Click Ventures Blockchain Ecosystem Report 2018 S Proudly supported by: 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 cryptocurrency 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 stablecoins, invention of new investment methods like the SAFT and many other new innovations that we all need to learn about- this is the reason why we have decided to produce this Blockchain Ecosystem Report to consolidate these learning, At Click, we are truly excited about the Blockchain disruption. It has the potential to render many of the current world’s inefficient processes obsolete, solve many real world problems that involve trust or the lack thereof, create new asset classes, and automate many procedures as the smart contract technology grows more sophisticated over time. As the technology and ecosystem evolve, I am sure we will discover many more use cases across industries and verticals along the way. With these in mind, it is my pleasure to present to you the inaugural Click Ventures 2018 Blockchain Ecosystem Report. Our heartfelt thanks go out to our global partners at Tech,eu, Funderbeam and Oddup, without whom the report will not be completed with such a global coverage. Happy reading! 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 ledger of transactions that are executed on the network, e.g. using Bitcoin to buy a cup of coffee is a transaction. All users of the network, ‘Nodes’, have a copy of the transaction records and can access them freely, a role previously played by centralized institutions. Therefore, the blockchain network is ‘decentralized’. Transaction records within the blockchain are grouped into ‘blocks’. These blocks are time stamped when they are created and ‘chained’ in number order of a block. Some users of the network put up computational power or tokens at stake (miners/validators) to validate the blocks of transactions, and check that transactions records are not tampered with. As an incentive, tokens (e.g. some Bitcoins) are given as reward for their work, in transaction fees and/or block rewards. For example, bitcoin miners are given Bitcoins and Ethereum validators are given Ether. Source: Agiboo 7 Blockchain 1.0: Currency Blockchain 1.0 is the creation of cryptocurrency, a virtual currency used for payment purposes derived from the combination of cryptography and currency. Bitcoin is an example of Blockchain 1.0. ‘Cryptography’- Miners collect the transactions and compete by solving a cryptographic problem. The winner can generate the ‘hash’ (turning large chunks of transaction data into a line of numbers that represents the transactions) to add to the blockchain using the cryptographic algorithm. ‘Currency’- comes in the form of tokens, which is used to trade value securely. Miners collect the new transactions into a block, then attempt to hash the block to form a 256-bit block hash value using trial and error. Most of the time the hash proves unsuccessful, in which case the miner will make slight modifications to the block and try hashing the block again, over and over billions of times. If the hash starts with enough zeros, the block has been successfully mined and is sent into the Bitcoin network, where consequently the hash becomes the identifier for the block. Whenever some miners successfully mine a block, the process begins anew. The successfully mined block is almost impossible to tamper with because all previous blocks need to be re-encrypted in order to change the transaction records in the block. As the network is decentralized and there are many copies need to be re-encrypted, the bigger the network, the more computing power it takes, and so bad actors are disincentivized to cheat the system. 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