State of Blockchain Q3 2016

State of Blockchain Q3 2016 | 1

STATE OF BLOCKCHAINQ3 2016


CoinDesk – Leader in Blockchain News

• Headquarters in Times Square, New York, 15 FTEs.

• News: 20 million readers have visited CoinDesk since 2013.

• Data: Bitcoin Price Index serves as an industry reference point.

• Events: 2,000+ have attended our Consensus summits.

• Research: 750k views of our reports, subscriptions available in 2017.


About the “State of Blockchain”

For three years, CoinDesk has benchmarked the “State of Blockchain” in our quarterly industry reports.

We cover:

• Technical trends within the top open-source developer communities and major product updates from the top funded startups.

• Digital currency markets and exchange data, consumer utilization rates, public sentiment and network performance metrics. • Enterprise adoption rates and new proofs-of-concept.

• Venture capital and corporate investment trends.

• Public policy updates from around the globe.


Report Overview

1. RESEARCH FRAMEWORK

2. EXECUTIVE SUMMARY

3. PUBLIC BLOCKCHAINS

A. Bitcoin B. Ethereum

• Ethereum Sentiment Study

4. ENTERPRISE BLOCKCHAINS • Solutions Providers

5. INVESTMENT

6. REGULATION & GOVERNMENT


RESEARCH FRAMEWORK

1


Defining The Blockchain Technology Market

An enterprise blockchain is a distributed ledger that provides:

• Solutions to clients who wish to use shared cryptograph-ic databases managed by trusted intermediaries.

• Since consensus is achieved via trusted intermediaries, digital currencies are unnec-essary.

A public blockchain is a dis-tributed ledger which uses a native digital currency that:

• Acts as a unit of account for transactions on that ledger.

• Uses a predictably scarce token that incentivizes ear-ly adopters, developers and transaction processors (min-ers) to use, support and verify that ledger without the need for a trusted intermediary.

Many companies employ hybrid models where they:

• Build on public blockchain infra-structure.

• Provide technology for permissioned networks.


The Internet-Intranet Comparison

We believe both public and enterprise blockchains have useful applications, much like the Internet and corporate intranets.

PUBLIC BLOCKCHAINS ENTERPRISE BLOCKCHAINS

public (inter-)The Internet

private (intra-)Intranets & IT

Graphic Source: Coinbase


‘Public’ (Open) vs ‘Enterprise’ (Permissioned) Blockchains: Generalized Features Comparison

PUBLIC ENTERPRISE

Note: Some features can vary from platform to platform.

Permissioned read and/or write

Faster

Approved participants

Known identities

Any asset

Open read/write

Slower

Open computer network

Anonymous / Pseudonymous

Native assets

ACCESS

SPEED

SECURITY

IDENTITY

ASSET

Data Source: Chain, Chris Skinner’s blog


Startup Categories: Infrastructure Layer

When producing market maps and tracking investment trends, we look for business shifts between these models:

PUBLIC ENTERPRISE HYBRID

Data Source: Coindesk

http://www.coindesk.com/


Startup Categories: Application Layer

Most applications are built on public blockchains (bitcoin, ethereum dominate), but enterprise apps are coming.

Uses the bitcoin blockchain to facilitate cross-border

SMB commerce.

Uses the ethereum blockchain to fight

product counterfeiting.

IBM launches internal “shadowchain” to stream-

line dispute resolution.

Uses the bitcoin blockchain for

data verification.

Uses the ethereum block-chain to fight fraud in the

diamond industry.

Many enterprise projects remain in early prototype

or incubation stages.

BITCOIN ETHEREUM ENTERPRISE

?????

Data Source: Coindesk

http://www.coindesk.com/


Spotlight Study: Ethereum Sentiment

Since our last report, interest and de-velopment of ethereum has exploded…but not without controversy.

• We are now dedicating a section of our SOB coverage to ethereum and its market, blockchain and community metrics.

• We conducted a “spotlight study” survey with 240+ startup execs and enterprise blockchain leads to assess the impact of the DAO hack and subsequent hard fork on ethereum sentiment.

Data Source: CoinDesk Ethereum Survey

Our goals:

• Determine if market events caused direct change in sentiment or use of ethereum’s technology.

• Identify effects of ethereum’s chal-lenges on the extended block-chain marketplace.


EXECUTIVE SUMMARY

2


Q3 2016 Summary

Investment on the decline:VC investment reaches $114m for Q3, but total down 18% year over year.

Blockchain consortiums thrive:R3 hits 70 members, Hyperledger adds over 50 new members.

Digital currencies show stability: Bitcoin and ether volatility decline; ethereum hits at all-time lows.

Public blockchain startups adapt:Exchanges and miners shift to ‘multi-block-chain’ model.

Bitcoin remains media darling:Mainstream media attention remains focused on bitcoin, but blockchain is catching up.

Central banks are moving:Across the globe, central banks are attempt-ing to get up to speed on blockchain tech.


Trends: Public Blockchains


• As a percentage of total public blockchain market cap, bitcoin’s share continues to decline amid competition.

• After 1,000% gains, ether’s price was tested by technical issues, competing project (ethereum classic).

• Top four public blockchains (bitcoin, ether, ripple, litecoin) begin to show price stability.

• ICOs see investor interest, $198m invested year to date; vast majority dedicated to failed DAO project.

• China’s exchanges drive exchange volume with 95% of bitcoin market share, but lag with ether volumes (~0.1%).


Bitcoin Infrastructure Landscape

Global bitcoin infrastruc-ture has been built.

Application layer emerging (cross-border dominates).

Data Source: CoinDeskSectors marked with the (*) symbol are included in our definition of ‘Universal’.

Universals*

Security & Support

Mining

Exchanges

Consumer Onramps*

Payment Processing*

Wallets*


Ethereum Infrastructure Landscape

Data Source: CoinDesk; Sectors marked with the (*) symbol are included in our definition of ‘Universal’.

Early ethereum infrastruc-ture emerging.

Crowd-funded “dapps” more common than ven-ture-funded platforms.

Universals*

Security & Support

Mining

Exchanges

Consumer Onramps*

Decentralized Apps*

Wallets*


Public Blockchains Display Notable Overlap in Exchange and Mining Sectors

Most ethereum exchanges also support bitcoin trading. The ‘Top 10’ exchanges by Q3 volume all support bitcoin.

Some miners are devoting computing power to both networks. 30% of ethereum hashing power provided by bitcoin miners.

Few consumer onramps are available to consumers. Coin-base remains one of few dig-ital currency brokerages to offer ether.

Data Source: CoinDesk

Exchange

ConsumerOnramps

Mining


Ethereum Sentiment Spotlight Study: Findings

Data Source: CoinDesk’s 240+ person executive survey; full results start on slide 56

Opposed the ethere-um hard fork (23% weren’t sure if it was the correct decision).

Reported no change in their use of ethereum due to the hack or hard fork.

Responded the hack did not neg-atively impact their sentiment towards ethereum; those whose sentiment was negatively impacted were al-ready unlikely to use ethereum.

Thought ethereum has better govern-ance than bitcoin (while 34% feel both communities face governance chal-lenges).

63% 48% 37% 33%


Trends: Enterprise Blockchains

• Hyperledger experiences 35% QoQ member growth, reaches 81 partner organizations as Fabric begins to see use in prototypes and proofs-of-concept.

• R3 maintains steady membership growth now reaching over 70 international partners, continues proofs-of-concept on Cor-da blockchain while expanding partnership with Microsoft.

• DAH’s smart contract modeling language, R3’s Corda, Chain begin to open-source previously proprietary code.

• Major banks and stock exchanges continue blockchain proofs-of-concept.


Trends: VC Investment Ticks Up in Q3, But Still Far Below Q1 Pace


• No clear trends emerging – hybrid, public and enterprise blockchain startups see inconsistent investment; overall investment up slightly sequentially, but down YoY.

• VC interest in ethereum has yet to translate into investment dollars.• Ripple sees quarter’s largest investment ($55m Series B ~ 50% of total funding).

180m

160m

140m

120m

100m

80m

60m

40m

20m

0m

12m

10m

8m

6m

4m

2m

0m

Q4 2015 Q1 2016 Q2 2016 Q3 2016

26m

160m

101m114m

AV

ERA

GE

DEA

L SI

ZE ($

m)

TOTA

L IN

VES

TMEN

T ($

m)

+515%QoQ Growth: -37% +13%

Investment

AverageDeal Size


Trends: Regulation

• US: Federal Reserve continues to investigate blockchain regulation as US regulators seek guidance, Florida con-sidering bitcoin regulation.

• Europe: EU parliament actively exploring digital currency regulation, Russia’s ‘bitcoin ban’ bill withdrawn as author-ities consider dropping penalty for use.

• Asia: Central banks for Japan, India and Philippines be-gin to explore blockchain.

• Middle East: No regulatory action, but Dubai continues to emerge as hotbed for industry with local consortium, the Global Blockchain Council (GBC).


PUBLIC BLOCKCHAINS

3


Strengths and Weaknesses of Public Blockchains

Data Source: Ethereum, MultiChain

Immutable ledger*

Comparatively fast settlement (eg 10 minutes or less)

Reduce security risks associated with centralization-trusted third party

Easy to audit

Reduced need for trust

STRENGTHS WEAKNESSES

Irreversible transactions

Slow transaction clearing (eg 3-7 transactions/second)

More vulnerable to attacks ie 51%, spam, DDoS

Reduced privacy

Energy consumption

*Ledgers and protocol rules may be changed via hard forks, although as ethereum’s hard fork has shown, these changes introduce risks.

We believe public blockchains will have the greatest impact on developing economies (reduced need for trust) and the connected device, IoT economy (immutability, auditability).


The SOB Focuses Primarily on Public Blockchains; Enterprise Data is More Opaque

The majority of development work to date has been done using open-source tools and public blockchains bitcoin and ethereum.




Data Source: Coinbase


US Media Coverage Still Dominated By Bitcoin, Ethereum and Blockchain Trail Considerably

Data Source: Financial Times, New York Times, Wall Street Journal and Sina by searching ‘blockchain’, ‘bitcoin’ and ‘ethereum’ on respective publishers’ websites

Bitcoin

Blockchain

Ethereum

FTN

YT

WSJ

Sina

136

5822

Q2 = 405 mentions

Q3 = 328 mentions

43

147

167

13727

30

78

15

Bitcoin

Blockchain

Ethereum

Bitcoin

Blockchain

Ethereum

Bitcoin

Blockchain

Ethereum


Price Remains Focus of Public Blockchain Searches

Related Searches: Rising Related Searches: Top

BTCQ2 & Q3

2016

ETHQ2 & Q3

2016

Data Source: Google Trends search ‘bitcoin’ and ‘ethereum’. Numbers represent search interest relative to the highest ranking term for a given time period. A value of 100 is assigned to the most popular search term in the Trends analysis. While a value of 50 means the term is half as popular as the leading search term.


Top 5 Digital Currencies Show Strength, Consistency

Bitcoin, Ethereum, Ethereum Classic, Dash and Monero have added the most market capitalization year to date.

Data Source: CoinMarketCap

Q3 RANK NAME MARKET CAP Q1 RANK PRICE YTD

1 Bitcoin $9,578,049,977 Same 41%

2 Ethereum $1,093,626,017 Same 904%

3 Ripple $262,064,965 Same 2.4%

4 Litecoin $181,141,735 Same -22%

5 Monero $136,223,748 +3 11%

6 Ethereum Classic* $104,907,607 - 74%

7 Steem* $95,227,547 - -48%

8 Dash $78,026,273 -3 148%

9 NEM $46,377,074 +3 17%

10 MaidSafeCoin $39,431,776 -4 308%

Note: *Ethereum Classic and Steem Price YTD starts are relative to the mining of their genesis blocks, July 24, 2016 and April 18, 2016, respectively.


China Continues to Drive Bitcoin Price, While Largely Ignoring Ether & Other Digital Currencies

Meanwhile BTC has established itself as a “reserve currency” for trading alternative currencies like ETH.

BTC Transaction Volume by Currency

Note: Labels for currency pairs with less than 1% market share are omitted. Data Source: Bitcoinity

ETH Transaction Volume by Currency

CNY95.4%

BTC73.8%

EUR9.7%

USD16.0%

OTHERS0.4%

CNY0.1%

EURO0.6%

USD3.5%

OTHERS0.5%


Bitcoin’s Market Share Declines Amid Rising Interest in Alternative Protocols*


Note: Altcoin market cap share is calculated by dividing the sum of all non-bitcoin digital currency market caps by the combined mar-ket caps of all digital currencies (including bitcoin). For example, a market cap share of 7% for altcoins indicates that bitcoin by itself represents 93% of the market cap of all digital currencies combined.

Num

ber o

f Altc

oins

Mar

ket P

enet

ratio

n %

676

674

672

670

668

666

664

662

660

658

25%

20%

15%

10%

5%

0%

Dec-15 Mar-16 Jun-16 Sep-16

675

669

666

664

Total Number of Altcoins Altcoin Market Share

6%

17%

19%21%


Bitcoin and Ethereum Networks Dominate, While Ripple, Zcash Also Draw Notable Developer Interest

More developers have set up ethereum’s network nodes, but bitcoin still boasts the largest developer community

Zcash has attracted significant early interest.

5135

6868

676 450 121

0

1000

2000

3000

4000

5000

6000

7000

8000

Bitcoin Ethereum Litecoin Monero Ripple

Num

ber o

f Net

wor

k N

odes

Network Size


Developer Communities

6868

676 450 121

5135

COMMITS RELEASES CONTRIBUTORS

Bitcoin 11781 161 400

Ethereum 7484 98 78

Ripple 11166 60 54

Litecoin 7871 194 279

Ethereum Classic 97 0 8

Monero 2808 10 68

Zcash 9619 14 322

Augur 3604 5 12

Steem 1069 34 14

MaidSafeCoin 1791 13 22


A. BITCOIN


Q3 2016 Summary

Bitcoin scaling advances – Segregated Witness could see Q4 activa-tion.

Cross-border commerce on rise –Select startups show bitcoin gaining traction in remittance market.

China dominates trading – More than 90% of exchange volume for BTC/CNY trading pairs.

Price volatility hits 2016 lows –Despite major hack, bitcoin proves largely stable as store of value.

Bitcoin competitive against fiat – Price rises 30%, outperforming many devel-oped market currencies.


Bitcoin Network Metrics

Q3 2016 Q2 2016 Q3/Q2 Δ Q3 2015 QoQ Δ

BITCOIN PRICE

• Market Capitalization ($m) (EoQ) $9,676 $10,570 -8.5% $3,761.8 2.6x

• Price ($/BTC) (EoQ) $608.44 $672.48 -9.5% $236.25 2.6x

• Bitcoin Supply (m) (EoQ) 15.9 15.7 1.3% 14.3 1.1x

VC INVESTMENT ACTIVITY

• Deal ($m) $114 $101 12% $85 1.3x

• Deal # 12 11 9.1% 15 .8x

TRANSACTION METRICS

• Average Daily BTC Transactions 219,624 221,018 -1% 135,885 1.6x

• Exchange Traded Volume ($m) $74,479 $98,867 -25% $17,553 4.2x

• Average Fee per Block ($) $359.13 $272.86 31.6% N/A N/A

• Total Transaction Fees ($) $3,509,279 $3,054,166 15% $1,559,374 2.3x

• Average Transactions Per Block (EoQ) 1,767 1,546 14% 794 2.2x

NETWORK GROWTH METRICS

• Blockchain Size (GB) 85 74 15% 46 1.8x

• Nodes 5,135 5,515 -7% 6,050 .8x

• Unique Address Count (EoQ) 391,458 375,377 4% 247,211 1.6x

• New Wallet Growth (EoQ) 1,146,402 1,133,688 1% 1,188,890 1.0x

MINING METRICS

• Network Hash Rate (TH/sec) (EoQ) 1,882,661 1,634,680 15% 465,548 4.0x

• Block Difficulty (GH) (EoQ) 241 209 15% 59 4.1x

• Average Mempool Transaction Count 4,335 4,081 6% N/A N/A

• Average Mempool Size Growth (bytes/sec) 1,217 1,232 -1% N/A N/A

• Unknown Mining Pools (%) 17% 5% 230% 5% 3.2x


Bitcoin: Key Market Events


676.52

663.54

656.67

565.26

578.16

622.21

595.8

605.06

$500

$550

$600

$650

$700

$750

Jul-01 Jul-16 Jul-31 Aug-15 Aug-30 Sep-14 Sep-29

Bitcoin Price Performance

July 8th Bitcoin Prices Volatile in $600s As Traders Await Halving.

July 20th Ethereum Executes Blockchain Hard Fork to Return DAO Funds. Sept 2nd

Bitfinex Reim-burses First Bitcoin Exchange Hack Victims.

Sept 19thBitcoin Price Still Bruised After Bitfinex Hack

Aug 2ndBitcoin Drops Nearly 20% as Exchange Hack Amplifies Price Decline.

Sept 9thBullish market sentiment and low liquidity driving up bitcoin prices.


The Bitcoin “Halvening”: Muted Impact on Mining

Although the bitcoin block reward fell from 25 bitcoins to 12.5 bitcoins in Q2, both the price and network hashrate has remained unaffected, quelling network security concerns.

Network difficulty increased 15% since Q2 2016.

Data Source: Blockchain.info. Notes: Difficulty represents the number of necessary hash calculations to mine a new block.

Has

hrat

e (b

illio

ns)

250B

200B

150B

100B

50B

0B

80%

70%

60%

50%

40%

30%

20%

10%

0%

Q3-2015 Q4-2015 Q1-2016 Q2-2016

59

99

165

241

Mining Difficulty (EoQ) Percentage Increase in Mining Difficulty

15%

209

Q3-2016

26%

59%

73%

20%


Bitcoin Has Outperformed Most Major Currencies and Commodities YTD (+29% vs. US Dollar)

Notes: Chart depicts YTD performance against USD. Data Source: XE Currency.


Exchange Volume Declined After $65M Bitfinex Hack…

Data Source: CoinDesk, Bitcoinity

USD

in b

illio

ns

120

100

80

60

40

20

0

200

180

160

140

120

100

80

60

40

20

0

1/1/16

3327

111

45

Monthly Bitcoin Trading Volume USD Monthly Bitcoin Trading Volume BTC

57

BTC

in m

illio

ns

60

4246

35

2/1/16 3/1/16 4/1/16 5/1/16 6/1/16 7/1/16 8/1/16 9/1/16


Yet Bitcoin Volatility Dipped to All-time Lows


QUARTERLY PRICE HIGH

QUARTERLY PRICE LOW

$209.13 (24th August)

$237.4 (2nd October)

$358.77 (15th January)

$417.01 (1st April)

$552.82 (2nd August)

$309.98 (12th July)

$465.5 (15th December)

$458.28 (7th January)

$768.24 (16th June)

$703.69 (2nd July)

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

DATE

33%

96%

28%

84%

27%

PEAK-TO-TROUGH %


Average Daily Transaction Volume Nearly Doubles Vs. 2015

Note: 100 most popular addresses. Data Source: Blockchain

Q3 YTD average daily transactions increased 98% YoY

Number of Transactions per Day

111,826

221,018


But Blocks are Getting Full

Data Source: Blockchain

Bitcoin blocks in Q3 were more regularly approaching capacity (1MB) when compared to figures from the same period last year.

Q3 2016


1

0.8

0.6

0.4

0.2

0

Q3 2015


1

0.8

0.6

0.4

0.2

0


And Block Size Limits May Constrict Momentum

As transaction volumes approach the current block size cap, it may be creating a choke point that slows adoption.

Block Size Limits

Higher Fees

Transaction Delays

BITCOIN ADOPTION FLYWHEEL EFFECT

Larger Transaction

Volumes

Greater Payments

Utility

Greater Infrastructure

Investment

Greater Liquidity

Higher Bitcoin Price

More Hedging

Tools

CURRENT CHOKEPOINT


Bitcoin Scalability Advances: SegWit, Lightning, Schnorr

Data Source: CoinDesk, Pieter Wuille (2015) Segregated witness and deploying it for Bitcoin Presentation

Segregated Witness – alters how signature data is handled on the network without raising block size limit.• Projected to be live on network by end of Q4.• Requires that 95% of miners to upgrade and run software for

roughly two weeks worth of blocks.

Lightning Network – a top layer for the bitcoin network that would enable millions of transactions with less frequent settlement.• Requires Segregated Witness to be activated.• Faces concerns regarding privacy and scalability.

Schnorr Signatures – would enable multi-party (multisig) transac-tions to be written to ledger with single signature.• Remains in early stages but prominent bitcoin developers (Peter

Wiulle, Greg Maxwell) continue to explore.• Would replace current ECDSA signature scheme.


Bitcoin Interest is Expanding Globally, Supporting the Thesis That Its Utility Is Highest in Emerging Markets

Data Source: Google Trends search ‘bitcoin’ and ‘ethereum’. Numbers represent search interest relative to the highest ranking term for a given region and time. A value of 100 is assigned to the region where the relative popularity of the search term is highest. While a value of 50 means the term is half as popular as the leading search term.

Ghana

South Africa

Nigeria

Malaysia

Venezuela

United Kingdom

Germany

Canada

United States

100

82

72

63

51

31

29

27

27

Bitcoin Q2 & Q3 2016


And Cross-Border Payments Volumes Have Spiked

Data Source: Digital Currency Group

Rising volumes and improv-ing liquidity on regional ex-changes are driving growth in cross-border payments.

• Recent analysis of four bitcoin payments companies showed a spike above $70m in Q3 cross-border volumes.

• 2015 volumes were negligible.

• Growth accelerated as busi-nesses shifted focus from B2C to B2B.

Monthly Volume Cumulative Volume


Cross-Border Payments

Source: Digital Currency Group

B. ETHEREUM


Q3 2016 Summary

Enterprise interest grows – Microsoft, Santander and others demo ethereum tech projects.

Block difficulty increases –Second-highest QoQ increase in ethereum’s history.

Ether price stabilizes – But this coincides with waning exchange transaction volumes.

Ether volume declines in Q3 – Figures down 10x since Q2 highs.

Dual ether markets co-exist –Alternative ethereum blockchain (ethereum classic) continues to hold minority market share.

Increase in ethereum active nodes –Ethereum has the most active nodes of any public blockchain network.


Ethereum Network Metrics

Q3 2016 Q2 2016 Q3/Q2 Δ Q3 2015 QoQ Δ

ETHER PRICE

• Market Capitalization ($m) (EoQ) $1,118 $1,019 10% $48 23.3x

• Price ($/ETH) (EoQ) $10.78 $10.50 3% $0.73 14.8x

• Ether Supply (m) 85 82 4% 74 1.2x

VC/ICO ACTIVITY

• Deal ($m) $29.8 $171.9 -83% N/A N/A

• Deal # 11 7 57% N/A N/A

TRANSACTION METRICS

• Average Daily ETH Transactions 35,836 63,952 -44% 5,870 6.1x

• Average Gas Price (Gwei) (EoQ) 30 22 36% 52 .6x

• Average Gas Limit Per Day 1.5 4.7 -68% 3.1 .5x

NETWORK GROWTH METRICS

• Blockchain Size (GB) 53 27 96% N/A N/A

• Nodes 6,868 N/A N/A N/A N/A

• Total Unique Addresses (EoQ) 647,482 423,227 53% 13,636 47.5x

• Number of Contract Addresses (EoQ) 199,234 N/A N/A N/A N/A

MINING METRICS

• Network Hash Rate (GH/s) (EoQ) 5,880 3,985 48% 315 18.7x

• Block Difficulty Growth (TH) (EoQ) 83 55 51% 6 13.8x

• Average Block Time (sec) (EoQ) 14 14 3% 18 .8x

• Average Block Size (bytes ) (EoQ) 1,437 2,367 -39% 742 1.9x

• Daily Block Reward (EoQ) 31,623 31,986 -1% 25,094 1.3x


$8

$9

$10

$11

$12

$13

$14

$15

$16


0.0158

0.0188

0.0199

0.0208

0.0188

0.0202

0.0188

0.0196

0.0230

0.0213

0.015 BTC

0.017 BTC

0.019 BTC

0.021 BTC

0.023 BTC

0.025 BTC

Jun-30 Jul-21 Aug-11 Sep-01 Sep-22

Ethereum Price Performance

Ethereum: Key Market Events

Data Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC

July 20th Ethereum Executes Blockchain Hard Fork to Return DAO Funds.

July 25th Alternative Ethereum Blockchain Gains Support as Price Declines.

Aug 22nd One Month After Ethereum Fork, Millions in DAO Funds Unclaimed.

Sept 21st Thomson Reuters Demos New Ethereum Blockchain Use Cases.


Poloniex, Kraken Emerge as Market Leaders for Ethereum Trading, But Volume on Decline

Ethereum 24-hour exchange volume decreased 24% to $9.5m in Q3 from $12.8m in Q2.


7.1m

5.6m

2.5m

0.7m

2.0m

0.4m

1.6m

0.4m 0.4m 0.5m 0.7m0.3m

Ethereum Exchange 24-Hour Volume (EoQ)

12.8

9.5

Ethereum Exchange 24-Hour Volume (EoQ)

Q2 2016 Q3 2016


Enterprises Continue to Show Interest in Ethereum

Data Source: DailyFintech

Thompson Reuters releases ethereum identity tool Block-OneID.

BHP Billiton, the world’s largest mining firm, reveals it will use ethereum to record, maintain mining samples.

Santander demos CashETH, a prototype that envisions how the Spanish banking giant could ”open-source” its cash.

Microsoft launches ethereum smart contract working group, codenamed ‘Kinakuta’.


But Its Public Blockchain Has Split, Creating Two Distinct Token Markets

Data Source: Vitalik Buterin, Github

Two ethereum blockchains emerge:

• 18th June – The DAO, the largest ethereum smart contract, is compro-mised, with unknown attackers stealing $60m in user funds.

• 20th July – Ethereum’s community decides to edit its blockchain history to return the stolen funds to The DAO’s investors, creating a new block-chain in the process.

• 24th July – Angered by the decision to edit the original blockchain, a small minority restarts the blockchain ethereum’s community abandoned.

Ethereum Classic now has a sep-arate market:

• The price of its token (ETC) con-tinues to hover around $1.

• ETC has traded for as much as $3.30.

• ETC was the 5th largest currency by market cap at the end of Q3.


ETHEREUM SENTIMENT STUDY


Ethereum Sentiment Study: Demographics


Our 243-person survey included technical leaders from startups and enterprises who attended our annual Consensus summit.

Of these respondents:

• 86% believe blockchain technology (broadly speaking) would have an impact on financial services, while 14% said it was “too early to tell”.

• 70%+ believe blockchain tech would also have an impact on governments and businesses outside of financial services.

• 52% of bulls believe it would be 5-10+ years before block-chain tech was widely adopted.


Ethereum Sentiment Study: Demographics


When it came to ethereum in particular:

• 63% reported they were “very familiar” with the ethereum protocol; 70% said they were “very familiar” with the DAO hack and hard fork.

• 58% reported using the ethereum protocol – 37% used the public blockchain, 19% used a permissioned version of ethereum, and 6% used a public fork of ethereum such as ethereum classic, krypton, or shift.

• 67% planned to consider using the ethereum protocol in the future – 49% planned to use the public blockchain, with 26% planning to use a permissioned version and 12% planning to use a public fork.


One in Three Were Negatively Impacted By the Ethereum Fork or DAO Hack


Were you or your organ-ization directly impacted in any way by the June 2016 DAO hack (i.e. lost tokens, proof-of-concept delayed or reconsidered due to the hack)?

• 75% of those affected lost money in the DAO.

• 11% said it made them lose confidence in ethereum.

• 20% said it set back a pro-ject or proof-of-concept.

“The hard fork hardened my opinion re: ethereum’s governance problems.”

“We delayed anchoring into ethereum because of the fork.”



One in Three Disagree with the Decision to Hard Fork


How do you feel about the decision to hard fork the ethereum (ETH) block-chain?

• Majority of those who disa-greed with the decision were already skeptical of ethereum and “not considering” using the technology in the future.

• The decision to hard fork may get more popular over time; for those who changed their minds at some point, “agrees” out-numbered “disagrees” 7:1.

“I was worried the hard fork might undermine the authority of the core dev team (or rather, make it seem like they have too much power), but those concerns seem to be overblown, and all seems to be going well for now.”


In Terms of Perception, the Drama Has Taken Its Toll: Bad for Ethereum, Good for Bitcoin


How has the DAO hack and the ethere-um hard fork affected your sentiment towards using:

• Sentiment skewed negative for both ETH and ETC.• 49% negative vs. 26% positive for ETH.• 50% negative vs. 15% positive for ETC.• “bad precedent”, “broke immutability”, “lack of

quality control & testing”, but “pragmatic”.• Many believed this cast bitcoin in a more positive

relative light. • 39% positive vs. 17% negative.• “only production ready blockchain”, “stability and

predictability are key”.• Muted impact on sentiment towards other public

blockchains.


For the Majority Whose Sentiment Was Negatively Impacted, Governance Was the Primary Concern


If the the DAO hack and/or Ethereum hard fork negative-ly impacted your sentiment on using Ethereum, what are your specific concerns?

• 47% concerned with how the ethereum blockchain and pub-lic protocol was governed.

• 38% concerned with the block-chain’s compromised immuta-bility.

• 33% fear regulatory risks due to the coordinated response.


Despite Setback, Ethereum Perceived to Have Better Governance Than Bitcoin (Though Both Have Flaws)


Please select the choice you believe best re-flects your opinion of current Ethereum and Bitcoin governance:

“ETH vs BTC vs ETC rivalries need to stop; these technolo-gies are too new to take sides. Instead of coming together, there are obvious lines being drawn.”

“I’d be more optimistic if univer-sities embraced and increased resources not only for bitcoin but ethereum, and other DLTs.”


Public/Enterprise Ethereum Users See Different Strengths in the Technology


Respondents Use Public (ETH) Version of Ethereum for These Reasons.

Respondents Using Private/ Permissioned Version of Ethereum for These Reasons

• Both groups emphasized the quality of the ethereum community.• Ethereum users placed more emphasis on Turing Completeness.• Enterprise users emphasized developers, flexibility and maturity.


Ethereum’s Developers Continue Upgrades


“Casper” – Two prominent ethereum developers (Vitalik Buterin, Vlad Zamfir) continue work on new blockchain consensus algorithm.• Would see ethereum migrate from bitcoin-like proof-of-work to

more decentralized proof-of-stake alternative.• Zamfir, Buterin remain split on best paths forward.

Formal verification – soundness of smart contracts continues to be both practical and enterprise concern.• Startups are working to provide specialized software to mathe-

matically check for issues.

EMV upgrade – ethereum language compiler continues to face performance issues, problems with IoT compatibility.• Compiler works in 256-bit ’chunks’, too slow for appliances with

smaller bit registers.• Plan is to migrate to new EVM (EWASM) unveiled at Devcon2 con-

ference in Shanghai.


Our Respondents Predict Ethereum’s ‘Proof-of-Stake’ Switch Will Occur in 2017


How likely do you think it is that the following will be deployed by the Ethereum commu-nity by the end of 2017?

• 82% believe that ethereum’s most challenging hard fork – a switch to a new consensus algorithm called “Casper” – has a 50% or greater chance of being implemented in 2017.

• Our respondents believe the Mist browser is the most likely 2017 release, with 62% saying they be-lieve this is somewhat or very likely vs. 11% that believe it is unlikely.

• Respondents were split on the release timing of the Swarm storage platform, and two scaling solu-tions: state channels and sharding.


Hard Fork? That’s the Easy Part


We asked whether there was anything more technically challenging on the development roadmap than ethereum’s switch to proof-of-stake:

“While some acknowledged the Casper switch was the biggest milestone in the near-term roadmap, respondents over-whelmingly noted that “sharding” was the most technically complex project being tackled.”

“by far the hardest”, “represents a sea change in how these systems work entirely”, “there is not enough capacity on the network before worrying about sharding and parallelism”.

What is Sharding?

(From CoinDesk’s research report ‘Un-derstanding Ethereum’)

Sharding is a scaling solu-tion where portions of the full ethereum blockchain are held on separate servers in order to distribute the network’s com-putational load and improve its performance. This solution could allow businesses, indi-viduals or entities to run a pub-lic or private blockchain (with distinct transaction validators) on a platform that uses the security and functionality of a public platform.


ENTERPRISE BLOCKCHAINS

4


The Internet/Intranet Comparison

We believe both public and enterprise blockchains have useful applications, much like the Internet and corporate intranets.




Data Source: Coinbase


Blockchain Interest Grows Globally; Among Major Players, R3 Leads Media Mentions

Data Source: Google Trends search for ‘Blockchain’. Financial Times, New York Times, Wall Street Journal and Sina. Google Trends search ‘bitcoin’ and ‘ethereum’’. Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. Likewise a score of 0 means the term was less than 1% as popular as the peak.

Q2 & Q3 Select Blockchain Media Mentions

R3CEV

DAH

Hyperledger

Ripple

Chain

26

25

15

10

0


Enterprise Firms Continue to Invest Time and Resources in Blockchain Proofs-of-Concept


Number of proofs-of-concept announced publicly by major en-terprise businesses.

Number of unique participants in pub-licly announced proof-of-concept projects.

Unique areas of focus for announced PoCs; Banking, in-surance, post-trade settlement and trade finance emerge as key areas of focus.

~ 70 ~ 100 ~ 25


Top Banks Tackle Blockchain Proofs-of-Concept


14 of the top 30 banks are engaging in blockchain proofs-of-concept.


Global Exchanges Engage in Blockchain

Data Source: World Federation of Exchanges, CoinDesk

21 of the 63 publicly regulated stock, futures and options exchanges are testing distributed ledger technology.


SOLUTIONS PROVIDERS


Chain Continues Partnerships, But Mostly Stays Quiet Ahead of Big Q4

Data Source: Chain

Chain provides permissioned and private blockchain services for enterprise busi-nesses.

Q3 MILESTONES

• Chain wins inaugural Best Fintech Innovation by Juniper Research.

• Chain partners with Initiative for Cryptocurrency and contracts (IC3).

• Chain and global financial firms unveil Open Standard for blockchain.

HQ: San Francisco, CA

Founders: Devon GundryAdam Ludwin

Key Executives:Adam Ludwin, CEO

Amount Raised: $44m


Digital Asset Holdings Continues Acquisitions, Develops Strategic DLT Partnerships

Data Source: DAH

Digital Asset Holdings is a blockchain software provider focused on distributed asset settlement.

Q3 MILESTONES

• Swiss FMI Six Securities Services and DAH part-ner to develop DLT.

• DAH plans to open-source its smart contracting language DAML.

• DAH appoints Carol Mathis (RBS) as CFO.

• DAH acquires smart contract firm Elevence.

HQ: New York, NY

Founders: Dan O’Prey, Don Wilson, Sunil Hirani

Key Executives:Blythe Masters, CEO Chris Church, CBDO

Amount Raised: $67m


Hyperledger Member Growth Skyrockets

Data Source: Hyperledger

Permissioned distributed ledger platform to help financial institutions mitigatesettlement risk and lower reconciliation costs.

Q3 MILESTONES

• Github Statistics: 100+ contributors, 65 releases, 650 commits commits.

• 13 Q2 & Q3 media mentions.

• 35% member growth in Q3.

• 81 partner organizations.

Open-Source Cooperative Managed by the Linux Foundation


Key Executives:Brian Behlendorf, Executive DirectorTodd Benzies, Sr. Program Manager


Hyperledger Project Update (contd.)


• Apache Foundation founder Brian Behlendorf named Hyperledger ex-ecutive director.

• Hyperledger elects new technical steering committee, includes rep-resentatives from IBM, DTCC, Intel and JPMorgan.

• Hyperledger launches first block explorer.

• Companies including IBM and UBS begin to use beta version of Hyper-ledger Fabric in prototypes.

Brian BehlendorfHyperledger, executive director

“We’re focused on the use cases around permissioned blockchain, but [are] very en-thusiastic about non-permis-sioned [ledgers].”


Microsoft Continues to Invest in its Blockchain-as-a-Service (BaaS) Platform

Data Source: Microsoft

• 2nd August – Microsoft makes it (BaaS) offering available in its DevTest Labs testing environment.

• 1st September – Microsoft launches smart con-tracts security working group; Named ‘Kinakuta’, the group aims to make it easier for the industry to share smart contract best practices.

• 2nd September – Microsoft unveils a new version of its consortium blockchain software Bletchley.


R3 CEV Reaches Over 70 Partners, Continues Proofs-of-Concept on the Corda Blockchain

Data Source: R3CEV

R3CEV is a permissioned and private blockchain technology provider leading a consortium of 70+ financial institutions.

• Microsoft and R3 partner for work on blockchain PoCs.

• Barclays demos R3’s Corda platform.

• R3 announces new distributed technology framework Concord.

• China Merchants Bank, MetLife, Thomson Reu-ters, Absa Bank and Toyota join R3 consortium.

HQ: New York, NY

Founders: David Rutter, Jesse Edwards, Todd McDonald

Key Tech Players:Richard Gendal Brown, Mike Hearn, Ian Grigg


R3 Continues Distributed Ledger Trials

Data Source: R3CEV

8 members test the exchange of US Treasury bonds using Intel’s distributed ledger tech Sawtooth Lake.

15 members announce they have completed a distributed ledger trial for trade finance.


Ripple Raises $55m While Member Growth Increases

Data Source: Ripple

Ripple allows banks to offer real-time cross-border payments to their customers.

Q3 MILESTONES

• Github Statistics: 50+ contributors, 60 releases, 11,116 commits.

• 7 Q2 & Q3 media mentions.

• 25% member growth in Q3.

• 19 financial partners.


Founders: Chris Larsen, Arthur Britto

Key Executives:Brad Garlinghouse, COO

Amount Raised: $93.6m


INVESTMENT

5


Blockchain Announcements Decline in Q3, as Uptick in Consortiums Calms

Note: ‘Traditional institutions’ include governments, central banks, financial institutions and other large firms.Data Source: CoinDesk

238

220

Announcements

Q3Q2


Q3 Investments Up Year-Over-Year, But Down 17% Year to Date

Q3 investment up 13% YoY, 2016 YTD investment down 17%.


376m

458m500m

450m

400m

350m

300m

250m

200m

150m

100m

50m

0m

250m

200m

150m

100m

50m

0mQ1 2015 Q1 2016 Q2 2015 Q2 2016 Q3 2015 Q3 2016

160m

228m

101m

145m

114m85m

Q1-Q3 2015 Q3 2016 YTD


Top VC Deals Show Funding Shifting Towards Hybrid Blockchain Technology…

PUBLIC PRIVATE HYBRID

Juzhen Financials


$23m

$10.5m

$58m


Hybrid Startup (Ripple) Captured Most VC Investment in Q3, But More Public Startups Are Raising Funds


Investment Amount Number of Investments

Hybrid51.0%

Private20.2%

Public29.0%

Hybrid17.0%

Private8.0%

Public75.0%


However, Data Doesn’t Suggest a Trend Toward Any Specific Infrastructure Model


98%

16%

90%

29%

2%

84%

10%

71%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Q4 2015 Q1 2016 Q2 2016 Q3 2016

Investment Sector Distribution

Percentage of Bitcoin Investment Pecentage of Blockchain and Hybrid Company Investment

98%

2%

84%

16%

90%

10%

71%

29%


Decentralized Application Projects Are Raising Money Through Public Digital Currency Sales vs. VC

Data Source: Smith and Crown, ICO Countdown

Total Historical VC Investment 2016 “ICOs”

More “decentralized application” companies are using “initial coin offerings” to raise capital, the majority of crowdfunding has come from ETH (e.g. the DAO).

Ethereum$8m

Bitcoin$949m

.5m

.5m152m.75m16m

.85m.6m1.7m

10.5m.75m.66m4.5m

2m5.5m

2m


Despite Global Blockchain Interest, Silicon Valley Captures Bulk of Investment Dollars in Q3


No. of Companies

Total number of VC-backed public and private blockchain companies has increased marginally over the past quarter, growing to 144 in Q3 2016 (5% increase), up from 137 in Q2 2016.

$ Invested

Location Value ($m) No. of companies

Silicon Valley 542.39 39

Rest of World 782.32 105

Total 1324.71 144

Silicon Valley40.9%

Rest of World59.1%

Silicon Valley27.1%

Rest of World72.9%

542

782

1324


REGULATION & GOVERNMENT

6


US: Blockchain Heats Up on Capitol Hill as Lawmakers Take Active Interest in Blockchain


• 29th July – Twenty-two US senators send a letter to the Federal Reserve requesting guidance on blockchain.

• 12th September – The US House of Representatives passes a non-binding resolution that calls for the support of blockchain technology.

• 14th September – Representative David Schweikert pro-poses blockchain be considered as a solution to adminis-trative issues at the Department of Veterans Affairs.

• 28th September – Federal Reserve chair Janet Yellen re-veals the US central bank is investigating blockchain tech.


US: Is Bitcoin Money? Florida Courts Are Driving the Conversation


• 25th July – A Miami judge dismisses charges against a Florida-based bitcoin seller, siding with defense’s argument that bitcoin isn’t money.

• 16th August – The state of Florida appeals court decision in which case was thrown out over lack of clarity over issue.

• 6th September – Florida reveals it is in the early stages of considering bitcoin regulation, and that it could seek to recognize bitcoin as money.


Europe: EU Parliament Investigates Blockchain Tech Potential


• 29th April – EU Parliament hosted a non-commercial roundtable to educate members (MEPs).

• 26th May – The European Parliament approves a proposal for a task force dedicated to digital currency.

• 30th August – A member of the European Parliament proposes $1.1m be spent on the blockchain task force.

• 3rd October – A European Parliament think tank re-leases a discussion paper on blockchain-based elec-tions.


Europe: Russia Changes Tune on Bitcoin and Digital Currencies Amid Blockchain Interest


• 19th May – A bill that would ban bitcoin and digital currencies as “money surrogates” is withdrawn af-ter two years of deliberations.

• 19th July – Russia’s Ministry of Finance says it is considering allowing bitcoin use “abroad”, while still banning its domestic use.

• 12th August – Reports suggest Russian authorities are seeking to drop proposed penalties for bitcoin use.


Asia: Central Banks Begin Blockchain Explorations


• 6th June – The central bank of the Philippines reveals it is considering how to regulate digital currency exchanges.

• 22nd July – The Reserve Bank of India (RBI) pushes banks to develop applications for digital currencies and distributed ledgers.

• 23rd August – The Bank of Japan publicly voic-es its enthusiasm for the benefits of blockchain tech.


Middle East: UAE Takes Lead on Blockchain


• 30th May – Dubai’s Global Blockchain Council (GBC), a public-private blockchain consortium, unveils seven new proofs-of-concept at industry.

• 1st June – An independent regulatory authority in Abu Dhabi begins exploring ways to create a regulatory sand-box for blockchain startups.

• 9th August – Dubai launches a startup program with a focus on investing in and developing blockchain startups.

• 1st September – Dubai makes blockchain focal point of efforts to curb global blood diamond trade.


About Coindesk


• Find out more at www.coindesk.com.

• Follow us on Twitter: @CoinDesk.

• Subscribe to our daily email newsletters for the latest blockchain news.

• If you have data you think should be includ-ed in future State of Bitcoin reports, email [email protected].

• We also welcome any feedback you have on the report.


Credits


Pete RizzoEditor

Bradley Miles Researcher

@pete_rizzo_@Bradley_Miles_

@coindesk


Disclaimer

• CoinDesk makes every effort to ensure the information used these slides 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.

• CoinDesk is owned by Digital Currency Group, one of the most active investors in the bitcoin and blockchain technology industry. Many DCG investments are referenced in this report, and a full list can be reviewed at www.dcg.co. CoinDesk is run as an independent entity, and its editorial team does not give preferential treatment to DCG investments when they are referenced in research reports or news posts. DCG portfolio companies referenced in this report include Align, Bitpay, Blockstream, BTCC, Chain, Circle, Coinbase, Everledger, Fluent, Kraken, Ripple, Tierion and Zcash.


www.coindesk.comSTATE OF BLOCKCHAIN Q3 2016

Business

State of Blockchain Q3 2016