For the past four years CoinDesk, a news, events and research company focused on blockchain, has compiled a State of Blockchain report. CoinDesk recently released their 2018 edition, which provides more than 160 pages of blockchain related research covering investments in top cryptocurrencies, enterprise blockchain solutions, raising capital through initial coin offerings (ICOs), government, regulation and overall sentiment. InfoQ has analyzed this report and has compiled a list of key developments that impact our readership.
Bitcoin had many milestones in 2017 including:
- The number of Bitcoin transactions fell in Q3, but rebounded from the 32% dip to reach an all-time high average of more than 319,000 transactions per day.
- Hashrate is used to measure the speed of computation when completing an operation in Bitcoin code. The Bitcoin hashrate had quarter over quarter growth of 60%, in Q4, and set a new all-time high. The increased hashrate also increases the security of the Bitcoin network, when it is distributed across more miners/mining pools.
- A November hard fork called Segwit2x was postponed. The goal of the hard fork was to provide a 2 MB block size increase, but was called off due to lack of support. Mike Belshe, CEO of bitcoin wallet software provider called BitGo explained why the hard fork was called off:
Unfortunately, it is clear that we have not built sufficient consensus for a clean block size upgrade at this time. Continuing on the current path could divide the community and be a setback to Bitcoin’s growth. This was never the goal of Segwit2x.
Ethereum was able to successfully execute a hard fork called Byzantium. As part of this hard fork increased anonymity was provided through Zero-knowledge proofs, or zk-snark proofs. It also included more predictable gas charges which were becoming difficult to calculate with the increased number of ICOs. InfoQ previously covered this hard fork in the following article.
Similar to Bitcoin, Ethereum also saw its network hashrate continue to rise. In total, the Ethereum hashrate grew by more than 40%.
Transactions on the Ethereum network grew from less than 100,000 transactions per day in Q1 to almost 600,000 in Q4. Contributing to this growth was the CryptoKitties project, which allowed enthusiasts to purchase and subsequently breed digital kitties using Ethereum-based smart contracts. In December, Motherboard reported that CryptoKitties was contributing to 11% of the entire network traffic on the Ethereum blockchain and the sale of some digital kittens reached as much as $118,000 USD.
Enterprise Blockchains focus on private or consortium-based blockchain implementations. These types of implementations target organizations who do not want all data to be on a public blockchain. As a result, different consensus algorithms are used to validate transactions.
The enterprise blockchain market is expected to continue to grow from approximately $2.5 B worldwide in 2016 to $19.9 B by 2025, with a compound annual growth rate (CAGR) of 26.2%.
Within specific enterprise blockchain projects, there was a lot of movement:
- We.Trade joins the ecosystem and 9 banks set up joint venture aiming to ease European domestic and cross-border trade with distributed ledger technology (DLT).
- Enterprise Ethereum Alliance adds members and 3 new organizational structures.
- R3 adds members and launches Corda version 2.0.
- Hyperledger members CME Group, Deutsche Borse Group, R3, downgrade their membership to general. 15 other organizations cancel their membership.
Token sales became a preferred method of raising capital for blockchain projects/companies. In Q4 of 2017, token sales raised 16x more capital than venture capital (VC). The difference between these two methods of funding was more than $3 B USD during this timeframe.
Sirin Labs raised the most amount of capital through a token sale in 2017. In total, they raised $157.9 M which makes it the third largest ICO of all time. By comparison, the two largest VC deals included: BitGo raising $43 M and Bitpay raising $30 M.
Government and Regulation
With an increase of ICOs, increased government and regulatory involvement followed:
- The US Commodities & Futures Trade Commission approved CME & CBOE bitcoin futures contracts.
- US regulators subpoenaed crypto exchange Bitfinex and Tether, which share the same chief executive officer. Tether is a virtual currency and its parent company claims its virtual currency is tethered to the US dollar and backed by US dollars held in reserve. Many traders use this coin as a way to mitigate some of the volatility that exists in other virtual currencies. As the number of Tethers being created has increased, there has not been a conclusive audit that validates Tether’s claims.
- South Korea saw increased levels of regulation and uncertainty in the market. Some of the concerns regulators had included exchanges not fulfilling “know your customer” (KYC) and “anti-money laundering” (AML) obligations. In 2018, we have already seen the South Korea Financial Services implement new rules to address these previous areas of concern.
2017 Blockchain Sentiment
In 2017, blockchain terms saw an increase in searches on Google’s search engine. Terms such as ICO and Ethereum started to dramatically increase in Q3 and exploded in Q4. These timelines also correspond with an increase in Bitcoin fees and Coinbase, a cryptocurrency exchange mobile app, temporarily claiming the #1 app on iTunes. In addition, many exchanges struggled to cope with demand and had to temporarily turn off new account registrations.
CoinDesk also conducted a survey of 3000 respondents, including developers, executives, investors, people who work in blockchain organizations and people who work at investment services firms.
Respondents are most bullish on decentralized exchange blockchain applications. This in part due to a lack of transparency and security concerns that exist in many centralized exchanges. The next sector respondents were most interested in was privacy focused transactions followed by asset management tools, computation, identity, storage and prediction markets.
In addition, the general sentiment of blockchain can be summarized as:
- People feel positive about the current state of Bitcoin.
- Most respondents did not go into debt to acquire cryptocurrency. Of those that did, most have paid it back.
- Almost all respondents check cryptocurrency prices every day.
- More than half of respondents feel cryptocurrencies have moved beyond their cypherpunk roots.
- Most respondents just started following cryptocurrencies in 2017, with less than 2% being involved back in 2010.