Expert Briefing: State of Bitcoin 2015

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State of Bitcoin 2015 2 2 March 2015

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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 London, New York, San Francisco and Tokyo 4 State of Bitcoin 2015

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5 State of Bitcoin 2015 The State of Bitcoin?

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A ‘Tale of Two Bitcoins’? 6 “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way” -Charles Dickens, A Tale of Two Cities State of Bitcoin 2015

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Contents Price Media VC Investment Commerce Technology Regulation and Macro Conclusion 7 State of Bitcoin 2015

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8 State of Bitcoin 2015 Price

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From Biggest Annual Price Appreciation in History… Source: CoinDesk Bitcoin Price Index daily closing price (taken at 00:00 GMT) 9 01/01/2013 01/02/2013 01/03/2013 01/04/2013 1/05/2013 1/06/2013 1/07/2013 1/08/2013 1/09/2013 1/10/2013 1/11/2013 1/12/2013 State of Bitcoin 2015

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…to 2014’s Worst Performing Currency 10 Source: CoinDesk http://www.coindesk.com/price/ State of Bitcoin 2015 -67.4%

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CoinDesk Bitcoin Price Index – 2014 & 2015 YTD by the Numbers 11 State of Bitcoin 2015 Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC www.coindesk.com/price 31st Dec Close $319.70 2nd Mar $258.88 YTD ? -19.0% 2nd Mar Market Cap $3.6bn 2015 YTD Price Summary High (6th Jan) $951.39 Low (30th Dec) $309.87 2014 ? -67.4% Average $526.92 Median $501.63 2014 Price Summary

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The Bitcoin Startup Ecosystem: Seven Different Bitcoin Company Categories 12 State of Bitcoin 2015 Payment Processing Wallets Mining Financial Services Exchanges Infrastructure Universal Source: CoinDesk

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Mining and Exchange Sectors Shrink 13 State of Bitcoin 2015 Source: CoinDesk Exchange companies go bankrupt Mining companies go bankrupt Aquifer LLC

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14 State of Bitcoin 2015 Media

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Bitcoin: Never a Shortage of Bad News 15 State of Bitcoin 2015

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Q1 Negative News 16 State of Bitcoin 2015 Bitstamp claims $5 million lost in hot wallet hack Bitcoin mining firm CoinTerra files for chapter 7 bankruptcy Hong Kong's MyCoin disappears with up to $387 million

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Drop in Bitcoin News Coverage in Q1 17 State of Bitcoin 2015 News Published Mentioning Bitcoin Note: Numbers of stories obtained by searching ‘bitcoin’ on respective publishers’ websites, Q1 2015 number of news coverage calculated by run rate Sources: respective publishers’ websites

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Q1 Positive News 18 State of Bitcoin 2015 Coinbase's record $75 million funding round, opening of US regulation compliant exchange Bitcoin Core 0.10 gives developers simplified network consensus access Blockchain number of wallets passes 3 million

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19 State of Bitcoin 2015 VC Investment

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Total VC Investment in Bitcoin Startups to Date 20 $551m Source: CoinDesk (www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin 2015

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Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start. What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014. - Marc Andreessen, Andreessen Horowitz As Big as the PC and Internet? “ ” 21 State of Bitcoin 2015

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2014 Bitcoin VC Investment Surpassed Early-Stage Internet Investment 22 State of Bitcoin 2015 Sources: CoinDesk, PricewaterhouseCoopers

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Record Setting VC Deals Continue after the Price Collapse 23 State of Bitcoin 2015 $75m $30.5m (Series A) October 2014 (Series C) Jan 2015 Source: CoinDesk (www.coindesk.com/bitcoin-venture-capital/)

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Universals Raised the Most Funding in Q1, Followed by Mining and Infrastructure 24 State of Bitcoin 2015 Sources: CoinDesk (www.coindesk.com/bitcoin-venture-capital/), CrunchBase

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Number of Universal Bitcoin Companies Doubled in 2014 25 State of Bitcoin 2015 Universals operate across more than one aspect of the bitcoin value chain (e.g. Coinplug provides payment processing, wallet and ATMs) More and more bitcoin startups continue to pursue the universal model Universal bitcoin companies leverage two key elements of financial services: efficiency and trust The Universals 2013 2014

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26 State of Bitcoin 2015 Commerce

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What Do People Buy with Bitcoins? Home Goods & Consumer Electronics 27 State of Bitcoin 2015 Source: most popular items purchased through Purse.io by November 2014 Trashbags Coffee Grinder Infant Formula Home Goods Bluetooth Speaker Digital Camera Playstation Consumer Electronics

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Companies Representing >$180 Billion in Annual Revenue Now Accept Bitcoin 28 State of Bitcoin 2015 **The revenue is Time Inc. FY 2013 revenue Sources: CoinDesk, Coinbase, BitPay, companies’ annual reports

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>82,000 Merchants Now Accept Bitcoin, Up From 75,000 in Q3 (+9%) 29 State of Bitcoin 2015 44K 38K Sources: Coinbase and BitPay

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Growth in Bitcoin-Accepting Businesses Slowed Throughout 2014 30 State of Bitcoin 2015 Sources: CoinDesk, Bitcoinity

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Total merchants Forecasted merchants 140,000 Bitcoin-Accepting Merchants Forecast by End of 2015 31 State of Bitcoin 2015 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.

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Well-Funded Bitcoin Startups are Able to Secure Banking Relationships 32 State of Bitcoin 2015 Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) $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

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Blockchain Wallet Growth Rate Has Been Flat for Last 12 Months 33 State of Bitcoin 2015 Source and note : Blockchain.info, 2015 quarter one wallet number is calculated by run rate

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Total Wallets Forecasted Wallets Approximately 12 Million Bitcoin Wallets Forecast by End of 2015 34 State of Bitcoin 2015 R2 = 0.971 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.

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Bitcoin Remains the Coin of Choice in the Post-Silk Road Online Black Market 35 State of Bitcoin 2015 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

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36 State of Bitcoin 2015 Technology

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520 Altcoins, Bitcoin’s Market Cap is 8X Larger Than the Next Biggest 37 State of Bitcoin 2015 Source: CoinMarketCap data as of 27th Feb 2015

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Crypto 2.0 Projects to Keep an Eye on in 2015 38 State of Bitcoin 2015 BitAssets – allowing traders to hedge against bitcoin's fluctuations Alternative blockchain to bitcoin’s Decentralised social messenger Bringing smart contracts to market Source: CoinDesk

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CoinBase’s API Gaining Traction With 44 Bitcoin Apps Built on it 39 State of Bitcoin 2015 Source: CoinBase

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40 State of Bitcoin 2015 Regulation and Macro

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NY BitLicenses 2.0: Bitcoin Still Being Held to Higher Standard 41 State of Bitcoin 2015 New York’s BitLicense regulatory proposal widely regarded as a possible framework for other jurisdictions. Ben Lawsky announced the latest revisions to the draft BitLicense in mid-December. Clarified and narrowed which players in the digital currency industry would be required to obtain a BitLicense. Fewer disclosure and record-keeping requirements for transactions. The proposed record-keeping requirement for licensees reduced from 10 to seven years. Broader range of financial assets (that includes virtual currency) that can be counted towards licensees' capital requirements. Ben Lawsky Source: CoinDesk

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Bitcoin Startups are Pulling Out of NY 42 State of Bitcoin 2015 NY’s Ben Lawsky UK’s George Osborne New York vs London 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

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Light Touch UK Bitcoin Regulation 43 State of Bitcoin 2015 Source: CoinDesk (http://www.coindesk.com/bitcoin-regulation-uk/) Consumer Protection HMRC (HM Revenue & Customs) and FCA Taxation Prevention of money laundering Financial Conduct Authority (FCA)  No regulation on digital currencies and no intention of doing so. No formal obligation from HMRC. But Registering as an MSB brings a firm under the UK's anti-money laundering (AML) regulations. HMRC VAT on bitcoin purchase withdrawn. HMRC considering how best to tax bitcoin.

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UK-London Based Bitcoin Companies 44 State of Bitcoin 2015 Source: CoinDesk (News & Analytics) (Wallet) (Wallet) (Exchange) (Payment Processor) (Exchange) (Exchange) (Networking)

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Illegal Restricted Legal 45 State of Bitcoin 2015 Source: Wikipedia Bitcoin Regulation Could Be Much Heavier

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Will Bitcoin First Gain Traction in Advanced Economies… 46 State of Bitcoin 2015

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… or in the Under-banked Developing World? Due to lack of credit cards, approximately 65% and 35% of all e-commerce in China and India respectively is conducted with cash … bitcoin may help it leapfrog credit cards 47 State of Bitcoin 2015

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Bitcoin Market Potential Index (BMPI) 48 ‘Positive’ Index Drivers ‘Negative’ Index Drivers State of Bitcoin 2015

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Sub-Saharan Africa is the Most Fertile Region for Bitcoin, Followed by Latin America & Post-Soviet 49 BMPI Regional Distribution - Top 30 BMPI Regional Distribution - Top 10 State of Bitcoin 2015

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The BMPI Top 10 50 Rank Country 1 Argentina 2 Venezuela 3 Zimbabwe 4 Malawi 5 United States 6 Belarus 7 Nigeria 8 Congo (DR) 9 Iceland 10 Iran Cristina Fernandez de Kirchner’s Argentina is #1 State of Bitcoin 2015

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BMPI Interactive Heat Map located at: 51 BitcoinIQ.info State of Bitcoin 2015

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52 State of Bitcoin 2015 Conclusion

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A ‘Tale of Two Bitcoins’ 53 State of Bitcoin 2015

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Type Historical Contemporary Digital Physical Intrinsic value Token Closed Centralized Open Decentralized N/A Source: Hileman (2013) ‘History and Prospects for Alternative Currencies’, London School of Economics working paper Bitcoin is Unlike Any Previous Alternative Currency 54 State of Bitcoin 2015

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Investments in FinTech Dwarf Bitcoin 55 State of Bitcoin 2015 Bitcoin FinTech Sources: CoinDesk, Medium (https://medium.com/@UnitedVentures/fintech-key-trends-2014-5124b6088677) FinTech $3b invested in 2014 $0.3b invested in 2014 100 Deals Biggest Deal $31m 216 Deals Biggest Deal $150M

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FinTech Investment Continues Growing 56 State of Bitcoin 2015 Sources: CoinDesk, Medium (https://medium.com/@UnitedVentures/fintech-key-trends-2014-5124b6088677)

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Thank you @GarrickHileman State of Bitcoin 2015

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