State of Bitcoin Q3 2014

1State of Bitcoin Q3 2014

State of Bitcoin Q3 2014

7th October 2014


Contents

1. Summary and Adoption Dashboard

2. Price and Valuation3. Media4. VC Investment5. Commerce6. Technology7. Regulation and Macro


About CoinDesk

• World leader in digital currency news, prices and information• Our Bitcoin Price Index serves as an industry reference point• London-based and remote team with a global focus• Our editors are based in London, Boston, San Francisco and Tokyo


Summary and Adoption

Dashboard


Q3 2014 Summary

Bitcoin is further integrating with existing payment infrastructure (eg PayPal, Square) and some banks

Overall, the bitcoin ecosystem appears to have entered a relatively ‘quiet building’ phase in Q3

All-time bitcoin VC investment up to $317m; 2014 run rate on track to well exceed 1995 Internet

Regulatory environment continues to see challenges (eg NY BitLicenses, Kyrgyzstan ban)

Ever larger businesses continue to adopt bitcoin (eg Dell, which is offering 10% off certain products with bitcoin)

Bitcoin’s price down 40% in Q3, down another 10% at start of Q4 amid much debate about causes


Key Bitcoin Adoption MetricsQuarterly Last 12 Months

Sep-14 Jun-14 Q/Q Δ Sep-13 ΔCommerce

Wallets 6,559,978 5,427,688 21% 1,353,201 5xMerchants 76,000 63,000 21% 10,000 8xMerchants’ annual revenue ($bn) 86 29 196% 0 N/AATMs 251 103 144% 0 N/AUnique bitcoin addresses 184,554 136,152 36% 61,734 3x

IndustryAll-time VC investment ($m) 317.0* 225.3 41% 30.4 10xNumber of VC-backed startups 66* 50 32% 14 5x

MediaMainstream media mentions 9,398 9,024 4% 1,794 5x

TechnologyNetwork Hash Rate (billion/second)

261,900,382

111,194,683 136% 1,213,246 216x

Github no. of updated repositories 18,753 15,109 24% 1,573 12xValuation

Bitcoin market capitalization ($bn) 5.2 8.3 -37% 1.5 3x

Sources: CoinDesk, Blockchain.info, BitcoinPulse, Github, Coin ATM Radar. Figures used are as of end of quarter.

*Includes recent Q4 deals (eg Blockchain $30.5m).

http://www.blockchain.info/

http://www.bitcoinpulse.com/

http://www.github.com/

http://coinatmradar.com/

http://coinatmradar.com/


Price and Valuation

8

CoinDesk Bitcoin Price Index – Q3 & YTD by the Numbers

Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTCwww.coindesk.com/price

http://www.coindesk.com/price


A Remarkable Coincidence?

+39.4%

-39.6%

Bitcoin’s price dropped in Q3 by an almost identical % as its rise in Q2

%Δ of Q3/Q2 Close Price %Δ of Q2/Q1 Close Price

Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC www.coindesk.com/price



6/30/1

4 0:00

7/3/1

4 0:00

7/6/1

4 0:00

7/9/1

4 0:00

7/12/1

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7/15/1

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7/18/1

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7/21/1

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7/24/1

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7/27/1

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7/30/1

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8/2/1

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8/5/1

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8/8/1

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8/11/1

4 0:00

8/14/1

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8/17/1

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8/20/1

4 0:00

8/23/1

4 0:00

8/26/1

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8/29/1

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9/1/1

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9/4/1

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9/7/1

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9/10/1

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9/13/1

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9/16/1

4 0:00

9/19/1

4 0:00

9/22/1

4 0:00

9/25/1

4 0:00

9/28/1

4 0:00$300

$350

$400

$450

$500

$550

$600

$650

$700

Bitcoin’s Price Has Been Declining on Steadily Rising Trading Volume

18 Aug

Bitcoin price suddenly drops in ‘flash crash’

11 Aug

18 JulDell announces it will accept bitcoin

Blockchain first company to pass over 2m bitcoin wallets

22-23 SepPayPal and Square announce bitcoin integration

8 JulXapo announces $20m funding round

Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC www.coindesk.com/price

9 JulBitcoin industry discussion of concerns over mining pool 51% network control

Following complaints, NY extends BitLicense comment period

21 Aug

9 SepSupposed Satoshi Nakamoto email account ‘hack’, blackmail attempt



Total Exchange Trading Volume Sees Steady Growth

Source: CoinDesk, Bitcoinity

Aug-0

9

Sep-

09

Oct-0

9

Oct-0

9

Nov-0

9

Dec-0

9

Dec-0

9

Jan-

10

Jan-

10

Feb-

10

Mar

-10

Mar

-10

Apr-1

0

May

-10

May

-10

Jun-

10

Jul-1

0

Jul-1

0

Aug-1

0

Aug-1

00

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

Cumulative Trading Volume (bitcoins)

http://bitcoinity.org/markets


Chinese Yuan (Renminbi) Denominated Bitcoin Trading Continues to Gain Share

on US DollarCNY vs USD Denominated Bitcoin Trading Market

Share, Monthly BTC (unit) volume, April – September 2014

Source: Bitcoinity. Based on exchange data from ANXBTC, Bitfinex, Bitstamp, BTC China, BTC-e, Huobi, LakeBTC, and OKCoin.

Month CNY USD

April 63.6% 36.4%

May 66.7% 33.3%

June 65.3% 34.7%

July 68.9% 31.1%

August 67.5% 32.5%

September 71.5% 28.5%

http://bitcoinity.org/markets


Growing Merchant Adoption Should Not Drive Down Bitcoin’s Price

Consumer converts fiat

to bitcoin

Consumer spends

bitcoin at merchant

Merchant utilizes

payment processor

Payment processor converts bitcoin to

fiat

‘The Virtuous Bitcoin Commerce Cycle’ • Right now, there are too few merchant transactions to have a significant influence on price (eg Overstock.com is only averaging $15k/day in sales conducted in bitcoin*)

• In the short-term, it’s true that timing differences may lead to commerce supply-demand imbalances

• Over the medium term, however, bitcoin-to-fiat conversions by payment processors should be balanced by fiat-to-bitcoin conversions by bitcoin-spending consumers

*Source: http://www.coindesk.com/overstock-reveals-bitcoin-sales-averaging-15000-per-day/

http://www.coindesk.com/overstock-reveals-bitcoin-sales-averaging-15000-per-day/




The Mining Arms Race: A More Plausible Bitcoin Price Drop Theory?

• To remain competitive, miners – who possess perhaps the largest (and ever-growing) supply of bitcoins – must sell bitcoins to finance running costs and hardware upgrades

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

Bitcoin Network Hash Rate (billions of hashes/second), 2010 – Present

Source: Blockchain.info

http://www.blockchain.info/


Other Possible Explanations for Bitcoin’s

Price Decline Include …

• Early adopter sales

• Technology equities

correction

• Strong US dollar

• Technical (chart) trends

• 51% attack concerns

• Global instability

• Lower bitcoin price

volatility = fewer

speculators

• Seasonal factors (eg “sell

in May and go away”)

• Regulatory concerns (eg

NY BitLicenses)

• Competition concerns (eg

Apple Pay)


State of Altcoins: Number of Altcoins Up 2x in Last Six Months, but Market Cap Share Down 65%*

Sources: CoinMarketCap, Internet Archive

*Note: altcoin market cap share calculated by dividing the sum of all non-bitcoin cryptocurrency market caps by all cryptocurrency market caps (including bitcoin). For example, if altcoins have 8% market value share, then bitcoin has 92%

market value share.

Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-140

100

200

300

400

500

600

0%

5%

10%

15%

20%

25%

216

262282

347362

478 483

23%

9%

2%

7%6%

5%

8%

Total number of altcoins Altcoins Market Cap Share (%)

http://coinmarketcap.com/

http://archive.org/web/


While Significantly Below March 2014 High, Current Relative Value of Altcoins is in Line With Historical

Average

Note: altcoin market cap share calculated by dividing the sum of all non-bitcoin cryptocurrency market caps by all cryptocurrency market caps (including bitcoin). For example, if altcoins have 8% market value share then bitcoin has 92%

market value share.

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-140

100

200

300

400

500

600

0%

5%

10%

15%

20%

25%

38 3764

83

140

216

262282

347362

478 483

4%

9%9%

9%

12%

23%

9%

2%

7%6%

5%

8%

Total number of altcoins Altcoins Market Cap Share (%)

Sources: CoinMarketCap, Internet Archive

http://coinmarketcap.com/

http://archive.org/web/


Media


Selection of Q3’s Biggest Bitcoin Stories

Debate about causes of mid-August bitcoin price crash and downward price trend

Mainstream payments services announce bitcoin integration Dell becomes

the largest company to accept bitcoins as a means of payment

Google integrates bitcoin price into search


Seven of the Most Popular CoinDesk Q3 Stories About Bitcoin’s Price (vs Four in

Q2)Rank Title Date

1 Tim Draper: Bitcoin’s Price Still Headed to $10k 12th Sep

2Downward Pressures Persist as Bitcoin’s Price Declines to Near $400 19th Sep

3State of Bitcoin Q3 2014 Report Reveals Expanding Bitcoin Economy 10th Jul

4 Did Margin Trading Crash the Price of Bitcoin? 15th Aug

5US Marshals: One Auction Bidder Claimed All 30,000 Silk Road Bitcoins 1st Jul

6 Price of Bitcoin Drops Below $400 in BTC-e Flash Crash 18th Aug

7 Litecoin Price Decouples from Bitcoin, Slump Continues 2nd Jul

8 Bitcoin Price Drops Below $600 After Relative Stability 24th Jul

9 Price of Bitcoin Falls to $500, Lowest Level Since May 14th Aug

10 PayPal Announces First Partnerships in Bitcoin Space 23rd SepSource: CoinDesk


Continued Mainstream Media Interestin Bitcoin

Source: respective publishers’ websites

WSJ

NYT

FT

Bloomberg

Guardian

Sina

Reuters

0 1000 2000 3000 4000 5000 6000

Stories Published Mentioning Bitcoin

Q3 2012 to Q3 2013 Q3 2013 to Q3 2014


Innovative Tools are Emerging to Monitor Attitudes Towards Bitcoin

Sources: CoinDesk, Qriously http://www.coindesk.com/sentiment-index/

CoinDesk Bitcoin Sentiment Index (BSI)

• The Bitcoin Sentiment Index is a measure of whether individuals feel the digital currency’s prospects are increasing or decreasing on any given day

• Powered by mobile ad data, the index provides a snapshot of the general attitude towards bitcoin in the US and UK

http://www.coindesk.com/sentiment-index/


‘Bitcoin’ Searches During Q3 Stayed Relatively Constant, but Still Well Below

Earlier Peaks

Past 90 Days

Past 12 Months

Source: Google Trends data as of 2 Oct 2014


Related ‘Bitcoin’ Searches Are Becoming More Sophisticated, Evolving Beyond ‘What is

Bitcoin?’

Source: Google Trends data as of 2 Oct. 2014

Past 90 Days

Past 12 Months

Related Searches: Top

Related Searches: Rising


VC Investment


Two Biggest Bitcoin VC Deals in Q3

$20m

$14m (Series A) September 2014

(Series A) July 2014

Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/)

http://www.coindesk.com/bitcoin-venture-capital/




Q3 Bitcoin Venture Capital Investment Down From Q2, Up Slightly Over Q1

$317m

$60m

Total VC investment in cryptocurrency startups to date*:

Q3 2014 bitcoin VC investment:

$73m

Q2 2014 bitcoin VC investment:


+41%

Increase in total to-date VC investment from end of Q2*:

*Q3 figure excludes recent Q4 deals (eg Blockchain $30.5m) but all-time figure of $317m and % growth includes these Q4 deals.




Europe Heats Up: Gained Overall Investment Share Again in Q3 and Saw the Largest Q/Q % Increase


Regions

Q3 ($m)

Q2 ($m)

Q/Q Δ ($m)

Q/Q Δ

US & Canada 201.1 165.8 35.3 21%

Europe 48.9 30.6 18.3 60%

Asia 26.5 20.8 5.7 27%

Middle East 5.5 5.5 0.0 0%

L. America 3.1 2.3 0.8 35%

Total 285.0 225.3 59.8 27%

$ Invested as of Q2

• Latin America had the second largest Q/Q % increase in investment• US & Canada share declined slightly, but still dominates with 71% of

all VC $ to dateNote: $ invested represents all-time total bitcoin VC investment at the end of each respective

quarter.Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/)

$ Invested as of Q3

Europe 17%

Asia 9%

Middle East 2%Latin

America 1%

US & Canada 71%

Europe 13%Asia 9%

Middle East 2%

Latin America 1%US & Canada

78%





While the US Continues to Dominate Bitcoin VC Investment, its Total Share Declined 7%

in Q3


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urg

India

Germ

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Mex

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Canad

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lia

Pana

ma

Denm

ark

Japa

n

Argen

tina

Sing

apor

e

Sout

h Ko

rea

Israe

l

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d King

dom

Swed

en

China

Nethe

rland

s

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d St

ates

$0

$50

$100

$150

$200

$0 $0 $0 $0 $1 $1 $1 $1 $2 $2 $3 $4 $6 $12 $15 $17 $21

$201

Total Funding (millions)





Silicon Valley’s Share of All-Time Bitcoin VC Investment Slipped Slightly From 48% in Q2 to

44%

Tech hub concentratio

n

Value ($m)

No. of companie

s

Silicon Valley 126.5 21

Rest of World 158.5 43

Total 285.0 64

• Share of VC-backed bitcoin companies based in Silicon Valley continues to slide, down from 37% in Q2 to 33% in Q3

• Total number of VC-backed bitcoin companies increased from 49 in Q2 to 64 in Q3, a 31% increase

$ Invested No. of Companies


Silicon Valley 44%

Rest of World 56%

Silicon Valley 33%

Rest of World 67%





Bitcoin VC Investment is Broadening Around the Globe

• Six new countries (Germany, Denmark, India, Japan, Luxembourg and Panama) added their first VC-backed bitcoin startups in Q3, a 2x increase over the number of new countries in Q2






2014 Bitcoin VC Investment Projected to Surpass Early-Stage Internet

Investments

*Includes first sequence venture deals but excludes late-stage 1995 internet investments ($257.6m). For additional disclosure on methodology see

http://www.coindesk.com/following-money-trends-bitcoin-venture-capital-investment/Source: CoinDesk, PricewaterhouseCoopers

2013 Bitcoin 2014 Bitcoin Run Rate 1995 Internet*$0

$50

$100

$150

$200

$250

$300

$350

$91.8

$290.0

$250.1

Bitcoin vs Early Internet VC Investment (millions)

http://www.coindesk.com/following-money-trends-bitcoin-venture-capital-investment/

http://pwc.blogs.com/press_room/a-brief-history-of-pwc.html


The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Categories

Universal

Payment Processing

Wallets

Mining

Financial Services

Exchanges


Wallets Raised the Most Funding in Q3, Followed by Financial Services and

MiningQ3 VC Investment by Ecosystem Category (millions)


Pay-ment

Proces-sor 16%

Ex-change

16%Fi-nan-cial Ser-vices 9%Mining 12%

Universal 25%

Wallet 22%

Universals Still Command the Most VC Investment, but Share Slipped by 3% in Q3

SectorQ3

($m)Q2

($m)Q/Q Δ ($m)

Q/Q Δ (%)

Universal 63.9 59.4 4.4 8%Financial Services 49.8 33.5 16.2 48%

Mining 48.0 34.0 14.0 41%

Wallet 44.2 21.4 22.8 107%Exchang

e 41.1 39.0 2.1 5%Payment Processo

r 38.2 38.0 0.2 0.6%

Total 285.0 225.3 59.8 27%

• Wallets, Financial Services, and Mining sectors continued to receive the lion’s share of investment in Q3

• Exchanges have only received a combined $4 million over the last two quarters

$ Invested as of Q2$ Invested as of Q3

Payment Proces-sor 13% Ex-

change 14%

Financial Services

17%Mining 17%

Universal 22%

Wallet 15%

Note: $ invested represents all-time total bitcoin VC investment at the end of each respective quarter.






Increasing Number of Universal Bitcoin Companies (Up Over 2x Q/Q)

• As we correctly forecasted in the Q2 State of Bitcoin, “more and more bitcoin startups will pursue the universal model”

• Universals operate across more than one aspect of the bitcoin value chain (eg Coinplug provides payment processing, wallet and ATM)

• Universal bitcoin companies leverage two key elements of financial services: efficiency and trust

The Universals


Q3 Investment Rounds in Bitcoin Startups (contd.)

Close Date

Company Size ($m) Round Select InvestorsHeadquartere

d

Sep-14 Coinapult 0.78 SeedBitcoin Opportunity Corp, Roger

Ver, FirstMark Capital, Erik Voorhees, Ira Miller

Panama City

Sep-14 Coinify* 0.34 Seed SEED Capital Copenhagen

Sep-14 CoinPlus 0.22 Seed Unknown Luxembourg

Sep-14 Koinify 1.20 FirstIDG Capital Partners, Brock

Pierce, zPark Ventures, Danhua Ventures

Mountain View

Sep-14 Gem 2.00 Seed

First Round Capital, Tekton Ventures, RRE Ventures, Mesa+,

Amplify.LA, Idealab, Baroda Ventures, Crypto Currency

Partners, QED Associates, Bitcoin Shop, James Joaquin

Venice


*In instances where only an approximate round size is provided (eg Coinify reporting that it raised "several million DKK" then the low end of the round range estimate is used (eg 2 million DKK for Coinify).






Close Date


d

Sep-14 KnCMiner 14.00 Seed Creandum Stockholm

Aug-14 Korbit 3.00 Seed

Softbank Ventures Korea, Pantera Capital, BAM Ventures, Bitcoin Opportunity Corp, Tim Draper, Pietro Dova, Strong Ventures

Seoul

Aug-14 Chain 9.50 Seed

Khosla Ventures, Pantera Capital, Barry Silbert, RRE Ventures, SV

Angel, Thrive Capital, 500 Startups

San Francisco

Aug-14 BitX 0.85 SeedBitcoin Opportunity Corp, Carol

Realini, Ariadne CapitalSingapore

Aug-14 BlockTrail 0.65 Seed Lev Leviev Amsterdam

Aug-14 Bitbond 0.27 First Point Nine Capital Berlin

Aug-14 Unocoin 0.25 First Bitcoin Opportunity Corp Bangalore







Close Date


d

Jul-14 Volabit 0.25 First Bitcoin Opportunity CorpPuerto Vallarta

Jul-14 BitFlyer 1.60 FirstUnnamed Japan-based venture

capital firmTokyo

Jul-14 Elliptic 2.00 First Octopus Investments London

Jul-14 TradeBlock 2.80 FirstAndreessen Horowitz, Barry

Silbert, Devonshire Investors, FinTech Collective

New York

Jul-14 Safello 0.25 Seed Bitcoin Opportunity Corp Stockholm

Jul-14 Xapo 20.00 Seed

Index Ventures, Greylock Partners, Emergence Capital

Partners, Yuri Milner, Max Levchin, Jerry Yang

Palo Alto






Commerce


>75K Merchants Now Accept Bitcoin, Up From 63K in Q2 (+19%)

40K 35K

Source: Coinbase and BitPay

http://www.coinbase.com/

http://www.bitpay.com/


Nov-1

3

Nov-1

3

Dec-1

3

Dec-1

3

Jan-

14

Jan-

14

Feb-

14

Feb-

14

Mar

-14

Mar

-14

Apr-1

4

Apr-1

4

May

-14

May

-14

Jun-

14

Jun-

14

Jul-1

4

Jul-1

4

Aug-1

4

Aug-1

4

Sep-

14

Sep-

140

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000R² = 0.977717429988309

Total merchants Forecasted merchants

Forecast Cut for Bitcoin-Accepting Merchants by 10K to 90K by End of

Year

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 (16th Sep 2013),

20,000 (13th Jan 2014) and 30,000 (28th May 2014), respectively, calculated using linear interpolation.


http://www.bitpay.com/



Dell is by Far the Largest Retailer to Date to Accept Bitcoin

@Dell tweet:

If you’re a retailer, there’s really no

reason not to accept bitcoin at

this point

“

”

Source: CoinDesk, Absolute Return

$56.9 billion annual revenue


Companies Representing >$85 Billion in Annual Revenue Now Accept Bitcoin

Largest Bitcoin-Accepting Retailers

*Monprix is a private company, most recent revenue data available used from 2005. TigerDirect estimate provided by parent company investor relations. Other divisions that are part of a larger parent organization, but do not break out individual divisional revenues, are

excluded.

Rank CompanyAnnual Revenue

($bn)1 Dell 56.92 Dish Network 13.93 Expedia 5.04 Monprix* 4.35 NewEgg 2.86 Overstock 1.37 TigerDirect* 1.08 1-800 Flowers 0.8

Total 85.9


Some Merchants are Seeing Significant Sales in Bitcoin

• Overstock.com is averaging $15k per day in goods sold for bitcoin and is forecasting over $1m per month by fourth quarter in 2014

Q1 Monthly Avg. Projected Q4 Monthly Avg.

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$300,000

$1,000,000

Patrick Byrne, Overstock

+233%

Source: http://www.coindesk.com/overstock-reveals-bitcoin-sales-averaging-15000-per-day/





A Growing Number of Compelling Reasons to Use Bitcoin to Make Purchases

Dell is offering up to 10% off certain products for purchases made with bitcoin

Purse.io customers often save 10-25% on Amazon Wish List items purchased by third parties seeking to acquire bitcoins for fiat


Total Wallets Forecasted Wallets

Approximately 8 Million Bitcoin Wallets Still Forecasted by End of

Year

R2 = 0.9365

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.

Jan-

13

Feb-

13

Mar

-13

Apr-1

3

May

-13

Jun-

13

Jul-1

3

Aug-1

3

Sep-

13

Oct-1

3

Nov-1

3

Dec-1

3

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-1

4

Sep-

14

Oct-1

4

Nov-1

4

Dec-1

40

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

R² = 0.959957494156883

https://blockchain.info/charts

https://multibit.org/




Bitcoin Remains the Coin of Choice in the Post-Silk Road Online Black Market

• The view that bitcoin would be quickly supplanted by DarkCoin or another theoretically more anonymous altcoin for black market use appears to be unfounded

Source: Wired http://www.wired.com/2014/09/agora-bigger-than-silk-road/

Agora, which is larger than Silk Road 2.0, only accepts bitcoins

http://www.wired.com/2014/09/agora-bigger-than-silk-road/

http://www.wired.com/2014/09/agora-bigger-than-silk-road/


More and More Bitcoin Companies are Advertising Their Insurance Protection to Customers

• However, the question remains whether companies that have bypassed insurance (eg Blockchain), or openly eschew it (eg BitReserve), will see lower customer adoption

Insured by Aon

Insured by Marsh Insured through London specialist market, brokered by CBC

Insurance

Insured by Meridian


Now Over 260 Bitcoin ATMsAround the World

Source: CoinDesk (http://www.coindesk.com/bitcoin-atm-map/)

http://www.coindesk.com/bitcoin-atm-map/

http://www.coindesk.com/bitcoin-atm-map/


Most Bitcoin ATMs Concentrated in North America and Europe

• Lamassu accounts for over a third of the bitcoin ATM marketSource: CoinDesk


Technology


Rise of Discus Fish Mining Pool as a GHash Counterbalance Has Tempered 51% Attack Concerns

Source: 4-day average as of 2 Oct 2014 blockchain.info/pools

http://www.blockchain.info/pools

http://www.blockchain.info/pools


Bitcoin Developer Ecosystem Continues to Grow, but Has Slowed Recently

• Developer engagement on open-source projects is tapering

Source: BitcoinPulse



Will the Decline in the Number of Bitcoin Nodes Leave Bitcoin Overly Centralized?

Source: BitcoinPulse

• Bitcoin network nodes are needed to ensure all valid bitcoin transactions that occur are broadcasted in a timely manner

• The number of bitcoin nodes has fallen from a peak of 250k at the end of 2013 to under 7k



Bitcoin’s Inverted Pyramid Problem Persists

• Mike Hearn, bitcoin core developer: “Basically, progress on the bitcoin protocol has ground to a halt.”

• Questions around how much the problem is due to a lack of funding and personnel vs governance issues

The multi-billion dollar bitcoin ecosystem,

comprised ofhundreds of

companies and thousands of

people …

… rests on the work of a small handful of core bitcoin

protocol developers

Source (Mike Hearn quote): Epicenter Bitcoin

https://www.youtube.com/watch?v=9jbMopz8Jtw


Bitcoin 2.0: Possible ‘Native Apps’

• Allocating bandwidth, storage, compute: new ways to share and trade networked resources

• Smart marketplaces: open up access to crowdfunding and crowd labor services (oDesk, 99 Designs, Beacon Reader, Mechanical Turk) to anyone with a smartphone

• Micropayments: enabling micropayments on the web and not just for mobile in-app payments

• Incentivized social software: supplementing likes, followers, karma, upvotes etc with monetary incentives

Sources: http://avc.com/2014/09/the-bitcoin-hype-cycle/ and http://cdixon.org/2014/10/04/some-ideas-for-native-bitcoin-apps/

“I am thinking that we will start to see native applications of bitcoin. These would be things that simply could not exist without this

technology.” – Fred Wilson

http://avc.com/2014/09/the-bitcoin-hype-cycle/



http://cdixon.org/2014/10/04/some-ideas-for-native-bitcoin-apps/

http://cdixon.org/2014/10/04/some-ideas-for-native-bitcoin-apps/


Regulation and Macro


Launch of New Bitcoin Advocacy Groups Emphasizes Ongoing Regulatory

Challenges

Jerry Brito, Coin Center

• Questions exist around how related Coin Center’s launch is with ongoing controversy surrounding the Bitcoin Foundation

Jon Matonis, Bitcoin Foundation

Perianne Boring, Chamber of Digital Commerce


Bitcoin Businesses are Already Pulling Out of New York Due to BitLicense

Concerns

NY’s Ben Lawsky

UK’s George Osborne

New York vs

London

• Circle and others have announced they won’t accept NY-based customers if BitLicense rules are implemented in their current form

• UK Chancellor George Osborne has announced he is looking to make the UK attractive to bitcoin startups and capital

• Startups like Epiphyte have already relocated from NY to seemingly friendlier London


Well-Funded Bitcoin Startups are Able to Secure Banking

Relationships


$27.5m funding

$10.0m funding

$9.0m funding

$5.0m funding

Reasons banks hesitate on bitcoin:• bigger

risks• higher

costs• more work• Low ROI• regulatory

pressure• prohibited

by regulators



Secession Votes Prompt Monetary Questions and Could Create Openings for Alternative

Currencies

Debate over currency was at the forefront of Scotland’s independence campaign

Catalan independence vote scheduled to take place on 9th November


New Index Ranks 177 Countries by Relative Potential to Adopt Bitcoin

Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper.

Announcement article: http://www.coindesk.com/argentina-most-likely-adopt-bitcoin/

Rank Country 1Argentina2Venezuela3Zimbabwe4India5Nigeria6Brazil7United States8Nicaragua9Russia10Iceland

Cristina Fernández de Kirchner’s Argentina is #1

The Bitcoin Market Potential Index™ (BMPI) – The Top 10

http://www.coindesk.com/argentina-most-likely-adopt-bitcoin/



Index Rankings Determined by Seven Equally Weighted Categories

• Remittances • Inflation

• Technology penetration • Financial repression

• Bitcoin penetration• Financial crisis –

historical

• Black market

Index methodology: 39 differently weighted variables (and counting) grouped into the above seven equally weighted sub-index categories

Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper


‘Positive’ Index Ranking Drivers

‘Negative’ Index Ranking Drivers




Latin America Most Fertile Region for Bitcoin, Followed by Africa and Post-Soviet

Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper


BMPI Regional Distribution -

Top 30

BMPI Regional Distribution - Top 10




BMPI Heat Map (Interactive Version at BitcoinIQ.info)

Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper.


BitcoinIQ.info

http://www.bitcoiniq.info/



http://www.bitcoiniq.info/


When people write the history of this thing, of bitcoin, they are not going to write the story of 6 million to a billion. What is truly remarkable is the story of zero to 6 million. It has already happened! And we’re not paying attention! That’s incredible. That’s what had one chance in a million and it already happened.

Views on Bitcoin

Think of the cellphone. There were never more than 1.2 billion landlines. Then the cellphone came and we’re at 6.3 billion. Why? It’s not because only those people wanted to communicate. The landlines were all post-pay. You need to have credit to get one. The cell phones were pre-paid. Suddenly you could get one with cash. It had nothing to do with technology. It was an economic restriction. Now there are 1.5 billion bank accounts, same threshold as land lines. I think bitcoin will allow us to see 6.3 billion people banking on their cell phones.

“

“

”

Source: The Verge

Wences CasaresXapo

http://www.theverge.com/2014/8/29/6082195/the-fort-knox-of-bitcoin-xapo-wences-casares


Appendix - CoinDesk

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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

http://www.coindesk.com/

http://www.twitter.com/coindesk

mailto:[email protected]


Disclaimer

• CoinDesk makes every effort to ensure that 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 that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

State of Bitcoin Q3 2014

Technology

Transcript of State of Bitcoin Q3 2014