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S TAT E O FCRYPTOCURRENCY& BLOC KC HAIN :G LO B A L O V E R V I E W
Wavemaker Partners is an Early StageVenture Investment FirmDave SiemerDual headquartered in Los Angeles and SingaporeFounded 2003Five Venture Capital FundsManaging Partner Los AngelesCareer: Montgomery & Co., Siemer & Associates(acquired by China E-capital)Select Blockchain Investments: BlockOne / EOS,Blockv / vAtomic, GEM, Coins.ph, DSX, WAX,Sensay, Gamma, RightmeshEric ManlunasManaging Partner Los AngelesCareer: Arthur Andersen, Inter Foods (acquired byLA Reina), SiteStar (acquired by Lynchburg.net)Invested in 250 portfolio companies 185M AUMLaunching Wavemaker Partners ‘Genesis Fund’ – a 40M fund focused on blockchain andcryptocurrency investmentsSelect Investments: MindBody (NASDAQ),DigitalGlobe (NYSE), Stylehaul (acquired by RTL),Viagogo, Phunware, 17HatsPaul SantosManaging Partner SingaporeCareer: P&G, Indio (acquired by Dentsu), Vertex(acquired by Alorica)Select Investments: Luxola (acquired by LVMH), Pie(acquired by Google), ArtofClick (acquired byXurpas), Coins, Structo, Silent8, Adatos2
01 .STATE OFCRYPTOCURRENCYAND BLOCKCHAIN:G LO B A L O V E R V I E W02 .03 .04 .05 .06 .07 .08 .09 .
Blockchain and Cryptocurrencyin One MinuteBLOCKCHAINCRYPTOCURRENCIESDecentralized, distributed ledger based,encrypted digital platform to facilitate andrecord transactions in the absence of trust.Transaction history recorded on the sharedledger cannot be altered.Two Types:1. Currencies like Bitcoin or Dash which areprimarily designed to function like fiatmoney.2. Utility tokens that have value as the ‘gas’to a specific engine that can provide adecentralized platform with a means ofexchange for services5
Basic Blockchain AspectsHow it worksSource: www.ethereumkaufen.ch/was-ist-ethereum/6
Protocol Networks vs Distributed ApplicationsProtocols (Ethereum, NEO, EOS) Cryptocurrency that uses a set of cryptoeconomic rules to maintain distribute consensus across anetwork. Generally, protocols create financial incentives to drive a network of rational agents to coordinatebehavior towards completion of a process. Protocols usually provide for smart contracts and other tools that allow rapid application developmentPeer-to-Peer ExchangeDecentralized ictionMarketsFinancialServicesCrowdSalesDApps (Augur, WAX, GameCredits, Private Blockchain Tools) Distributed Application, typically built on top of protocol networks. Utilize Protocol networks infrastructure, issue own token for payments within marketplace7
The Rise of CryptocurrencyBitcoin gets most headlines, but other currencies have increased far fasterToken Unit Price 772 14,2001,839% 9 4805,233% 0.13 3627,692% 9 7268,066%Value of All Cryptocurrency Tokens – Last 12 Months9
State of Cryptocurrency1,300 Currencies Live and Trading10
Bitcoin Market Share From 91% to 38% in 18 Months,then Bitcoin ReboundsJan 2016Bitcoin (BTC)Ether (BTC)DASHJune 2017Monero (XMR)Ripple (XRP)Litecoin (LTC)October 2017Other11
180 Exchanges and 250 Wallets GloballyBitcoin is still the only crypto universally used across exchanges, wallets,and payments98%33%Bitcoin (BTC)Ether (ETH)26%Litecoin (LTC)16%13%11%10%9%8%Ripple (XRP)Dogecoin(DOGE)Ether Classic(ETC)DASHMonero (XMR)Other12
Rapid Blockchain Adoption by World’s Largest Financial InstitutionsThe march of financial services firms into Bitcoin and Blockchain startupsJun 14Jan 15Jun 15Jan 16Jun 16Jan 17Jun 1713
“I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world.”“I really like Bitcoin. I own Bitcoins. It's a store of value, a distributed ledger. It's a great place to put assets, especially in places like Argentina with 40 percentinflation, where 1 today is worth 60 cents in a year, and a government's currency does not hold value. It's also a good investment vehicle if you have anappetite for risk. But it won't be a currency until volatility slows down.”“You can't stop things like Bitcoin. It will be everywhere and the world will have to readjust. World governments will have to readjust.”“[Virtual Currencies] may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”“Bitcoin and privately agreed upon blockchain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value oftheir current assets in future purchasing power terms. Gold would be another example — historic relic that it is. In any case, the current system is beginning tobe challenged.”“I'm a big fan of Bitcoin. regulation of money supply needs to be depoliticized.”“Bitcoin is a technological tour de force.”“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments."“I think the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed,is a reliable e-cash.”"So my view's quite clear. I believe cryptocurrencies, Bitcoin is the first example, I believe they're going to change the world."14
Crypto ATMs SurgeDespite a 8.6% average transaction fee, each ATM averages 25,000 permonth in volume – 95% of transactions are deposits of fiat money for bitcoin*Same as a regular ATM, just withadded crypto features20,00020,000(estimated by 2019)15,0007,000(estimated by 2018)159010,000(as of Q3 2017)5,00002013201420152016201720182019Korea’s Hyosung (world’s 3rd largestATM manufacturer) Now SupportsBitcoin at ATMs, Will Soon AddEthereum***15
Crypto ATMs Breadth1,751 Bitcoin ATMs in 58 Countries*16
Payment Providers and Largest Companies to Accept BitcoinSeveral of these do not yet take crypto in the uareWhole me, Inc.Bloomberg.comBraintreeGyftOverstock.comJC PenneyTigerDirectSimplePayTeslaDellLionsgate Films 40 MoreSubwayDish NetworkRE/MAXEtsyGoogleWebJetRedditGapVirgin AirlinesT-Mobile“ Real estate project inDubai to be the 'firstmajor developmentwhere you canpurchase in bitcoin’ ”Sept 5, 2017A 250 million pound ( 325million) luxury developmenthas been launched in Dubai— and the people behind itdon't mind if you pay inbitcoin.17
Merchants Save 2-12% Using Cryptocurrency Instead of Credit CardsFinally Seeing Proper Incentives from Merchants2.3-3.0% CC processing fees4.0-10.0% CC processing fees0.5 to 1.0% in chargebacks for fraudulent use1-5% chargebacks for fraudulent useAverage cost: 3.0%Average cost: 7.0%Visa/Amex/MC strongly discourage cost sharing with customersBitcoin transactions now cost about USD 6.00, regardless of transaction size, but this has been dropping and isexpected to be below 3.00 by year end. Most other cryptocurrency tokens are less than 0.01 per transaction.Bitcoin-accepting merchants are starting to share savings with consumers – driving adoptionMerchants typically use crypto payment service providers that processtransactions and manage currency risk18
Total Number of ACTIVE Wallets Increased 8.8 million to 17.1 millionAnother 100M inactive wallets, mostly smartphone 000Oct’16Nov’16Dec’16Jan’17Feb �17Sep’1719
Greatest number of wallet users are basedin North America and Europe6%30%13%81% of wallet providersare based in NorthAmerica and Europe,but only 61% of walletusers are based in thesetwo regions20%31%North AmericaEuropeAsia PacificLatin AmericaAfrica & Middle East20
China dropped from 85% of total bitcoin tradingto 9% in one month following ban9%10%43%BTC Exchange TradingVolume Share byNational Currency inthe Past 30 Days31%JPYUSDEURCNYGBPRUBBRLPLNKRW21
65 Payment Companies from 27 CountriesCrypto payments platforms operate in almost every country15%44%‘Other’ is the importantcategory – cryptocurrencypayments companies cover96% of the worldspopulation15%10%4%4%4%4%USUKSouth KoreaChinaAustraliaMexicoArgentinaOther22
Vertical Integration:31% of study participants are operating acrossat least two industry sectorsExchangesPurchase, sale, and trading of cryptocurrencyWalletsStorage of cryptocurrencyPaymentsFacilitating payments using cryptocurrencyMining/ProcessingSecuring the global ledger (“blockchain”) generally by computing large amounts of hashes to find avalid block that gets added to the blockchain23
Cryptocurrency – Replacement for Fiat CurrencyWhy will crypto replace fiat currencies?It’s simply better in most ways. Some simple mathwith a little macro economics: 86T – this is the total sum of all money in the world(M2 money supply) – spread across180 currencies. The vast majority is in the world’sbiggest economies – US, China, Europe. But a lot of money is also in some really uglyeconomies – e.g., Venezuela, Sudan, Nigeria, etc .There are about 30 economies with associatedproblematic currencies: 20% inflation per year Corrupt leadership Abhorrent monetary policy The wealthy move all their money to othercurrencies or global stock markets immediately.Bitcoin increasein 6 weeksSo why do the middle class and poor hold damagedcurrency? Because they have no other options.25
Cryptocurrency – Replacement for Fiat Currency (cont.)Why will crypto replace fiat currencies?Banks don’t want poor customers, even in the US – they are not profitable. Keep small deposits, don’t use more expensive services like mortgages – banks make essentially norevenue from them Do need lots of human services (tellers) – problems with check/deposits, overdrafts, records andmanagement overhead, etc. All banks would love to dropA crypto wallet is basically a feeless bank that can be placed in a pocket (smart phone) Easy, low-fee, secure digital transactions Deposit account / store of value / savings account Debit card Wire transfer desk / global remittance platform Record book / bank statement / transaction historyFor the 3B unbanked adults in the world, this is lifechanging. Even for first world consumers, this is ameaningful upgrade.So what happens when lots of consumers switch to crypto?26
Cryptocurrency – Replacement for Fiat Currency (cont.)Near Term Case Study: VenezuelaVicious Cycle - Before Crypto: Little tax revenue as economy is practically destroyed Government prints money to pay soldiers and pay debtsAverage Venezuelan Adult spends 4hours per day waiting in line to to spendBolivar – then use goods to barter. Inflation soars as the currency base is multiplied – ow at 2,000% The people do whatever they can to NOT hold local money – itdeclines 50% every month – so buy whatever they can find(canned goods, toilet paper) and barter This makes the currency even less valuable – increasing inflationand lowering tax revenue RepeatEnter Bitcoin People have a good means of holding money – better than the fiatin every way Adoption is soaring, which mean even less fiat money movingthrough system – less to tax. Government still needs just as much to meet budget – so isprinting even more to pay bills More money printing against a lower base spikes inflation evenhigher. This pushes even more consumers to switch to Bitcoin Repeat“Venezuelans Turn toPlaying RunescapeIn Order To Survive”BitcoinNews.com27
What is Money?Network Effects are All that MatterAll moneys that are not backed by a commodity rely exclusively on a combination of perceived valueand network effect – revealed through supply and demand. Simply, the more people that agree that apiece of paper with a number on it has value, the more value it has.Precious metal coins were the standard for 3,000 years, then paper money backed by such metals.Only in 1971 did the USA drop the gold / silver standard, quickly creating the world’s most prevalentand distributed currency – now at almost 12T (M2).Cryptocurrency is the ultimate form of money. As each token is highly secure, easily portable, infinitelydivisible (effectively), and is becoming widely available – it is being increasingly adopted globally. This virtuous cycle is self-fulfilling – the more people that hold cryptocurrency the more value it has same as fiat currency. As more people begin using cryptos the price rises on demand (supply onlygrows very slowly). As more merchants accept cryptos, the more value it has for consumers. All leading indicators are positive Growth in active Crypto wallets is accelerating – approaching 1M per month Growth in merchants accepting crypto is surging – likely doubling in the next 3 months The tools to utilize cryptos are advancing rapidly – better exchanges, wallets, and payment systems – and better integration ofeach Hundreds of crypto technologies are funded each quarter – expanding the market use cases Media coverage is now constant. 78% of US citizens know what bitcoin is, up from 48% just six months ago. 13 countries are actively exploring launching their own cryptocurrencies. Whether they succeed is debatable but the awarenessthese efforts will bring is enormous.28
Currency Replacement OpportunityShould a Country’s Populations Start Adopting Cryptocurrency?To Absorb Money Supply the Value Needs to Multiply By:Cryptocurrencies Designed as FiatCurrency Replacements 250B-Venezuela (300%) 300B1.2XNigeria (20%) 350B1.4XArgentina (32%) 420B1.7X 4,000B16.0X 86,000B344.0XBottom 30 (23%)Replace Entire World’s Currency29
Decentralized Software and Utility Token Ethereum is is themost prevalent, butthere are 1,300 utilitytokens The “utility” of eachtoken is to fuel aprocess – e.g.,software or service asopposed to simplyreplacing a fiatcurrency (e.g., bitcoin) Buyers of tokens wanta digital serviceperformed. Theyexchange token forsaid service. Typic
2. Wavemaker Partners is an Early Stage Venture Investment Firm. Dual headquartered in Los Angeles and Singapore Founded 2003 Five Venture Capital Funds Invested in 250 portfolio companies 185M AUM Launching Wavemaker Partners ‘Genesis Fund’ –a 40M fund focused on blockchainand cryptocurrency investments. Dave Siemer.
