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BCG DIGITALBlockchain – Technology and Applications in the Financial Sector
25 May 2016
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 2
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DRAFT—FOR DISCUSSION ONLY
One more time: Global Blockchain ecosystem has evolved and attracted investors ...
Note: Data as of Dec '15Source: Quid, BCG / Expand / BCG Digital Venture / B Capital analysis
Today
Total Companies:Total Funding:
~340$1.2Bn
Founding year
Blockchain investments up 5x from 2013 with total investments over $1B
Payments & Settlement
Smart Contracts
Digital Currency
Asset & Identity Management
2000 2008 2015
21 Inc. has raised over $186MM
481
361
95
0
100
200
300
400
500
2015
2014
2013
Funding ($M)
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 3
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DRAFT—FOR DISCUSSION ONLY
... with clear focus on the Bitcoin ecosystem, though other use cases have recently gained traction ...
Reta
il Pa
ymen
ts
Total funding ($M)
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Anal
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of T
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ing
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Exch
ange
s and
mar
ketp
lace
s
Digital currency Support Asset & Identity
Management
The majority of Blockchain funding is still centered around the Bitcoin Ecosystem
Source: CoinDesk, Crunchbase, Expand Research
Recently there has been considerable interest in developing Blockchain powered Enterprise Software firms allowing companies to develop their own Blockchains.
Smart Contracts, Securities & Settlement is an up and coming area that is only just starting to attract significant funding
201189
169
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150
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Ass
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rack
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Digital Currency Infrastructure & Open SourcePayments & SettlementSmart Contracts Support Asset & Identity Management
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 4
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DRAFT—FOR DISCUSSION ONLY
However, Blockchain-powered company investments are still in early stages...
Note: Companies with Round C funding are: Bitfury, Coinbase, BitGold and CircleSource: Venture Scanner, CoinDesk, Crunchbase, Expand Research
No. of companies Funding ($M)
• Company raising VC funding rounds– The majority of companies in the Blockchain
space are still unfunded, with many still attempting to define use cases for their products
• Overall investment levels at funding rounds– Over two thirds of overall funding at seed /
Round A stages
99
525
147 149
0
100
200
300
400
500
600
None Seed Round A Round B Round C
411
131
49 13 4
-
50
100
150
200
250
300
350
400
450
None Seed Round A Round B Round C
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 5
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DRAFT—FOR DISCUSSION ONLY
... as the overall ecosystem is just beginning to take shapeParticularly in Crypto 2.0, with more significant barriers around certain types of offerings
Product Maturit
y FundingBusiness
needRegulatory
Hurdles
Legacy Infra / Other
BarriersCurrent impact
Digital Currency
High High Medium Medium Low Medium
Payments & Settlement(excl. digital currency)
Medium Medium High High High Medium / Low
Smart Contracts
Low Low Low High Low Low
Asset & Identity Mgmt.
Low Low Medium Medium Low Low
Infrastructure & Open Source
Low/ Medium
Medium High Low Low Low
Use cases still being
identified
Legacy infra in need of overhaul
Banks driving cost reduction
Banks driving cost
reductions
Legacy infra in need of overhaulRegulations at
very early stages
Source: Expand Research
Imperative for industry
development
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 6
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DRAFT—FOR DISCUSSION ONLY
23 countries now have VC backed Bitcoin Startups
Source: Crunchbase, Coindesk
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 7
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DRAFT—FOR DISCUSSION ONLY
Smart Contracts
Payments &
Settlement
Asset & Identity mgmt.Infra &
Open Source
Support
Digital Currency
The Blockchain landscape is incredibly diverse
Blockchain
Altcoins
Mining & Hardware
Exchanges
Analytics & Compliance
Retail Payments
Wallets & Storage
Interbank Payments
Trade Settlement & Clearing
Inventory & Data mgmt.
Asset tracking
Identity & Voting
Internet of things
Industry initiatives
Protocol developers
Smart securities
Ethereum
Other SC systems
Coloured Coins
VCs
Media
Consultants
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 8
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DRAFT—FOR DISCUSSION ONLY
Blockchain offerings and services are emerging across segments
Retail(1) Capital Markets(3) WealthCorporate(2)
Exchange/Brokerage
Infrastructure, Services , Compliance and Protocols
1 : includes ATMs, Bitcoin payments and money services; 2 : includes Merchant, finance data, and trade finance; 3 : includes Trading platforms and capital marketSource: Statup management, BCG Analysis
Retail Payments Trade & Payments Trading Platforms & Capital Markets Investment
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 9
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DRAFT—FOR DISCUSSION ONLY
Banks' interest in Blockchain is emerging rapidly… as more established players explore potential use cases
• The German digital bank partners with Kraken to provide Bitcoin exchange services.
• Followed with joint initiative to build the first crypto bank by Q4 2015
• Goldman Sachs is one of two lead investors in a $50 million funding round for Bitcoin startup Circle
• UBS sets up research lab in London's Level39 to experiment with applications for payments, trading, settlement and smart bonds
• Private equity arm of Spanish bank, BBVA Ventures, is among group of backers who invest $75 million in Coinbase
• CBW, a small community bank in Kansas, partners with Ripple Labs to enable low-cost cross-border payments using Ripple's network of gateways
• Austalia's three biggest banks test Ripple
• CBA tests Ripple for payments between its subsidiaries. Westpac tests small international payments between two countries.
• Santander sets up international payments and smart contracts working group 'Crypto 2.0' to research the Blockchain uses
• Estonia's LHV pank starts research to develop Cuber Wallet, an app based on 'Colored Coins' Blockchain technology
• Partners with Coinbase and CoinFloor
• Safello, Atlas Card and Blocktrace were selected by accelerator to join Barclays' incubator
• Proof of concept deal with Safello signed
• San Antonio, Texas based USAA forms research team to study Blockchain, particularly interested in its auditability. It is vetting vendor Factom
• Rabobank experiments with BTC, Blockchain and Ripple
• ABN Amro and ING Bank investigate the possibility of implementing Blockchain into their payment systems
• Citi develops "Citicoin" and deploys three internal test systems
• BNP Paribas explores Blockchain for making transactions faster
• Societe Generale plans to staff employees with Blockchain expertise
• 30 global banks (inc. JP Morgan, Credit Suisse, BBVA, Cbk) join R3CEV consortium to collaborate on road map for Blockchain use cases and implementation strategy
October2013
June 2014
September 2014
March 2015
April 2015
January 2015
December 2014
June 2015
May 2015
July 2015
September 2015
Source: BCG Analysis
• Visa invests in Chain’s $30m Series B funding round
• Mastercard invests in Digital Currency Group
• Amex invested into Abra’s $12m Series A funding round
October2015
AstanaForum-BlockchainFS-AS-MOS-25May16-v3.pptx 10
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DRAFT—FOR DISCUSSION ONLY
Unsurprisingly, regulators too have begun to (and will increasingly) focus on cryptocurrencies and Blockchain
Overview of Regulatory Framework• The State of New York has been the first institution to implement explicit regulations pertaining to digital
currencies, which requires Bitcoin companies to meeting AML and KYC standards (BitLicense, Q3 2015)• BitLicense is likely to be used as a framework by other regulators moving forward – at both state and
international level• In October 2015, several Bitcoin groups & exchanges united with US law enforcement agencies to create the
Blockchain Alliance – an initiative start a dialogue between the industry and law enforcement to help inform policymakers
Digital Currencies & Bitcoin• The legality of Bitcoin and digital currencies also varies greatly between nations, from being completely
deregulated to being outlawed completely (e.g. Russia), while others such as China restrict who is allowed to use them
• The EU has previously described virtual currency schemes as “inherently unstable”, but the European Union’s Court of Justice has recently ruled that Bitcoin must be treated as a currency, rather than a commodity, altering its stance and adding legitimacy to the digital token
• Countries like India and Nigeria too have stressed the importance for regulating cryptocurrency in attempt to stop money laundering and avoiding international penalities
Payments• Ripple was fined $700K by FinCEN in May 2015 for violating the Bank Secrecy Act, by acting as a money services business by
selling its XRP without registering with FinCEN• Regulation can vary greatly between countries – for example in Australia bilateral payments systems have been well-defined, in
opposition to the US, allowing companies like Ripple to operate with more freedom
As the financial industry is so heavily regulated, any large scale impact by distributed ledger technology can only take place with the regulators involvement. There are currently very few regulatory guidelines regarding digital currencies and other uses of Blockchain technology, though many regulators are actively investigating the topic.