State of Bitcoin Q3 2014
7th October 2014 State of Bitcoin Q3 2014 1

Contents 1. Summary and Adoption
Dashboard 2. Price and Valuation 3. Media 4. VC Investment 5. Commerce 6. Technology 7. Regulation and Macro State of Bitcoin Q3 2014 2

About CoinDesk • World leader
in digital currency news, prices and information • Our Bitcoin Price Index serves as an industry reference point • London-based and remote team with a global focus • Our editors are based in London, Boston, San Francisco and Tokyo State of Bitcoin Q3 2014 3

Summary and Adoption Dashboard State
of Bitcoin Q3 2014 4

Q3 2014 Summary Bitcoin is
further integrating with existing payment infrastructure (eg PayPal, Square) and some banks Overall, the bitcoin ecosystem appears to have entered a relatively ‘quiet building’ phase in Q3 All-time bitcoin VC investment up to $317m; 2014 run rate on track to well exceed 1995 Internet Regulatory environment continues to see challenges (eg NY BitLicenses, Kyrgyzstan ban) Bitcoin’s price down 40% in Q3, down another 10% at start of Q4 amid much debate about causes Ever larger businesses continue to adopt bitcoin (eg Dell, which is offering 10% off certain products with bitcoin) State of Bitcoin Q3 2014 5

Key Bitcoin Adoption Metrics Quarterly
Last 12 Months Sep-14 Jun-14 Q/Q Δ Sep-13 Δ Commerce Wallets 6,559,978 5,427,688 21% 1,353,201 5x Merchants 76,000 63,000 21% 10,000 8x Merchants’ annual revenue ($bn) 86 29 196% 0 N/A ATMs 251 103 144% 0 N/A Unique bitcoin addresses 184,554 136,152 36% 61,734 3x Industry All-time VC investment ($m) 317.0* 225.3 41% 30.4 10x Number of VC-backed startups 66* 50 32% 14 5x Media Mainstream media mentions 9,398 9,024 4% 1,794 5x Technology Network Hash Rate (billion/second) 261,900,382 111,194,683 136% 1,213,246 216x Github no. of updated repositories 18,753 15,109 24% 1,573 12x Valuation Bitcoin market capitalization ($bn) 5.2 8.3 -37% 1.5 3x *Includes recent Q4 deals (eg Blockchain $30.5m). Sources: CoinDesk, Blockchain.info, BitcoinPulse, Github, Coin ATM Radar. Figures used are as of end of quarter. State of Bitcoin Q3 2014 6

Price and Valuation State of
Bitcoin Q3 2014 7

CoinDesk Bitcoin Price Index –
Q3 & YTD by the Numbers Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC 8 www.coindesk.com/price

A Remarkable Coincidence? Bitcoin’s price
dropped in Q3 by an almost identical % as its rise in Q2 -39.6% +39.4% %Δ of Q3/Q2 Close Price %Δ of Q2/Q1 Close Price Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC www.coindesk.com/price State of Bitcoin Q3 2014 9

$700 $650 $600 $550 $500
$450 $400 $350 $300 Bitcoin’s Price Has Been Declining on Steadily Rising Trading Volume 11 Aug Blockchain first company to pass over 2m bitcoin wallets 18 Aug Bitcoin price suddenly drops in ‘flash crash’ 9 Jul Bitcoin industry discussion of concerns over mining pool 51% network control 18 Jul Dell announces it will accept bitcoin 22-23 Sep PayPal and Square announce bitcoin integration 8 Jul Xapo announces $20m funding round 21 Aug Following complaints, NY extends BitLicense comment period 9 Sep Supposed Satoshi Nakamoto email account ‘hack’, blackmail attempt 30-Jun 7-Jul 14-Jul 21-Jul 28-Jul 4-Aug 11-Aug 18-Aug 25-Aug 1-Sep 8-Sep 15-Sep 22-Sep 29-Sep Source: CoinDesk Bitcoin Price Index, daily data collected at 00:00 UTC www.coindesk.com/price State of Bitcoin Q3 2014 10

Total Exchange Trading Volume Sees
Steady Growth Cumulative Trading Volume (bitcoins) Source: CoinDesk, Bitcoinity 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 State of Bitcoin Q3 2014 11

Chinese Yuan (Renminbi) Denominated Bitcoin
Trading Continues to Gain Share on US Dollar CNY vs USD Denominated Bitcoin Trading Market Share, Monthly BTC (unit) volume, April – September 2014 Month CNY USD April 63.6% 36.4% May 66.7% 33.3% June 65.3% 34.7% July 68.9% 31.1% August 67.5% 32.5% September 71.5% 28.5% Source: Bitcoinity. Based on exchange data from ANXBTC, Bitfinex, Bitstamp, BTC China, BTC-e, Huobi, LakeBTC, and OKCoin. State of Bitcoin Q3 2014 12

Growing Merchant Adoption Should Not
Drive Down Bitcoin’s Price ‘The Virtuous Bitcoin Commerce Cycle’ • Right now, there are too Consumer converts fiat to bitcoin Consumer spends bitcoin at merchant Merchant utilizes payment processor Payment processor converts bitcoin to fiat few merchant transactions to have a significant influence on price (eg Overstock.com is only averaging $15k/day in sales conducted in bitcoin*) • In the short-term, it’s true that timing differences may lead to commerce supply-demand imbalances • Over the medium term, however, bitcoin-to-fiat conversions by payment processors should be balanced by fiat-to-bitcoin conversions by bitcoin-spending consumers *Source: http://www.coindesk.com/overstock-reveals-bitcoin-sales-averaging-15000-per-day/ State of Bitcoin Q3 2014 13

The Mining Arms Race: A
More Plausible Bitcoin Price Drop Theory? Bitcoin Network Hash Rate (billions of hashes/second), 2010 – Present 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0 Source: Blockchain.info • To remain competitive, miners – who possess perhaps the largest (and ever-growing) supply of bitcoins – must sell bitcoins to finance running costs and hardware upgrades State of Bitcoin Q3 2014 14

Other Possible Explanations for Bitcoin’s
Price Decline Include … • Early adopter sales • Technology equities correction • Strong US dollar • Technical (chart) trends • 51% attack concerns • Global instability • Lower bitcoin price volatility = fewer speculators • Seasonal factors (eg “sell in May and go away”) • Regulatory concerns (eg NY BitLicenses) • Competition concerns (eg Apple Pay) State of Bitcoin Q2 2014 15

State of Altcoins: Number of
Altcoins Up 2x in Last Six Months, but Market Cap Share Down 65%* 216 262 282 347 362 478 483 23% 9% 2% 7% 6% 5% 8% 25% 20% 15% 10% 5% 0% 600 500 400 300 200 100 0 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Total number of altcoins Altcoins Market Cap Share (%) *Note: altcoin market cap share calculated by dividing the sum of all non-bitcoin cryptocurrency market caps by all cryptocurrency market caps (including bitcoin). For example, if altcoins have 8% market value share, then bitcoin has 92% market value share. Sources: CoinMarketCap, Internet Archive State of Bitcoin Q3 2014 16

While Significantly Below March 2014
High, Current Relative Value of Altcoins is in Line With Historical Average 4% 9% 38 37 64 83 140 216 262 282 347 362 478 483 9% 9% 12% 23% 9% 2% 7% 6% 5% 8% 25% 20% 15% 10% 5% 0% 600 500 400 300 200 100 0 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Total number of altcoins Altcoins Market Cap Share (%) Note: altcoin market cap share calculated by dividing the sum of all non-bitcoin cryptocurrency market caps by all cryptocurrency market caps (including bitcoin). For example, if altcoins have 8% market value share then bitcoin has 92% market value share. Sources: CoinMarketCap, Internet Archive State of Bitcoin Q3 2014 17

Media State of Bitcoin Q3
2014 18

Selection of Q3’s Biggest Bitcoin
Stories Dell becomes the largest company to accept bitcoins as a means of payment Debate about causes of mid-August bitcoin price crash and downward price trend Mainstream payments services announce bitcoin integration Google integrates bitcoin price into search State of Bitcoin Q3 2014 19

Seven of the Most Popular
CoinDesk Q3 Stories About Bitcoin’s Price (vs Four in Q2) Rank Title Date 1 Tim Draper: Bitcoin’s Price Still Headed to $10k 12th Sep 2 Downward Pressures Persist as Bitcoin’s Price Declines to Near $400 19th Sep 3 State of Bitcoin Q3 2014 Report Reveals Expanding Bitcoin Economy 10th Jul 4 Did Margin Trading Crash the Price of Bitcoin? 15th Aug 5 US Marshals: One Auction Bidder Claimed All 30,000 Silk Road Bitcoins 1st Jul 6 Price of Bitcoin Drops Below $400 in BTC-e Flash Crash 18th Aug 7 Litecoin Price Decouples from Bitcoin, Slump Continues 2nd Jul 8 Bitcoin Price Drops Below $600 After Relative Stability 24th Jul 9 Price of Bitcoin Falls to $500, Lowest Level Since May 14th Aug 10 PayPal Announces First Partnerships in Bitcoin Space 23rd Sep Source: CoinDesk State of Bitcoin Q3 2014 20

Continued Mainstream Media Interest in
Bitcoin Stories Published Mentioning Bitcoin 0 1000 2000 3000 4000 5000 6000 Q3 2012 to Q3 2013 Q3 2013 to Q3 2014 Source: respective publishers’ websites Reuters Sina Guardian Bloomberg FT NYT WSJ State of Bitcoin Q3 2014 21

Innovative Tools are Emerging to
Monitor Attitudes Towards Bitcoin CoinDesk Bitcoin Sentiment Index (BSI) Sources: CoinDesk, Qriously http://www.coindesk.com/sentiment-index/ • The Bitcoin Sentiment Index is a measure of whether individuals feel the digital currency’s prospects are increasing or decreasing on any given day • Powered by mobile ad data, the index provides a snapshot of the general attitude towards bitcoin in the US and UK State of Bitcoin Q3 2014 22

‘Bitcoin’ Searches During Q3 Stayed
Relatively Constant, but Still Well Below Earlier Peaks Past 90 Days Past 12 Months Source: Google Trends data as of 2 Oct 2014 State of Bitcoin Q3 2014 23

Related ‘Bitcoin’ Searches Are Becoming
More Sophisticated, Evolving Beyond ‘What is Bitcoin?’ Related Searches: Top Related Searches: Rising Source: Google Trends data as of 2 Oct. 2014 Past 90 Days Past 12 Months State of Bitcoin Q3 2014 24

VC Investment State of Bitcoin
Q3 2014 25

Two Biggest Bitcoin VC Deals
in Q3 $20m $14m (Series A) July 2014 (Series A) September 2014 Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 26

Q3 Bitcoin Venture Capital Investment
Down From Q2, Up Slightly Over Q1 Total VC investment in cryptocurrency startups to date*: Q3 2014 bitcoin VC investment: $60m $317m Q2 2014 bitcoin VC investment: $73m Increase in total to-date VC investment from end of Q2*: +41% *Q3 figure excludes recent Q4 deals (eg Blockchain $30.5m) but all-time figure of $317m and % growth includes these Q4 deals. Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 27

Europe Heats Up: Gained Overall
Investment Share Again in Q3 and Saw the Largest Q/Q % Increase Regions Q3 ($m) Q2 ($m) Q/Q Δ ($m) Q/Q Δ US & Canada 201.1 165.8 35.3 21% Europe 48.9 30.6 18.3 60% Asia 26.5 20.8 5.7 27% Middle 5.5 5.5 0.0 0% East L. America 3.1 2.3 0.8 35% Total 285.0 225.3 59.8 27% $ Invested as of Q2 $ Invested as of Q3 Europe 17% Asia 9% Middle East 2% Latin America 1% US & Canada 71% Europe 13% Asia 9% Middle East 2% Latin America US & 1% Canada 78% • Latin America had the second largest Q/Q % increase in investment • US & Canada share declined slightly, but still dominates with 71% of all VC $ to date Note: $ invested represents all-time total bitcoin VC investment at the end of each respective quarter. Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 28

While the US Continues to
Dominate Bitcoin VC Investment, its Total Share Declined 7% in Q3 Total Funding (millions) $0 $0 $0 $0 $1 $1 $1 $1 $2 $2 $3 $4 $6 Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) $12 $15 $17 $21 $201 $200 $150 $100 $50 $0 State of Bitcoin Q3 2014 29

Silicon Valley’s Share of All-Time
Bitcoin VC Investment Slipped Slightly From 48% in Q2 to 44% $ Invested No. of Companies Tech hub concentration Value ($m) No. of companies Silicon Valley 126.5 21 Rest of World 158.5 43 Total 285.0 64 Silicon Valley Rest of 44% World 56% Silicon Valley 33% Rest of World 67% • Share of VC-backed bitcoin companies based in Silicon Valley continues to slide, down from 37% in Q2 to 33% in Q3 • Total number of VC-backed bitcoin companies increased from 49 in Q2 to 64 in Q3, a 31% increase Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 30

Bitcoin VC Investment is Broadening
Around the Globe • Six new countries (Germany, Denmark, India, Japan, Luxembourg and Panama) added their first VC-backed bitcoin startups in Q3, a 2x increase over the number of new countries in Q2 Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 31

2014 Bitcoin VC Investment Projected
to Surpass Early-Stage Internet Investments Bitcoin vs Early Internet VC Investment (millions) $91.8 $290.0 $250.1 2013 Bitcoin 2014 Bitcoin Run Rate 1995 Internet* *Includes first sequence venture deals but excludes late-stage 1995 internet investments ($257.6m). For additional disclosure on methodology see http://www.coindesk.com/following-money-trends-bitcoin-venture-capital-investment/ Source: CoinDesk, PricewaterhouseCoopers $350 $300 $250 $200 $150 $100 $50 $0 State of Bitcoin Q3 2014 32

The Bitcoin Startup Ecosystem: Six
Different Bitcoin Company Categories Universal Wallets Payment Processing Mining Exchanges Financial Services State of Bitcoin Q3 2014 33

Wallets Raised the Most Funding
in Q3, Followed by Financial Services and Mining Q3 VC Investment by Ecosystem Category (millions) State of Bitcoin Q3 2014 34

Universals Still Command the Most
VC Investment, but Share Slipped by 3% in Q3 $ Invested as of Q3 $ Invested as of Q2 Payment Processo r 16% Exchang e 16% Financial Services Mining 9% 12% Wallet 22% Universal 25% Sector Q3 ($m) Q2 ($m) Q/Q Δ ($m) Q/Q Δ (%) Universal 63.9 59.4 4.4 8% Financial Services 49.8 33.5 16.2 48% Mining 48.0 34.0 14.0 41% Wallet 44.2 21.4 22.8 107% Exchange 41.1 39.0 2.1 5% Payment Processor 38.2 38.0 0.2 0.6% Total 285.0 225.3 59.8 27% Payment Processor 13% Exchange 14% Financial Services Wallet 15% Mining 17% 17% Universal 22% • Wallets, Financial Services, and Mining sectors continued to receive the lion’s share of investment in Q3 • Exchanges have only received a combined $4 million over the last two quarters Note: $ invested represents all-time total bitcoin VC investment at the end of each respective quarter. Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 35

Increasing Number of Universal Bitcoin
Companies (Up Over 2x Q/Q) • As we correctly forecasted in the Q2 State of Bitcoin, “more and more bitcoin startups will pursue the universal model” • Universals operate across more than one aspect of the bitcoin value chain (eg Coinplug provides payment processing, wallet and ATM) • Universal bitcoin companies leverage two key elements of financial services: efficiency and trust The Universals State of Bitcoin Q3 2014 36

Q3 Investment Rounds in Bitcoin
Startups (contd.) Close Date Company Size ($m) Round Select Investors Headquartered Sep-14 Coinapult 0.78 Seed Bitcoin Opportunity Corp, Roger Ver, FirstMark Capital, Erik Voorhees, Ira Miller Panama City Sep-14 Coinify* 0.34 Seed SEED Capital Copenhagen Sep-14 CoinPlus 0.22 Seed Unknown Luxembourg Sep-14 Koinify 1.20 First IDG Capital Partners, Brock Pierce, zPark Ventures, Danhua Ventures Mountain View Sep-14 Gem 2.00 Seed First Round Capital, Tekton Ventures, RRE Ventures, Mesa+, Amplify.LA, Idealab, Baroda Ventures, Crypto Currency Partners, QED Associates, Bitcoin Shop, James Joaquin Venice *In instances where only an approximate round size is provided (eg Coinify reporting that it raised "several million DKK" then the low end of the round range estimate is used (eg 2 million DKK for Coinify). Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 37

Q3 Investment Rounds in Bitcoin
Startups (contd.) Close Date Company Size ($m) Round Select Investors Headquartered Sep-14 KnCMiner 14.00 Seed Creandum Stockholm Aug-14 Korbit 3.00 Seed Softbank Ventures Korea, Pantera Capital, BAM Ventures, Bitcoin Opportunity Corp, Tim Draper, Pietro Dova, Strong Ventures Seoul Aug-14 Chain 9.50 Seed Khosla Ventures, Pantera Capital, Barry Silbert, RRE Ventures, SV Angel, Thrive Capital, 500 Startups San Francisco Aug-14 BitX 0.85 Seed Bitcoin Opportunity Corp, Carol Realini, Ariadne Capital Singapore Aug-14 BlockTrail 0.65 Seed Lev Leviev Amsterdam Aug-14 Bitbond 0.27 First Point Nine Capital Berlin Aug-14 Unocoin 0.25 First Bitcoin Opportunity Corp Bangalore Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 38

Q3 Investment Rounds in Bitcoin
Startups (contd.) Close Date Company Size ($m) Round Select Investors Headquartered Jul-14 Volabit 0.25 First Bitcoin Opportunity Corp Puerto Vallarta Jul-14 BitFlyer 1.60 First Unnamed Japan-based venture capital firm Tokyo Jul-14 Elliptic 2.00 First Octopus Investments London Jul-14 TradeBlock 2.80 First Andreessen Horowitz, Barry Silbert, Devonshire Investors, FinTech Collective New York Jul-14 Safello 0.25 Seed Bitcoin Opportunity Corp Stockholm Jul-14 Xapo 20.00 Seed Index Ventures, Greylock Partners, Emergence Capital Partners, Yuri Milner, Max Levchin, Jerry Yang Palo Alto Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) State of Bitcoin Q3 2014 39

Commerce State of Bitcoin Q3
2014 40

>75K Merchants Now Accept Bitcoin,
Up From 63K in Q2 (+19%) 40K 35K Source: Coinbase and BitPay State of Bitcoin Q3 2014 41

Forecast Cut for Bitcoin-Accepting Merchants
by 10K to 90K by End of Year R² = 0.9777 120,000 100,000 80,000 60,000 40,000 20,000 0 Total merchants Forecasted merchants Sources and notes: total current merchants based on data from Coinbase and BitPay. Historical Coinbase data provided by BitcoinPulse. BitPay historical data between new merchant press release announcements of 10,000 (16th Sep 2013), 20,000 (13th Jan 2014) and 30,000 (28th May 2014), respectively, calculated using linear interpolation. State of Bitcoin Q3 2014 42

Dell is by Far the
Largest Retailer to Date to Accept Bitcoin @Dell tweet: “ If you’re a retailer, there’s really no reason not to accept bitcoin at this point ” $56.9 billion annual revenue Source: CoinDesk, Absolute Return State of Bitcoin Q3 2014 43

Companies Representing >$85 Billion in
Annual Revenue Now Accept Bitcoin Largest Bitcoin-Accepting Retailers Rank Company Annual Revenue ($bn) 1 Dell 56.9 2 Dish Network 13.9 3 Expedia 5.0 4 Monprix* 4.3 5 NewEgg 2.8 6 Overstock 1.3 7 TigerDirect* 1.0 8 1-800 Flowers 0.8 Total 85.9 *Monprix is a private company, most recent revenue data available used from 2005. TigerDirect estimate provided by parent company investor relations. Other divisions that are part of a larger parent organization, but do not break out individual divisional revenues, are excluded. State of Bitcoin Q3 2014 44

Some Merchants are Seeing Significant
Sales in Bitcoin $300,000 $1,000,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Q1 Monthly Avg. Projected Q4 Monthly Avg. Patrick Byrne, Overstock • Overstock.com is averaging $15k per day in goods sold for bitcoin and is forecasting over $1m per month by fourth quarter in 2014 Source: http://www.coindesk.com/overstock-reveals-bitcoin-sales-averaging-15000-per-day/ State of Bitcoin Q3 2014 45

A Growing Number of Compelling
Reasons to Use Bitcoin to Make Purchases Dell is offering up to 10% off certain products for purchases made with bitcoin Purse.io customers often save 10-25% on Amazon Wish List items purchased by third parties seeking to acquire bitcoins for fiat State of Bitcoin Q3 2014 46

Approximately 8 Million Bitcoin Wallets
Still Forecasted by End of Year Total Wallets Forecasted Wallets R² = 0.96 R2 = 0.9365 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Sources and notes: total wallets based on data from Blockchain.info, MultiBit, Coinbase, Andreas Schildbach (Android Bitcoin Wallet developer). Historical Coinbase data provided by BitcoinPulse. State of Bitcoin Q3 2014 47

Bitcoin Remains the Coin of
Choice in the Post- Silk Road Online Black Market Agora, which is larger than Silk Road 2.0, only accepts bitcoins • The view that bitcoin would be quickly supplanted by DarkCoin or another theoretically more anonymous altcoin for black market use appears to be unfounded Source: Wired http://www.wired.com/2014/09/agora-bigger-than-silk-road/ State of Bitcoin Q3 2014 48

More and More Bitcoin Companies
are Advertising Their Insurance Protection to Customers Insured by Marsh Insured through London specialist market, brokered by CBC Insurance Insured by Aon Insured by Meridian • However, the question remains whether companies that have bypassed insurance (eg Blockchain), or openly eschew it (eg BitReserve), will see lower customer adoption State of Bitcoin Q3 2014 49

Now Over 260 Bitcoin ATMs
Around the World Source: CoinDesk (http://www.coindesk.com/bitcoin-atm-map/) State of Bitcoin Q3 2014 50

Most Bitcoin ATMs Concentrated in
North America and Europe • Lamassu accounts for over a third of the bitcoin ATM market Source: CoinDesk State of Bitcoin Q3 2014 51

Technology State of Bitcoin Q3
2014 52

Rise of Discus Fish Mining
Pool as a GHash Counterbalance Has Tempered 51% Attack Concerns Source: 4-day average as of 2 Oct 2014 blockchain.info/pools State of Bitcoin Q3 2014 53

Bitcoin Developer Ecosystem Continues to
Grow, but Has Slowed Recently • Developer engagement on open-source projects is tapering Source: BitcoinPulse State of Bitcoin Q3 2014 54

Will the Decline in the
Number of Bitcoin Nodes Leave Bitcoin Overly Centralized? • Bitcoin network nodes are needed to ensure all valid bitcoin transactions that occur are broadcasted in a timely manner • The number of bitcoin nodes has fallen from a peak of 250k at the end of Source: BitcoinPulse 2013 to under 7k State of Bitcoin Q3 2014 55

Bitcoin’s Inverted Pyramid Problem Persists
The multi-billion dollar bitcoin ecosystem, comprised of hundreds of companies and thousands of people … … rests on the work of a small handful of core bitcoin protocol developers • Mike Hearn, bitcoin core developer: “Basically, progress on the bitcoin protocol has ground to a halt.” • Questions around how much the problem is due to a lack of funding and personnel vs governance issues Source (Mike Hearn quote): Epicenter Bitcoin State of Bitcoin Q3 2014 56

Bitcoin 2.0: Possible ‘Native Apps’
“I am thinking that we will start to see native applications of bitcoin. These would be things that simply could not exist without this technology.” – Fred Wilson • Allocating bandwidth, storage, compute: new ways to share and trade networked resources • Smart marketplaces: open up access to crowdfunding and crowd labor services (oDesk, 99 Designs, Beacon Reader, Mechanical Turk) to anyone with a smartphone • Micropayments: enabling micropayments on the web and not just for mobile in-app payments • Incentivized social software: supplementing likes, followers, karma, upvotes etc with monetary incentives Sources: http://avc.com/2014/09/the-bitcoin-hype-cycle/ and http://cdixon.org/2014/10/04/some-ideas-for-native-bitcoin-apps/ State of Bitcoin Q3 2014 57

Regulation and Macro State of
Bitcoin Q3 2014 58

Launch of New Bitcoin Advocacy
Groups Emphasizes Ongoing Regulatory Challenges Jerry Brito, Coin Center Jon Matonis, Bitcoin Foundation Perianne Boring, Chamber of Digital Commerce • Questions exist around how related Coin Center’s launch is with ongoing controversy surrounding the Bitcoin Foundation State of Bitcoin Q3 2014 59

Bitcoin Businesses are Already Pulling
Out of New York Due to BitLicense Concerns New York vs London NY’s Ben Lawsky UK’s George Osborne • Circle and others have announced they won’t accept NY-based customers if BitLicense rules are implemented in their current form • UK Chancellor George Osborne has announced he is looking to make the UK attractive to bitcoin startups and capital • Startups like Epiphyte have already relocated from NY to seemingly friendlier London State of Bitcoin Q3 2014 60

Well-Funded Bitcoin Startups are Able
to Secure Banking Relationships Source: CoinDesk (http://www.coindesk.com/bitcoin-venture-capital/) $27.5m funding $10.0m funding $9.0m funding $5.0m funding Reasons banks hesitate on bitcoin: • bigger risks • higher costs • more work • Low ROI • regulatory pressure • prohibited by regulators State of Bitcoin Q3 2014 61

Secession Votes Prompt Monetary Questions
and Could Create Openings for Alternative Currencies Debate over currency was at the forefront of Scotland’s independence campaign Catalan independence vote scheduled to take place on 9th November State of Bitcoin Q3 2014 62

New Index Ranks 177 Countries
by Relative Potential to Adopt Bitcoin The Bitcoin Market Potential Index™ (BMPI) – The Top 10 Rank Country 1 Argentina 2 Venezuela 3 Zimbabwe 4 India 5 Nigeria 6 Brazil 7 United States 8 Nicaragua 9 Russia 10 Iceland Cristina Fernández de Kirchner’s Argentina is #1 Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper. Announcement article: http://www.coindesk.com/argentina-most-likely-adopt-bitcoin/ State of Bitcoin Q3 2014 63

Index Rankings Determined by Seven
Equally Weighted Categories ‘Positive’ Index Ranking Drivers ‘Negative’ Index Ranking Drivers • Remittances • Inflation • Technology penetration • Financial repression • Bitcoin penetration • Financial crisis – historical • Black market Index methodology: 39 differently weighted variables (and counting) grouped into the above seven equally weighted sub-index categories Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper Announcement article: http://www.coindesk.com/argentina-most-likely-adopt-bitcoin/ State of Bitcoin Q3 2014 64

Latin America Most Fertile Region
for Bitcoin, Followed by Africa and Post-Soviet BMPI Regional Distribution - Top 30 BMPI Regional Distribution - Top 10 Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper Announcement article: http://www.coindesk.com/argentina-most-likely-adopt-bitcoin/ State of Bitcoin Q3 2014 65

BMPI Heat Map (Interactive Version
at BitcoinIQ.info) BitcoinIQ.info Source: Hileman (2014) ‘Bitcoin Market Potential Index’, London School of Economics working paper. Announcement article: http://www.coindesk.com/argentina-most-likely-adopt-bitcoin/ State of Bitcoin Q3 2014 66

Views on Bitcoin Think of
the cellphone. There were never more than 1.2 billion landlines. Then the cellphone came and we’re at 6.3 billion. Why? It’s not because only those people wanted to communicate. The landlines were all post-pay. You need to have credit to get one. The cell phones were pre-paid. Suddenly you could get one with cash. It had nothing to do with technology. It was an economic restriction. Now there are 1.5 billion bank accounts, same threshold as land lines. I think bitcoin will allow us to see 6.3 billion people banking on their cell phones. When people write the history of this thing, of bitcoin, they are not going to write the story of 6 million to a billion. What is truly remarkable is the story of zero to 6 million. It has already happened! And we’re not paying attention! That’s incredible. That’s what had one chance in a million and it already happened. “ “ ” Source: The Verge Wences Casares Xapo State of Bitcoin Q3 2014 67

Appendix - CoinDesk • Find
out more at www.coindesk.com • Follow us on Twitter: @coindesk • Subscribe to our daily email newsletters for the latest digital currency news • If you have data you think should be included in future State of Bitcoin reports, email stateofbitcoin@coindesk.com • We also welcome any feedback you have on the report State of Bitcoin Q3 2014 68

Disclaimer • CoinDesk makes every
effort to ensure that the information in this presentation is accurate and up to date. We cannot, however, accept responsibility for any loss or inconvenience caused by reliance on the material contained here. • This presentation does not constitute financial advice or an investment recommendation in any way whatsoever. It is recommended that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions. State of Bitcoin Q3 2014 69