TableofContents

•  Introduc)on 2•  BitcoinValueProposi)on(s) 3•  BoundarySpecifica)on 4•  DataCollec)on 5•  Methodology 6•  MarketSegmentFramework 7•  Findings(1):SummarySta)s)cs 8•  Findings(2):Visualisa)on 9•  Findings(3):KeyObserva)ons 15•  Analysis(1):Factorsdrivingemergenceandevolu)onofmarketsegments17•  Analysis(2):Factorsimpac)ngevolu)onofoverallbusinessecosystem18•  Addi)onalcomments 19ThepurposeofthisPPpresenta)onistoprovideashortoverviewandsummaryofthemainbuildingblocksofthethesis.ItdoesnotincludetheliteraturereviewanddoesnotreviewtheconceptofBitcoin.Sinceitisaworkinprogress,thefinalframeworkofthetypicalstagesofevolu)oninacryptocurrencyecosystemisnotyetcompleted,andsomesec)onsmightbesubjecttorevision.

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Introduc2on

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TheBitcoinsystem(protocol,P2Pnetwork,globalledger/blockchain)exhibitstwodis)nguishingproper)es(censorship-resistanceandimmutability)thatserveasthebasefortheplaYorm’svalueproposi)on,whichcanbedividedintofourparts:

1.   Censorship-resistantdigitalcash•  Non-sovereign/statelessàneutral,globalandborderless•  Irreversibilityoftransac)ons•  Userempowerment:“Beyourownbank”2.   P2Ppaymentnetwork•  Promiseoflowtransac)onfeesandrapidse_lement•  Highresilienceandrobustness:nosinglepointoffailurebecausenointermediaries•  Noneedforstoringconfiden)aldata(iden)ty,creditcardinforma)on,…)3. Newassetclass(“DigitalGold”)•  Firstdigitalbearerinstrument:ar)ficiallyscarcebecauseoffixedsupply•  Shareskeyproper)esofgoldandevenimprovesoncertainquali)es(divisibility,transportability,storagecosts,…)•  Highvola)lityandalmostnocorrela)ontoothermajorassetclassesàgoodassetforspecula)on/investment4.   Replicated,permanent2me-stampedfilesystem(termborrowedfromGideonGreenspan)•  Immutabilitypropertyenablestheverifica)onofdataexistenceandauthen)cityàproof-of-existence,dataregistry,…•  Possibilitytoactasabaselayerforcomplexoverlaynetworksviameta-protocols

à  non-currency/non-monetaryapplica)ons(1),(2)and(3)arecloselylinkedtogether,inthattheyrelateto“currency/monetaryapplica)ons”.However,(1)and(3)areconflic)ng:defla)onarynatureofbitcoinincen)viseshoardinganddiscouragesuseasmediumofexchange.

BitcoinValueProposi2on(s)

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TheBitcoinecosystem–  Coredevelopers:maintainanddeveloptheopen-sourceprotocol–  Companiesandprojects:cons)tutethebusinessecosystem–  Otherstakeholders:VCfirms,governments,regulators,universi)es/researchers,…

ThisstudyisgoingtofocusexclusivelyonthebusinessecosystemthathasformedaroundtheopentechnologicalblocksandextendsthecoreplaYorm’sfunc)onali)esbybuildingcomplementarycomponentsandservicesthatincreasetheoverallvalueoftheplaYorm.

InclusioncriteriaProjectsandfirmsaresubjecttoinclusioniftheymeetthefollowingcriteria:

–  Coreac)vi)es/opera)onsrelatedtoBitcoininthe3followingways:•  Useofthedigitalcurrency/assetbitcoin

•  Useoftheintegratedpaymentnetwork

•  Useoftheunderlyingdatastructurefornon-monetaryapplica)ons

àThesedonotincludeen))esaccep)ngbitcoinasoneofseveralpaymentmethods(exceptifothercryptocurrencies)norledger-agnos)cplaYormsthatofferBitcoinasanop)on.

–  Servicesallowforcommercialexploita)on,althoughnorequirementfortheserviceproviderstodoso.àThisenablestheinclusionofnon-profitorganisa)onsandprojectsthatprovideessen)alservices

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BoundarySpecifica2on

Companiesandprojectsthatmeettheinclusioncriteriahavebeeniden)fiedbyconsul)ngvariousstart-uplistsfromventurecapitalists,industryexpertsandmediaplaYorms;aswellasrelevantnewsreportsanduserstoriesonreddit.com/r/bitcoinandbitcointalk.org.Dataontheen))eshasbeencollectedthroughavarietyofpubliclyavailabledatasourcesrangingfromcompanywebsitesandblogs,officialpressreleasesandarchivalrecordsfrommediacompaniestoTwiBerandLinkedInaccounts.Themostvaluableresourceshavebeenthepublicdiscussionforumsonreddit.com/r/bitcoinandbitcointalk.orgwhereen))esogenannouncedthelaunchofanewproductorservice.

Typeofdatacollectedforeachfirm•  FoundaFonDate:approximatedateoffounda)onoftheen)ty(notnecessarilydateoflegalincorpora)on)•  LaunchDateofeachservice/product:usuallyofficiallaunchdateofproduct/service,insomecasesalsobetalaunch•  ExitDate:whentheen)tyleavestheecosystemforvariousreasons•  Exitreason:thisalsoincludespivotsawayfromBitcoin•  Funding:anyraisingofcapitalthatisnotrelatedtodebt(VCfunding,crowdfunding,stategrants,…)•  Rebranding:newnameandyear,ifapplicable

•  Mergers&AcquisiFons(M&A):ifapplicable

Finaldataset•  513projectsandfirms•  Timewindow:2010-2015included(2009wasomi_edsincenoprojectorfirmwasiden)fied)

Limita2ons•  Lackofreliabledatainsomecases•  Difficulttocross-validatedata

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DataCollec2on

•  Developatheore)calframeworkforgroupingproductsandservicestogetherintomarketsegments(product/servicecategories)–  Combina)onofexis)ng(butlimited)frameworksfromVCfirmsandindustryexpertsintoaunified

modelservingasfirstreference

–  Itera)veprocess:testdragmodelwitheachnewen)tyandadapt/updateifnecessary

•  ApplyframeworktodatasetConstructabinaryadjacencymatrixforeachyear,indica)ngifanen)tyisac)veinapar)cularmarketsegment(1)ornot(0)

•  Visualisa)on–  WritecustomscriptswithRsogwarepackageandcomputegraphforeachyear

–  Includecategoricalvariabletoindicatethe“state”ofeachen)ty(e.g.newlyfounded,establishedbutinacFve,...)àrepresentedbycolourcodeinvisualisa)on

–  Nodesizeofen))es:numberofmarketsegmentsinwhichtheen)tyispresent

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Methodology

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MarketSegmentFramework

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Findings(1):SummarySta2s2cs

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Findings(2):Visualisa2on

Notes•  Inthethesis,eachyearisbrieflycommentedtohighlightthemaindevelopments(omi_edinthispresenta)on)•  Badresolu)onbecausesimplescreenshotfromPDFfile.Forhighresolu)onPDFs,pleasecontacttheauthor.

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Findings(3):KeyObserva2ons•  Diversity

-  Evolvedfromansmallcommunityformedaroundanexperimentaldigitalcurrencyandpaymentsystemintoalargesectorcomposedof22dis)nct,butcomplementarymarketsegmentsprovidingawidevarietyofproductsandservicesharnessingthevalueproposi)on(s)thattheplaYormoffers,therebyexpandingbeyondsimplefinancialservices.

-  Fromtable3onp.8,wecanobservethatthefirstservicestoemergewererelatedtotheacquisi)onandsaleofbitcoinsaswellassecurestorage,followedin2011byservicesenablingthespendingandtradingofbitcoins.In2012,wewitnessthearrivalofthefirstnon-currencyapplica)ons*andAPIplaYorm.In2013,alliden)fiedmarketsegmentshavealreadybeenestablished,anddiversityisgrowingwithinandacrossthosesegmentsin2014and2015.

àOntheonehand,replica)onofrolesfromtradi)onalfinancialsystemandpaymentnetworksbutspecificallytailoredtoBitcoin,whileontheotherhandalsocrea)onofnewrolesthatdidnotexistbefore(miningindustry,mixingservices,…)-  Intermsofnumbersofcompanies,ExchangeisthelargestmarketsegmentforeachyearfollowedbyWallet,Brokerage

ServicesandPaymentProcessor-->withexcep)onofwallet,allservicesthatactasgatewaysconnec)ngthe“Bitcoineconomy”tothe“outsideeconomy”(entryandexitpointstotheBitcoinecosystem).TradingPla;orm,DataServicesandATMhaveexperiencedmassivegrowthsincetheyfirstemerged,ashaveMoneyTransferPla;orm,FinancialServicesandDeveloperTools.

*Inthecontextofthisproject,non-currency/non-monetaryapplicaFonsrefertousecasesoftheBitcoinprotocolthatarenotrelatedtothecurrencyorthepaymentsystem.Othernon-monetaryservicessuchasmarketdataprovidersandconsul)ngwillbetermedsupporFngservices.

•  Diversifica2on-  Degreedistribu)onshowsthatmajorityofen))esareopera)nginasinglemarketsegment,however,thereisatrend

towardsdiversifica)onemergingin2013andcon)nuingthroughout2014and2015-  RelateddiversificaFon(closelyrelatedmarketsegments)vs.unrelateddiversificaFon(marketsegmentsthatarequite

dis)nctfromeachother):observa)onsshowthatrelateddiversifica)onismorecommon-  Somemarketsegmentsaremoreisolatedinthesensethatcompaniestendnottodiversifyoncetheyhaveestablished

themselvesintheirrespec)veniche:Marketplace,GamblingandMixingServices,aswellasnon-currencyapplica)onsBlockchainInnovaFonsandNotaryServices.

-  Incontrast,firmsthataremostdiversified(>3-4marketsegments)tendtooperateinthefollowingmarketsegments:Wallet,BrokerageServices,Exchange,PaymentProcessor,MoneyTransferPla;ormandFinancialServices.àemergenceoffullserviceprovidersa_emp)ngtoofferacomprehensivecustomerexperiencebycrea)ngauniversal“go-to”internalplaYormthatprovidesallfunc)onali)eswithinthecompanyplaYormitself.àalsosome)mesverFcalintegraFonbyengaginginminingopera)onstosubsidisetheirotherserviceofferings.

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•  FundingPaVerns-  FirstVCinvestmentsin2012,growingexponen)allyinthefollowingyears.Alsotokensales,crowdfundingroundsandlimitedstate

grants.Figuresareminimumfundingamountperyearsinceanumberofen))eshaverefuseddisclosureoffundingrounds.-  2012:$2.1mfor3firms.-  2013:$93.3mfor38firms,2addi)onalen))eshavenotdisclosedamounts.-  2014:$369mfor96firms,7addi)onalen))eshavenotdisclosedamounts.-  2015:$448.4mfor69firms,13addi)onalen))eshavenotdisclosedamounts.

-  Althoughagrowingnumberoffirmsabletosecurefunding,themajorityoffundsgotoalimitednumberofcompanies,ogeninseveralfundingrounds.

-  Difficulttoa_ributefundingtospecificmarketsegmentsbecausemanyfirmsoperateinseveralsegments,butwecanobservethatmajorityoffundshavegonetoen))esprovidingconsumerandmerchantservices(MoneyTransferPla;orm,BrokerageServices,WalletandPaymentProcessor),ExchangesandMining(mainlyhardwaremanufacturers).

-  DeveloperPlaYormshavealsoreceivedsignificantamountsin2014and2015,emphasisingthegrowingimportanceofmiddlewareservicesintheBitcoinbusinessecosystemthatfacilitateinterac)onwiththeprotocol.

•  EntriesandExits-  Numberofen))esleavingtheecosystemforavarietyofreasonsisgrowingovertheyears,butlargelycompensatedbythe

entranceofnewen))es:businessecosystemisgrowingeachyearintermsofnumberofen))es.-  Mainreasonsincluderegulatoryissuesanddifficul)estosecurebankingrela)onshipsintheearlystages,securitybreachesand

hacksespeciallyatcustodialwalletservicesandexchangesaswellasscamsandfrauds.Lagginguseradop)onandlackofgrowthhasalsobeenamajorreasoninrecentyearsfortheclosureoffirms,aswellasthedepartureofco-foundersandthetrendemergingin2014topivottowards“blockchain-based”solu)onsthatarenotrelatedtoBitcoin.

-  Findingsindicatethatfirmsthatareac)veinatleast3marketsegmentsgenerallydonotshutdownandarelesslikelytopivotawayfromBitcoin.

-  Entryandexitpa_ernsshowthatthemajorityofcompanieslaunchthesameyearastheyarefounded,althoughstar)ngin2011,therearearisingnumberofen))esthatpreferdelayinglaunchandspendmore)meondevelopment.

-  Someexis)ngcompaniesestablishedindifferentindustriesentertheBitcoinbusinessecosystem,mostlythroughfounda)onofaseparateen)tydedicateden)relytoBitcoin.

•  M&A,PivotsandRebranding

-  Whilefirstacquisi)onin2011wasratherbornoutofanemergencysitua)on(Mt.GoxtakingoverBitomatagerthela_erlostaccesstocustomerfunds),thebusinessecosystemhasseenawaveofacquisi)onsbeginningin2013,withnospecificmarketsegments)ckingout.Mergershavebeenquiterare,onlyoneperyearsince2013(ofwhichtwoarerelatedtominingindustry).

-  “Blockchain”hypestar)ngin2014hasresultedinseveralparFalandcompletepivotsawayfromBitcoin.-  In2014and2015,variousen))eshaverebrandedthemselvesmostlybyelimina)ngspecificpre-andsuffixes(“bit”,“coin”,…)in

thecompanynameandincreasinglyfocusingmarke)ngonthebenefitsoftheirservicesinsteadofthetechnologythatpowersthem.

•  Changesinmarketneeds/demand–  Unsurprisingly,changinguserneedsandwisheshaveledtocertainmarketdemand,whichinturnisthenfulfilledbynewlyformedand/or

establisheden))eswhodevelopandbuildthedemandedservices.–  Earliestexamplesincludetheemergenceofwalletproviderswhoremovetheneedforuserstodownloadandsynctheen)reblockchain

andenableeasieraccesstofunds,aswellasbrokerageservicesthatprovideaconvenientop)onforpurchasingbitcoin.

•  Regulatoryforces–  TheyplayaveryimportantroleintheBitcoinbusinessecosystemduetotheuniquenatureofitsmainvalueproposi)on–  Differentstages:inthefirsttwoyears,li_leinterestbecauseofsmallsizeandrelevance,butincreasedscru)nyandac)oninfollowing

yearswithemergenceofillegalservicesandaccumula)onofconsumerdefraudingà  Asaresult,splitofbusinessecosystemintwoparts:regulatedeconomy(mainlyformallyincorporatedfirmscomplyingwithexis)ng

regula)ons)andunregulatedeconomy(lackofregula)onsandpseudonymityareconsideredusefulfeatures:mostlymixingservices,darknetblackmarkets,onlinegamingsitesandservicesforgoingKYC/AMLchecksforapremium:self-organisingandself-regula)ng)

-  BothregulaFon-driveninnovaFon(emergenceofnewmarketsegmentsspecificallytailoredtohelpBitcoincompaniescomply)andregulaFon-delayedinnovaFon(increasinglegalexpensesand)me-consumingapplica)onsforlicenses,…)

•  Evolu2onofvalueproposi2on–  Atdifferentstagesoftheevolu)on,en))eshavefocusedonbuildingservicestailoredtoaspecificvalueproposi)on,evolvingover)me:in

theearlyyears,mainfocusputoncensorship-resistantdigitalcash,thenuseofbitcoinasaspecula)vedigitalasset,followedbydiscoveryofnon-currency/non-monetaryapplica)ons,andfinallyrefocusingonthepaymentsystem.

à  The“perceived”natureofBitcoinbyallecosystempar)cipantsdiffersamongactorsandevolvesover)me.

•  Lowbarrierstoentry–  OpennatureofFOSS-basedBitcoinplaYormenableseasypar)cipa)onbysimplyrequiringclientdownload.Earlyservicesandfirmsonly

neededaminimumunderstandingofthetechnologyandlimitedprogrammingskills,andwerereadyforlaunchwithinashortamountof)me(ex:Mt.GoxlaunchedseveraldaysagerfounderreadfirstaboutBitcoin).

–  However,barrierstoentryhavesignificantlyincreasedinalmostallmarketsegments,withsomesegmentsbeingmoreaffectedthanothers(e.g.Miningbecauseofhighcapitalinvestmentrequirementsandeconomiesofscale).

•  Technologicalchanges/advances–  MostlyvisibleintheMiningindustrywithsuccessiveintroduc)onofmorepowerfulandefficientminingrigs:hasreshapedtheen)re

industryandshigedpowerwithinthesector.–  Similarly,implementa)onofBIPsandotherprotocol-levelchangesputpressureonserviceproviderstoadaptandupgradetheir

infrastructuretostaycompe))ve.

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Analysis(1):Factorsdrivingemergenceandevolu2onofmarketsegments

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Analysis(2):Factorsimpac2ngevolu2onofoverallbusinessecosystem

•  Regulatoryuncertainty-  Varietyofdis)nctregulatoryapproachesandtaxa)onregimesdifferingfromcountrytocountryhasintroducedlegal

uncertaintyandreluctancefromfinancialins)tu)onstojointhebusinessecosystemandmaintaingoodbankingrela)onshipsoutofreputa)onalriskàhasledtotheclosureofprojectsinan)cipa)onoflegalac)onsanddifficultyforearlyBitcoinfirmstohavebankingaccounts.

-  However,recentposi)vecommentsfromcertaincentralbanks,supervisoryauthori)esandothergovernmentagencieshashelpedBitcoingetmorelegi)macyintheeyesofthegeneralpublic.

•  Publicpercep2on-  Closelyrelatedtomediaa_en)on:indispensableforincreaseduseranddeveloperadop)on,butriskoffocusingandemphasisingthe

wrongaspectsofthesystem(“money-launderingtool”,“usedbycriminals”,“unsecurebecausemanysecuritybreaches”,etc.)àhasanimpacton“outsiders”regardingtheirdecisiontojointhebusinessecosystemandassessitspoten)al

•  Dependenceonmarketprice–  Alsocloselyrelatedtopublicpercep)onandinterestfromthe“outside”:highbitcoinpriceraisesinterestanda_ractsspeculators,miners

andinvestment.Highvola)lity,however,retardsuseasacurrency.Lowpricemighthaveanimpactonthesecurityofthenetworksinceadropintotalhashrateisexpected.

–  Somemarketsegmentsaremoredependentonthemarketpricethanothers.Thisalsoappliestofirmsandprojectsthatreceivethemajorityoftheirrevenues(andsome)mesalsocapitaliftokensale)inbitcoins.

•  Changesinorganisa2onalfirmstructure–  Intheearlydays,mosten))esconsistedofasingleindividualwithacomputerandseveralserversworkingfromhomeànolegal

incorpora)onnororganisa)onalstructure,ogenimmatureandimprovisedinfrastructure:mainlydrivenbyideology.–  Whiles)llthecaseincertainmarketsegments,entranceofbusinesspeoplewithprofessionalexperienceatreputabletechnologyand

financialfirmsinmid-2013a_rac)ngventurecapital,talentandposi)vepublica_en)onàlegalincorpora)on,hierarchicalorganisa)onalstructure,be_ercustomersupportandinterfaces:“professionalisa)on”ofbusinessecosystem

•  Environmentaldynamics-  Exogenouseventshighligh)ngthelimita)onsofthecurrentfinancialsystemasforinstancetheCyprusbankingcrisisandthehyperinfla)onin

certaincountrieshaveaposi)veeffectonbitcoinuseradop)on.However,nega)veendogenouseventssuchassecuritybreacheshavetheoppositeeffect.

•  Compe2ngecosystems

–  “FinTech”industryaswellasothercryptocurrencyandalterna)vefinanceecosystemsarecompe)ngwithBitcoinforuseradop)on,talentandfunding.