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Click Ventures Blockchain Ecosystem Report 2018

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Click Ventures Blockchain Ecosystem Report 2018
- Blockchain Concept Walkthrough
- Blockchain Fundraising 101
- Cryptocurrency Regulations Update

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Click Ventures Blockchain Ecosystem Report 2018

  1. 1. 1 Click Ventures S Blockchain Ecosystem Report 2018 Proudly supported by:
  2. 2. 2 Background In alphabetical order Click Ventures Click Ventures is an early stage venture capital firm investing in highly scalable technology startups across a variety of promising sectors. Click Ventures's two seed funds have been named top performing funds (Vintage 2003-2015 Funds) globally by Preqin, We actively support the global expansion of the portfolio companies with our 1,000+ global government and speaker level connections and media network, and have created a global portfolio network and has invested across 10 countries. Funderbeam Funderbeam is creating a world where companies are funded and traded across borders. Funderbeam consists of 3 parts: 1) Free worldclass data intelligence for investors and founders; 2) Funding: Private/crowd syndicates for equity funding; 3) Trading: All investments are instantly tradable; investors choose how long to keep investment. All trades are secured by blockchain. Oddup Oddup is an indispensable resource for investors, investment banks, venture capitalists, accelerators, corporate innovators and management consultancies seeking detailed information and greater clarity in the fragmented and foggy startup sector, the ICO landscape, or the cryptocurrency investment market. is the premier source of European technology news, data and market intelligence, providing unprecedented insights into the tech startup, investment, M&A and IPO activity across Europe (including Israel, Russia and Turkey). Founded in 2013, combines solid editorial products with data-driven market intelligence reports across investment stages, geographies and sectors, as well as event, research and consultancy services
  3. 3. 3 Credits We would like to acknowledge the following for their contribution to the report Event Partners Media Partner Frederick Ng Analyst and Project Lead Click Ventures Chan Cheuk Yiu Lead Writer, Blockchain Fellow 2018 London School of Economics and Political Science Click Ventures Summer Fellow 2018 Blockchain Team Vera Ho London School of Economics and Political Science Vaishali Jain Hong Kong University of Science and Technology Tulika Gupta Harvard Business School Research Team Community Partners
  4. 4. 4 Editor’s Word Carman Chan, Founder and Managing Partner, Click Ventures True to its form, the Blockchain ecosystem has gone through yet another eventful, somewhat crazy year in 2018. We witnessed the rise and fall of ICO and crypto prices, the emergence of security token offering and stablecoins, invention of new investment methods like the SAFT and many other new innovations that we all need to learn about- this is the reason why we have decided to produce this Blockchain Ecosystem Report to consolidate these learning, At Click, we are truly excited about the Blockchain disruption. It has the potential to render many of the current world’s inefficient processes obsolete, solve many real world problems that involve trust or the lack thereof, create new asset classes, and automate many procedures as the smart contract technology grows more sophisticated over time. As the technology and ecosystem evolve, I am sure we will discover many more use cases across industries and verticals along the way. With these in mind, it is my pleasure to present to you the inaugural Click Ventures 2018 Blockchain Ecosystem Report. Our heartfelt thanks go out to our global partners at Tech,eu, Funderbeam and Oddup, without whom the report will not be completed with such a global coverage. Happy reading!
  5. 5. 5 Section 1: Blockchain Concepts Walkthrough b Section 3: Cryptocurrency Regulations Update c Section 2: Blockchain Fundraising 101 g Section 4: Data Collection Methodology and Background h Blockchain in a nutshell Blockchain 1.0/2.0/3.0 and Smart Contracts Consensus algorithms and Types of Blockchain Blockchain use cases- selective examples and selected corporate use cases Leading consortiums/initiatives Current Blockchain Limitations ICO ecosystem player list ICO vs STO vs IPO vs VC: Conceptual differences Current state of ICO: fundraising figures What is token: Utility vs Security Tokens Types of Token Sales Other Interesting Use cases: conversations on the ground
  6. 6. 6 01 Blockchain Concepts Walkthrough Blockchain Fundraising 101 02 03 04 Cryptocurrency Regulations Update Data Collection Methodology and Background
  7. 7. 7 A blockchain is a general digital ledger of transactions that are executed on the network, e.g. using Bitcoin to buy a cup of coffee is a transaction. All users of the network, ‘Nodes’, have a copy of the transaction records and can access them freely, a role previously played by centralized institutions. Therefore, the blockchain network is ‘decentralized’. Transaction records within the blockchain are grouped into ‘blocks’. These blocks are time stamped when they are created and ‘chained’ in number order of a block. Some users of the network put up computational power or tokens at stake (miners/validators) to validate the blocks of transactions, and check that transactions records are not tampered with. As an incentive, tokens (e.g. some Bitcoins) are given as reward for their work, in transaction fees and/or block rewards. . For example, bitcoin miners are given Bitcoins and Ethereum validators are given Ether. Blockchain in a Nutshell Source: Agiboo
  8. 8. 8 Blockchain 1.0 is the creation of cryptocurrency, a virtual currency used for payment purposes derived from the combination of cryptography and currency. Bitcoin is an example of Blockchain 1.0. ‘Cryptography’- Miners collect the transactions and compete by solving a cryptographic problem. The winner can generate the ‘hash’ (turning large chunks of transaction data into a line of numbers that represents the transactions) to add to the blockchain using the cryptographic algorithm. ‘Currency’- comes in the form of tokens, which is used to trade value securely. Miners collect the new transactions into a block, then attempt to hash the block to form a 256-bit block hash value using trial and error. Most of the time the hash proves unsuccessful, in which case the miner will make slight modifications to the block and try hashing the block again, over and over billions of times. If the hash starts with enough zeros, the block has been successfully mined and is sent into the Bitcoin network, where consequently the hash becomes the identifier for the block. Whenever some miners successfully mine a block, the process begins anew. The successfully mined block is almost impossible to tamper with because all previous blocks need to be re-encrypted in order to change the transaction records in the block. As the network is decentralized and there are many copies need to be re-encrypted, the bigger the network, the more computing power it takes, and so bad actors are disincentivized to cheat the system. Blockchain 1.0: Currency Source: Slideshare
  9. 9. 9 Blockchain 2.0 is the introduction of smart contracts on a protocol, such as Ethereum or NEO. Smart contracts are sets of programmable and executable rules/logic that are irreversibly stored on the blockchain. When both parties have met the pre-existing criteria, the agreed terms are automatically executed. Project build application on a decentralized peer to peer network is often referred to as ‘dApp’, where the project’s related transactions are decentralized across the network, so there is no single point of failure. ‘Outcomes’ on the smart contracts are stored on the blockchain. Every party on the protocol has a copy of these ‘outcomes’. For the smart contract to be processed and validated on the network, some operational tokens (GAS, NEO Gas) are paid for the verification. Blockchain 2.0: Smart Contracts Source: Blockgeeks Editor’s Note: The Ethereum network uses a concept, “gas” for transactions, and the gas fee is denominated in ether (also called as Gwei in the case of GAS). NEO has its own GAS asset which has a separate value from the main native currency.
  10. 10. 10 In general, Blockchain 3.0 refers to attempts of applying the concept of blockchain to different sectors where the technology can be useful in tackling hard issues, such as situations where coordination between parties (i.e. standards organisation, industry group, multilateral organisation, international treaty) is difficult or where lack of trust amongst multiple parties exist. Blockchain 3.0 also includes attempts to fine tune the protocol in order to speed up transaction approval speeds (increase throughput), manage token price volatility and achieve interoperability between protocols (e.g. swapping Ether with NEO and make sure both protocols are compatible). Blockchain 3.0: Other applications of Blockchain Some of the use cases explored in Blockchain 3.0 Source: Intelligent HQ Editor’s Note: Blockchain is designed as an incentive system that can operate by a set of predefined rules and in ideal cases does not need a centralized body to manage and govern. All parties trust these set of rules and logics instead a centralized body, so all parties can transact without trusting each other- hence ‘trustless’. Following this set of predefined rules enables full automation and therefore creates the possibilities of software that can automatically execute transactions and tasks, pay and be paid, totally self sustained and powered by AI to improve themselves- the vision of “autonomous business agents”.
  11. 11. 11 In layman terms, consensus algorithms are mechanisms created to verify transaction records agreed by all parties in the blockchain network. They encode the fundamental principles for resolving disputed transactions among the parties in a blockchain network. As the design of blockchain is decentralized, this is facilitated through the design of distributed consensus. Proof of Work is the first generation of consensus algorithm. Computers in the network (miners) collect transaction records into a block and pass them through a computationally intensive hashing algorithm multiple times to make sure it produces a line of numbers that correlates with the block, solving a cryptographic problem. When completed, the hash becomes a validator of the block of transaction. After the block is validated and completed, they are then time stamped and broadcasted so that everyone (nodes) has a copy of the record. Many PoW protocols achieve alignment of incentives by distributing token based rewards to miners who provide the validation service to the network. As transaction volume and currency velocity goes up, so does the value of the currency which attracts more miners to the network. Consensus Algorithms: Proof-of-Work (PoW) Source: Lisk Academy Editor’s Note: The process evolves around “cryptographic problem” solved by trial and error, which consumes much computing power. Miner proves its integrity by doing the work. This mechanism also provides the “randomness” so that theoretically no miner can predict and take control of the network. As an incentive, block reward or transaction fees, in terms of token or cryptocurrencies, are given to the first miner who solves the cryptographic puzzle.
  12. 12. 12 The 51% attack poses a theoretical risk to the integrity of the blockchain when a group of miners take control of more than 50% of the mining capability (hashrate) of the network. A PoW algorithm is secured by having all miners (computers processing the networks transactions) agree on the blockchain. Nodes look to each other to verify what they are working on as the valid blockchain, acknowledging the longest chain as the true version of the blockchain because more hashing power has been committed to it, hence denoting that the majority agrees to this version. If the majority of miners are controlled by a single entity, they have the potential to create the longest chain, dubbed the ‘truthful chain', forming the basis of all balances of wallets. The corrupted group miners can purchase a house, for instance, and broadcast the transaction to non-colluding nodes on one version of the chain, while continuing to mine transactions from the network forming another version of the blockchain without its order to purchase a house, and not broadcasting this alternative chain to rest of the network. Once the purchase is complete, and the corrupted miners use their superior mining power to create a longer chain by forming transaction blocks “quicker”, they can post the longer, hence `truthful` version of the chain to the network without its house purchasing transactions. This will be recognized as the truthful version without the tokens spent, allowing the wallets to be replenished and the entity to double spend its tokens again. Therefore, blockchain needs to be highly decentralized with a significantly big network to avoid any entity taking 51% control. The 51% attack and the Double Spend problem How a 51% Attack may occur Source: Coinmonks Editor’s Note: As miners are competing with computing power and speed of solving the cryptographic problem, theoretically, quantum computing can change the dynamics by solving the problem much quicker than the network consistently and therefore able to undermine integrity of the whole system.
  13. 13. 13 Proof of Stake is a structure which does not utilise miners, but instead uses validators. The creator of the next block is chosen via a combination of random selection and the amount of tokens he or she owns (wealth) or how long he or she owned (age) (i.e. the stake). In order to validate transactions and create blocks, the validators (the forger) must first put some of their own coins at ‘stake’. If a person validates a fraudulent transaction, he or she would lose the stake deposited. In some projects, they will further punish the “cheater” by removing their rights to participate as a validator in the future. As an incentive, the validator takes transaction fees (in the form of tokens) instead of block rewards. Consensus Algorithms: Proof of Stake (PoS) Source: Hackernoon
  14. 14. 14 Delegated Proof of Stake uses a limited number of nodes to propose and validate blocks to the blockchain. This can increase the transaction speed and thus solve the scalability problem of PoW. Some projects that use DPoS includes EOS, Ark, Bitshares and Steem. The above figure illustrated one example of the DPoS. Those who get voted in are called delegates/witnesses. Tokens are given to the top 100 witnesses and the top 20 witnesses are paid regularly. The users’ vote strength depends on the amount of tokens (stake) they own. The more they own, the more influence the person has on the network. However as the community grows, it's going to become increasingly hard to remain a witness due to increased competition. With voting being ongoing and constant, the desire to remain being a witness help to maintain a high quality of work in validating transactions. Consensus Algorithms: Delegated Proof of Stake (DPoS) Source: NK Editor’s Note: PoS has a disadvantage that people with less token holding (stake) has less chance to be a creator of the next block. DPoS solve this problem by allowing the small holders to vote for their representatives, namely delegates/witnesses who are the trusted entities to execute the block creation. On the other hand, small holders can also vote out these previously selected entities if they cannot be trusted.
  15. 15. 15 There are two major types of blockchain- public chains and private chains. Federated chain is a subset of Private chain. High profile blockchain protocols Ethereum ,EOS, NEO are public chains. Public chain’s main differentiation from private chain is that it is open to anyone to participate, from downloading the blockchain data to viewing the network’s past transactions, to validating data as miners/validators on the network. In these public chains, participants remain anonymous. Private blockchains are open to a limited number of participants whose identities are all known, allowing only internal, pre-approved parties to write on the blockchain. There are two forms of permissioned blockchain: fully private, or federated chain. The private blockchain operates within an organization, while the federated chain operates between organizations. Currently, one big difference between public and private chains is the transaction speed. Private chains operate much quicker, because only a handful of pre-approved nodes need to speak and verify with each other, while public chain need to reach consensus across potentially hundreds and thousands of nodes. Source: Toptal Types of Blockchain Public vs Private vs Federated Blockchain Large corporates tend to work with vendors like IBM to develop private/federated chains.
  16. 16. 16 A lot of promises have been made regarding the blockchain technology, but most innovations observed, up to 2018, involve using blockchain for disintermediation, indexing and storage of data under one immutable, shared ledger, process automation using immutable smart contracts and attempts to build autonomous agents to trade blockchain recorded data. Initiatives are trying to use smart contracts to help the property market become more efficient through implanting conditional clauses to execute real estate transactions as participated by multiple involved parties, reducing back-and-forth time and associated overheads, while creating immutable price history for a property. Blockchain has the potential to record rental and purchase contracts into one blockchain ledger visible to multiple parties, as well as eradicating the need for third party intermediaries. Other potential use cases include title search. All the information, including the registration of mortgages, other liens and encumbrances, can be indexed on the blockchain network, reducing the need of a title Insurance. This leverage the indexing ability and traceability of blockchain. In 2018, several blockchain projects have targeted at tokenizing property ownership, including the highly anticipated Harbor protocol, to introduce a more standardized and cheaper way to achieve seller financing, joint purchase (vs partnership or setting up a corporation to buy) or fractional ownership, as well as represent ownership and governance of common spaces and other factors. Real Estate Blockchain use cases 1 Source: Deloitte
  17. 17. 17 Cryptokitties, an Ethereum based game, where ownerships of virtual kitties are recorded on the Ethereum blockchain, have attracted the likes of A16Z and Union Square Ventures, among other venture capital firms and investors, to put US$12M in March 2018 for this blockchain based gaming project. Gaming has long been plagued by intellectual property theft of in-game items including virtual character skins, in-game tools among others. Virtual assets can be recorded on an immutable blockchain ledger to help prevent these types of theft. A hacker will have to ensure that the right nodes in the decentralized network are hacked with accurate timing, decipher through hashed blocks and overwrite previous blocks in order to complete a gaming asset theft. Gaming Blockchain use cases 2 Source: Cryptokitties Editor’s Note: In the past, developers have tried to create markets for virtual items within their game worlds or cross-game platforms. However, the virtual items are stored via centralized hosting and according to the modern intellectual property rules, this makes those virtual items the property of the company instead of the player. Therefore, blockchain enables the virtual items, price and transaction stored in a distributed ledger and thereby facilitates a totally new asset class for these virtual items in the industries such as digital art, gaming and virtual reality to form.
  18. 18. 18 Advertisers face the problem of gaining measurable ROIs on advertisements due to proliferation of click bots which masked the real engagement rates with potential users. By verifying real users with their blockchain identities. This potentially gives advertiser the ability to measure real interactions. Examples like the BAT projects reward users who voluntarily opt-in to target advertising online. The consensual nature of the blockchain network also mean that the control of personal data is given back to the users, and any use of data can be traceable by the blockchain. This can potentially reduce the misuse by a centralized institution which can hold one’s data and resell to advertisers without the users’ acknowledgement or consent. Marketing and Advertising Blockchain use cases 3 Source: BAT A blockchain enabled digital marketing ecosystem proposed by the Basic Attention Token project.
  19. 19. 19 As an illustrative example, during the recent Double-11 sales, China based Ant Financial collaborated with e-commerce giant Alibaba to track the origin of up to US$150M worth of products sold during the 24-hour sales worldwide. In the case of e-commerce and retail, the current state of blockchain technology is utilized to index the source of goods, from production to delivery, immutability to offer transparency in the production and delivery process, adding to consumer confidence. Initiatives such as IBM Food Trust sees mega retailers including Walmart and Unilever leveraging blockchain to add transparency to food supply chains. E-Commerce and Retail Blockchain use cases 4 Source: HK Silicon
  20. 20. 20 In the world of criminal law, the chain of custody can be indexed and stored on an immutable ledger when evidence went missing or being accidentally destroyed. Using blockchain to store and standardize all of these evidence could cover the function of a paper trail, but become indestructible with decentralized ownership of the records across the nodes on the network. Other applications within the legal field leveraging similar characteristics of blockchain include patents, licensing and IP rights (copyrights, trademarks). Smart contracts, which can potentially be programmed in clauses detailed in a physical contract, may help to eliminate litigation and turn commercial lawyers into advisory function. Law Blockchain use cases 5 Source: Kinesense How Blockchain may be applied in the Criminal Law field.
  21. 21. 21 One case where blockchain finds a use case in healthcare is to address the drug traceability problems. 10% to 30% of the drugs sold in developing countries are counterfeit, and the counterfeit drug market is an annually US$200B problem. With a private blockchain with verified parties, including manufacturer, wholesaler, pharmacist and patients acting as nodes in the blockchain network, each new transaction added to a block is immutable and time stamped, making it easy to track a product and make sure the information cannot be altered. The intrinsic properties of blockchain — such as data security and authenticity — can help in tackling some other major problems in healthcare, including indexing clinical trial results (immutability) to avoid trial result forgery, collecting individual health data from wearables and other IoT devices and storing them on a permission based distributed ledger, and electronic medical billing supported by smart contract executions amongst other use cases. Healthcare Blockchain use cases 6 Source: IBM Blockchain
  22. 22. 22 Cross border trade finance requires exchanges for paper-based documentation related to letters of credit which usually take between 5- 10 days. Through using blockchain ledger trusted by multiple involved trade parties, the exchange was demonstrated to be executed in 24 hours. The use of smart contracts also has the potential to facilitate process automation in different stages of a cross border trades, which is to be executed upon satisfaction of pre-conditions, such as bills of lading and invoice financing based on blockchain certified events, with less human supervision and quicker execution time. Trade Finance Blockchain use cases 7 Source: Deloitte Editor’s Note: A lot of the blockchain applications are created around increasing efficiency with automation. In the above use case, users who has already applied trade financing are recorded on blockchain, thereby reducing the risk of duplicated financing from two different providers on the same trade or invoice.
  23. 23. 23 Special Team Bank of investment Mining BHP Billiton will use blockchain to record the movements of wellbore rock and fluid samples, and better secure real-time data Corporates Experimenting with Blockchain Selected corporate blockchain use cases Energy Supply Chain Petmex, a Mexican state owned energy company, explores using blockchain to manage the complicated web of suppliers and business operations Remittance Santander uses xCurrent, Ripple’s payment processing solution, to settle transactions Syndicated Loans Using a private blockchain, BBVA was able to arrange a $150M loan for Red Electrica along with co-lenders MUFG and BNP Paribas Healthcare Provider Data United Healthcare and other providers store updated data on blockchain to reduce lengthy payment reconciliation process due to inaccurate data Car Purchase Docusign and Visa built a prototype to use smart contracts to simplify leasing or buying a car, allowing buyers to complete the transaction electronically Flight Delay Insurance AXA digitally records flight insurance in smart contracts connected to global air traffic data feed. Policy holders are automatically compensated in delays. Fighting Counterfeit Drugs Pfizer uses federated chain to track drug identifiers and who touched what drug at what time, making it difficult for counterfeit products to enter the production chain
  24. 24. 24 Selected Blockchain Consortiums Formed by 250+ corporate members and led by the non- profit Linux Foundation Consortium includes 80+ of the world’s largest financial institutions, regulators, and central banks Backed by JP Morgan, CME Group, Microsoft and 380+ other members Leading Blockchain Consortiums Some of the leading names across sectors Insurance Supply Chain Automotive Healthcare Legal Gaming Transport Trade Finance Risk Management Energy
  25. 25. 25 THROUGHPUT Throughput is essentially the speed at which transactions can be processed, factoring block difficulty and costs. The limiting throughput limits the ability of a blockchain to scale by handling more transactions. The speed of the network is only as quick as it takes for the consensus mechanisms to verify transactions (PoW, PoS, DPoS), measured by transactions per second. Bitcoin can only process 7 transactions per second due to the amount of work miners have to do (proof of integrity by proof of work) before they can validate a block of data. Ethereum can only process 20 transactions per second in its proof of stake algorithm. The current transaction speed of Blockchain platforms do not measure up with traditional transaction methods such as Paypal and Visa. throughput interoperability privacy volatility Current Blockchain Limitations 1 storage Source: Howmuch,net Editor’s Note: As PoW is slow and energy consuming, new designs for the consensus systems aim at increasing the transaction speed and also reducing the energy consumption so that they are more scalable and environmentally friendly..
  26. 26. 26 Interoperability is the ability to share information freely across different Blockchain protocols. One of the major limitations of the Blockchain platforms currently is that information on different chains cannot be shared. (the information on Bitcoin cannot be shared with the information on Ethereum and vice versa). The smart contracts underlying decentralised applications also vary, depending on the Blockchain platform. As such, we are still faced with the problem of data silo, where information is ‘centralised’ on one platform. Current Blockchain Limitations 2 Just a snapshot of a small part of the blockchain ecosystem at the moment, Interoperability among all these projects is a big challenge Source: COMPOUND INTEROPERABILITY throughput interoperability privacy volatility storage
  27. 27. 27 As all users of the public blockchain network can view the past transactions and activities on the blockchain, privacy is an area of concern. On the other hand, in a lot of the blockchain projects, users are only linked to a private key instead of personal identity. Therefore, there are risk of money laundering kind of activities. Current Blockchain Limitations 3 Examples of Privacy Coins Source: Steemit PRIVACY throughput privacy volatility storageinteroperability Editor’s Note: Blockchain is transparent in terms of transaction data and therefore it leads to privacy issue. For example, if a user is using the same address for all related activities, a malicious user can trace the public address and all its past transactions in attempt to reveal information and benefit from so. On the flipside, in the early days, users of cryptocurrencies do not go through strict KYC (Know your Customer) process and central record-keeping mechanism (like banks) and therefore regulators find it difficult to trace the identity of the users linked to a public address with suspicious activities, as public blockchain users are anonymous.
  28. 28. 28 Volatility is the measure of the price deviation of a financial asset over a given period of time. Four years of volatility in the stock market can be covered in a month in the cryptocurrency markets as demonstrated in 2018. Therefore, it is safe to say the value of cryptocurrencies are extremely volatile to this date. This volatility makes it difficult for cryptocurrencies to be used reliably for day- to-day transactions or holding cryptocurrency as assets. Current Blockchain Limitations 4 Examples of Bitcoin Volatility Source: Coindesk VOLATILITY throughput privacy volatility storageinteroperability Editor’s Note: There are many discussion around this topic - some argue that cryptocurrencies do not have intrinsic value, and therefore it is difficult to value its price; some also argue the lack of regulatory oversight allows for market manipulation which introduces volatility in crypto prices.
  29. 29. 29 STORAGE ISSUES A ‘wallet is a software that stores cryptocurrencies and part of what enables a person to send and receive cryptocurrencies. It stores the private key (a randomised 256-bit long alphanumeric password shared only the user to decrypt messages encrypted with a sender’s public key) which enables access to crypto tokens. Various forms of wallets exist, from hot wallets (accessible on internet) to cold wallets (not accessible on internet, e.g. a USB drive or a piece of paper which one uses to write the password) are available. Storage of cryptocurrencies have long been a concern to the space because of the vulnerability displayed by various hacks over the course of cryptocurrency history. Current Blockchain Limitations 5 A history of cryptocurerncy thefts. Souce: Insider Pro throughput interoperability privacy volatility storage
  30. 30. 30 Other Interesting Use cases: conversations on the ground To further illustrate the most up to date activities, hot topics and use cases in the blockchain ecosystem, Click Ventures has partnered with a few industry leading events such as Money20/20 and Token 2049 among others to interview the most exciting ecosystem players and project owners to share their innovation and observations. Click Ventures is launching VC on Air, a Podcast and video streaming platform to interview industry heavyweights (top entrepreneurs, venture capitalists and leading figures in the startup ecosystem) to brings together a knowledge sharing community in Asia. Stay tuned to our media channel for more. Read the following session to get a preview for some interesting conversations we had in 2018!
  31. 31. 31 Federico Ast Co-Founder, Kleros Edmund Lowell Founder, SelfKey* Conversations on the ground Project owners Existing centralized systems e.g. e-commerce site solving a purchase order dispute does not have their incentives aligned to solving the dispute“. For instance, if the online site has a very small number of customer service reps, so their incentive may be to solve the dispute as soon as possible, but not correctly. Kleros attempts to build a blockchain powered arbitration service provider, allowing people to outsource their disputes to a jury which purchases and stakes tokens to resolve a dispute to get rewarded later for its input, all the while their voting decisions all made visible on an immutable blockchain for the network to judge whether the jury has been fair. By doing so, it aims to inject trust into the dispute resolution process.” “Blockchain injects trust into the dispute resolution process” “Know-your-customer is a painful and repetitive process when opening accounts at financial institutions… The whole KYC process is very inefficient in the current traditional industry.” . Banks cannot quickly and easily access up-to-date identity data, validate the data, or screen it to satisfy their regulatory requirements. Different departments in the same bank may need to do the KYC process from scratch again when their clients need to apply for a service from another department. SelfKey tries to build a blockchain based digital identity so that a user only needs to upload personal detail once, and sends them to the counterparty to validate via blockchain. Due to the immuatable nature of blockchain, the owner may then make attestations of his/her truthful identity verified by other trusted parties on the network, instead of sharing the same identity proofs over and over again. *Selfkey is a Click Ventures portfolio company
  32. 32. 32 Conversations on the ground Blockchain Infrastructure Builders iComply attempts to complete the compliance layer in the blockchain ecosystem, allowing crypto exchanges and projects to conduct compliant token issuance and secondary trading with coverage of 150+ jurisdictions globally. It also enables projects to achieve full cycle token management (think cap-table management for the crypto world), and builds a global database bridging the blockchain and non-blockchain world of both compliant and non- compliant crypto transactions. *iComply is a Click Ventures portfolio company “In order for legitimate ICO projects to be successful, they require a mechanism to manage the compliance of their tokens that addresses the jurisdictional variances in both regulation and corporate governance” Matthew Unger Co-Founder, iComply* Token issuance platforms face challenges from multijurisdictional operations as they attempt to cope with the requirements from the SEC, CFTC, FINRA and FinCEN (just US ones) and other different regulations across various jurisdictions. Paradex believes that everything that can be tokenized and will be tokenized. In order for the token economy to be adopted by the mass, they need to be easily accessed. Facilitating an easy-to-use way for early adopters to buy/sell tokens directly at their wallets is one path of achieving so. Paradex hopes to build robust, peer-to-peer relay where users from all parts of the world can buy and sell ERC20 tokens on the Ethereum blockchain in a decentralized fashion. Ron Berstein CEO,** “Airdropping creates network effect. If you can distribute them in an easy way, receivers get more exposure to the tokens” ** was acquired by Coinbase in May 2018
  33. 33. 33 Conversations on the ground Token Issuers “Security token has the potential to assist seamless, global, capital formation; instantaneous settlement for unique, unforgeable assets, and lowers security trading fees, among others.” Security token has the potential to assist seamless, global, capital formation; instantaneous settlement for unique, unforgeable assets, and lowers security trading fees, among others. In order to make this upgrade possible, Polymath believes there needs to be a standard for security tokens that utilizes these benefits while satisfying regulations, and is thus building the ST-20 token standard. With a standard in place, security token issuers, investors, exchanges, wallets, custody providers, and regulators can become comfortable with this technology, interoperability becomes easier, and adoption can be widespread. Thomas Borrel Chief Product Officer, Polymath “Our vision is to create a token for any asset in the world and trade with each other” Michael Oved Co-Founder, Airswap Centralized exchanges have proven themselves to be vulnerable to hacks as demonstrate by the many past instances. AirSwap is building a decentralized exchange powered by search. Buyers, sellers, people and programs can connect and trade wallet to wallet using smart contracts. It plans to use smart contracts on the Ethereum blockchain to pair up buyers and sellers automatically, eliminating the need for a central authority to match trades.
  34. 34. 34 Conversations on the ground Investor and Consortium “I was impressed and inspired by the Hangzhou Internet Court’s use of the blockchain technology to settle disputes” The Belt and Road initiative covers 65 economies with expected increase in trade activities amongst these countries as the initiative rolls out. As supply chains evolve into highly automated, data-driven ecosystems, these countries will need the transparency, immutability and accountability that blockchains provide to reduce trade friction. For trade that originates or terminates along the 65 Belt and Road economies, the Belt and Road Blockchain Consortium “strives to develop buy-side business standards for “Electronic-ID Disputed Resolution Processes and standardized interoperable smart contract standards that increase trust and transparency in cross- border trade.” Will Wang Head of BD and Investment (North America), Huobi ECO Some institutional investors in the blockchain space is investing to build an ecosystem. For instance, Huobi Group set up the Huobi Global Ecosystem Fund, a US$200M fund to support blockchain funds, incubators, wallets, miners, market data vendors etc. They also initiated the Blockchain+ Industry Alliance for the purpose of better serving the real economy and helping companies in traditional industries adopt blockchain technology and the token economy. Pindar Wong Chief Architect, Belt and Road Blockchain Consortium
  35. 35. 35 01 Blockchain Concepts Walkthrough Blockchain Fundraising 101 02 03 04 Cryptocurrency Regulations Update Data Collection Methodology and Background
  36. 36. 36 ICO is a fundraising method used by blockchain startups to sell new form of cryptocurrency or token that can be used in the product/service they wish to build in the future, in exchange for fiat currency, or common cryptocurrencies such as Bitcoin or Ether to support their development now. At the time of the ICO, most instances the product isn’t ready for launch yet. Also, because of laws around securities, companies usually try to issue utility token instead of security tokens to avoid the regulatory overhead. The ICO is thus similar to a pre-order for product or services (i.e. utility) provided by the company. Unlike an IPO, the company does not sell its shares or its control over the company (non-dilutive) if they are issuing utility token. The fundraising target is to meet at least the ‘soft cap’ (minimum amount). If the ‘soft cap’ isn’t met, the funds are returned to the investors. If the soft cap is met, the company can still allow oversubscription until the hard cap is met if such is defined at the beginning of the fundraising project. The tokens can then be listed on cryptocurrency exchanges (similar to an IPO) where people can trade the tokens. Initial Coin Offering (ICO) ICO vs STO vs IPO vs VC: The Conceptual Differences Editor’s Note: One difference of ICO and KickStarter kind of crowdfunding is that companies usually list their coin or token in an exchange (like securities in IPO) and thus provide a secondary market for the token trading as well as potential speculation opportunities in some cases. Source: IEC
  37. 37. 37 In 2018, especially towards the second half of the year, STOs becomes the buzzword as the ICO hype slowly faded away. Security token issuance platforms such as TZero, Harbor, Polymath, Securitize have raised funds in 2018 to chase this vision. A security token can be digitally represent any number of real-world assets, from resorts to loans, to shares of a company. Security tokens are subject to securities regulations related to the issuing country of the STO and different country has different securities rules and it represent investor rights, where in contrary many utility tokens that raised funds through ICOs may not give the same assurance of rights as an STO. The vision of security token offering is to turn initially illiquid real world assets could potentially make them easier to access and trade over the internet, thereby increasing liquidity and unlock a more global capital market. Greater efficiency may also be achieved if smart contracts can be deployed such as to execute dividend payouts, ensure voting rights amongst other privileges enjoyed by a shareholder, all the while reducing overhead to monitor these payouts, paperwork required and potentially undercut middlemen who charge premium to structure these securities. Security Token Offering (STO) ICO vs STO vs IPO vs VC: The Conceptual Differences Editor’s Note: Security Token embraces innovation in a way that the underlying security could be in different form instead of company shares alone. For example, it can be tied to the revenue sharing of a certain product or project without diluting the shares of the company at all. Exchanges that provide security token trading would also be subject to the security regulations. Source: The Block Securities Token Exchanges provide secondary trading to investors globally while most stock exchanges mainly provides trading to local investors. Enabling multi-jurisdiction regulations and automate the transactions according to regulations from different jurisdictions of the potential buyers and sellers is a must in order to make Security Token exchanges viable.
  38. 38. 38 Initial Public Offering (IPO) ICO vs IPO vs VC: The Conceptual Differences For illustrative purposes on explaining how IPO works. Source: NYSE Unlike ICO, the listed company is legally obliged to answer to its shareholders and the process of listing is dilutive as the public hold shares to the company. A company first sell its shares or stocks on a public exchange to expand and raise funds for its usually already-mature business. The process of the IPO is heavily regulated. The company must meet a number of legal requirements before launching an IPO.
  39. 39. 39 Venture Capital (VC) ICO vs IPO vs VC: The Conceptual Differences Source: Harvard Business Review Companies (including blockchain projects) reach out to Venture Capital firms to injection of capital in an early stage. As early stage startups normally lack access to bank loans or public capital markets, venture capital funding is one avenue for them to expand and fundraise. At this point, the company may or may not have a working product. The fundraising process from venture capital firms is dilutive as they typically take shares in the company. In return, venture capital firm provides monetary resources, technical and managerial expertise. The fundraising process helps projects raises funds from the institutional investors (the VCs), who are usually backed by other institutional investors and accredited investors.
  40. 40. As evidenced by the Top 10 list, the ICOs that raised the most amount of funds in all time were largely restricted to the 1H 2018- a telling sign of the eventual market slowdown in 2H 2018 along with the crypto market crash. Our on-the-ground observation is that many projects have switched to conducting private sales targeting institutional and accredited investors as the sentiment towards ICO projects went south. Also noteworthy but not on the all time top-10 list are Basis, which raised US$133M in April 2018, and tZero, which raised US$134M in August 2018 respectively, representing market interest in Security Token Offering (STOs) and Stablecoins. Top 10 Projects by Fundraising Amount of all time Ranking Name Founding Team from Registered Short Description Funds raised (US$) ICO Date 1 Hong Kong Cayman Islands is a software company that is producing the EOSIO blockchain platform for the development of decentralized applications (dapps) $4.0B 1 June 2018 2 Telegram Russia Great Britain* Telegram is like privacy focused instant messaging application $1.7B 1 May 2018 3 TaTaTu N/A Cayman Islands TaTaTu is a video-on-demand and social platform to reward users for watching movies, music videos, sports, gaming and celebrity content, and get rewarded for watching and posting content. $575M 30 June 2018 4 Dragon Macau USA Dragon is creating tokens that can be converted to chips at its physical casinos in Macau, and used to watch movies and sports $320M 15 March 2018 5 Huobi China SGP Huobi Global is a cryptocurrency exchange $300M 28 February 2018 6 Tezos Israel USA Tezos is a self-amending cryptographic protocol that supports smart contracts and offers a platform to build decentralized applications $232M 12 July 2017 7 Filecoin USA USA The Filecoin network hopes to allow anyone worldwide to participate as storage providers. It also makes storage resemble a commodity or utility by decoupling hard- drive space from additional services. $205M 9 August 2017 8 Sirin Labs GBR GBR Sirin Labs produces FINNEY, which are blockchain enabled smartphones. $158M 24 December 2017 9 Bancor Israel CHE Bancor is a decentralized liquidity network that provides users with a simple, low-cost way to convert tokens directly from their wallets $153M 10 June 2017 10 The DAO N/A N/A** The DAO dubbed itself as the first 100% Decentralized Autonomous Organization $152M N/A All data Insights provided by data partners Funderbeam, Tech.Eu, Oddup, tracking across 298 successfully completed and announced ICOs in 2018, including and Telegram. Editor’s Note: As more blockchain related project moves toward token private sales by selling token related interests instead of company shares like traditional VC funding round, some of the new funding arrangements such as SAFT (Simple agreement of future token) instead of SAFE (Simple agreement of future equity) emerged. Also emerging are convertible tokens that can be converted to shares or shares that can be converted to tokens. * British Virgin Islands ** The DAO is a multi-jurisdictional attempt
  41. 41. Rest of the World ranked 1st globally in terms of ICO fundraising in 2018. This needs to be considered along the fact that the's US$4B ICO (representing the EOS protocol) falls under this region with its registered entity at Cayman Islands. Discounting this, around US$700M has been raised across 9 fundraising instances this year. By the count of ICO fundraising instances and associated ICO fundraising amount, Rest of the World retained its ability to attract larger fundraising projects, including and Tatatu in 2018, and Filecoin (US$257M), Tezos (US$232M), Sirin Labs (US$158M) and Bankera (US$153M) in 2017. Europe came 2nd by counts of total ICO funding raised as well as ICO fundraising instances. The ICO fundraising amount takes into account of Telegram's US$1.7B megaround. Discounting that, US$1.8B was raised across 69 other counted ICO fundraising instances, with BVI taking 17 of these instances including Telegram, Switzerland (6), Gibraltar (6), Lithuania (5) and Estonia (4). Asia attracted significant amount of ICO fundraising interests as Singapore positioned itself as a friendly cryptocurrency hub, championing blockchain initiatives such as the Project Ubin on the central bank level, and offering clear regulatory guidelines as early as end of 2017 as to what ICO projects fall under regulation of Monetary Authority of Singapore. Funderbeam’s database showed the quickest ICO fundraising amount growth in Asia with total annual recorded ICO funding growing from US$428M in 2017 to US$2.3B in 2018. North America ranked lowest in ICO fundraising amount on the database. From our observation, many ICO projects would restricted US domiciled investors from partaking in the ICO fundraising exercise due to regulatory requirements. As a result, the database showed that total ICO fundraising amount in North America in 2018 grew only 39% year on year, while Europe grew 86% (discounting Telegram) and Asia grew close to 537% year on year as mentioned above. Total funding including VC and ICO Just ICO ICO vs Total Funding (Including VC) in 2018
  42. 42. Lithuania announced the LBChain in early 2018, a regulatory sandbox initiative led by the Bank of Lithuania scheduled to come live as early as 2019. It published a document of ICO Guidelines that clarified on regulation, taxation, accounting and Anti- Money laundering requirements of Lithuania based projects. Israel, which housed Tezos, one of the most prominent ICOs in 2017, announced that it would not ban ICO in late 2017, pushed out a clear tax code on crypto related companies in February 2018, and its Securities Authority established clear definition of whether a token constitutes as utility token or security in March 2018. Canada dropped to the 10th on the table with minimal ICO fundraising movements, only registering 5 recorded ICO project fundraising instances with less than US$40M announced raise in 2018. Editor’s Note: Also worth mentioning is Thailand, which announced an ICO portal for projects that took effect on July 16 setting very clear frameworks on token categories (utility vs security), issuance company requirement among other requirements Detailed information on this can be found here. US($) Top 10 ICO fundraising by country of all time Given all the ICO fundraising activities in 2018, how did it change the Country league table of ICO fundraising of all time? Cayman Island and United Kingdom shot to the top of the league table in 2018, previously unseen in 2017, bolstered by the US$4B fundraising and US$1.7B Telegram fundraising. Names that dropped out of the league table, compared to 2017, include Hong Kong and Finland. These are replaced by Lithuania and Israel, both countries pushing out regulations to promote transparency within the field.
  43. 43. Editor’s Note: Moving into 2H 2018, less than US$1B has been raised across our recorded ICO fundraising instances. This is a key takeaway as it denotes a clear cooldown for the ICO fundraising market. US($) The grey line shows the average round-sizes of global startup funding for all types of funding across stages, including ICO rounds. The pink line shows only the average ICO round-sizes. All data is from 2015 onward. Average Fundraising Round Size (Global) all time Across 298 recorded ICO fundraising instances in 2018, including and Telegram, this brings an average ICO fundraising attempt of early stage blockchain projects in 2018 to on average close to US$45M, a staggering amount for many projects are in its early stage of development. As a reference, this amount brought ICO projects' total fundraising amount close to a North America Series B after startups' average round size (US$47M). It is however important to note that most of this fundraising activity happened in 1H 2018, during which 243 out of 298, or 82% of successful ICO fundraising attempts happened, raising nearly all of the US$12.3B raised in total in 2018.
  44. 44. The graph represents the average ICO round size from 2015 to 2018. Each line is color-coded by region and divided by stage of funding. Note that Rest of the World has been excluded in this graph given the small sample size and presence of the big outlier, As 2018 stands, US$25M seems to be the magic number for blockchain fundraising figures. Average ICO Round Size (by region) all time In a further breakdown by region and excluding, average ICO project raised would look to be around US$25M in North America and Asia, the drop in average ICO fundraising value from 2017 to 2018 due to higher number of successful ICO fundraising attempts in both regions this year (North America- 54 to 74, Asia- from 16 to 53). In Europe, which is home to Telegram's fundraising attempt, saw its average shot up to close to US$50M. Discounting Telegram, the figure will round up to US$26M across 69 instances, the most across these 3 tracked regions in both average fundraising amount and number of fundraising instances. One of the reasons for this can be attributed to the larger number of crypto-friendly jurisdictions in the region, with United Kingdom, Switzerland, Gibraltar, Lithuania, Estonia, Russia, Israel, Liechtenstein, Slovenia, Netherlands, Luxembourg, Belgium and Malta all registering more than one successful ICO fundraising attempts in 2018. US($)
  45. 45. The circles represent startups who have raised ICO funding and their association with industries. Note that a startup can be associated with several industries. The size of each circle corresponds to the number of startups associated with that particular industry. Top Sectors doing ICO Fundraising in 2018 This table shows industries with recognized ICO fundraising success of more than 10 instances in 2018. Financial services led the pack with 163 ICO related instances, with some high profile ICO fundraising including Huobi and Basis which aim to support liquidity and bring stability in the cryptocurrency space respectively, to application focused projects such as Self Key which strives to create blockchain based identity systems, to Odyssey, which focuses on digital asset trading and payment solutions. Financial services related registered ICO fundraising attempts rose from 98 to 163 from 2017 to 2018. Big Data and AI came 3rd with 20 instances. From our database, the most successful related blockchain project by amount of ICO funding raised is Neuromation, the Estonian based startup raising US$50M in early 2018 to leverage tokenomics to create marketplace business models of reward buy/sell of synthetic datasets on a blockchain enabled marketplace. Other interesting use case involving blockchain in the AI space is represented by SingularityNET, which raised US$36M in January 2018 to build an open-source protocol and collection of smart contracts for a decentralized market of coordinated AI services, with the vision to let anyone add an AI/machine learning service for use by the network, and receive network payment tokens in exchange. Cybersecurity rose through the ranks with 36 related instances, with project such as Atonomi leveraging the blockchain ledger to store device identity, as well as enable device interoperability and reputation in the IOT space over time.
  46. 46. 46 Utility Token vs Security Token became a huge debate because there are many security laws that govern the latter, which leads to many procedures/restrictions that a blockchain startup needs to navigate to fundraise for their projects via the token route. A common way used to tell one from the other is through the ‘Howey Test”, a US SEC standard. The criteria are as follow: 1. There is an investment of money 2. There is an expectation of profits 3. The investment of money is in a common enterprise 4. Any profit comes from the efforts of a promoter or third party By US standard, when the token passes all criteria, it is a security; if not, it is a utility token. Please note that this is only a general guidance, each jurisdiction may have a different interpretation as to what a security token is. Utility vs Security Token Many tools are now used for the HoweyTest. Source: Blockspoint
  47. 47. 47 Blockchain projects have 3 stages of token sales- the Private Sales, only to accredited and institutional investors, the Pre-sales, and the ICO. In 2018, many resorted to just doing private sales: Private Sales Private Sales refers to the sale of tokens to private investors before the token is made available to the public. This round is usually for institutional and accredited investors only. The tokens are typically sold at discount compared to the price of the 2 later stages of the sale. Tokens sold in this stage usually come with a lock up period, meaning that investors can only sell their tokens after a certain period of time, e.g. 6 months, to avoid dumping of tokens. Pre-sales Pre-sales are token sales which happen right before the public sales. These events are marketed normally on the ICO website. The tokens sold at this round is sold at a discount to the price at the ICO, and can be made available to the public in some cases. Public Sales Public Sales is when the ICO is officially launched. After completion of sales, the cryptocurrency may then be traded on cryptocurrency exchanges. Type of Token Sales Editor’s Note: Most of the token sales during private sales have a discount ranging from 20% up to 50% in 2018. This provides the private sales investors opportunities of making lucrative short term gain of up to 50% within a few months without lockup. This mechanism has attracted a lot of speculators into the market and a “pump and dump” trend among these speculators.
  48. 48. 48 Liquidity in the crypto world typically refers to how quickly an investment can be turned into fiat for deployment in other purposes. Going into 2018, we have observed that many blockchain projects that attract institutional and accredited investors at the private sales stage implement lock up schedules to prevent private sales investors from ‘pumping and dumping’ the token at crypto exchange to arbitrage the token price discounts that they enjoy. With the token lock up schedule, the path to liquidity for private sales investors became longer. Another liquidity challenge in crypto is the fact that not all crypto exchanges offer crypto-to-fiat liquidity. In many instances, an investor needs to convert a crypto token into more frequently traded Bitcoin/Ethereum at one exchange before moving the holding to another crypto exchange that offers crypto to fiat liquidity to exit. Liquidity in the Crypto World An illustrative example of token vesting schedule for investors entering in private sales during the lock up period taken from a publicly known blockchain project. Source: Quarkchain
  49. 49. 49 Crypto exchanges & Brokerages Blockchain Ecosystem Player List Crypto exchanges can be thought of as digital marketplaces where cryptocurrencies are traded, sold and bought using fiat money or altcoins. The concept is similar to stocks floating on exchanges to be traded between buyers and sellers. It is important to understand that not all cryptocurrency exchanges/brokerages offer crypto to fiat liquidity. No.1 No.2 No.3 No.4 No.5 No.6 No.7 No.8 No.9 No.10 Top Crypto Exchanges by Trading Volume, as of 28 December 2018 Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms do not represent Click Ventures’ endorsements.
  50. 50. 50 Selected OTC Brokers that offer liquidity to institutional investors Crypto exchanges & Brokerages Blockchain Ecosystem Player List Brokerages offer Over-The-Counter services (OTC) to help institutional investors move larger volume of cryptocurrencies. Here are a few other OTC players for reference (note that some of the players below, such as Coinbase, also offer crypto liquidity to retail investors): KOI Trading Circle Cumberland Genesis itBit Coinbase Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms do not represent Click Ventures’ endorsements.
  51. 51. 51 Decentralized exchanges Blockchain Ecosystem Player List High level concept of a Decentralized Exchange Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms do not represent Click Ventures’ endorsements. The Concept of a Decentralized Exchange A maker, for instance a person who wishes to buy a certain token, broadcasts an order to the network and signs one side of a smart contract for this trade. It gets picked up by a relayer who posts it to an order book on the network comprising of all other orders. A seller, i.e. the taker , signs the other side of this particular smart contract to sell its token holding. Users keep control of their funds throughout the entire transfer process until the moment of exchange, when a smart contract executes the signed trade. Since DEXs in their purest form use only blockchain information, all that is needed to share in order to use a DEX is a public address. Private keys are held by the users, so it minimizes the risk of keys being lost in a hack compared to them stored at centralized cryptocurrency exchanges. Latencies can be a potential setback as all nodes on the DEX network need to acknowledge a buy/sell order. Liquidity and the current lack of KYC/AML with decentralized exchanges may also be potential roadblocks down the road. As it stand in 2018, centralized exchanges still handle the majority of trade volume. Concept of a decentralized exchange. Source: 0X
  52. 52. 52 Decentralized exchanges (cont’d) Blockchain Ecosystem Player List Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms does not represent Click Ventures’ endorsements. Crypto exchanges are centralized entities which can be single points of failure, susceptible to theft and hacks. High profile exchange hacks in the past, including Mt Gox’s US$480M hack, or the US$500M stolen from CoinCheck became rationale for advocates calling for building decentralized crypto exchanges. Selected Decentralized Exchange projects
  53. 53. 53 Market Makers Blockchain Ecosystem Player List Market maker is a person or firm who quotes both buy and sell prices for cryptocurrencies on the market to make sure there is liquidity for a cryptocurrency pair for people to trade. Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms does not represent Click Ventures’ endorsements. Selected Market Makers
  54. 54. 54 Miners Blockchain Ecosystem Player List High level concept of a crypto miner Miners are users of the network who validate the blocks and check that transactions records are not tampered with. The mining process involves compiling recent transactions into blocks, which miners earn the right to do so by trying to solve a computationally difficult puzzle (PoW concept) and maintaining high hashing power using GPU/ASIC powered machines (mining rigs). This requires high computational power outputs- cost of electricity is thus a huge factor to running a crypto mining operation successfully. As a result, mining companies typically set up themselves at parts of the world where electricity costs are lower. Aside from just mining for themselves, it is not uncommon for crypto mining companies to also sell crypto-mining machines. It is worthy to note that mining profits are directly tied to the prices of cryptocurrencies. As a result of the crypto market downturn in 2019, many mining rigs cease to be profitable andwent out of operation. Source: SCMP
  55. 55. 55 Miners (cont’d) Blockchain Ecosystem Player List Selected Crypto Mining Companies Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms does not represent Click Ventures’ endorsements.
  56. 56. 56 Custodians Blockchain Ecosystem Player List As institutional capital enters the cryptocurrency space, we have observed an increase in the need to store crypto assets by third party custodians, much like asset managers needing custodians in the traditional finance world. Custodians essentially act as safeguards for money entrusted to crypto hedge funds, crypto exchanges, and even ICO projects. Kindly note that Click Ventures have no affiliate with the mentioned firms in this report. The featuring of firms do not represent Click Ventures’ endorsements. Some noteworthy news around growing crypto custodianship in 2018 include Goldman Sachs’ investments in BitGo and Coinbase announced its first custodian deposit in July 2018. Source: Crowdfund Insider
  57. 57. 57 01 Blockchain Concepts Walkthrough Blockchain Fundraising 101 02 03 04 Cryptocurrency Regulations Update Data Collection Methodology and Background
  58. 58. 58 In 2018, many jurisdictions have announced their stances on regulations on cryptocurrencies, their related ecosystem counterparts, taxations and more. In an effort to provide more clarity to the space, Click Ventures has aggregated related content on cryptocurrency related regulations around the world and open-sourced it. This open source google sheet, attempting to cover both ICOs and STOs, will be updated regularly. Please note that our aggregated content are from publicly available resources from online, and in no cases should be treated as legal opinion. Cryptocurrency Regulation Update Feel free to access the link below for an overview: Click Ventures Crypto Regulation Navigator
  59. 59. 59 01 Blockchain Concepts Walkthrough Blockchain Fundraising 101 02 03 04 Cryptocurrency Regulations Update Data Collection Methodology and Background
  60. 60. Regions Evaluating funding trends and aggregating numbers on a global scale can be misleading. Due to the sheer difference in funding activity in different regions, global sums may not tell the full story. For example, a moderate increase or decrease in funding activity in North America might overpower a significant increase or decrease in European funding activity simply because of a rift in the absolute funding amount within each region. To reduce the effect of these powerhouses on emerging regions, we’ve split the data into four different regions so funding trends can be evaluated on a more appropriate basis. Those regions are as follows: North America: Canada, The US, and Mexico. Europe: Europe including Israel and Russia. Asia: All countries in Asia. RoW: Rest of world consists of all countries not included in the other three regions. RoW groups together countries like Australia with Middle Eastern, African, and South American countries. These are not related, but from 2012 until today, they only constitute about 2.5% of global funding, so for meaningful comparison of the other three regions, we’ve grouped these three together Industries (Tag clusters) Grouping startups by industry can be a tricky process. Due to the prevalence of tech startups, along with the inherently disruptive nature of innovative companies, it’s difficult to draw clear boundaries between industries. Classical industry classifications are too broad to capture the essence of the startup world, but allowing each startup to populate its own space would make any comparison of trends meaningless. To address this, we’ve used thousands of descriptive tags and company descriptions and clustered them into 29 industries that capture the diversity of the startup world while maintaining meaningful comparability. This way, patterns and trends in funding across different industries can be evaluated over time. Data Collection Methodology Provided by Funderbeam
  61. 61. Funderbeam data Powering a data platform as large as Funderbeam’s requires an extensive amount of both automatic and manual work. In order to piece together an accurate picture of the startup environment globally, we collect data from a wide variety of sources, clean it and structure it, and then run it through a number of fine-tuned algorithms to bring out the story behind the numbers. Collecting the Data Data is collected from a combination of public sources, strategic partnerships, and the crowd. Sources include social media profiles such as Facebook, Twitter, and LinkedIn as well as media outlets, blogs, and filings. The web pages of the startups themselves also provide valuable data. Structuring the Data The amount of data available on startups has increased dramatically over the last few years to the point that too much data is an equal issue to the lack of it. In order to find and make use of the data, it must be cleaned and structured. To address this, we use both automatic processing and manual verification to update our data. Data coming from different sources is cross-checked for validity. In cases where the same data from different sources are in conflict with each other, a thorough series of algorithms is run to determine which data is most likely to be correct. In addition, data on our platform is constantly being maintained by dedicated data administrators and analysts. Every suggested edit to the data by the crowd only makes it to the platform once it’s been manually verified by our team. Analyzing the Data The data is run through a number of machine learning algorithms that have been tuned and statistically analyzed using hundreds of thousands of data points. These algorithms give insight beyond the amount of funding a startup has raised and the number of Twitter followers they have. Natural language processing is also leveraged to extract meaningful data from news articles, allowing machines to process thousands of articles in the time it would take a human to read one. The data in this version of the report is extracted from our database on the 15th of November 2018, and rounds are still coming in, so final numbers may vary slightly later. Data Collection Methodology (cont’d) Provided by Funderbeam
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Click Ventures Blockchain Ecosystem Report 2018 - Blockchain Concept Walkthrough - Blockchain Fundraising 101 - Cryptocurrency Regulations Update


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