2017 Global Cryptocurrency Benchmarking Study

2017 CCAF Global Cryptocurrency Benchmarking Study
2
Table of Contents
Part 1: Overview
• Setting the Scene
• Cross-sector
comparisons
Part 2: Industry Sectors
• Exchanges
• Wallets
• Payments
• Mining

3
Over hundred cryptocurrency companies as well as 30
individual miners are included in the research study sample

4
Study Authors
Dr Garrick Hileman
Research Fellow, Head of Cryptocurrency
and Blockchain Research
g.hileman@jbs.cam.ac.uk
Michel Rauchs
Research Assistant
m.rauchs@jbs.cam.ac.uk

6
Bitcoin’s genealogical tree: while thousands of new
cryptocurrencies have emerged most offer no substantial
advantage or innovation over the original

7
Total cryptocurrency market cap has increased nearly 4x since
January 2017 (and 10x since February 2016); now
approximately $80 billion as of May 2017
$0
$10
$20
$30
$40
$50
$60
$70
$80
1/1/17 1/15/17 1/29/17 2/12/17 2/26/17 3/12/17 3/26/17 4/9/17 4/23/17 5/7/17 5/21/17
Billions
Bitcoin Other cryptocurrencies
Data sourced from CoinDance

8
Bitcoin has conceded considerable market cap share to other
cryptocurrencies – down from 88% to 47% in past 2 years
47%
78%
88%
17%
13%
1%
1%
<1%
1%
<1%
<1%
19%
2%
6%
2%
2%
2%
13%
4%
4%
May 2017
May 2016
May 2015
% of total cryptocurrency market capitalisation
Bitcoin (BTC) Ether (ETH) DASH Monero (XMR) Ripple (XRP) Litecoin (LTC) Other
Data sourced from CoinMarketCap

9
Market prices of monero (XMR), DASH and ripple (XRP) have
experienced the most significant growth since May 2016
0.25
0.5
1
2
4
8
16
32
64
05/2016 06/2016 07/2016 08/2016 09/2016 10/2016 11/2016 12/2016 01/2017 02/2017 03/2017 04/2017 05/2017
Price multiplier (log scale)
BTC ETH DASH XMR XRP LTC
Data sourced from CryptoCompare
Note: the price multiplier variable shows the price evolution of each cryptocurrency since the
beginning of May 2016. A value above 1 means that the price has increased by this factor,
whereas a value below 1 indicates that the price has decreased during the specified time
window.

10
Bitcoin has by far the highest daily transaction in terms of
number of transactions; all analysed cryptocurrencies (except
Litecoin) have shown rising transaction volumes since Q4 2016

11
Bitcoin is the most widely supported cryptocurrency among
participating exchanges, wallets and payment companies

12
Largest number of study participants are based in the US (32)
and China (29); 38 countries and all world regions represented

13
At least 2,376 people are employed in the cryptocurrency
industry*; Asian-Pacific and North American firms have most
headcount
*Note: Well in excess of
2500 people likely work
in the industry as this
figure does not include
major miners and
companies that did not
respond to the survey.
1220
676
346
105
29

14
North American cryptocurrency companies have the highest
median number of employees

15
Lines blurring across industry segments: 31% of study
participants are operating across at least two industry sectors

16
Estimated number of unique active users of cryptocurrency
wallets has grown significantly since 2013 to between 2.9
million and 5.8 million today

18
Payment service providers have the highest median number of
employees; incorporated wallet providers the lowest
24
19
22
11
8
13
Exchanges Incorporated wallets Payment Service Providers
Average number of employees Median number of employees

19
73% of exchanges have full custody of customer funds,
whereas only 15% of wallet providers act as full custodians
Exchange
controls keys
73%
User controls
keys
23%
User has the
option
4%
Exchanges
Wallet provider
controls keys
15%
User
controls
keys
73%
User has the
option
12%
Wallets

20
Wallets have significantly higher headcount and cost
associated with security than exchanges and payment firms
13% 12%
37%
17%
14%
35%
Exchanges Payment Service Providers Wallets
Average security headcount Average security cost

21
Exchanges and payment companies more frequently employ
external security providers than wallets
External security
providers
72%
No external
security
providers
28%
Exchanges
External
security
providers
69%
No external
security
providers
31%
Payment Service Providers
External
security
provider
s, 53%
No external
security
providers
47%
Wallets

22
Payment companies have higher compliance headcount and
cost than wallets; however significant differences observed in
each sector based on business model*
8%
5%
12%
8%
Payment Service Providers Incorporated Wallets
Average compliance headcount Average compliance cost
*Note: depending on the type of activities performed as well the custody of
customer funds and the offering of national currency exchange services

23
While nearly 90% of payment companies perform KYC/AML
checks, only 37% of incorporated wallets do so (and all these
wallets offer national currency exchange services)
KYC/AM
L
checks,
37%
No
checks/not
applicable
63%
Incorporated Wallets
KYC/AM
L
checks,
86%
No checks/not
applicable
14%

24
Internal checks are primary KYC/AML method; payment firms
more frequently employ other methods than wallets
28%
56%
84%
17%
17%
83%
Third-party blockchain analytics specialist
Traditional third-party KYC/AML service
provider
Internally performed
Incorporated Wallets Payment Service Providers

25
More than half of payment companies hold a formal
government license, compared to 46% of exchanges and 24%
of incorporated wallets
License
46%
No
license
54%
Exchanges
License
54%
No
license
46%
License
24%
No license
76%
Incorporated wallets

27
51 exchanges from 27 countries are represented in the study
sample: Europe is leading in terms of the number of
exchanges, followed by Asia-Pacific

28
Exchanges based in Asia-Pacific employ most people;
European and AME exchanges have the lowest average
number of employees…

29
…however, nearly half of all exchanges are small companies
with less than 11 employees

30
Taxonomy of the three main types of exchange activities

31
Majority of small exchanges specialise in a single type of
activity while large exchanges are generally engaged in more
than one activity

32
Trading volumes across the top exchanges are more evenly
distributed following increased regulation of Chinese
exchanges in early 2017

33
Similarly, bitcoin trading in Chinese renminbi has also
plummeted since the Chinese authorities tightened regulation

34
USD is the most widely supported national currency on
exchanges; many specialise in local currencies and markets

35
Bitcoin is listed on all surveyed exchanges; ether and litecoin
next most widely supported – 61% of exchanges have two or
more cryptocurrencies listed

36
More than half of small exchanges hold a government license
compared to only 35% of large exchanges

37
IT security breaches pose the highest operational risk for
exchanges; deteriorating banking relationships (small exchanges)
and regulation (large exchanges) ranked high as well

38
73% of exchanges take custody of users’ cryptocurrency funds
by controlling the private keys

39
Security: large exchanges are realising economies of scale,
spending smaller % of budget on security and having less
headcount in % of total employees associated with security

40
Order-book only exchanges spend 2x more on security as a
share of total budget than ‘pure’ brokerage services and trading
platforms

41
Large exchanges use more frequently and a greater number of
external security providers than small exchanges

42
Majority of exchanges enable optional two-factor authentication
(2FA) for customers for logging in and withdrawing funds…

43
… but large exchanges offer 2FA across a greater number of
user actions than small exchanges

44
Majority of exchanges require employees to use mandatory
2FA for sensitive operations…

45
…but large exchanges require 2FA across a greater number of
employee actions than small exchanges

46
Of the surveyed internal security measures, large exchanges
employed more measures than small exchanges

47
Security measures used by exchanges to vet staff for
production access: 73% of large exchanges use three or more
compared to 48% of small exchanges

48
Nearly half of small exchanges acting as custodians do not have a
written policy outlining what happens to customer funds in the
event of a security breach that leads to a loss of customer funds

49
More common for large exchanges to have a written policy on
who can access sensitive information and production
enivornment than small exchanges

50
21% of exchanges do not provide security training programs to
their staff, but most provide ongoing education and training

51
Exchanges hold the vast majority of funds in cold storage:
median value of 95% of cryptocurrency held offline

52
Large exchanges perform more frequent formal security audits
and rely more on external parties to perform these audits than
small exchanges

54
26 wallets are represented in the study sample: 81% of wallet
providers are based in North America and Europe; nearly half
are based in the US and the UK

55
Majority of wallets are provided by registered corporations
(‘incorporated wallets’)

56
The average wallet provider is a small company: 69% have less
than 11 employees; all that employ more than 10 people are also
active in other cryptocurrency industry sectors (e.g., exchange)

57
Total number of estimated cryptocurrency wallets has grown
over 4x from over 8 million in 2013 to nearly 35 million in 2016

58
Total number of currently ’active’ wallets estimated to range
between 5.8 million and 11.5 million

59
A significant range in the percentage of active wallets was
found across study participants*
*Note: wallet providers use different methods for determining what
constitutes an active wallet.

60
Greatest number of wallet users are based in North America
and Europe

61
Only minor differences in user share by region can be observed
between small and large wallet providers

62
European and North American users prefer using wallets from
local providers

63
Daily on-chain transactions performed by users of large wallets
generally range between 10% and 25% of total bitcoin on-chain
transaction volume, but are trending down slightly of late

64
Over 70% of wallet providers do not control user funds; all
custodial wallets and 11% of self-hosted wallets surveyed are
closed source

65
Mobile wallet app is the most widely offered wallet format;
hardware wallets are becoming increasingly popular
wallets are closed source
Figure 9: Mobile wallet app is the most widely
offered wallet format
Desktop Web Tablet HardwareMobile
42%
38%
31%
23%
65%
% of wallet providers supporting the listed formats

66
Litecoin, ether and dogecoin are the most widely supported
cryptocurrencies after bitcoin; trend towards multi-
cryptocurrency wallets can be observed

67
Majority of wallets support mechanisms to easily backup and
migrate keys

68
Blurring sector lines: more than half of surveyed wallet
providers offer an integrated currency exchange in the wallet
interface

69
Taxonomy of three currency exchange models used by wallet
providers

70
Nearly half of wallets providing currency exchange services
integrate a third-party exchange; 85% enable the exchange of
national currencies

71
Wallets providing national currency exchange services:
different exchange models used; only 27% control user funds

72
76% of incorporated wallet providers do not have a license, but
75% of wallets providing centralised national-to-cryptocurrency
exchange services do

73
Large wallets providing centralised national-to-cryptocurrency
exchange services have more than 4x higher compliance
headcount and cost than small wallets

74
37% of incorporated wallet providers perform KYC/AML
checks; internal checks are the preferred method

75
Wallet providers’ perception of the current regulatory
environment is mixed, and no clear trend is observed for both
small and large wallets

76
Majority of wallets based in Europe and Asia-Pacific appear to
be satisfied with the existing regulatory environment (or the
lack thereof); North American wallet providers are more divided

77
Security headcount varies considerably between small and
large wallets

78
Wallets providing national-to-cryptocurrency exchange services
have on average considerably higher headcount and cost
associated with security

79
80% of large wallets use external security providers as
opposed to only 42% of small wallets; on average wallets use
the services of three external security providers

81
48 payment companies from 27 countries are represented in
the study sample; in line with exchanges, payment companies
are geographically dispersed

82
Taxonomy of main cryptocurrency payment platform types:
payments sector can be broadly split into ’cryptocurrency-
focused’ and ‘national currency-focused’

83
General overview of the payment sector – segmented by
currency and customer focus

84
More than half of companies in the cryptocurrency payment
sector provide merchant services

85
Nearly two-thirds of payment companies specialise in a single
payment activity; merchant services most frequent

86
Cryptocurrency payment companies employ a total of 1,057
people (average: 22); more than half have more than 10
employees

87
Companies providing ’cryptocurrency-focused’ activities and
services have a more geographically diverse customer base than
companies engaged in ’national currency-focused’ activities

88
Significant differences with regard to the customer share by
region are observed between payment companies based in
different regions

89
Over 40 national currencies are supported by cryptocurrency
payment companies; global reserve currencies (CNY, EUR,
GBP, USD) are most widely supported

90
Bitcoin is the most widely used payment rail by companies
surveyed for cross-border transactions and payments

91
Majority of transactions, both in terms of value and number of
transactions, are national-to-cryptocurrency (and vice-versa)

92
For cross-border transactions, 70% are higher-value (>$100);
50% of intra-country payments are below $100

93
Business payments (B2B) have the highest average
transaction size of all payment channels ($1,878)

94
‘Customer acquisition’ cited most often as highest operational
cost factor; ‘Other’ refers in most cases to costs associated with
IT infrastructure development

95
Nearly 80% of payment companies have existing relationships
with banks and local payment networks…

96
…but the difficulty of obtaining and maintaining good
relationships with banking institutions and/or money transfer
operators constitutes the biggest challenge for this sector

97
Nearly half of payments companies do not have a license; but
almost 90% have some sort of compliance program

98
Proportion of budget spent on compliance is higher than the
proportion of employees working full-time on compliance; but
significant differences are observed between companies

99
Similar to wallet providers, KYC/AML checks are predominantly
performed internally; however they are more often
complemented by the use of other methods

100
Payment service providers’ perception of the current regulatory
environment are divided; 41% do not perceive existing
regulations, but would like to have more regulatory clarity

102
Taxonomy of mining industry actors and their activities

103
The mining industry value chain

104
Over 80% of large miners are performing multiple mining value
chain activities

105
Pool operators and miners have earned more than $2 billion* to
date in mining revenues (if immediately converted to USD)
Note: other revenues such as hardware sales, cloud mining fees, etc. are not
included; meaning that total revenues of the mining sector are considerably
higher

106
Over half of miners consider their ability to influence protocol
development to be high or very high

107
Miner self-reported influence over protocol development (e.g.,
scaling): European miners report greater influence than Asia;
North American miners report least influence
Very high
26%
High
38%
Medium
26%
Low
4%
Very low
4%
Asia-Pacific
Very
high
33%
High
50%
Very low
17%
Europe
Very
high
13%
High
25%
Medium
56%
Low
6%
North America

108
Large miners believe they have a much greater ability to
influence protocol development than small miners

109
Evolution of average hash rate distribution of major bitcoin
mining pools: figures suggest that mining has become more
distributed in 2016

110
More than half of major mining pools are based in China…

111
… but 63% of all major pools have two or more languages available
on their website, suggesting that their customer base is not limited to
domestic miners

112
Cryptocurrency Mining Map: location of public facilities and
288MW of estimated power consumption

113
Miner viewpoints on current regulatory environment: no
significant differences observed between small and large
miners

114
Majority of European and North American miners are satisfied
with existing regulations (or the lack thereof); Asian miners
would like to have more regulatory clarity

115
Miners’ position on taxation of cryptocurrencies

116
Tighter regulation to create barriers to mining/cryptocurrency
adoption and increased taxation of mining profits considered
highest regulatory risks by both small and large miners

117
Miners recognize the negative environmental externalities of
proof-of-work

118
Differences observed between small and large miners with
regards to operational risk factors and challenges; miners
based in the Americas tend to rate factors lower

119
Regular reductions in block rewards cited as operational risk
factor, but total 2016 mining revenues have been higher than in
2015 despite the bitcoin block reward halving in June

120
Three potential types of mining centralisation (control of hashing
power, location of hashing power, and location of mining
equipment manufacturing); miners least concerned about the last

121
Total bitcoin transaction fees have significantly risen in 2016…

122
…and constitute a growing proportion of total mining revenues
(more than 2x increase after bitcoin halving event in June)

123
Transaction fees as a % of total bitcoin mining revenues are
projected to reach 10% with current growth rates; often-used
argument in the heated scaling debate

124
Online Report Links
• Full report: https://www.jbs.cam.ac.uk/faculty-
research/centres/alternative-finance/publications/global-
cryptocurrency/
• PDF report download:
https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/c
entres/alternative-finance/downloads/2017-04-20-global-
cryptocurrency-benchmarking-study.pdf
• Overview article:
https://www.cam.ac.uk/research/news/study-highlights-
growing-significance-of-cryptocurrencies

125
About the Cambridge Centre for Alternative Finance
Website:
https://www.jbs.cam.ac.uk/faculty-
research/centres/alternative-finance/
Email:
ccaf@jbs.cam.ac.uk

2017 Global Cryptocurrency Benchmarking Study

2017 Global Cryptocurrency Benchmarking Study

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