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State of Crypto in 2019

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After an explosion of altcoins and funding, technical constraints and regulatory angst have taken over the headlines. Still, the frenzy of the past two years set the stage for the next wave of adoption with a steady inflow of talent and new, uniquely compelling use cases of digital assets.

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State of Crypto in 2019

  1. 1. CONFIDENTIAL 1 CONFIDENTIAL / PROPRIETARY the state of crypto 2017 - 2018 2013 - 2015
  2. 2. CONFIDENTIAL 2 the basics A blockchain is an open, digital, immutable, and distributed ledger of translations, meant to act as a trusted system of record (ie think open database) in lieu of other intermediaries. Cryptocurrency is an asset that runs on a blockchain, created and held electronically. These assets act as an incentive mechanism for the underlying blockchain. MAGIC NUMBER BLOCKSIZE VERSION HACK OF PREVIOUS BLOCK HASH OF MERKLE ROOT TIME TARGET NONCE TRANSACTION COUNTER TRANSACTIONS… MAGIC NUMBER BLOCKSIZE VERSION HASH OF PREVIOUS BLOCK HASH OF MERKLE ROOT TIME TARGET NONCE TRANSACTION COUNTER TRANSACTIONS… MAGIC NUMBER BLOCKSIZE VERSION HASH OF PREVIOUS BLOCK HASH OF MERKLE ROOT TIME TARGET NONCE TRANSACTION COUNTER TRANSACTIONS… MAGIC NUMBER BLOCKSIZE VERSION HASH OF PREVIOUS BLOCK HASH OF MERKLE ROOT TIME TARGET NONCE TRANSACTION COUNTER TRANSACTIONS…
  3. 3. CONFIDENTIAL 3 the basics Smart contracts are code that lives on a blockchain and enables business logic to be automatically executable in a trestles way (i.e. asset custody, interest payments, escrow, bets) A family member sends some Bitcoin to another family member Consumer buys a digital content stream Landlord remotely locks non-paying tenant out of apartment Seller lends buyer funds to buy a house Unit of a corporation issues its own bonds, and buyers monitor payments via a shared ledger Self-driving trucks make P2P deliveries, pay local toll road fees, and buy local electricity DIGITAL VALUE EXCHANGE SMART RIGHT & OBLIGATION BASIC SMART CONTRACT MULTIPARTY SMART CONTRACT DISTRIBUTED AUTONOMOUS BUSINESS UNIT DISTRIBUTED AUTONOMOUS ORGANIZATION
  4. 4. CONFIDENTIAL 4 Bitcoin: the most simple of the blockchains, Bitcoin is the ledger for the holders of the cryptocurrency bitcoin. Created in 2008 as an electronic p2p cash system, bitcoin has been cited as “digital gold”. Ethereum: a blockchain-based computing platform to support smart contracts and decentralized applications. Ether is the native currency. the basics: cryptocurrencies
  5. 5. CONFIDENTIAL 5 common myths MYTH MYTH MYTH MYTH All blockchains are built equally. Decentralization is always necessary. Speculation aside, there is no real store of value use case for crypto. As the applications and adoption or crypto has evolved, blockchains have sprouted up with various features: settling 7 tps vs thousands, validation via proof of work vs staking and delegation, encryption vs transparency. Blockchains are constantly trading off scalability, security and decentralization. Decentralization is most important when you can't / don't want to trust a central authority. For many services (exchanges, gaming, wallets), centralized entities can design and iterate to users needs faster, especially for regulated services. Censorship resistance benefits those in regions with capital controls. Limited supply benefits those privy to hyperinflation. Decentralized access benefits the unbanked. Cheap / fast settlement benefits global payment flows like remittances.
  6. 6. CONFIDENTIAL 1/17 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 6/18 7/18 8/18 9/18 10/18 6 funding evolution $3,000 $1,500 $2,500 $2,000 $1,000 $500 $600 $300 $500 $400 $200 $100 SOURCE: COINDESK ICO TRACKER ICO Funding ($MM) Crypto VC Funding ($MM) Retail-backed ICOs have dried up, contracting crypto valuations and moving the funding model to 
 more traditional capital pools – this is the time for VCs to enter.
  7. 7. CONFIDENTIAL 7 bitcoin: 2014 - 2018 (+350%) SOURCE: COINDESK ICO TRACKER We’ve experienced Bitcoin winters before – BTC-USD was flat 2014 - 2016. 2013 2014 2015 2016 2017 2018 2019 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 -80% +80%
  8. 8. CONFIDENTIAL 8 the headlines: bitcoin’s timeline 2017 - 2018 SOURCE: COINDESK ICO TRACKER A global retail-driven bubble is constrained by lagging global regulations. With that clarity, positive signals are starting to emerge. 2017 Mar May Jul Sep Nov 2018 Mar May Jul Sep Nov $20,000 $15,000 $10,000 $5,000 $20,000 $15,000 $10,000 BTC breaks $1000 for the first time in 3 years SEC rejects Winklevoss ETF proposal China shuts down crypto exchanges & ICOs CFTC announces CME & CBOE launch BTC futures SegWit locked in Bitcoin Cash forks, now worth $7.6B Chinese authorities say they will strengthen crypto ban BTC nears $20K, fees break $50 South Korea regulates crypto speculation GS announces trading operation A16ZCrypto closes $300M fund Endowment funds invest in crypto Fidelity entering crypto custody FB bans crypto ads, Google & Twitter follow 728 19870 4264
  9. 9. CONFIDENTIAL the untold story: usage 2017 - 2018 Ignoring the surge around the Dec / Jan price swell, transaction volume (shaded) and transaction ct (bold) are 
 both up across the top digital assets, demonstrating a lasting uptick in adoption and development. BITCOIN ETHEREUM LITECOIN STELLAR ZCASH TETHER
  10. 10. CONFIDENTIAL 10 biggest vc rounds Big rounds increasingly common, with money focused on either financial infrastructure or smart contract protocols. 2018 — DST Global, Sequoia Capital, KP 2018 — Tiger Global, A16z, Polychain Capital 2015 — A16z, Pantera, Khosla, Founders Fund 2017 — Temasek, Bank of America, HSBC, Barclays 2018 — A16zCrypto, Scalar, Polychain, Multicoin 2018 — DCG, Draper, 
 FirstMark ROBINHOOD COINBASE 21 INC Raised $350M Raised $300M Raised $116M R3 DFINITY LEDGER Raised $350M Raised $300M Raised $116M
  11. 11. CONFIDENTIAL after the crash, a stronger ecosystem Protocol gaps have been exposed Scalability is top of mind → new protocols, Layer 2 ⚡ ⚖ Stablecoins are proliferating Blockchain governance is evolving → forks, staking-as-a-service 🗳 Investors prepare to enter Regulatory clarity emerging → ❌ ICOs 🚫 Financial infrastructure is racing 💸 to catch up Consumer experimentation accelerates Canadian citizens can track where their tax dollars go on Ethereum Ethereum dApps gain momentum while Ether decouples Sweden’s land registry conducted home transfers via smart contracts 🐱 Non-fungible tokens have been formalized

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