AEF2016 - Макс Хаузер - Blockchain Technology and Applications in the Financial Sector

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

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100

200

300

400

500

2015

2014

2013

Funding ($M)


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... with clear focus on the Bitcoin ecosystem, though other use cases have recently gained traction ...

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Digital currency Support Asset & Identity

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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

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Digital Currency Infrastructure & Open SourcePayments & SettlementSmart Contracts Support Asset & Identity Management


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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

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50

100

150

200

250

300

350

400

450

None Seed Round A Round B Round C


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... 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


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23 countries now have VC backed Bitcoin Startups

Source: Crunchbase, Coindesk


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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


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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


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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


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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.