Our blog contains short snippets from our full research coverage. We release new content regularly, so check back often for the latest insights.
A big question as any new industry develops is how will things break down geographically. Will large international brands dominate the space, or will local knowledge be important enough to give regional players an advantage? And as I cover the bitcoin space, I think this is one of the greatest unanswered questions in the bitcoin startup ecosystem.Taking a quick step back, why might an industry tend towards larger or smaller players?Some examples of why industries with larger players developNetwork Effects: You use Microsoft Office because everyone else uses itBrand Recognition: Coca Cola is everywhere even though they tailor to local tastesTechnical Knowhow: British Petroleum (BP) really knows how to get at oilSome examples of why industries with smaller players developDiffering Regulations: Healthcare laws vary widely country to countrySpecialized Needs: Religious/ethnic minorities may require special food/servicesBrand Differentiation: Wine labels are for specific operations from specific regions The reason I’m thinking about this is that I recently came across a new bitcoin payments startup that is strongly focused on the Spanish market. Cripto-Pay, based out of Madrid, was founded in 2013 and employs 7 people. They offer an e-Commerce and Point-of-Sale (POS) solution that enables merchants to accept bitcoin as a form of payment. While they are still very early stage, they seem to know what they are doing.Representing the large player in this discussion could be BitPay. That company has been around longer, is better funded, and has locked up a variety of large customers, such as Tiger Direct, Gyft, and Shopify. Their international bona fides is found on their website, which claims that they can localize into over 40 languages.Assuming they want to grow their operations globally, will BitPay be able to muscle their way into the Spanish market? Will Cripto-Pay have enough of a head start to make an acquisition offer from BitPay the only viable way they could enter that market? Will Cripto-Pay be doing well enough as “the big fish in a small pond” to reject such as offer?One way to potentially answer these questions for an industry is to look at how companies in the most mature segment of that industry take shape. In the case of bitcoin, the earliest participants are mining companies, both those hardware companies building mining rigs and software companies offering mining pool services. The industry started out highly fragmented, but has seen recent mergers and acquisitions (M&A) in the hardware space and dominant mining pools in the software space.Another key question will be how the consumer interacts with the solution. Assuming we’re talking about bitcoin payments, if it’s fully integrated behind the scenes, having a branded solution won’t matter to the consumer. On the other hand, if I have to log into my pre-existing account to make a payment (like how PayPal made me log in even though I was on another website) then you may be able to create some customer pull and network effects.Then, there are the current and future regulations to consider. The rise of bitcoin has lead to a host of regulatory efforts at various national and municipal levels. It remains unclear, to say the least, how these efforts will play out. Further complicating this area is the current lack of international coordination, similar to what occurs in traditional finance with the Basel Accords. The crux of the issue here is whether or not regulations will be similar enough to allow large external players to easily reach local compliance. All in all, my belief is that bitcoin companies will start highly fragmented and then consolidate over time. The fragmentation phase will be driven by an inconsistent development of regional regulations and the importance of local relationships to get bitcoin penetration. The consolidation phase will be driven by a normalization of regulatory frameworks and customer-pull/network-effects from brands that have a lot of trust (trust in both the literal and figurative sense) and/or can capture economies of scale. This is generally good news for VC or Angel investors in the bitcoin space, since even if the horse you bet on doesn’t end up as a top player within a category, they could still grab enough customers or really understand a specific geography to generate significant M&A interest.Read More
News about bitcoin and other crypto-currencies is everywhere. But, as halfway decent MBA-student would say, you gotta worry about substitute solutions. In the case of crypto currencies like bitcoin, one such potential substitute would be a digital currency that is fully controlled by a central bank.
Since its inception, the best known vulnerability of the bitcoin protocol has been the “51% attack”. This attack occurs when one party controls more than half of all processing power on the protocol, effectively giving them control over the entire blockchain. At this point, the majority holder could rewrite previous blocks, allowing them to double-spend bitcoins. Even though this scenario was considered unlikely (due to the downside risk it posed to bitcoin pricing), it’s exactly what happened.
I was recently at a digital currency conference, and one of the speakers brought up an interesting idea: bitcoin is more centralized than we think. As anyone who follows the bitcoin startup landscape knows, a few large players dominate bitcoin mining hashrate:
As a analyst following Bitcoin full-time for several months, I have been keeping up with developments in the cryptocurrency, attending Bitcoin meetups in Silicon Valley, and talking to Bitcoin startup founders. One key question that keeps coming up is — what is the intrinsic value of Bitcoin? Bitcoin proponents have made several arguments for it and I soon became an evangelist. The detachment of Silicon Valley from the rest of the world probably contributed to my conversion. But deep down, I have always had a nagging feeling that something was ‘off’. I could not find an argument that convinced me one-hundred-percent that Bitcoin had intrinsic value — until today.