A
  32. 32. Competition and Cost Pressure in Exchange and Mining Sectors is Driving Consolidation 32State of Bitcoin Q2 2015 Source: CoinDesk. *Note: The deal between BTCS and Spondoolies-Tech was a merger of equals. Jun 2015 Jun 2015 Apr 2015 Jun 2015 Apr 2015 Q2 Merger & Acquisitions CoinBR Acquirer Acquiree *
  33. 33. Two Biggest VC Deals in Q2 33State of Bitcoin Q2 2015 $50m $28m (Series A) May 2015(Series C) April 2015 Source: CoinDesk
  34. 34. Ripple Has Secured Seven Banking Partnerships 34State of Bitcoin Q2 2015 Source: CoinDesk • Two of Australia's 'big four' banks, Westpac Banking Corporation and the Australia and New Zealand Banking Group, are experimenting with peer-to-peer transfers on the Ripple protocol • Commonwealth Bank of Australia (CBA) – another 'big four' rival – is trialing the tech for transfers between its subsidiaries
  35. 35. Total Q2 VC Investment Dropped Significantly From Q1; However, Q1 Was Skewed by 21 Inc Announcement* 35State of Bitcoin Q2 2015 $88 $74 $133 $228 $145 $0 $50 $100 $150 $200 $250 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Quarterly Total VC Investment ($m) Millions *The precise timing of when 21 Inc raised $116m has not been revealed and has therefore been included in the quarter it was announced (Q1 2015). Data sources: CoinDesk, Crunchbase
  36. 36. Average Q2 Venture Deal Size Was Comparable to Q1 36State of Bitcoin Q2 2015 Data sources: CoinDesk, CrunchBase Millions $4.0 $3.1 $4.4 $9.5 $9.7 $0 $2 $4 $6 $8 $10 $12 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Quarterly Average VC Investment Deal Size ($m)
  37. 37. All-Time Bitcoin Venture Capital Investment Increased 21% Q/Q to $832m 37State of Bitcoin Q2 2015 $832m$145m Total VC investment in cryptocurrency startups to date: Q2 2015 bitcoin VC investment: $228m Q1 2015 bitcoin VC investment: Data sources: CoinDesk, CrunchBase +21% Increase in total to-date VC investment from end of Q1:
  38. 38. Bitcoin VC Investment Projected to Continue Outpacing Early-Stage Internet Investment 38State of Bitcoin Q2 2015 Note: Internet figures include only first sequence venture deals. All figures unadjusted for inflation, changes in the cost of launching a startup over last two decades, etc. Further methodology discussion. In calculation of ‘2015 bitcoin – projected’, latest Q3 BitFury deal is included. Data sources: CoinDesk, PricewaterhouseCoopers Bitcoin vs Early Internet VC Investment ($m) Millions 2014 Bitcoin 2015 Bitcoin - Projected 1995 Internet 1996 Internet $362 $786 $250 $639 $0 $100 $200 $300 $400 $500 $600 $700 $800
  39. 39. Europe 23% Asia 6% Middle East 2% Latin America 1% US & Canada 68% Even With Xapo’s Move to Europe, the US Continues to Dominate Bitcoin VC Investment 39State of Bitcoin Q2 2015 Regions Q2 ($m) Q1 ($m) Q/Q Δ ($m) Q/Q Δ US & Canada 596.0 463.9 132.1 28% Europe 170.8 158.1 12.7 8% Asia 42.2 42.1 0.1 0% Middle East 14.0 14.0 0 0% Latin America 7.5 7.5 0 0% Africa 1.1 1.1 0 0% Total 831.6 686.8 229.1 21% $ Invested as of Q1 • US and Canada had the largest Q/Q% increase in investment • Only US and Canada, Europe and Asia received investment in Q2 Note: $ invested represents all-time total bitcoin VC investment at the end of each quarter. Data sources: CoinDesk, CrunchBase $ Invested as of Q2 Europe 21% Asia 5% Middle East 2% Latin America 1% US & Canada 72%
  40. 40. 23 Countries Have a VC-Backed Bitcoin Startup; US Investment Almost 3x Rest of World Combined 40State of Bitcoin Q2 2015 Millions Data sources: CoinDesk, CrunchBase 0.1 0.2 0.3 0.3 0.5 0.8 1.1 1.2 1.5 2.8 2.9 2.9 3.4 4.0 6.9 14.0 26.9 28.1 39.9 40.5 41.3 42.9 569.1 $0 $100 $200 $300 $400 $500 $600 Total Funding by Country ($m)
  41. 41. The Philippines Was the Only New Country to Add a VC-Backed Bitcoin Startup in Q2 41State of Bitcoin Q2 2015 Data source: CoinDesk, Image from Wikipedia Philippines
  42. 42. Silicon Valley’s Share of All-Time Bitcoin VC Investment Drops from 59% in Q1 to 49% in Q2 42State of Bitcoin Q2 2015 • Xapo’s relocation to Switzerland in Q2 significantly reduced Silicon Valley’s share • Total number of VC-backed bitcoin companies increased from 105 in Q1 to 113 in Q2, an 8% increase $ Invested No. of Companies Note: Prior State of Bitcoin data may differ due to new funding information obtained. Date sources: CoinDesk, CrunchBase Location Value ($m) No. of companies Silicon Valley $403.9 32 Rest of World $427.7 81 Total $831.6 113 Silicon Valley 49%Rest of World 51% Silicon Valley 28% Rest of World 72%
  43. 43. Venture Investment Falls Into Seven Different Bitcoin Industry Sectors 43State of Bitcoin Q2 2015 Payment Processing Wallets Mining Financial Services Exchanges Infrastructure Universal Source: CoinDesk
  44. 44. Industry Sector Trends: Universals Raised Most Funding in Q2, Followed by Financial Services and Exchanges 44State of Bitcoin Q2 2015 Q2 VC Investment by Ecosystem Category ($m) Data sources: CoinDesk, CrunchBase $0.0 $0.0 $1.5 $12.5 $35.0 $45.7 $50.1 $0 $10 $20 $30 $40 $50 $60 Millions Mining Infrastructure Wallet Payment Processor Exchange Financial Services Universal
  45. 45. Universals Continue Pulling Away From Other Sectors in Total VC Investment 45State of Bitcoin Q2 2015 2013 to 2015 VC Investment by Ecosystem Category ($m) Data source: CoinDesk $0 $50 $100 $150 $200 $250 $300 $350 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Payment Processor Exchange Universal Mining Financial Services Wallet Infrastructure Millions
  46. 46. Payment Processor 9% Infrastructure 8% Exchange 10% Financial Services 8% Mining 14% Universal 38% Wallet 13% Universals Command Nearly 40% of VC Investment Followed by Mining, Financial Services, Exchanges 46State of Bitcoin Q2 2015 • Financial Services received highest growth in VC investment at 89% • Five new VC backed Financial Services startups added this quarter • Mining and Infrastructure did not receive VC investment in Q2 $ Invested as of Q1 2015$ Invested as of Q2 Note: $ invested represents all-time total bitcoin VC investment at the end of each respective quarter Data sources: CoinDesk, CrunchBase Sector Q2 Q1 Q/Q Δ ($m) Q/Q Δ ($m) ($m) Payment Processor 76.4 63.9 12.5 20% Infrastructure 55.7 55.7 0.0 0% Exchange 100.1 65.1 35.0 54% Financial Services 97.1 51.4 45.7 89% Mining 96.5 96.5 0.0 0% Universal 312.7 262.6 50.1 19% Wallet 93.1 91.6 1.5 2% Total 831.6 686.7 144.8 21% Payment Processor 9% Infrastructure 7% Exchange 12% Financial Services 12% Mining 12% Universal 38% Wallet 11%
  47. 47. Q2 2015 Investment Rounds 47State of Bitcoin Q2 2015 Source: CoinDesk Close Date Company Size ($m) Round Select Investors Headquartered June-15 Ascribe 2 Seed Earlybird Venture Capital, Digital Currency Group, Freelands Ventures, angel investors Berlin June-15 Vogogo 12.5 Second Beacon Securities, Clarus Securities, Salmon Partners Calgary June-15 Case 1.5 Seed FuturePerfect Ventures, RRE Ventures, the Rochester Institute of Technology Fund, High Line Venture Partners New York June-15 Reveal 1.5 Seed Mike Hirshland, Boost VC, Digital Currency Group, the Stanford StartX Fund, Barry Silbert San Francisco June-15 OpenBazaar 1 Seed Andreessen Horowitz and Union Square Ventures, William Mougayar, angel investor Washington, D.C.
  48. 48. Q2 2015 Investment Rounds (contd.) 48State of Bitcoin Q2 2015 Close Date Company Size ($m) Round Select Investors Headquartered June-15 Symbiont 1.25 Seed Duncan Niederauer, Matt Andresen New York June-15 Mirror 8.8 First Route 66 Ventures, Battery Ventures, Crosslink Capital, RRE Ventures, Tim Draper Palo Alto May-15 Bitbond 0.67 Seed Point Nine Capital, Christian Vollmann Berlin May-15 Ripple Labs 28 First US futures, CME Group, Seagate Technology, AME Cloud Ventures, ChinaRock Capital Management, China Growth Capital, Wicklow Capital, Bitcoin Opportunity Corp., Core Innovation Capital, Route 66 Ventures, RRE Ventures, Vast Ventures, Venture 51 San Francisco May-15 itBit 25 First RRE Ventures, Liberty City Ventures, Jay W Jordan II, James Pallotta New York Source: CoinDesk
  49. 49. Q2 2015 Investment Rounds (contd.) 49State of Bitcoin Q2 2015 Close Date Company Size ($m) Round Select Investors Headquartered May-15 Cryex 10 First White Star Capital, Northzone Ventures Stockholm May-15 Satoshi Citadel Industries Inc. 0.1 Seed Joe Maristela Makati April-15 Hedgy 1.2 Seed Tim Draper, Marc Benioff, Sand Hill Ventures, Adam Draper, Brayton Williams San Francisco April-15 Circle Internet Financial 50 Third Goldman Sachs, IDG Capital Partners, Breyer Capital, General Catalyst Partners, Accel Partners Boston April-15 Gem 1.3 Second KEC Ventures, First Round Capital, RRE Ventures, Robert Wolfson Venice Source: CoinDesk
  50. 50. 50State of Bitcoin Q2 2015 5. Use Cases and Commerce
  51. 51. Notable Q2 Public Announcements of Blockchain Initiatives by Governments and Financial Services Factom partners with Honduras government on a new land title registry initiative 51State of Bitcoin Q2 2015 Source: CoinDesk Isle of Man trials the first government-run blockchain project – a registry of digital currency companies operating on the island NASDAQ explores how a blockchain-based solution could change the way shares are transferred and sold Estonia’s LHV Bank has backed a project to create a financial services platform and money-transfer app that will utilize bitcoin to facilitate transactions
  52. 52. Select Firms Investigating Blockchain Use Cases 52State of Bitcoin Q2 2015 Exploring blockchain potential Blockchain firms at accelerator Researching blockchain in London lab Experimenting with bitcoin-like rewards Blockchain-based ‘Internet of Things’ on digital cash Hired decentralized ledger employee Enterprise-wide blockchain initiative Planning blockchain-based stock exchange Invested in 21 Inc Invested in Ripple Labs for blockchain exposure US Federal Reserve Reportedly talking with IBM about digital cash Exploring program with Ripple Exploring how to incorporate blockchain technology Source: CNBC
  53. 53. Overstock and UBS are Experimenting With Bonds on the Blockchain 53State of Bitcoin Q2 2015 Sources: CoinDesk, Bitcoin Magazine • UBS’s smart-bonds, as described by Alex Batlin, are bonds where “risk-free interest rates and payment streams were fully automated, creating a self-paying instrument” • He said: “The key attraction is that there is no middle or back office and no registry, so clearly a major impact on costs” Alex Batlin UBS Bank’s chief information officer for innovation
  54. 54. Digital Identity: Blockchain-Based Identity Solutions Could Significantly Change Commerce and Government • Verifiable identity is key to accessing many financial services • Blockchains may enable people to control their own identity rather than outsource control to governments, banks, Facebook, etc. • Personal control of identity may fundamentally change the relationship between government/corporations and individuals 54State of Bitcoin Q2 2015 Source: Bank Innovation “10 years from now it may be harder to change identity providers than it is to change countries” Vitalik Buterin, Ethereum
  55. 55. Prediction Markets: Blockchain Technology Enables New Kinds of Decentralized Forecasting Platforms 55State of Bitcoin Q2 2015 Sources: CoinDesk ‘Cryptocurrency 2.0 Report', Bank Innovation, Ethereum • In the past, centralized prediction markets have been subject to regulation or banned (eg Intrade) • Augur has developed a decentralized prediction market that can be used to harness the power of crowds • Participants ask questions about future events, which the broader community can bet on, by purchasing and trading a shares in that prediction
  56. 56. More than 100,000 Merchants Now Accept Bitcoin, Up from 88,000 in Q1 (+14%) 56State of Bitcoin Q2 2015 60K 40K Data sources: Coinbase, BitPay
  57. 57. Growth in New Bitcoin-Accepting Merchants Picked-up in Q2, But Still Below Previous Quarters 57State of Bitcoin Q2 2015 Sources: CoinBase, BitPay Number of New Bitcoin-Accepting Businesses Added Each Quarter 16,800 12,936 10,360 6,000 6,000 12,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
  58. 58. Bitcoin-Accepting Merchant Forecast Remained at Approximately 120,000 by End of 2015 58State of Bitcoin Q2 2015 Data sources and notes: Total current merchants based on data from Coinbase and BitPay. Historical Coinbase data provided by BitcoinPulse. BitPay historical data between new merchant press release announcements of 10,000 (16 September 2013), 20,000 (13 January 2014) and 30,000 (28 May 2014), respectively, calculated using linear interpolation. R² = 0.9593 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Series1 Linear (Series1)Total Merchants Total Merchants
  59. 59. North America and Europe Continue to Have the Most Bitcoin-Accepting Businesses 59State of Bitcoin Q2 2015 Source: Coinmap.org (screenshot on 30 June)
  60. 60. Number of Drug Listings on Bitcoin-Accepting Websites Remains High in spite of Silk Road Prosecution 60State of Bitcoin Q2 2015 Source: Economist
  61. 61. Forecast for Total Bitcoin Wallets by End of 2015 Maintained at 12 Million, but … 61State of Bitcoin Q2 2015 Data sources and notes: total wallets based on data from Blockchain.info, MultiBit, Coinbase, Andreas Schildbach (Android bitcoin wallet developer). Historical Coinbase data provided by BitcoinPulse. Q2 MultiBit figures note made available, held constant as end of March. R² = 0.9854 0 2 4 6 8 10 12 14 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Millions Series5 Linear (Series5)Total Wallets Forecast Wallets
  62. 62. … New Wallet Growth Rate Remains ‘Remarkably Consistent’ for Blockchain.info 62State of Bitcoin Q2 2015 Data source: Blockchain.info 118 515 481 343 481 451 454 488 0 100 200 300 400 500 600 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Thousands Number of New Wallets Added Each Quarter
  63. 63. While New Bitcoin ATM Growth Remains Below Previous Levels … 63State of Bitcoin Q2 2015 Data source: CoinATMRadar 43 79 112 104 32 52 0 20 40 60 80 100 120 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Increase in Number of ATMs Each Quarter
  64. 64. … New Methods for Acquiring Bitcoins In-Person are Emerging • Taiwanese startup Maicoin has launched a system that lets users buy bitcoin at 10,000 convenience stores in the territory • Users set up a bitcoin purchase on MaiWallet app or web interface, which displays a barcode for a convenience store cashier to scan • Maicoin customers need not provide any ID to use the service due to limit imposed according to AML regulation • The system is purchase-only at this stage and does not allow users to sell bitcoins in return for cash 64State of Bitcoin Q2 2015 Sources: CoinDesk, Reddit
  65. 65. Ways to Pay Cash for Bitcoins Other than Using Bitcoin ATMs Continue to Grow Location and Method Description and Network Size Direction Fees Lithuania: Foxbox terminals 70 units Buy up to 16% Taiwan: BitoEX at convenience stores 5,000 stores Buy 1% and standard NT$25 fee Ukraine: BTCU >4,000 terminals Buy 3.5% (official), 10-15% (non- official) Romania: Zebrapay terminals >800 terminals Buy 4% US: LibertyX 2,500 stores Buy 0% Mexico: SendBitcoin.mx 6,000 bank ATMs Sell 1% Philippines: Coins.ph 450 bank ATMs Sell free for Coins.ph users Czech Republic: WBTCB 8,000 terminals and post offices Buy 7-10% + 10 Kč (0.4 USD) Spain: Chip Chap and Halcash 10,000 bank ATMs Sell 1% + €1.5 Austria: Bitcoinbon from Coinfinity 600 Tobaco kiosks Buy ~10% Thailand: Coins.co.th 9,000 Krungthai bank ATMs (sell), ~3,000 Kasikorn bank cash deposit machines (buy) Buy/Sell N/A South Korea: Coinplug 8,000 7-11 stores (24,000 planned) + 7,000 regular ATMs Buy N/A Poland: Chip Chap App 4,000 bank ATMs Sell 1% + €1.5 65State of Bitcoin Q2 2015 Source: Coin ATM Radar
  66. 66. Bitcoin Lending: The US, Canada, Brazil and India are the Most Popular Markets for Loans 66State of Bitcoin Q2 2015 Data source: BTCJam
  67. 67. Bitcoin Lending: ‘Business’ is Dominant Use of Bitcoin Loans 67State of Bitcoin Q2 2015 Data source: BTCJam
  68. 68. 68State of Bitcoin Q2 2015 6. Technology
  69. 69. Bitcoin Can be Visualized as the Missing Piece of the Online Protocol Puzzle 69State of Bitcoin Q2 2015 Source: Pantera • Compared to other online protocols, bitcoin is unique in that users have an opportunity to own part of the protocol
  70. 70. Open Assets Protocol Powering First Publicly Disclosed Blockchain Implementation by Wall Street Firm 70State of Bitcoin Q2 2015 Sources: CoinDesk, Coinprism • NASDAQ announced it is working with Chain to use Open Assets, which is managed by Coinprism, for its Private Market Platform • Adam Ludwin, CEO and founder of Chain, said: “The shares will move on the Open Assets protocol, a colored coins implementation that allows users to augment small amounts of bitcoin to represent shares.” • Shares can then be transferred and tracked across the bitcoin blockchain through the use of a ‘barcode’ added to a bitcoin transaction note field
  71. 71. Contentious Debate Amongst Bitcoin Core Developers Over Whether to Increase the Block Size • Raising the block size will enable more transaction throughput, allowing bitcoin to grow into a potential competitor for other major transaction networks 71State of Bitcoin Q2 2015 Sources: hashingit.com, Reddit, Inside Bitcoins, gavinandresen.ninja, CoinGecko • Raising the block size will increase mining centralization; other solutions are available to scale-up the network YES NO Gavin Andresen Gregory MaxwellMike Hearn Peter Todd
  72. 72. Number of Bitcoin Nodes Continues Declining, Down 8% from 6,480 at End of Q1 72State of Bitcoin Q2 2015 Data sources: Bitnodes
  73. 73. Bitcoin Network Survives Q2 ‘Stress Test’ • What was the bitcoin ‘stress test’? – CoinWallet, a bitcoin broker, planned the stress test starting 22 June. It sought to spend 20 BTC (around $5,000) on transactions totaling about 200MB in data, but was only able to send 15% due to a server crash • What was the purpose? – To flood the bitcoin network with transactions to see if the current 1MB block size limit was adequate and whether the network could recover quickly from a surge • What was the result? – While CoinWallet faced criticism for launching the test live on an unsuspecting bitcoin network, with some calling it an “attack”, the network passed the test without major incident • What’s next? – Debate over whether to increase the block size continues … 73State of Bitcoin Q2 2015 Sources: CoinDesk
  74. 74. Bitcoin Transactions Continue Rising Steadily 74State of Bitcoin Q2 2015 Source and note: Blockchain.info, *100 most popular addresses. Number of Transactions Per Day 40,000 60,000 80,000 100,000 120,000 140,000 160,000 01/07/2014 29/09/2014 28/12/2014 28/03/2015 26/06/2015 Total no. of daily transactions No. of daily transactions excluding popular addresses
  75. 75. F2Pool AntPool BitFury BTC China Pool BW.COM 21 Inc. KnCMiner Eligius Slush BTC Guild Telco 214 GHash.IO BitMinter BTC Nuggets Unknown China-Based Miners with Low-Cost Electricity Now Represent Over 50% of Total Bitcoin Network 75State of Bitcoin Q2 2015 Data source: Four-day average as of 30 June 2015 on Blockchain.info
  76. 76. Bitcoin’s Network Difficulty Q/Q Growth Rate Halved Amid Bitcoin Price Weakness for Most of Q2 76State of Bitcoin Q2 2015 Notes: Difficulty represents the number of necessary hash calculations to mine a new block. Data source: CoinDesk 11.8 17.8 6.0 6.1 3.0 236% 106% 17% 15% 6% 0% 50% 100% 150% 200% 250% 0 2 4 6 8 10 12 14 16 18 20 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Billions Quarterly Increase in Bitcoin Mining Difficulty Quarterly Increase in Mining Difficulty Percentage Increase in Mining Difficulty Hashrate
  77. 77. 21 Inc Update: the Most Well-Capitalized Bitcoin Startup Reveals Audacious Business Model 77State of Bitcoin Q2 2015 Sources: Medium, WSJ 21’s BitShare chip: • Can be “embedded into an Internet- connected device as a standalone chip or integrated into an existing chipset as a block of IP to generate a continuous stream of digital currency for use in a wide variety of applications” • New approach to micropayments • Chips can continuously generate revenue (automatically pay people in bitcoin) • Decentralized device authentication • Facilitate device coordination • Devices that can pay for associated services
  78. 78. 21 Inc Update: Growing Revenue Faster Than Facebook and Google Did 78State of Bitcoin Q2 2015 Source: FT Alphaville Balaji S Srinivasan, CEO of 21 Inc • "Bitcoin is bigger than Google. If they [Google] turned off all their data centers and pointed them at bitcoin, they'd be less than 1% of the network."
  79. 79. Overall Findings From Bitcoin Wallet Study Suggest Privacy “Not Well” Protected 79State of Bitcoin Q2 2015 Usability Quality Feedback Source: Spring 2015 Wallet Privacy Rating Report
  80. 80. Application Developers Can Choose From a Growing Variety of Blockchain Platforms to Develop on 80State of Bitcoin Q2 2015 Funding Source of Funding Currency Unit Partners/Apps Blocksteam $21m Venture Bitcoin Unknown Chain $14m Venture None Nasdaq Counterparty Unknown Community funded Counterparty Swarm Epiphyte $20k Venture None Unknown Eris $10k Venture None Decerver Ethereum $18m Crowd Ether Mist, Augur Hyperledger Unknown Unknown None Unknown Maidsafe $11m Equity and crowd Maidsafe The Safe network PeerNova $14m Venture None Overstock Ripple $37m Venture Ripple Codius, RBS Stellar $3m Venture Stellar Unknown Sources: Crunchbase, CoinDesk 'Cryptocurrency 2.0 Report', Bank Innovation • Other factors affecting developer preferences include: trust, commercial model, ease of development and performance and reliability
  81. 81. ‘Ether’, the currency unit, will be used for transaction fees, smart contracts, etc. Ethereum blockchain is fully programmable (‘Turing complete’) and more economically efficient than bitcoin Ethereum will evolve from proof- of-work to “proof-of- stake”, which is more environmentally friendly and energy efficient than bitcoin’s proof-of- work Ethereum’s mining can be done by ‘regular’ computers, making it more affordable and accessible than bitcoin mining Ethereum is One of the Most Hyped ‘Altchains’; Some Key Advertised Differences from Bitcoin 81State of Bitcoin Q2 2015 1. Cryptocurrency 2. Blockchain 3. Decentralized Consensus Mechanism 4. Mining Source: Ethereum
  82. 82. 82State of Bitcoin Q2 2015 7. Regulation and Macro
  83. 83. Escalation of Greek Crisis Reinforces Bitcoin Status as a Macro Hedge for Financial Instability 83State of Bitcoin Q2 2015 Sources: CoinDesk, Reuters. Image from Pinterest • Reuters: “Bitcoin surged by as much as 7% on Tuesday [30 June] and was on track for its longest winning streak in 18 months, as concerns that Greece could tumble out of the euro drove speculators and Greek depositors into the decentralized digital currency.” • However, bitcoin’s price plummeted by over 10% on Monday 13 July following the preliminary announcement of a new bailout agreement between Greece and its creditors
  84. 84. While Greek Google Searches for ‘Bitcoin’ Have Skyrocketed, Little Evidence Greeks are Buying Bitcoin 84State of Bitcoin Q2 2015 Source: Google Trends “While a convenient narrative, there remains little evidence to suggest … that activity in Greece is actually at the root of the movement” in bitcoin’s price • Nearly impossible for most Greeks to acquire bitcoins while banking system is closed; only two bitcoin ATMs in Greece • Very few Greek businesses accept bitcoin for payment • An estimated 40% of Greeks have never used the Internet Paul Gordon, UK Digital Currency Association
  85. 85. Greece is Not Alone: 24 Countries Have an Ongoing Debt Crisis … 85State of Bitcoin Q2 2015 Sources: Jubilee Debt Campaign, Guardian. Images from Wikipedia Tunisia St Vincent and the Grenadines Portugal Sri Lanka Jamaica Spain Montenegro Ireland Croatia Marshall Islands Greece Costa Rica Macedonia Zimbabwe El Salvador Belize Lebanon Sudan Grenada Dominican Republic Armenia The Gambia Ukraine Cyprus
  86. 86. … and 14 More Are Vulnerable to a Debt Crisis 86State of Bitcoin Q2 2015 Samoa Ethiopia Laos Mauritania Dominica Cape Verde Senegal Bhutan Ghana Tanzania Uganda Sao Tome e Principe Mozambique Mongolia Sources: Jubilee Debt Campaign, Guardian. Images from Wikipedia
  87. 87. Chinese Stock Bubble Crash Arguably More Significant Influence than Greece on Bitcoin’s Price 87State of Bitcoin Q2 2015 Source: dizzynomics. Image from JNLC
  88. 88. Wall Street Should Take Blockchain Technology Seriously 88State of Bitcoin Q2 2015 Sources: YouTube, CoinDesk, LinkedIn “Distributed ledger technology does have the potential to be disruptive in certain business models, but it has at least as much potential to be enormously empowering in existing middle business models in terms of making them lower cost, more efficient and less risky.” “So we won’t get there overnight but we will get there. How seriously should you take this? I would take it about as seriously as you should’ve taken the concept of the Internet in the early 1990s. It’s a big deal and it is going to change the way that our financial world operates.”Blythe Masters, CEO of Digital Assets Holdings LLC
  89. 89. 89State of Bitcoin Q2 2015 According to a recent report from the Euro Banking Association (EBA): “Existing financial services could be ‘powered by cryptotechnologies’ offering financial institutions potentially lower costs, better products and faster time to market.” Sources: CoinDesk, EBA's ‘Cryptotechnologies, a Major IT Innovation and Catalyst for Change’ report Banks Should Take Bitcoin Seriously
  90. 90. Very Serious People: Financial and Economic Leaders Continue to Join Bitcoin Companies 90State of Bitcoin Q2 2015 Sources: WSJ, CoinDesk, LinkedIn Dee Hock, Visa. Now with Xapo Anja Manuel, US Department of State. Now with Ripple Labs Larry Summers, US Treasury. Now with Xapo and 21 Inc Bill Dennings, MasterCard. Now with Bitreserve Donald Donahue, DTCC. Now with Ripple Labs Sheila Bair, FDIC. Now with itBit John Reed, Citi. Now with Xapo Hernando de Soto ILD. Now with BitFury
  91. 91. Views on Bitcoin’s Positive Impact on Economic Growth 91State of Bitcoin Q2 2015 Hernando de Soto ILD. Now advisor at BitFury Source: CoinDesk Blockchain technology “may just be one of the most significant contributions to the history of organizing knowledge”. Larry Summers, US Treasury. Now advisor at 21 Inc. and Xapo “It seems to me that the people who confidently reject all the innovation here [in new payment and monetary systems] are on the wrong side of history.” “I am much more confident that the world of payments will look very different 20 years from now than I am about how it will look.”
  92. 92. New York Releases Final BitLicense Regulations to Mixed Industry Reaction 92State of Bitcoin Q2 2015 • Firms will no longer need approval for each new software update or round of VC funding • Companies can now satisfy BitLicense and money transmitter license requirements simultaneously with a "one-stop" application submission • Notably absent were several proposals put forth by the digital currency community, including exemptions for entities working on open-source protocols, micropayments, and a 24- month safe harbor period for early- stage startups Source: CoinDesk "They changed so little with this version, it's laughable” - Elizabeth Stark, Yale Law School “It's an important stake in the ground” - Jeremy Allaire, Circle “It's a mixed bag” - Jerry Brito, Coin Center "It's troubling that this nascent industry is being subjected to more onerous regulations“ - John Collins, Coinbase
  93. 93. Select Company Reactions to BitLicense Regulation 93State of Bitcoin Q2 2015 • ShapeShift would cease offering services to New York residents due to the finalization of the BitLicense digital currency regulatory framework. Its founder and CEO Erik Voorhees described the customer data requirements imposed by the BitLicense as “Orwellian” • Bitcoin mining pool BTC Guild to close following BitLicense finalization. Owner ‘Eleuthria’ stated “BTC Guild could not afford any legal threats that may arise as a result of the New York regulatory framework” Sources: CoinDesk, BTC Guild
  94. 94. Select Country Regulatory Updates 94State of Bitcoin Q2 2015 Sources: CoinDesk, CoinDesk Russia's central bank will meet with representatives from the country's financial markets to discuss bitcoin regulation. A prominent Moscow-based news outlet says it is likely the bank will be supportive of cryptocurrencies. The Reserve Bank of Australia has indicated it is not in favor of regulating bitcoin and other digital currencies, stating “it is currently unlikely that any benefits of regulation would outweigh the potential costs”. Russia Australia
  95. 95. Xapo Moves Headquarters from Silicon Valley to Switzerland Citing Customer Privacy Concerns 95State of Bitcoin Q2 2015 Source: CoinDesk • “This is not to facilitate crime, this is to protect privacy” • “There are some customers that will bring more balances if we do this and there are some customers who have said ‘we will work with you if you do this’”Wences Casares Xapo CEO
  96. 96. Ripple’s Banking Relationships Appear to Have Weathered FinCEN Fines 96State of Bitcoin Q2 2015 Source: CoinDesk • Financial Crimes Enforcement Network (FinCEN) fined Ripple Labs and its subsidiary XRP II a combined $700,000 for "willful violations" of the Bank Secrecy Act (BSA) • FinCEN fine was reported in May, but Ripple Labs announced new deals with three Australian banks (and a new funding round) in June
  97. 97. Interest in Government-Backed Cryptocurrencies and/or Ledger Systems Continues to Percolate 97State of Bitcoin Q2 2015 • Citi suggested UK government and banks should create their own digital currency to reduce cost as well as improve efficiency and transparency • David Andolfatto, Federal Reserve Bank of St. Louis has discussed the idea of a ‘Fedcoin’, citing benefits like greater efficiency, security and transparency Sources: CoinDesk, MacroMania, Deloitte
  98. 98. About CoinDesk • Find out more at www.coindesk.com • Follow us on Twitter: @CoinDesk • Subscribe to our daily email newsletters for the latest digital currency news • If you have data you think should be included in future State of Bitcoin reports, email [email protected] • We also welcome any feedback you have on the report • If you would like to sponsor an upcoming CoinDesk report, email [email protected] 98State of Bitcoin Q2 2015
  99. 99. Disclaimer • CoinDesk makes every effort to ensure the information in this presentation is accurate and up to date. We cannot, however, accept responsibility for any loss or inconvenience caused by reliance on the material contained here. • This presentation does not constitute financial advice or an investment recommendation in any way whatsoever. It is recommended you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions. 99State of Bitcoin Q2 2015
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  1. 1. 1State of Bitcoin Q2 2015 State of Bitcoin Q2 2015 16th July 2015
  2. 2. About CoinDesk • World leader in digital currency news, prices and information • The Bitcoin Price Index serves as an industry reference point • International team headquartered in London • Editors based in the UK and US 2State of Bitcoin Q2 2015
  3. 3. State of Bitcoin Credits • Creator and producer: Garrick Hileman • Statistical assistance: Danqing Ying 3State of Bitcoin Q2 2015 @GarrickHileman @DanqingYing
  4. 4. Contents 1. Summary and Adoption Dashboard 2. Price and Valuation 3. Media and Sentiment 4. Investment and M&A 5. Use Cases and Commerce 6. Technology 7. Regulation and Macro 4State of Bitcoin Q2 2015
  5. 5. 5State of Bitcoin Q2 2015 1. Summary and Adoption Dashboard
  6. 6. Q2 2015 Summary 6State of Bitcoin Q2 2015 Increasing competition and cost pressure are driving consolidation in the bitcoin ecosystem, a trend we anticipate continuing VC investment remained robust in Q2 with average deal size comparable to Q1 Notable financial institutions like Nasdaq began trialing bitcoin technology; many major banks actively examining blockchain use cases Mixed industry view of final NY BitLicense regulations; Xapo decamps from US to Switzerland citing customer privacy concerns Merchant adoption continues to lag due to bitcoin’s underwhelming value proposition for mainstream consumers First positive quarter since Q2 2014 for bitcoin’s price amid a return of macroeconomic and banking system concerns
  7. 7. Key Bitcoin Adoption Metrics 7State of Bitcoin Q2 2015 Data sources and notes: CoinDesk, Blockchain.info, BitcoinPulse, Github, Coin ATM Radar. Figures are cumulative from start of records, except unique bitcoin addresses and media mentions, which are figures for the quarter ending that month. Number of VC-backed startups and VC investment unadjusted for closed companies: Melotic, Buttercoin, BitInstant, and TradeHill. Quarterly Year Ago June-15 March-15 Q2/Q1Δ Q1/Q4Δ June-14 Δ Commerce Wallets 9,345,510 8,457,207 11% 14% 5,467,263 2x Merchants 100,000 88,000 14% 7% 65,640 2x Merchants’ annual revenue ($bn) 187 187 0% 4% 30 6x ATMs 426 374 14% 9% 126 3x Unique bitcoin addresses 261,770 203,189 29% 29% 136,152 2x Industry All-time VC investment ($m) $832 $687 21% 50% $252 3x Number of VC-backed startups 113 105 8% 15% 58 2x Media Mainstream media mentions 371 458 -19% -10% 1035 -64% Technology Network hash rate (billion/second) 351,177,610 346,028,956 1% 11% 104,506,281 3x Valuation Bitcoin market capitalization ($bn) $3.8 $3.4 11% -22% $8.0 -53%
  8. 8. 8State of Bitcoin Q2 2015 2. Price and Valuation
  9. 9. CoinDesk Bitcoin Price Index – Q2 & YTD by the Numbers 9State of Bitcoin Q2 2015 Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC
  10. 10. $200 $210 $220 $230 $240 $250 $260 $270 1-Apr 8-Apr 15-Apr 22-Apr 29-Apr 6-May 13-May 20-May 27-May 3-Jun 10-Jun 17-Jun 24-Jun Bitcoin’s Price Was Less Volatile Amid a Mix of Positive and Negative News 10State of Bitcoin Q2 2015 29 May Silk Road operator Ross Ulbricht sentenced to life in prison Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC 6 April Bitcoin marketplace Buttercoin folds despite having raised capital from high-profile investors Xapo moves HQ to Switzerland citing customer privacy concerns 15 May 3 June Final BitLicense regulations released amid generally negative industry feedback 7 May ItBit nets $25m investment, launches NYDFS-licensed bitcoin exchange 11 May Nasdaq becomes latest firm to trial blockchain technology 6 June Overstock to issue ‘digital corporate bond’ on bitcoin’s blockchain 7 May Isle of Man trials first government- run blockchain project
  11. 11. Bitcoin’s Price in Q2 Saw the Lowest Peak-to-Trough Price Variation of Any Recent Quarter 11State of Bitcoin Q2 2015 Source: CoinDesk Date Quarterly Price High Quarterly Price Low Peak-to-Trough Percentage Δ Q1 2014 $951.39 (6 January) $458.50 (31 March) 52% Q2 2014 $665.73 (3 June) $360.84 (10 April) 84% Q3 2014 $647.34 (2 July) $374.73 (29 September) 42% Q4 2014 $427.24 (12 November) $309.87 (30 December) 27% Q1 2015 $314.59 (2 January) $177.28 (14 January) 44% Q2 2015 $262.48 (30 June) $218.27 (14 April) 20%
  12. 12. Reduced Bitcoin Price Volatility = Lower Exchange Trading Volume, Which Continues Downward Trend 12State of Bitcoin Q2 2015 Data sources: CoinDesk, Bitcoinity Monthly Bitcoin Trading Volume 0 5 10 15 20 25 0 1 2 3 4 5 6 7 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 BTCMillions $Billions Monthly bitcoin trading volume (USD) Monthly bitcoin trading volume (BTC)
  13. 13. 13State of Bitcoin Q2 2015 2015Apr May Jun Melotic shut down its digital asset exchange 4 May itBit raised $25m 7 May Bitso closed a funding round led by Bitcoin Opportunity Corp 26 June Buttercoin closed 6 Apr Cryex raised $10m 7 May BTCXIndia to close after losing bank account 8 May Exchange Sector in Flux: New Exchanges are Still Raising Money Even as Others Close, Merge or Pivot Source: CoinDesk • The ‘no fee’ business model employed by many Asian exchanges is unsustainable • Many exchanges are diversifying their products and services (eg BTC China added a mining pool and merchant payment services last year)
  14. 14. What is Behind the Recent Surge in Bitcoin’s Price? 14State of Bitcoin Q2 2015 Sources: CoinDesk, Dizzynomics, Hileman (2013) ‘History and Prospects for Alternative Currencies’, LSE working paper Alternative currencies act as a hedge against banking system problems and uncertainty surrounding national currencies Turmoil in the China’s stock market appears to have re-ignited Chinese interest in bitcoin Regulated exchanges and new publicly traded investment options now exist, opening the door to new investors • Another tailwind behind bitcoin’s price is the upcoming reduction in new bitcoin supply, scheduled to take place by approximately summer 2016, when the block reward will halve from 25 new bitcoins to 12.5 new bitcoins
  15. 15. Wedbush Securities Projects the Bitcoin Price Will Reach $400 by 2016 15State of Bitcoin Q2 2015 Source: Wedbush Equity Research Report • Wedbush expects bitcoin to account for 10% of the $5.9tn online payments market, 20% of the $744bn remittance market and 20% of the $924bn micro-transactions market by 2025. Bitcoin Valuation Framework Outcome $/BTC Probability Probability Weighed ‘Napster’ Outcome - Overtaken by another coin - Fatal flaw uncovered - Broadly made illegal with strict enforcement $0 50% $0 ‘PayPal’ Outcome - Specific use cases take hold (eg remittance, micro-transactions, machine-to-machine, etc.) $400 49.98% $200 ‘Internet’ Outcome - Bitcoin becomes global working capital of trade ($20tn monetary base) $1m 0.02% $200 Probability weighed outcome $400
  16. 16. Bitcoin’s Market Cap is Still Well Below Peak, but Total ‘Industry Value’ Remains High 16State of Bitcoin Q2 2015 Source: Pantera • With over $800m in venture investment, the value of bitcoin’s currency alone is not a complete reflection of bitcoin’s total value
  17. 17. In Q2, Number of New Altcoins Increased by 9%, Market Value Share Increased 2% 17State of Bitcoin Q2 2015 Data source: CoinMarketCap *Note: Altcoin market cap share is calculated by dividing the sum of all non-bitcoin cryptocurrency market caps by all cryptocurrency market caps (including bitcoin). For example, a market value share of 7% for altcoins indicates that bitcoin by itself represents 93% of the market cap of all cryptocurrencies combined. 64 216 347 483 590 594 648 9% 23% 7% 8% 9% 7% 9% 0% 5% 10% 15% 20% 25% 0 100 200 300 400 500 600 700 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Total Number of Altcoins Altcoin Market Cap Share (%)
  18. 18. Relatively Little Change in Q2 Amongst Top 10 Altcoins; Paycoin was Q2’s Biggest Loser 18State of Bitcoin Q2 2015 Data source: CoinMarketCap data as end of quarter (ie 31 March and 30 June 2015, respectively) Q2 Rank Name Market Cap Q1 Rank Δ 1 Bitcoin $3,764,067,688 - 2 Ripple $377,494,120 - 3 Litecoin $166,725,659 - 4 Dogecoin $20,653,353 +2 5 BitShares $17,342,951 - 6 Stellar $16,864,960 +1 7 Dash $15,362,982 -3 8 Nxt $12,765,963 - 9 Peercoin $10,864,693 +2 10 BanxShares $10,412,582 +3
  19. 19. 19State of Bitcoin Q2 2015 3. Media and Sentiment
  20. 20. Q2 Positive News 20State of Bitcoin Q2 2015 NASDAQ follows other Wall Street firms such as UBS in employing blockchain technology ItBit became first US-based exchange to receive a New York banking charter, granting it approval from the NYDFS to launch services nationwide Banks and Wall Street executives are embracing blockchain technology Source: CoinDesk. Images from business2community and LinkedIn
  21. 21. Q2 Negative News 21State of Bitcoin Q2 2015 Bitcoin marketplace Buttercoin folded despite $1.3m in venture funding from Google and other high-profile investors The FBI received reports of more than $18m in losses in the past year stemming from the spread of bitcoin ransomware Cryptowall Source: CoinDesk Ross Ulbricht’s high-profile trial and sentencing continued, drawing attention to illegal bitcoin use
  22. 22. Q2 Most-Viewed CoinDesk Articles; Only One Article is Related to Bitcoin’s Price 22State of Bitcoin Q2 2015 Rank Title Date 1 Inside 21's Plans to Bring Bitcoin to the Masses 12 May 2 Richard Branson to Host Bitcoin Summit on Private Island 28 April 3 My Life Inside a Remote Chinese Bitcoin Mine 8 June 4 State of Bitcoin Q1 2015: Record Investment Buoys Ecosystem 10 April 5 New York Stock Exchange Launches Bitcoin Price Index 19 May 6 Dogecoin Founder Exits Crypto Community Citing ‘Toxic’ Culture 24 April 7 Is Greece Really Behind Bitcoin's Latest Price Surge? 18 June 8 New CoinDesk Report Reveals Who Really Uses Bitcoin 10 June 9 Payments VP: One Thing Stands Between Bitcoin and Mass Adoption 8 April 10 Bitfury to Release Light Bulbs that Mine Bitcoin in 2015 2 June Source: CoinDesk top 10 Q2 stories based on page views CoinDesk’s Top 10 Most Viewed Stories in Q2
  23. 23. Mainstream Media Coverage of Bitcoin Dropped Quarter-Over-Quarter 23State of Bitcoin Q2 2015 News Published Mentioning Bitcoin Note: Numbers of stories obtained by searching ‘bitcoin’ on respective publishers’ websites Sources: Financial Times, New York Times, Wall Street Journal and Sina 180 127 73 78 144 121 59 47 0 20 40 60 80 100 120 140 160 180 200 Sina WSJ NYT FT Q2 2015 Q1 2015
  24. 24. Google Searches: ‘Bitcoin Greece’ and ‘Bitcoin Argentina’ Rising Fast in Past Three Months 24State of Bitcoin Q2 2015 Past 90 Days Related Searches: Top Related Searches: Rising Past 12 Months Source: Google Trends data as of 30 June 2015
  25. 25. 5% of Millennials Surveyed Said They Had Used Bitcoin, But Did Not Intend to Use it Again 25State of Bitcoin Q2 2015 51% of respondents had never used bitcoin nor did they have any plans to do so 22% of respondents used it at the time or had used it in the past, and intended to use it again 22% of respondents had never used bitcoin before, but planned on using the digital currency 5% of respondents said they had used bitcoin, but did not intend to use it again Source: Goldman Sachs Survey
  26. 26. ‘Cost’ is Major Factor in Financial Preferences of Millennials, ‘Privacy’ Less Important 26State of Bitcoin Q2 2015 Source: Goldman Sachs Survey Fees Security Privacy • 22% favored sacrificing privacy for the sake of security • 13% were happy to accept loss of privacy for higher security • 11% didn’t care about privacy because they presumed the government was already monitoring their transactions • 20% weren’t willing to give up financial privacy Order of Importance
  27. 27. Who Uses Bitcoin: Almost 60% of Bitcoin Users are Under 35 Years Old 27State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  28. 28. Who Uses Bitcoin: Largely Balanced Spread Across Different Earning Brackets 28State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  29. 29. Who Uses Bitcoin: Many Bitcoin Users are Well Educated, >20% Possess Advanced Degrees 29State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  30. 30. Who Uses Bitcoin: Estimated <10% of All Bitcoin Users are Female 30State of Bitcoin Q2 2015 Source: ‘Who Really Uses Bitcoin?’ by CoinDesk
  31. 31. 31State of Bitcoin Q2 2015 4. Investment and M&A
  32. 32. Competition and Cost Pressure in Exchange and Mining Sectors is Driving Consolidation 32State of Bitcoin Q2 2015 Source: CoinDesk. *Note: The deal between BTCS and Spondoolies-Tech was a merger of equals. Jun 2015 Jun 2015 Apr 2015 Jun 2015 Apr 2015 Q2 Merger & Acquisitions CoinBR Acquirer Acquiree *
  33. 33. Two Biggest VC Deals in Q2 33State of Bitcoin Q2 2015 $50m $28m (Series A) May 2015(Series C) April 2015 Source: CoinDesk
  34. 34. Ripple Has Secured Seven Banking Partnerships 34State of Bitcoin Q2 2015 Source: CoinDesk • Two of Australia's 'big four' banks, Westpac Banking Corporation and the Australia and New Zealand Banking Group, are experimenting with peer-to-peer transfers on the Ripple protocol • Commonwealth Bank of Australia (CBA) – another 'big four' rival – is trialing the tech for transfers between its subsidiaries
  35. 35. Total Q2 VC Investment Dropped Significantly From Q1; However, Q1 Was Skewed by 21 Inc Announcement* 35State of Bitcoin Q2 2015 $88 $74 $133 $228 $145 $0 $50 $100 $150 $200 $250 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Quarterly Total VC Investment ($m) Millions *The precise timing of when 21 Inc raised $116m has not been revealed and has therefore been included in the quarter it was announced (Q1 2015). Data sources: CoinDesk, Crunchbase
  36. 36. Average Q2 Venture Deal Size Was Comparable to Q1 36State of Bitcoin Q2 2015 Data sources: CoinDesk, CrunchBase Millions $4.0 $3.1 $4.4 $9.5 $9.7 $0 $2 $4 $6 $8 $10 $12 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Quarterly Average VC Investment Deal Size ($m)
  37. 37. All-Time Bitcoin Venture Capital Investment Increased 21% Q/Q to $832m 37State of Bitcoin Q2 2015 $832m$145m Total VC investment in cryptocurrency startups to date: Q2 2015 bitcoin VC investment: $228m Q1 2015 bitcoin VC investment: Data sources: CoinDesk, CrunchBase +21% Increase in total to-date VC investment from end of Q1:
  38. 38. Bitcoin VC Investment Projected to Continue Outpacing Early-Stage Internet Investment 38State of Bitcoin Q2 2015 Note: Internet figures include only first sequence venture deals. All figures unadjusted for inflation, changes in the cost of launching a startup over last two decades, etc. Further methodology discussion. In calculation of ‘2015 bitcoin – projected’, latest Q3 BitFury deal is included. Data sources: CoinDesk, PricewaterhouseCoopers Bitcoin vs Early Internet VC Investment ($m) Millions 2014 Bitcoin 2015 Bitcoin - Projected 1995 Internet 1996 Internet $362 $786 $250 $639 $0 $100 $200 $300 $400 $500 $600 $700 $800
  39. 39. Europe 23% Asia 6% Middle East 2% Latin America 1% US & Canada 68% Even With Xapo’s Move to Europe, the US Continues to Dominate Bitcoin VC Investment 39State of Bitcoin Q2 2015 Regions Q2 ($m) Q1 ($m) Q/Q Δ ($m) Q/Q Δ US & Canada 596.0 463.9 132.1 28% Europe 170.8 158.1 12.7 8% Asia 42.2 42.1 0.1 0% Middle East 14.0 14.0 0 0% Latin America 7.5 7.5 0 0% Africa 1.1 1.1 0 0% Total 831.6 686.8 229.1 21% $ Invested as of Q1 • US and Canada had the largest Q/Q% increase in investment • Only US and Canada, Europe and Asia received investment in Q2 Note: $ invested represents all-time total bitcoin VC investment at the end of each quarter. Data sources: CoinDesk, CrunchBase $ Invested as of Q2 Europe 21% Asia 5% Middle East 2% Latin America 1% US & Canada 72%
  40. 40. 23 Countries Have a VC-Backed Bitcoin Startup; US Investment Almost 3x Rest of World Combined 40State of Bitcoin Q2 2015 Millions Data sources: CoinDesk, CrunchBase 0.1 0.2 0.3 0.3 0.5 0.8 1.1 1.2 1.5 2.8 2.9 2.9 3.4 4.0 6.9 14.0 26.9 28.1 39.9 40.5 41.3 42.9 569.1 $0 $100 $200 $300 $400 $500 $600 Total Funding by Country ($m)
  41. 41. The Philippines Was the Only New Country to Add a VC-Backed Bitcoin Startup in Q2 41State of Bitcoin Q2 2015 Data source: CoinDesk, Image from Wikipedia Philippines
  42. 42. Silicon Valley’s Share of All-Time Bitcoin VC Investment Drops from 59% in Q1 to 49% in Q2 42State of Bitcoin Q2 2015 • Xapo’s relocation to Switzerland in Q2 significantly reduced Silicon Valley’s share • Total number of VC-backed bitcoin companies increased from 105 in Q1 to 113 in Q2, an 8% increase $ Invested No. of Companies Note: Prior State of Bitcoin data may differ due to new funding information obtained. Date sources: CoinDesk, CrunchBase Location Value ($m) No. of companies Silicon Valley $403.9 32 Rest of World $427.7 81 Total $831.6 113 Silicon Valley 49%Rest of World 51% Silicon Valley 28% Rest of World 72%
  43. 43. Venture Investment Falls Into Seven Different Bitcoin Industry Sectors 43State of Bitcoin Q2 2015 Payment Processing Wallets Mining Financial Services Exchanges Infrastructure Universal Source: CoinDesk
  44. 44. Industry Sector Trends: Universals Raised Most Funding in Q2, Followed by Financial Services and Exchanges 44State of Bitcoin Q2 2015 Q2 VC Investment by Ecosystem Category ($m) Data sources: CoinDesk, CrunchBase $0.0 $0.0 $1.5 $12.5 $35.0 $45.7 $50.1 $0 $10 $20 $30 $40 $50 $60 Millions Mining Infrastructure Wallet Payment Processor Exchange Financial Services Universal
  45. 45. Universals Continue Pulling Away From Other Sectors in Total VC Investment 45State of Bitcoin Q2 2015 2013 to 2015 VC Investment by Ecosystem Category ($m) Data source: CoinDesk $0 $50 $100 $150 $200 $250 $300 $350 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Payment Processor Exchange Universal Mining Financial Services Wallet Infrastructure Millions
  46. 46. Payment Processor 9% Infrastructure 8% Exchange 10% Financial Services 8% Mining 14% Universal 38% Wallet 13% Universals Command Nearly 40% of VC Investment Followed by Mining, Financial Services, Exchanges 46State of Bitcoin Q2 2015 • Financial Services received highest growth in VC investment at 89% • Five new VC backed Financial Services startups added this quarter • Mining and Infrastructure did not receive VC investment in Q2 $ Invested as of Q1 2015$ Invested as of Q2 Note: $ invested represents all-time total bitcoin VC investment at the end of each respective quarter Data sources: CoinDesk, CrunchBase Sector Q2 Q1 Q/Q Δ ($m) Q/Q Δ ($m) ($m) Payment Processor 76.4 63.9 12.5 20% Infrastructure 55.7 55.7 0.0 0% Exchange 100.1 65.1 35.0 54% Financial Services 97.1 51.4 45.7 89% Mining 96.5 96.5 0.0 0% Universal 312.7 262.6 50.1 19% Wallet 93.1 91.6 1.5 2% Total 831.6 686.7 144.8 21% Payment Processor 9% Infrastructure 7% Exchange 12% Financial Services 12% Mining 12% Universal 38% Wallet 11%
  47. 47. Q2 2015 Investment Rounds 47State of Bitcoin Q2 2015 Source: CoinDesk Close Date Company Size ($m) Round Select Investors Headquartered June-15 Ascribe 2 Seed Earlybird Venture Capital, Digital Currency Group, Freelands Ventures, angel investors Berlin June-15 Vogogo 12.5 Second Beacon Securities, Clarus Securities, Salmon Partners Calgary June-15 Case 1.5 Seed FuturePerfect Ventures, RRE Ventures, the Rochester Institute of Technology Fund, High Line Venture Partners New York June-15 Reveal 1.5 Seed Mike Hirshland, Boost VC, Digital Currency Group, the Stanford StartX Fund, Barry Silbert San Francisco June-15 OpenBazaar 1 Seed Andreessen Horowitz and Union Square Ventures, William Mougayar, angel investor Washington, D.C.
  48. 48. Q2 2015 Investment Rounds (contd.) 48State of Bitcoin Q2 2015 Close Date Company Size ($m) Round Select Investors Headquartered June-15 Symbiont 1.25 Seed Duncan Niederauer, Matt Andresen New York June-15 Mirror 8.8 First Route 66 Ventures, Battery Ventures, Crosslink Capital, RRE Ventures, Tim Draper Palo Alto May-15 Bitbond 0.67 Seed Point Nine Capital, Christian Vollmann Berlin May-15 Ripple Labs 28 First US futures, CME Group, Seagate Technology, AME Cloud Ventures, ChinaRock Capital Management, China Growth Capital, Wicklow Capital, Bitcoin Opportunity Corp., Core Innovation Capital, Route 66 Ventures, RRE Ventures, Vast Ventures, Venture 51 San Francisco May-15 itBit 25 First RRE Ventures, Liberty City Ventures, Jay W Jordan II, James Pallotta New York Source: CoinDesk
  49. 49. Q2 2015 Investment Rounds (contd.) 49State of Bitcoin Q2 2015 Close Date Company Size ($m) Round Select Investors Headquartered May-15 Cryex 10 First White Star Capital, Northzone Ventures Stockholm May-15 Satoshi Citadel Industries Inc. 0.1 Seed Joe Maristela Makati April-15 Hedgy 1.2 Seed Tim Draper, Marc Benioff, Sand Hill Ventures, Adam Draper, Brayton Williams San Francisco April-15 Circle Internet Financial 50 Third Goldman Sachs, IDG Capital Partners, Breyer Capital, General Catalyst Partners, Accel Partners Boston April-15 Gem 1.3 Second KEC Ventures, First Round Capital, RRE Ventures, Robert Wolfson Venice Source: CoinDesk
  50. 50. 50State of Bitcoin Q2 2015 5. Use Cases and Commerce
  51. 51. Notable Q2 Public Announcements of Blockchain Initiatives by Governments and Financial Services Factom partners with Honduras government on a new land title registry initiative 51State of Bitcoin Q2 2015 Source: CoinDesk Isle of Man trials the first government-run blockchain project – a registry of digital currency companies operating on the island NASDAQ explores how a blockchain-based solution could change the way shares are transferred and sold Estonia’s LHV Bank has backed a project to create a financial services platform and money-transfer app that will utilize bitcoin to facilitate transactions
  52. 52. Select Firms Investigating Blockchain Use Cases 52State of Bitcoin Q2 2015 Exploring blockchain potential Blockchain firms at accelerator Researching blockchain in London lab Experimenting with bitcoin-like rewards Blockchain-based ‘Internet of Things’ on digital cash Hired decentralized ledger employee Enterprise-wide blockchain initiative Planning blockchain-based stock exchange Invested in 21 Inc Invested in Ripple Labs for blockchain exposure US Federal Reserve Reportedly talking with IBM about digital cash Exploring program with Ripple Exploring how to incorporate blockchain technology Source: CNBC
  53. 53. Overstock and UBS are Experimenting With Bonds on the Blockchain 53State of Bitcoin Q2 2015 Sources: CoinDesk, Bitcoin Magazine • UBS’s smart-bonds, as described by Alex Batlin, are bonds where “risk-free interest rates and payment streams were fully automated, creating a self-paying instrument” • He said: “The key attraction is that there is no middle or back office and no registry, so clearly a major impact on costs” Alex Batlin UBS Bank’s chief information officer for innovation
  54. 54. Digital Identity: Blockchain-Based Identity Solutions Could Significantly Change Commerce and Government • Verifiable identity is key to accessing many financial services • Blockchains may enable people to control their own identity rather than outsource control to governments, banks, Facebook, etc. • Personal control of identity may fundamentally change the relationship between government/corporations and individuals 54State of Bitcoin Q2 2015 Source: Bank Innovation “10 years from now it may be harder to change identity providers than it is to change countries” Vitalik Buterin, Ethereum
  55. 55. Prediction Markets: Blockchain Technology Enables New Kinds of Decentralized Forecasting Platforms 55State of Bitcoin Q2 2015 Sources: CoinDesk ‘Cryptocurrency 2.0 Report', Bank Innovation, Ethereum • In the past, centralized prediction markets have been subject to regulation or banned (eg Intrade) • Augur has developed a decentralized prediction market that can be used to harness the power of crowds • Participants ask questions about future events, which the broader community can bet on, by purchasing and trading a shares in that prediction
  56. 56. More than 100,000 Merchants Now Accept Bitcoin, Up from 88,000 in Q1 (+14%) 56State of Bitcoin Q2 2015 60K 40K Data sources: Coinbase, BitPay
  57. 57. Growth in New Bitcoin-Accepting Merchants Picked-up in Q2, But Still Below Previous Quarters 57State of Bitcoin Q2 2015 Sources: CoinBase, BitPay Number of New Bitcoin-Accepting Businesses Added Each Quarter 16,800 12,936 10,360 6,000 6,000 12,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
  58. 58. Bitcoin-Accepting Merchant Forecast Remained at Approximately 120,000 by End of 2015 58State of Bitcoin Q2 2015 Data sources and notes: Total current merchants based on data from Coinbase and BitPay. Historical Coinbase data provided by BitcoinPulse. BitPay historical data between new merchant press release announcements of 10,000 (16 September 2013), 20,000 (13 January 2014) and 30,000 (28 May 2014), respectively, calculated using linear interpolation. R² = 0.9593 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Series1 Linear (Series1)Total Merchants Total Merchants
  59. 59. North America and Europe Continue to Have the Most Bitcoin-Accepting Businesses 59State of Bitcoin Q2 2015 Source: Coinmap.org (screenshot on 30 June)
  60. 60. Number of Drug Listings on Bitcoin-Accepting Websites Remains High in spite of Silk Road Prosecution 60State of Bitcoin Q2 2015 Source: Economist
  61. 61. Forecast for Total Bitcoin Wallets by End of 2015 Maintained at 12 Million, but … 61State of Bitcoin Q2 2015 Data sources and notes: total wallets based on data from Blockchain.info, MultiBit, Coinbase, Andreas Schildbach (Android bitcoin wallet developer). Historical Coinbase data provided by BitcoinPulse. Q2 MultiBit figures note made available, held constant as end of March. R² = 0.9854 0 2 4 6 8 10 12 14 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Millions Series5 Linear (Series5)Total Wallets Forecast Wallets
  62. 62. … New Wallet Growth Rate Remains ‘Remarkably Consistent’ for Blockchain.info 62State of Bitcoin Q2 2015 Data source: Blockchain.info 118 515 481 343 481 451 454 488 0 100 200 300 400 500 600 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Thousands Number of New Wallets Added Each Quarter
  63. 63. While New Bitcoin ATM Growth Remains Below Previous Levels … 63State of Bitcoin Q2 2015 Data source: CoinATMRadar 43 79 112 104 32 52 0 20 40 60 80 100 120 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Increase in Number of ATMs Each Quarter
  64. 64. … New Methods for Acquiring Bitcoins In-Person are Emerging • Taiwanese startup Maicoin has launched a system that lets users buy bitcoin at 10,000 convenience stores in the territory • Users set up a bitcoin purchase on MaiWallet app or web interface, which displays a barcode for a convenience store cashier to scan • Maicoin customers need not provide any ID to use the service due to limit imposed according to AML regulation • The system is purchase-only at this stage and does not allow users to sell bitcoins in return for cash 64State of Bitcoin Q2 2015 Sources: CoinDesk, Reddit
  65. 65. Ways to Pay Cash for Bitcoins Other than Using Bitcoin ATMs Continue to Grow Location and Method Description and Network Size Direction Fees Lithuania: Foxbox terminals 70 units Buy up to 16% Taiwan: BitoEX at convenience stores 5,000 stores Buy 1% and standard NT$25 fee Ukraine: BTCU >4,000 terminals Buy 3.5% (official), 10-15% (non- official) Romania: Zebrapay terminals >800 terminals Buy 4% US: LibertyX 2,500 stores Buy 0% Mexico: SendBitcoin.mx 6,000 bank ATMs Sell 1% Philippines: Coins.ph 450 bank ATMs Sell free for Coins.ph users Czech Republic: WBTCB 8,000 terminals and post offices Buy 7-10% + 10 Kč (0.4 USD) Spain: Chip Chap and Halcash 10,000 bank ATMs Sell 1% + €1.5 Austria: Bitcoinbon from Coinfinity 600 Tobaco kiosks Buy ~10% Thailand: Coins.co.th 9,000 Krungthai bank ATMs (sell), ~3,000 Kasikorn bank cash deposit machines (buy) Buy/Sell N/A South Korea: Coinplug 8,000 7-11 stores (24,000 planned) + 7,000 regular ATMs Buy N/A Poland: Chip Chap App 4,000 bank ATMs Sell 1% + €1.5 65State of Bitcoin Q2 2015 Source: Coin ATM Radar
  66. 66. Bitcoin Lending: The US, Canada, Brazil and India are the Most Popular Markets for Loans 66State of Bitcoin Q2 2015 Data source: BTCJam
  67. 67. Bitcoin Lending: ‘Business’ is Dominant Use of Bitcoin Loans 67State of Bitcoin Q2 2015 Data source: BTCJam
  68. 68. 68State of Bitcoin Q2 2015 6. Technology
  69. 69. Bitcoin Can be Visualized as the Missing Piece of the Online Protocol Puzzle 69State of Bitcoin Q2 2015 Source: Pantera • Compared to other online protocols, bitcoin is unique in that users have an opportunity to own part of the protocol
  70. 70. Open Assets Protocol Powering First Publicly Disclosed Blockchain Implementation by Wall Street Firm 70State of Bitcoin Q2 2015 Sources: CoinDesk, Coinprism • NASDAQ announced it is working with Chain to use Open Assets, which is managed by Coinprism, for its Private Market Platform • Adam Ludwin, CEO and founder of Chain, said: “The shares will move on the Open Assets protocol, a colored coins implementation that allows users to augment small amounts of bitcoin to represent shares.” • Shares can then be transferred and tracked across the bitcoin blockchain through the use of a ‘barcode’ added to a bitcoin transaction note field
  71. 71. Contentious Debate Amongst Bitcoin Core Developers Over Whether to Increase the Block Size • Raising the block size will enable more transaction throughput, allowing bitcoin to grow into a potential competitor for other major transaction networks 71State of Bitcoin Q2 2015 Sources: hashingit.com, Reddit, Inside Bitcoins, gavinandresen.ninja, CoinGecko • Raising the block size will increase mining centralization; other solutions are available to scale-up the network YES NO Gavin Andresen Gregory MaxwellMike Hearn Peter Todd
  72. 72. Number of Bitcoin Nodes Continues Declining, Down 8% from 6,480 at End of Q1 72State of Bitcoin Q2 2015 Data sources: Bitnodes
  73. 73. Bitcoin Network Survives Q2 ‘Stress Test’ • What was the bitcoin ‘stress test’? – CoinWallet, a bitcoin broker, planned the stress test starting 22 June. It sought to spend 20 BTC (around $5,000) on transactions totaling about 200MB in data, but was only able to send 15% due to a server crash • What was the purpose? – To flood the bitcoin network with transactions to see if the current 1MB block size limit was adequate and whether the network could recover quickly from a surge • What was the result? – While CoinWallet faced criticism for launching the test live on an unsuspecting bitcoin network, with some calling it an “attack”, the network passed the test without major incident • What’s next? – Debate over whether to increase the block size continues … 73State of Bitcoin Q2 2015 Sources: CoinDesk
  74. 74. Bitcoin Transactions Continue Rising Steadily 74State of Bitcoin Q2 2015 Source and note: Blockchain.info, *100 most popular addresses. Number of Transactions Per Day 40,000 60,000 80,000 100,000 120,000 140,000 160,000 01/07/2014 29/09/2014 28/12/2014 28/03/2015 26/06/2015 Total no. of daily transactions No. of daily transactions excluding popular addresses
  75. 75. F2Pool AntPool BitFury BTC China Pool BW.COM 21 Inc. KnCMiner Eligius Slush BTC Guild Telco 214 GHash.IO BitMinter BTC Nuggets Unknown China-Based Miners with Low-Cost Electricity Now Represent Over 50% of Total Bitcoin Network 75State of Bitcoin Q2 2015 Data source: Four-day average as of 30 June 2015 on Blockchain.info
  76. 76. Bitcoin’s Network Difficulty Q/Q Growth Rate Halved Amid Bitcoin Price Weakness for Most of Q2 76State of Bitcoin Q2 2015 Notes: Difficulty represents the number of necessary hash calculations to mine a new block. Data source: CoinDesk 11.8 17.8 6.0 6.1 3.0 236% 106% 17% 15% 6% 0% 50% 100% 150% 200% 250% 0 2 4 6 8 10 12 14 16 18 20 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Billions Quarterly Increase in Bitcoin Mining Difficulty Quarterly Increase in Mining Difficulty Percentage Increase in Mining Difficulty Hashrate
  77. 77. 21 Inc Update: the Most Well-Capitalized Bitcoin Startup Reveals Audacious Business Model 77State of Bitcoin Q2 2015 Sources: Medium, WSJ 21’s BitShare chip: • Can be “embedded into an Internet- connected device as a standalone chip or integrated into an existing chipset as a block of IP to generate a continuous stream of digital currency for use in a wide variety of applications” • New approach to micropayments • Chips can continuously generate revenue (automatically pay people in bitcoin) • Decentralized device authentication • Facilitate device coordination • Devices that can pay for associated services
  78. 78. 21 Inc Update: Growing Revenue Faster Than Facebook and Google Did 78State of Bitcoin Q2 2015 Source: FT Alphaville Balaji S Srinivasan, CEO of 21 Inc • "Bitcoin is bigger than Google. If they [Google] turned off all their data centers and pointed them at bitcoin, they'd be less than 1% of the network."
  79. 79. Overall Findings From Bitcoin Wallet Study Suggest Privacy “Not Well” Protected 79State of Bitcoin Q2 2015 Usability Quality Feedback Source: Spring 2015 Wallet Privacy Rating Report
  80. 80. Application Developers Can Choose From a Growing Variety of Blockchain Platforms to Develop on 80State of Bitcoin Q2 2015 Funding Source of Funding Currency Unit Partners/Apps Blocksteam $21m Venture Bitcoin Unknown Chain $14m Venture None Nasdaq Counterparty Unknown Community funded Counterparty Swarm Epiphyte $20k Venture None Unknown Eris $10k Venture None Decerver Ethereum $18m Crowd Ether Mist, Augur Hyperledger Unknown Unknown None Unknown Maidsafe $11m Equity and crowd Maidsafe The Safe network PeerNova $14m Venture None Overstock Ripple $37m Venture Ripple Codius, RBS Stellar $3m Venture Stellar Unknown Sources: Crunchbase, CoinDesk 'Cryptocurrency 2.0 Report', Bank Innovation • Other factors affecting developer preferences include: trust, commercial model, ease of development and performance and reliability
  81. 81. ‘Ether’, the currency unit, will be used for transaction fees, smart contracts, etc. Ethereum blockchain is fully programmable (‘Turing complete’) and more economically efficient than bitcoin Ethereum will evolve from proof- of-work to “proof-of- stake”, which is more environmentally friendly and energy efficient than bitcoin’s proof-of- work Ethereum’s mining can be done by ‘regular’ computers, making it more affordable and accessible than bitcoin mining Ethereum is One of the Most Hyped ‘Altchains’; Some Key Advertised Differences from Bitcoin 81State of Bitcoin Q2 2015 1. Cryptocurrency 2. Blockchain 3. Decentralized Consensus Mechanism 4. Mining Source: Ethereum
  82. 82. 82State of Bitcoin Q2 2015 7. Regulation and Macro
  83. 83. Escalation of Greek Crisis Reinforces Bitcoin Status as a Macro Hedge for Financial Instability 83State of Bitcoin Q2 2015 Sources: CoinDesk, Reuters. Image from Pinterest • Reuters: “Bitcoin surged by as much as 7% on Tuesday [30 June] and was on track for its longest winning streak in 18 months, as concerns that Greece could tumble out of the euro drove speculators and Greek depositors into the decentralized digital currency.” • However, bitcoin’s price plummeted by over 10% on Monday 13 July following the preliminary announcement of a new bailout agreement between Greece and its creditors
  84. 84. While Greek Google Searches for ‘Bitcoin’ Have Skyrocketed, Little Evidence Greeks are Buying Bitcoin 84State of Bitcoin Q2 2015 Source: Google Trends “While a convenient narrative, there remains little evidence to suggest … that activity in Greece is actually at the root of the movement” in bitcoin’s price • Nearly impossible for most Greeks to acquire bitcoins while banking system is closed; only two bitcoin ATMs in Greece • Very few Greek businesses accept bitcoin for payment • An estimated 40% of Greeks have never used the Internet Paul Gordon, UK Digital Currency Association
  85. 85. Greece is Not Alone: 24 Countries Have an Ongoing Debt Crisis … 85State of Bitcoin Q2 2015 Sources: Jubilee Debt Campaign, Guardian. Images from Wikipedia Tunisia St Vincent and the Grenadines Portugal Sri Lanka Jamaica Spain Montenegro Ireland Croatia Marshall Islands Greece Costa Rica Macedonia Zimbabwe El Salvador Belize Lebanon Sudan Grenada Dominican Republic Armenia The Gambia Ukraine Cyprus
  86. 86. … and 14 More Are Vulnerable to a Debt Crisis 86State of Bitcoin Q2 2015 Samoa Ethiopia Laos Mauritania Dominica Cape Verde Senegal Bhutan Ghana Tanzania Uganda Sao Tome e Principe Mozambique Mongolia Sources: Jubilee Debt Campaign, Guardian. Images from Wikipedia
  87. 87. Chinese Stock Bubble Crash Arguably More Significant Influence than Greece on Bitcoin’s Price 87State of Bitcoin Q2 2015 Source: dizzynomics. Image from JNLC
  88. 88. Wall Street Should Take Blockchain Technology Seriously 88State of Bitcoin Q2 2015 Sources: YouTube, CoinDesk, LinkedIn “Distributed ledger technology does have the potential to be disruptive in certain business models, but it has at least as much potential to be enormously empowering in existing middle business models in terms of making them lower cost, more efficient and less risky.” “So we won’t get there overnight but we will get there. How seriously should you take this? I would take it about as seriously as you should’ve taken the concept of the Internet in the early 1990s. It’s a big deal and it is going to change the way that our financial world operates.”Blythe Masters, CEO of Digital Assets Holdings LLC
  89. 89. 89State of Bitcoin Q2 2015 According to a recent report from the Euro Banking Association (EBA): “Existing financial services could be ‘powered by cryptotechnologies’ offering financial institutions potentially lower costs, better products and faster time to market.” Sources: CoinDesk, EBA's ‘Cryptotechnologies, a Major IT Innovation and Catalyst for Change’ report Banks Should Take Bitcoin Seriously
  90. 90. Very Serious People: Financial and Economic Leaders Continue to Join Bitcoin Companies 90State of Bitcoin Q2 2015 Sources: WSJ, CoinDesk, LinkedIn Dee Hock, Visa. Now with Xapo Anja Manuel, US Department of State. Now with Ripple Labs Larry Summers, US Treasury. Now with Xapo and 21 Inc Bill Dennings, MasterCard. Now with Bitreserve Donald Donahue, DTCC. Now with Ripple Labs Sheila Bair, FDIC. Now with itBit John Reed, Citi. Now with Xapo Hernando de Soto ILD. Now with BitFury
  91. 91. Views on Bitcoin’s Positive Impact on Economic Growth 91State of Bitcoin Q2 2015 Hernando de Soto ILD. Now advisor at BitFury Source: CoinDesk Blockchain technology “may just be one of the most significant contributions to the history of organizing knowledge”. Larry Summers, US Treasury. Now advisor at 21 Inc. and Xapo “It seems to me that the people who confidently reject all the innovation here [in new payment and monetary systems] are on the wrong side of history.” “I am much more confident that the world of payments will look very different 20 years from now than I am about how it will look.”
  92. 92. New York Releases Final BitLicense Regulations to Mixed Industry Reaction 92State of Bitcoin Q2 2015 • Firms will no longer need approval for each new software update or round of VC funding • Companies can now satisfy BitLicense and money transmitter license requirements simultaneously with a "one-stop" application submission • Notably absent were several proposals put forth by the digital currency community, including exemptions for entities working on open-source protocols, micropayments, and a 24- month safe harbor period for early- stage startups Source: CoinDesk "They changed so little with this version, it's laughable” - Elizabeth Stark, Yale Law School “It's an important stake in the ground” - Jeremy Allaire, Circle “It's a mixed bag” - Jerry Brito, Coin Center "It's troubling that this nascent industry is being subjected to more onerous regulations“ - John Collins, Coinbase
  93. 93. Select Company Reactions to BitLicense Regulation 93State of Bitcoin Q2 2015 • ShapeShift would cease offering services to New York residents due to the finalization of the BitLicense digital currency regulatory framework. Its founder and CEO Erik Voorhees described the customer data requirements imposed by the BitLicense as “Orwellian” • Bitcoin mining pool BTC Guild to close following BitLicense finalization. Owner ‘Eleuthria’ stated “BTC Guild could not afford any legal threats that may arise as a result of the New York regulatory framework” Sources: CoinDesk, BTC Guild
  94. 94. Select Country Regulatory Updates 94State of Bitcoin Q2 2015 Sources: CoinDesk, CoinDesk Russia's central bank will meet with representatives from the country's financial markets to discuss bitcoin regulation. A prominent Moscow-based news outlet says it is likely the bank will be supportive of cryptocurrencies. The Reserve Bank of Australia has indicated it is not in favor of regulating bitcoin and other digital currencies, stating “it is currently unlikely that any benefits of regulation would outweigh the potential costs”. Russia Australia
  95. 95. Xapo Moves Headquarters from Silicon Valley to Switzerland Citing Customer Privacy Concerns 95State of Bitcoin Q2 2015 Source: CoinDesk • “This is not to facilitate crime, this is to protect privacy” • “There are some customers that will bring more balances if we do this and there are some customers who have said ‘we will work with you if you do this’”Wences Casares Xapo CEO
  96. 96. Ripple’s Banking Relationships Appear to Have Weathered FinCEN Fines 96State of Bitcoin Q2 2015 Source: CoinDesk • Financial Crimes Enforcement Network (FinCEN) fined Ripple Labs and its subsidiary XRP II a combined $700,000 for "willful violations" of the Bank Secrecy Act (BSA) • FinCEN fine was reported in May, but Ripple Labs announced new deals with three Australian banks (and a new funding round) in June
  97. 97. Interest in Government-Backed Cryptocurrencies and/or Ledger Systems Continues to Percolate 97State of Bitcoin Q2 2015 • Citi suggested UK government and banks should create their own digital currency to reduce cost as well as improve efficiency and transparency • David Andolfatto, Federal Reserve Bank of St. Louis has discussed the idea of a ‘Fedcoin’, citing benefits like greater efficiency, security and transparency Sources: CoinDesk, MacroMania, Deloitte
  98. 98. About CoinDesk • Find out more at www.coindesk.com • Follow us on Twitter: @CoinDesk • Subscribe to our daily email newsletters for the latest digital currency news • If you have data you think should be included in future State of Bitcoin reports, email [email protected] • We also welcome any feedback you have on the report • If you would like to sponsor an upcoming CoinDesk report, email [email protected] 98State of Bitcoin Q2 2015
  99. 99. Disclaimer • CoinDesk makes every effort to ensure the information in this presentation is accurate and up to date. We cannot, however, accept responsibility for any loss or inconvenience caused by reliance on the material contained here. • This presentation does not constitute financial advice or an investment recommendation in any way whatsoever. It is recommended you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions. 99State of Bitcoin Q2 2015
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