Reading the tea leaves

Three years since the current wave began and $1 billion later, cryptocurrency / public blockchain ecosystem is experiencing such a level of “fast growth” that no one is able to publish any real usage numbers.1

Sarcasm aside, despite copious amounts of news coverage, interviews and conferences, very few VC-backed cryptocurrency-related startups are divulging any non-gamable numbers.

I had hoped to do a regular quarterly update (see previous January post regarding usage numbers) but there just isn’t much public data to go on.  In fact, there is less data today than 3 months ago.

For instance, at some point in the past couple of months, Coinbase removed its wallet transaction volume chart from its chart site.  This coincides with a public announcement made in February that ‘Coinbase is not a wallet.’  As Brian Armstrong, CEO of Coinbase stated:

Over the next year or so, you’ll see the Coinbase brand shift from being a hybrid wallet/exchange to focusing on purely being a retail and institutional exchange. It will take some time to update, but the transition will happen.

Interestingly, this somewhat conflicts with another statement made in a Forbes piece this past week covering Coinbase and Blockchain.info, stating:

Currently, 80% of Coinbase’s customers buy bitcoin as an investment, and 20% transact with it, though that balance is currently shifting more toward transactions.

Perhaps transaction volume overall is increasing, but if so, why remove the wallet transaction volume chart?  Or is it solely related to transaction volume on the exchange?

The same Forbes article also mentioned another specific aggregate number:

“Startups play a pretty integral role in the sense that we represent most of the end. If you look at users of Bitcoin on the network, most of them are represented by one of the major Bitcoin companies,” says Peter Smith, chief executive of Blockchain, adding that five or six companies, including Coinbase and Blockchain, represent about 80% of transaction volume on the network. Numerous startups are also using Bitcoin to enable their users to more easily send remittances, cross-border payments and peer-to-peer payments, as well as make mobile in-app purchases.

Maybe this is true, maybe there are 5 or 6 companies that represent the lionshare of volume on the Bitcoin network itself.  If so, we should be able to see that.

chainalysis

This is a simplified, color coded version of a tool that Chainalysis provides to its customers such as compliance teams at exchanges. The thickness of a band accurately represents the volume of that corridor, it is drawn to scale.  The names of certain entities are redacted.

The image is based on data for the first quarter of 2016 and is an update to the chart I published in an article back in January.

Based on the chart above, there are in fact 5-6 organizations that represent 80% of the volume; both Coinbase and Blockchain.info are among them (Blockchain.info also operates SharedCoin).

In fact, Chainalysis recently updated their methodology and found that Coinbase transactions represent every 6th or 7th transaction on the Bitcoin blockchain. 2 This specific area of data science is continuously undergoing refinement and should be looked at once again in the coming months.

The same Forbes article says that Coinbase has 3.5 million users and Blockchain.info has 6.5 million wallet holders.

But as we have looked at before, what does that even mean?  Few companies publicly define what a user or wallet actually represents.  I have looked at this twice in the past:

The bottom line is that “monthly active users” (MAU) — which is one of the standard methods for measuring real growth (and success) of an application, is still largely unreported by any cryptocurrency-related company that has raised a Series A or higher.3

Other public data

Where can we find data that is still be published and could reflect usage numbers of public blockchains?

P2SH addresses

Source: P2SH.info

As shown above, over the past month, the amount of bitcoins stored using P2SH addresses increased from 9.99% to 11.7%.

A large noticeable pop took place two weeks ago and some speculated that it could be a Liquid-related multi-sig movement.

opreturn total transactions

Source: opreturn.org

OP_RETURN has also seen increased usage.  Above is a chart measuring the past 15 months of usage.

As described in Watermarked Tokens, OP_RETURN is an opcode in Bitcoin’s scripting language that is commonly used by colored coin projects.

At the time of this writing, in terms of percentages, the top 5 projects that have used OP_RETURN the most are:

  • Blockstack: 107254 transactions (28.4%)4
  • Open Assets: 68069 (18%)5
  • Monegraph: 51601 (13.7%)6
  • Factom: 34007 (9%)7
  • Coinspark: 25223 (6.7%)8

Two of the five are colored coin-specific projects and all five cumulatively account for about 76% of all OP_RETURN usage.

Any other numbers?

  • Looking at the previous charts from January, the ‘Bitcoin Distribution by Address at Block 400,000‘ looks roughly the same as the distribution at a block height of 390,000.
  • According to CoinATMRadar, the ‘number of Bitcoin ATMs installed by Bitcoin machine type’ increased from 536 at the beginning of January to 612 at the end of March. This comes to roughly 0.84 ATMs installed per day or a rate slightly higher than the past 2 years (it is on pace for 308.2 installations altogether this year compared with 275 per year for 2014 and 2015).
  • In terms of market prices, there were some relatively big swings in volatility (about $100 from peak to trough) in the first quarter due in part to the continued block size debate which still remains unresolved.9
  • And activity on both BitWage and Blockchain.info wallets looks roughly the same as they did in January.

Funding

Some venture funding bounced back from the dearth in Q4 2015.

According to the venture capital aggregation at CoinDesk there was $148 million of publicly announced rounds for both Bitcoin-related and Blockchain-related startups spread among 14 deals in Q1 2016.  Though two investments alone (DAH and Blockstream) accounted for more than two-thirds of that funding tranche.

However, the list is probably not complete as two investments into Kraken’s Japanese subsidiary were for undisclosed amounts (first from SBI in January and then by Money Partners Group in March).  Similarly, Ripple also received capital from SBI in January (for a reported 3 billion yen or ~$25 million).

In addition, last week, CB Insights (a venture tracking firm) held a webinar that covered the “Bitcoin / Blockchain” ecosystem (deck) (recording).

While providing a good general overview, I think it lacks a number of recent developments in the overall “Blockchain” capital markets world.10

For instance, Tradeblock recently launched Axoni (a private / permissioned blockchain) and Peernova isn’t really a “Blockchain” company now. 11 The webinar is a little outdated on the cryptocurrency side of things too.  For example, Mirror is completely out of the ecosystem altogether, 21inc is basically a software company at this point, Buttercoin is bankrupt and Blockscore shouldn’t be included in either bucket.

Any other charts?

Counterparty Transaction History

Source: Blockscan

I would be remiss to not include Counterparty, a platform has effectively plateaued (see image above) and has now been eclipsed by Ethereum based on multiple measurements including transaction growth (which actually may be eventually be gamed via “long chains” just like some Bitcoin transactions are).

What kind of other metrics are available?

Counterparty compared to Ethereum

Source: Coingecko

Ignoring the liquidity and market cap sections (basically all cryptocurrencies are illiquid and easily manipulable) there is a marked difference in terms of terms of social media engagement and interest between the two platforms.  For example, in terms of public interest, one measure that could be added to the Coingecko list is the amount of organized Meetup’s: Ethereum has roughly a hundred globally and Counterparty has about 10.

As an aside, I attended two Ethereum meetup’s last month: one hosted by Coinbase in San Francisco and another one hosted by IFTF in Palo Alto.  Both were well-attended with roughly 120 people showing up for the latter.

[Note: I do not own, control or hold any cryptocurrency nor do I have any trading position on them either.]

Why is no one actively publishing numbers?

It could be the case that some of the startups feel that any user / usage number is commercially important and therefore treat it like a trade secret.

Is there really less transparency in this market compared to other tech markets?

Maybe, maybe not.  What about public markets?

Last spring, Blizzard Entertainment announced it would no longer publish World of Warcraft subscription numbers.  This was done because of the continual decline in subscriptions (more than halving from its 12 million peak).  Similarly, last fall, Microsoft said it would no longer publish Xbox One unit sales and would instead share Xbox Live usership. ((Disclosure: I own an Xbox One))  At the time this move was seen as a way to downplay the growing gap in sales between Sony’s PS4 and the Xbox One.

zynga

Source: Statista / Zynga

An exception to this rule is Zynga — the mobile / social gaming company — which has seen continual drop offs in monthly active users for over three years, but still publishes numbers. 12

Back to the public blockchain sphere: why would 40+ companies that have closed a Series A or higher as a whole decide not to publish user / usage numbers in a market that claims to always be growing by leaps and bounds?

One of the problems appears to be that when you raise a lot of money, $50+ million for B2C applications your charts are expected to look a bit like other high-growth companies.

slack growth

Source: TechCrunch

For instance, above is a two-year chart displaying two types of users: daily active and paid for Slack.  With 3.5x daily user growth over the past year, Slack announced last week that it has closed its new round, raising $200 million at $3.8 billion post-money valuation.  About a third of its daily users which are paid users, a relatively high conversion rate.

Obviously social media commenters will point out that “cryptocurrencies” are not the same thing as communication tools, but the point remains that eventually the aspirations of investors will re-calibrate with the actual growth trajectories of a platform.  And as of right now, based on public data it is unclear where that traction is in the cryptocurrency world — perhaps it does exist somewhere but no one is publicly revealing those stats.

It bears mentioning, based on anecdotes there are several cryptocurrency-related startups that have gained relatively large customer bases in certain corridors focused on cross-border payments and remittances involving The Philippines.13 There are also several cash-flow positive companies in this space that have flown under the radar.  On the flipside, based on similar anecdotes, multi-level marketing scams like MMM Global also have seen continued traction.14

Conclusion

Where is the growth, where are the numbers?  Those are the two questions that continue to drive blog posts on this site.  Perhaps startups in the public blockchain ecosystem will be more forthcoming later this year as more capital is deployed.  We will try to revisit this topic once more information is publicly available.

It will also be interesting to see how many more cryptocurrency-related companies rebrand or pivot into the “private blockchain” sphere without actually changing how they interact with cryptocurrencies.  Thus, my older October post on the Great Pivot should be revisited at some point as well.  In addition, if “private blockchain” platforms are eventually flipped on into production mode, they may begin to yield usage numbers worth looking at in a year or so.

  1. For a concise explanation of “fast growth” in this context see the recent interview with Chamath Palihapitiya: Top V.C. on “Mostly Crap” Start-Ups, Mark Zuckerberg, and Early Facebook’s Grim Lunches by Vanity Fair. []
  2. And according to other data science companies I have spoken to in the recent past, several confirm this as well. []
  3. A notable exception was in December 2015 when BitPay provided a transaction chart to Forbes.  Additionally, BitGo has published numbers from time to time.  And while it hasn’t raised a Series A, Blockstack is also fairly open about its userbase. []
  4. Blockstack.org is not the same thing as Blockstack.io — two different groups. []
  5. Flavien Charlon, creator of Open Assets, also maintains Openchain. []
  6. Monegraph is a platform for managing digital artwork. []
  7. During its crowdsale last year, Factom sold about 4.4 million factoid (tokens) for 2,278 bitcoins. []
  8. CoinSciences, the team behind Coinspark, also has another product called MultiChain. []
  9. See: What is the blockchain hard fork “missile crisis?” and also Appendix B []
  10. One interesting stat they mentioned was in terms of ratios: in 2015 there was about $15 billion invested in “fintech” overall and about $450 million in the entire umbrella of “cryptocurrency / blockchain” ecosystem.  That amounts to about 3%. []
  11. Peernova has transitioned from being a Bitcoin mining company to creating “Blockchain-inspired” tools for other industries. []
  12. See Zynga quarterly earnings reports and Statista []
  13. This includes: Align Commerce, BitX and Coins.ph []
  14. This is based on actual data I have been shown. []
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2 thoughts on “Reading the tea leaves

  1. As a company that has released both public and private blockchain technology, I can tell you we’re seeing far more traction in the latter. For example the MultiChain website’s traffic passed that of CoinSpark within a month of its release, and is now 15x larger and continuing to grow rapidly, whereas CoinSpark is not.

  2. If bitcoin usage growth is driven by illegal activities, it would also not make sense for companies to publish their growth and usage data. It makes me wonder.

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