Click Ventures Ecosystem Report 2018 S

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1 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 investment market.

Tech.eu Tech.eu 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, Tech.eu combines solid editorial products with data-driven market intelligence reports across investment stages, geographies and sectors, as well as event, research and consultancy services

2 Credits We would like to acknowledge the following for their contribution to the report

Event Partners Click Ventures Summer Fellow 2018 Community Partners Blockchain Team

Frederick Ng Analyst and Project Lead Click Ventures

Chan Cheuk Yiu Lead Writer, Blockchain Fellow 2018 London School of Economics and Political Science

Research Team Media Partner

Vera Ho London School of Economics and Political Science

Vaishali Jain Hong Kong University of Science and Technology

Tulika Gupta Harvard Business School

3 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 , 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 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!

4 Section 1: Blockchain Concepts Walkthrough Blockchainb 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 Other Interesting Use cases: conversations on the ground g Leading consortiums/initiatives Current Blockchain Limitations Section 2: Blockchain Fundraising 101 c 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 ICO ecosystem playerh list Section 3: Cryptocurrency Regulations Update Section 4: Data Collection Methodology and Background 5 01 02 03 04 Blockchain Blockchain Cryptocurrency Data Fundraising Regulations Collection Concepts 101 Update Methodology and Walkthrough Background

6 Blockchain in a Nutshell

A blockchain is a general digital of transactions that are executed on the network, e.g. using 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 ) are given as reward for their work, in transaction fees and/or block rewards. . For example, bitcoin miners are given Bitcoins and validators are given Ether.

Source: Agiboo

7 Blockchain 1.0:

Currency Blockchain 1.0 is the creation of cryptocurrency, a 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 , 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.

Source: Slideshare

8 Blockchain 2.0: Smart Contracts

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.

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.

Source: Blockgeeks

9 Blockchain 3.0: Other applications of Blockchain 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).

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”. Some of the use cases explored in Blockchain 3.0 Source: Intelligent HQ

10 Consensus Algorithms: Proof-of-Work (PoW)

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.

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. Source: Lisk Academy As an incentive, block reward or transaction fees, in terms of token or , are given to the first miner who solves the cryptographic puzzle.

11 The 51% attack and the Double Spend problem 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 How a 51% Attack may occur network to avoid any entity taking 51% control. Source: Coinmonks Editor’s Note: 12 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. Consensus Algorithms: (PoS)

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.

Source: Hackernoon

13 Consensus Algorithms: Delegated Proof of Stake (DPoS)

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.

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 Source: NK execute the block creation. On the other hand, small holders can also vote out these previously selected entities if they cannot be trusted.

14 Types of Blockchain Public vs Private vs Federated Blockchain

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 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.

Large corporates tend to work with vendors like IBM to develop private/federated chains. Source: Toptal

15 Blockchain use cases 1 Real Estate

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.

Source: Deloitte

16 Blockchain use cases 2 Gaming

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.

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 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.

Source: Cryptokitties

17 Blockchain use cases 3 Marketing and Advertising

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.

A blockchain enabled digital marketing ecosystem proposed by the Basic Attention Token project. Source: BAT

18 Blockchain use cases 4 E-Commerce and Retail

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.

Source: HK Silicon

19 Blockchain use cases 5 Law

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.

How Blockchain may be applied in the Criminal Law field. Source: Kinesense

20 Blockchain use cases 6 Healthcare

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.

Source: IBM Blockchain

21 Blockchain use cases 7 Trade Finance

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.

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.

Source: Deloitte

22 Corporates Experimenting with Blockchain Selected corporate blockchain use cases Special Team

Mining Energy Remittance Supply Chain Santander uses xCurrent, BHP Billiton will use Ripple’s payment processing Petmex, a Mexican state blockchain to record the solution, to settle transactions owned energy company, movements of wellbore rock explores using blockchain to and fluid samples, and better manage the complicated secure real-time data web of suppliers and business operations Syndicated Loans Healthcare Car Purchase Provider Data Using a private blockchain, Docusign and Visa built a United Healthcare and other BBVA was able to arrange a prototype to use smart providers store updated data $150M loan for Red Electrica contracts to simplify leasing on blockchain to reduce along with co-lenders MUFG or buying a car, allowing lengthy payment and BNP Paribas buyers to complete the reconciliation process due to Bank of investment transaction electronically inaccurate data Flight Delay Fighting Counterfeit Insurance Drugs

AXA digitally records flight Pfizer uses federated chain to insurance in smart contracts track drug identifiers and who connected to global air touched what drug at what time, traffic data feed. Policy making it difficult for counterfeit 23 holders are automatically products to enter the production compensated in delays. chain Leading Blockchain Consortiums Some of the leading names across sectors

Formed by 250+ corporate members and led by the non- Legal Risk Management Insurance profit Linux Foundation

Selected Supply Chain Gaming Energy Blockchain Consortiums

Automotive Transport Consortium includes 80+ of the world’s largest financial institutions, regulators, and central banks

Healthcare Trade Finance

Backed by JP Morgan, CME Group, Microsoft 24 and 380+ other members Current Blockchain Limitations 1 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 ) 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.

Editor’s Note:

As PoW is slow and energy consuming, new designs for the consensus systems aim at Source: Howmuch,net increasing the transaction speed and also reducing the energy consumption so that they are more scalable and environmentally friendly..

throughput interoperability privacy volatility storage 25 Current Blockchain Limitations 2 INTEROPERABILITY

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.

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 throughput interoperability privacy volatility storage 26 Current Blockchain Limitations 3 PRIVACY

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.

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 Examples of Privacy Coins anonymous. Source: throughput interoperability privacy volatility storage 27 Current Blockchain Limitations 4 VOLATILITY

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.

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. Examples of Bitcoin Volatility Source: Coindesk throughput interoperability privacy volatility storage 28 Current Blockchain Limitations 5 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.

A history of cryptocurerncy thefts. Souce: Insider Pro throughput interoperability privacy volatility storage 29 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!

30 Conversations on the ground Project owners

“Know-your-customer is a painful and repetitive process when opening “Blockchain injects accounts at financial trust into the dispute institutions… resolution process” The whole KYC process is very inefficient in the current traditional industry.” .

Federico Ast Edmund Lowell Co-Founder, Kleros Founder, SelfKey*

Existing centralized systems e.g. e-commerce site solving a purchase order Banks cannot quickly and easily access up-to-date identity data, validate the data, or dispute does not have their incentives aligned to solving the dispute“. For screen it to satisfy their regulatory requirements. Different departments in the same instance, if the online site has a very small number of customer service reps, so bank may need to do the KYC process from scratch again when their clients need to their incentive may be to solve the dispute as soon as possible, apply for a service from another department. but not correctly. SelfKey tries to build a blockchain based digital identity so that a user only needs to Kleros attempts to build a blockchain powered arbitration service provider, upload personal detail once, and sends them to the counterparty to validate via allowing people to outsource their disputes to a jury which purchases and blockchain. 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 Due to the immuatable nature of blockchain, the owner may then make attestations network to judge whether the jury has been fair. By doing so, it aims to inject of his/her truthful identity verified by other trusted parties on the network, instead of trust into the dispute resolution process.” sharing the same identity proofs over and over again. 31 *Selfkey is a Click Ventures portfolio company Conversations on the ground Blockchain Infrastructure Builders

“In order for legitimate ICO “Airdropping creates projects to be successful, they network effect. If you require a mechanism to can distribute them in manage the compliance of an easy way, receivers their tokens that addresses get more exposure to the jurisdictional variances in the tokens” both regulation and corporate governance”

Matthew Unger Ron Berstein Co-Founder, iComply* CEO, Paradex.io**

Token issuance platforms face challenges from multijurisdictional operations as Paradex believes that everything that can be tokenized and will be they attempt to cope with the requirements from the SEC, CFTC, FINRA and tokenized. In order for the token economy to be adopted by the mass, FinCEN (just US ones) and other different regulations across various jurisdictions. 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 iComply attempts to complete the compliance layer in the blockchain achieving so. ecosystem, allowing crypto exchanges and projects to conduct compliant token issuance and secondary trading with coverage of 150+ jurisdictions Paradex hopes to build robust, peer-to-peer relay where users from all globally. It also enables projects to achieve full cycle token management (think parts of the world can buy and sell ERC20 tokens on the Ethereum cap-table management for the crypto world), and builds a global database blockchain in a decentralized fashion. bridging the blockchain and non-blockchain world of both compliant and non- compliant crypto transactions.

32 *iComply is a Click Ventures portfolio company ** Paradex.io was acquired by in May 2018 Conversations on the ground Token Issuers

“Security token has the potential to assist “Our vision is to seamless, global, capital create a token formation; instantaneous for any asset in settlement for unique, the world and unforgeable assets, and trade with each lowers security trading fees, other” among others.”

Michael Oved Thomas Borrel Co-Founder, Airswap Chief Product Officer, Polymath

Centralized exchanges have proven themselves to be vulnerable to Security token has the potential to assist seamless, global, capital formation; hacks as demonstrate by the many past instances. AirSwap is building a instantaneous settlement for unique, unforgeable assets, and lowers security trading powered by search. Buyers, sellers, people and fees, among others. programs can connect and trade wallet to wallet using smart contracts. In order to make this upgrade possible, Polymath believes there needs to be a It plans to use smart contracts on the Ethereum blockchain to pair up standard for security tokens that utilizes these benefits while satisfying regulations, buyers and sellers automatically, eliminating the need for a central and is thus building the ST-20 token standard. With a standard in place, security authority to match trades. token issuers, investors, exchanges, wallets, custody providers, and regulators can become comfortable with this technology, interoperability becomes easier, and adoption can be widespread.

33 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”

Will Wang Pindar Wong Head of BD and Investment (North America), ECO Chief Architect, Belt and Road Blockchain Consortium

Some institutional investors in the blockchain space is investing to build an The Belt and Road initiative covers 65 economies with expected increase in trade ecosystem. activities amongst these countries as the initiative rolls out. As supply chains evolve into highly automated, data-driven ecosystems, these countries will need the For instance, Huobi Group set up the Huobi Global Ecosystem Fund, a transparency, immutability and accountability that blockchains provide to reduce US$200M fund to support blockchain funds, incubators, wallets, miners, trade friction. market data vendors etc. For trade that originates or terminates along the 65 Belt and Road economies, the They also initiated the Blockchain+ Industry Alliance for the purpose of Belt and Road Blockchain Consortium “strives to develop buy-side business better serving the real economy and helping companies in traditional standards for “Electronic-ID Disputed Resolution Processes and standardized industries adopt blockchain technology and the token economy. interoperable smart contract standards that increase trust and transparency in cross- border trade.”

34 01 02 03 04 Blockchain Blockchain Cryptocurrency Data Concepts Regulations Collection Walkthrough Fundraising Update Methodology and 101 Background

35 ICO vs STO vs IPO vs VC: The Conceptual Differences

Initial Coin Offering (ICO) 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.

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 Source: IEC IPO) and thus provide a secondary market for the token trading as well as potential speculation opportunities in some cases. 36 ICO vs STO vs IPO vs VC: The Conceptual Differences

Security Token Offering (STO)

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 Securities Token Exchanges provide secondary trading to investors globally while most stock execute dividend payouts, ensure voting rights amongst other privileges enjoyed by a exchanges mainly provides trading to local investors. Enabling multi-jurisdiction regulations and automate the transactions according to regulations from different jurisdictions of the potential shareholder, all the while reducing overhead to monitor these payouts, paperwork required buyers and sellers is a must in order to make Security Token exchanges viable. and potentially undercut middlemen who charge premium to structure these securities. Source: The Block 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 37 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. ICO vs IPO vs VC: The Conceptual Differences

Initial Public Offering (IPO)

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.

For illustrative purposes on explaining how IPO works. Source: NYSE

38 ICO vs IPO vs VC: The Conceptual Differences

Venture Capital (VC)

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.

Source: Harvard Business Review

39 All data Insights provided by data partners Funderbeam, Tech.Eu, Oddup, tracking across 298 successfully completed and announced ICOs in 2018, including Block.one and Telegram.

Ranking Name Founding Registered Short Description Funds raised ICO Date Team from (US$)

Block.one is a software company that is producing the Top 10 Projects by Cayman 1 Block.one Hong Kong EOSIO blockchain platform for the development of $4.0B 1 June 2018 Islands decentralized applications (dapps) Fundraising Amount

Telegram is like privacy focused instant messaging 2 Telegram Russia Great Britain* $1.7B 1 May 2018 of all time application As evidenced by the Top 10 list, the ICOs that raised the TaTaTu is a video-on-demand and social platform to Cayman reward users for watching movies, music videos, sports, most amount of funds in all time were largely restricted 3 TaTaTu N/A $575M 30 June 2018 Islands gaming and celebrity content, and get rewarded for to the 1H 2018- a telling sign of the eventual market watching and posting content. slowdown in 2H 2018 along with the crypto market crash.

Dragon is creating tokens that can be converted to chips 4 Dragon Macau USA at its physical casinos in Macau, and used to watch $320M 15 March 2018 Our on-the-ground observation is that many projects movies and sports have switched to conducting private sales targeting institutional and accredited investors as the sentiment

5 Huobi China SGP Huobi Global is a $300M 28 February 2018 towards ICO projects went south.

Also noteworthy but not on the all time top-10 list are is a self-amending cryptographic protocol that 6 Tezos Israel USA supports smart contracts and offers a platform to build $232M 12 July 2017 Basis, which raised US$133M in April 2018, and tZero, decentralized applications which raised US$134M in August 2018 respectively, The network hopes to allow anyone worldwide representing market interest in Security Token Offering to participate as storage providers. It also makes storage 7 Filecoin USA USA $205M 9 August 2017 (STOs) and Stablecoins. resemble a commodity or utility by decoupling hard- drive space from additional services.

Sirin Labs produces FINNEY, which are blockchain 24 December 8 Sirin Labs GBR GBR $158M enabled smartphones. 2017

Bancor is a decentralized liquidity network that provides Editor’s Note: 9 Israel CHE users with a simple, low-cost way to convert tokens $153M 10 June 2017 directly from their wallets As more blockchain related project moves toward token private sales by selling token related interests instead of company shares The DAO dubbed itself as the first 100% Decentralized like traditional VC funding round, some of the new funding 10 The DAO N/A N/A** $152M N/A Autonomous Organization 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 * British Virgin Islands ** The DAO is a multi-jurisdictional attempt shares or shares that can be converted to tokens. 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). ICO vs Total Funding (Including VC) in 2018

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.

Total funding including VC and ICO Rest of the World ranked 1st globally in terms of ICO fundraising in 2018. This needs to be considered along the fact that the Block.one's US$4B ICO (representing the EOS protocol) falls under this region with its Just ICO 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 North America ranked lowest in ICO fundraising amount on the database. From our observation, many ICO projects would projects, including Block.one and Tatatu in 2018, and Filecoin (US$257M), restricted US domiciled investors from partaking in the ICO fundraising exercise due to regulatory requirements. As a result, Tezos (US$232M), Sirin Labs (US$158M) and Bankera (US$153M) in 2017. 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. 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. Top 10 ICO fundraising by country of all time Lithuania announced the LBChain in early 2018, a regulatory sandbox initiative led by the Bank of Lithuania scheduled to come Given all the ICO fundraising activities in 2018, how live as early as 2019. It published a did it change the Country league table of ICO document of ICO Guidelines that clarified on fundraising of all time? regulation, taxation, accounting and Anti- Money laundering requirements of Cayman Island and United Kingdom shot to the top Lithuania based projects. of the league table in 2018, previously unseen in 2017, bolstered by the US$4B Block.one fundraising and US$1.7B Telegram fundraising. Names that dropped out of the league table, compared to 2017, include Hong Kong and Finland. US($) These are replaced by Lithuania and Israel, both countries pushing out regulations to promote transparency within the field.

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 Canada dropped to the 10th on the table with minimal ICO fundraising movements, only company requirement among other requirements registering 5 recorded ICO project fundraising instances with less than US$40M announced raise in 2018. Detailed information on this can be found here. 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 Block.one 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 US($) 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.

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. Average ICO Round Size (by region) all time

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, Block.one.

As 2018 stands, US$25M seems to be the magic number for blockchain fundraising figures.

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$26M across 69 instances, the most across these 3 tracked regions in both average fundraising amount US($) 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 In a further breakdown by region and excluding Block.one, average ICO project raised would Malta all registering more than one successful ICO fundraising look to be around US$25M in North America and Asia, the drop in average ICO fundraising attempts in 2018. 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). 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 Cybersecurity rose through the ranks with 36 related instances, with represented by SingularityNET, which raised US$36M in January 2018 to project such as Atonomi leveraging the blockchain ledger to store build an open-source protocol and collection of smart contracts for a device identity, as well as enable device interoperability and decentralized market of coordinated AI services, with the vision to let reputation in the IOT space over time. anyone add an AI/machine learning service for use by the network, and receive network payment tokens in exchange. Utility vs Security Token

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.

Many tools are now used for the HoweyTest. Source: Blockspoint

46 Type of Token Sales

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. Editor’s Note: 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. 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 Public Sales without lockup. Public Sales is when the ICO is officially launched. After completion of sales, the cryptocurrency may then be traded on This mechanism has attracted a lot of speculators into the market and a “pump and dump” trend among these cryptocurrency exchanges. speculators.

47 Liquidity in the Crypto World

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.

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

48 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. Crypto It is important to understand that not all cryptocurrency exchanges/brokerages offer crypto to fiat liquidity. exchanges Top Crypto Exchanges by Trading Volume, as of 28 December 2018 No.1 No.2 No.3 No.4 & Brokerages

No.5 No.6 No.7 No.8

No.9 No.10

49 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. 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): Crypto exchanges Selected OTC Brokers that offer liquidity to institutional investors & KOI Trading Circle Cumberland Brokerages

Genesis itBit Coinbase

50 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. Blockchain Ecosystem Player List High level concept of a Decentralized Exchange

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 Decentralized seller, i.e. the taker , signs the other side of this particular smart contract to sell its token holding.

exchanges 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 Concept of a decentralized exchange. users, so it minimizes the risk of keys being lost in a Source: 0X 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.

51 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. Blockchain Ecosystem Player List

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 became rationale for advocates calling for building decentralized crypto exchanges.

Decentralized Selected Decentralized Exchange projects exchanges (cont’d)

52 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. 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.

Market Selected Market Makers Makers

53 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. 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 Miners 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

54 Blockchain Ecosystem Player List

Selected Crypto Mining Companies

Miners (cont’d)

55 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. 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.

Some noteworthy news around growing crypto custodianship in 2018 include Goldman Sachs’ investments in BitGo and Coinbase announced its first Custodians custodian deposit in July 2018.

Source: Crowdfund Insider

56 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. 01 02 03 04 Blockchain Blockchain Cryptocurrency Data Concepts Fundraising Collection Walkthrough 101 Regulations Methodology and Update Background

57 Cryptocurrency Regulation Update

In 2018, many jurisdictions have announced their stances on regulations on cryptocurrencies, their related ecosystem counterparts, taxations and more. Feel free to access the link

In an effort to provide more clarity to the space, Click Ventures has aggregated related content below for an overview: 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. Click Ventures Crypto Regulation Navigator

58 01 02 03 04 Blockchain Blockchain Cryptocurrency Data Concepts Fundraising Regulations Walkthrough 101 Update Collection Methodology and Background

59 Data Collection Methodology Provided by Funderbeam

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 (cont’d) Provided by Funderbeam

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.