STRENGTHS AND OPPORTUNITIES
Ezra Galston
#BTCCHICAGO
BITCOIN ECOSYSTEM
@EzraMoGee
2
WHY AM I HERE?
@EzraMoGee
FIRST BITCOIN
3@EzraMoGee
WHAT I’D SEEN
4@EzraMoGee
WHY?
5@EzraMoGee
BUT…THEN
6@EzraMoGee
7
MY TAKE ON BITCOIN
@EzraMoGee
8
MY TAKE ON BITCOIN
MERCHANT
MOBILE
PAYMENT
PROCESSORS
WALLETS
@EzraMoGee
ADOPTION
HOW MOST SEE THE WORLD
9@EzraMoGee
HOW VC’S SEE THE WORLD
10@EzraMoGee
COINDESK’S ECOSYSTEM MAP
11
Wallets
Payment
processing
Mining
Financial
services
Exchanges
The Bitcoin Startup Ecosystem: ...
BITSPLOSION – ACCELERATED
STARTUPS
12
2014
2012
2013
15%
22%
37%
15%
7% Boost.vc
Plug&Play
500 Startups
Ycombinator
Crossc...
MY TAKE
13
Exchanges Wallets Payment Processing
Trading
Multi-Sig/Verification
APIs
Protocols/Contracts
ATMs
Mining Altcoi...
FINDING OPPORTUNITIES
14@EzraMoGee
MORE OPPORTUNITIES
15@EzraMoGee
Immediate
1. Forex
2. Derivatives,
3. Mobile Wallets
4. Underwriting
Near Term
1. Identity...
Chicago – How Are We Doing?
16
Bay Area
45%
New York
12%
London
9%
Toronto
6%
Singapore
6%
Atlanta
6%
Seattle
5%
Las Vegas...
Chicago – Our Strengths
17
1. 33% of Entire Fortune 500
(Walgreens, Kroger,
Allstate, Groupon, Grubhub)
1. HFT
2. Derivati...
THANK YOU
ezra@chicagoventures.com
@EzraMoGee
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Ezra Galston // The North American Bitcoin Conference 7/20/14

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Ezra Galston's presentation on the Bitcoin Ecosystem: Strengths and Opportunities. Focused on three sections: 1) How lessons from the online poker world offer insights to Bitcoin's future, 2) The current state of the Bitcoin economy and a Lumascape/map of the current players, 3) Chicago's potential to be a hub for emerging Bitcoin focused companies.

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  • Played poker professional coming out of NYU, then moved to Chicago to help build a company called CardRunners which was became the biggest poker training site, we then built Hold’em Manager which is the leading poker analytics software and I somehow ended up in VC.

    But a lot of what I learned working in the gambling industry alongside Full Tilt, Betfair, 888, and others has impacted how I view Bitcoin
  • But was shocked at transaction times and speed of deposits/withdrawals. By this point, US gambling sites had 3-60 day waits for withdrawals (if you weren’t being scammed). Recognized a major opportunity for money transfer.
  • OK – so here’s what I’d seen in the poker industry. When I got started in 2005/2006, Partypoker had just IPO’d at a $10bil valuation. More recently, and after a merger, it was valued at $700M, a 93% loss. So what hapenned?
  • Lots of bad news, lots of government indictments, arrests, threats. Some of it substantiated, a lot of it not. But the fear really crippled the industry.
  • But those who hung around – some who played by the rules and even others who didn’t – were ultimately bailed out. What was also interesting was that companies like Zynga or Doubledown that weren’t real money gaming casinos, but offered similar products using social goods grew into very large companies. So it was another situation of constraint yielding creativity – if the government was going to constrain your opportunities or business operation – there were still very creative ways to build similar purpose companies with a more long-term view.
  • So while I’d be interested in bitcoin for a while, I really started writing about it when I realized the similarities of wild wild west industries.

    First I saw in Mt Gox a pattern which I’d seen dozens of times in online poker. Basically if an operator ever starts offering delayed withdrawals, while simultaneously promoting deposit bonuses or reduced transaction fees, it is overwhelmingly likely that they are insolvent. This is true of bitcoin exchanges, investment managers, everyone. It is a life lesson. The problem with the bitcoin ecosystem was that this was the first time it was happening at scale and people believed their tech excuses. Another life lesson is that excuses need to really be considered in context.

    The second point I tried to make is that bitcoin is a global currency and that even if the USA for whatever reason makes it hard to build businesses here, there is still the remaining 96% of the world. I think the US is definitely on the right track as far as regulation goes, but when online gambling became very difficult to service in the US, we saw that the international wings of our business really picked up, especially when we re-focused on those markets. As entrepreneurs, as Americans, we want US support, but we should still focus on the ecosystem even if not.


  • The last point I tried to make was one of concern. That I see the bitcoin ecosystem as currently operating as a funnel, but that the most vital process, that of payment processing, is at the bottom of the funnel and in the most precarious position.

    Lots of merchant adoption: Shopify, Expedia, Overstock, Bloomnation

    Mobile Wallets & Exchanges: Security strengthening, Xapo, Coinbase, Bitcoin.com, all very secure places to store bitcoin.

    But payment processing is still problematic. Only a handful of companies targeting, not many banks are willing to process these transactions, SVB I believe one of the more risk loving.

  • I agree with this map on a high level, but it fails to consider all the backend work going on behind the scenes. Meaning that bitcoin is a protocol – and it thrives on a ecosystem of developers – so a good ecosystem map will recognize a lot of applications being built on top because that’s where the innovation and consumer adoption Is happening.
  • This is an example of how I’m looking at the bitcoin space and trying to find opportunities. So here are a couple:

    Banks – I don’t believe that Coinbase, Xapo & Circle will be all the wallets we’ll ever have. I think it’s more likely that there are a dozen and many specifically region focused.

    Analytics & Rewards - This could also be a huge space and these two kind of go together. Meaning that bitcoin poses a lot of problems for traditional loyalty solutions and consumer analytics. For instance, what if you have multiple bitcoin wallets or if it becomes commonplace to transfer from wallet to wallet for security. It very quickly becomes very difficult to know who’s on the other end of the transaction. For rewards, how will companies tie an address or even a wallet to send rewards to? On the analytics side, unless we have an ecosystem with full AML/KYC provisioning, how will demographic and psychographic profiles be generated of consumers? These are all areas which require a great deal of tailoring to bitcoin.

    On the bottom Underwriting – Namely, right now there aren’t enough transactions to force Coinbase & Bitpay to take on a huge amount of risk. But if they’re authorizing transactions immediately whereas they have to wait 30 minutes for 3 confirmations, there’s a disconnect. Now it’s true that they’ve built their own internal nodes that propagate to the rest of the network. But let’s say those are 99.98% accurate. That’s fine right now, but if you’re processing a trillion dollars in transactions then that is a $200M/year problem. Who is going to underwrite that or build applications that better understand risk inherent in the bitcoin network? That’s a big opportunity.
  • Ezra Galston // The North American Bitcoin Conference 7/20/14

    1. 1. STRENGTHS AND OPPORTUNITIES Ezra Galston #BTCCHICAGO BITCOIN ECOSYSTEM @EzraMoGee
    2. 2. 2 WHY AM I HERE? @EzraMoGee
    3. 3. FIRST BITCOIN 3@EzraMoGee
    4. 4. WHAT I’D SEEN 4@EzraMoGee
    5. 5. WHY? 5@EzraMoGee
    6. 6. BUT…THEN 6@EzraMoGee
    7. 7. 7 MY TAKE ON BITCOIN @EzraMoGee
    8. 8. 8 MY TAKE ON BITCOIN MERCHANT MOBILE PAYMENT PROCESSORS WALLETS @EzraMoGee ADOPTION
    9. 9. HOW MOST SEE THE WORLD 9@EzraMoGee
    10. 10. HOW VC’S SEE THE WORLD 10@EzraMoGee
    11. 11. COINDESK’S ECOSYSTEM MAP 11 Wallets Payment processing Mining Financial services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges The Bitcoin Startup Ecosystem: Six Different Bitcoin Company Classifcations 37State of Bitcoin Q2 2014 Universal Payment Processing Wallets Mining Financial Services Exchanges @EzraMoGee Source: CoinDesk “State of Bitcoin” Q2 2014 Report
    12. 12. BITSPLOSION – ACCELERATED STARTUPS 12 2014 2012 2013 15% 22% 37% 15% 7% Boost.vc Plug&Play 500 Startups Ycombinator Crosscoin New in 2014 1. Bitcoin Decentral 2. PnP Bitcoin 3. SeedCoin Incubator @EzraMoGee 4% TechStars
    13. 13. MY TAKE 13 Exchanges Wallets Payment Processing Trading Multi-Sig/Verification APIs Protocols/Contracts ATMs Mining Altcoin Exchange Analytics Applications Information FRONTEND BACKEND @EzraMoGee
    14. 14. FINDING OPPORTUNITIES 14@EzraMoGee
    15. 15. MORE OPPORTUNITIES 15@EzraMoGee Immediate 1. Forex 2. Derivatives, 3. Mobile Wallets 4. Underwriting Near Term 1. Identity Verification 2. Authorization 3. Escrow 4. Deeds/Contracts
    16. 16. Chicago – How Are We Doing? 16 Bay Area 45% New York 12% London 9% Toronto 6% Singapore 6% Atlanta 6% Seattle 5% Las Vegas 4% 2% 2% 2%1% Bay Area New York London Toronto Singapore Atlanta Seattle Las Vegas Denver Washington D.C. Austin Chicago Data according to VentureScanner – www.venturescanner.com @EzraMoGee
    17. 17. Chicago – Our Strengths 17 1. 33% of Entire Fortune 500 (Walgreens, Kroger, Allstate, Groupon, Grubhub) 1. HFT 2. Derivatives Finance Contracts Merchants @EzraMoGee 1. Commodities (CME) 2. Real Estate (NAR)
    18. 18. THANK YOU ezra@chicagoventures.com @EzraMoGee

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