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State of Bitcoin Q1 2014 Report Shows Venture Capital Soaring

(@coindesk) | Published on April 24, 2014 at 14:59 BST

CoinDesk State of Bitcoin Q1 2014 from CoinDesk

Download the full report in PDF form.

Much has happened since CoinDesk released its first State of Bitcoin report earlier this year and today we are publishing an update featuring brand new data and analysis.

We were blown away by the success of the first report, which, at the time of writing, had over 110,000 views on SlideShare. So thank you for taking the time to read and share it across your networks.

The new report focuses on data and events in the first quarter of 2014 through to the present day.

2014 Q1 report highlights

Venture capital investment takes off

One of the more significant developments since the last report is the growing sum of venture capital that has been invested in bitcoin startups. So far this year, we have seen a total of $64.2m invested, with Xapo, Circle and OKCoin all securing eight-digit investment rounds.

Venture capitalists such as Marc Andreessen have compared bitcoin’s overall potential, as well as its current stage of development, to the Internet circa 1993. So how does VC investment in bitcoin compare to the early Internet?

In short, VCs appear to be walking the talk (Table 1).

Table 1: Bitcoin vs early Internet VC investment (US$ millions)

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*Note: Only includes first sequence venture deals; late-stage 1995 Internet investments totaling $257.6m are excluded. Sources: PricewaterhouseCoopers, National Venture Capital Association, CoinDesk, Dow Jones VentureSource, VentureScanner.

The 2014 run rate for the publicly disclosed VC investment in bitcoin startups is just over $200m. This would double the investment VCs made in bitcoin startups in 2013, and it isn’t far below the total for first sequence investments in 1998 Internet companies.1

Overall, this ‘wall of money’ flowing towards cryptocurrency startups should certainly have a positive impact on the industry’s prospects.

Bitcoin commerce continues to expand

CoinDesk now estimates that approximately 60,000 merchants around the globe accept bitcoin. In 2014 there has also been greater bitcoin adoption by major brands, including Zynga, Square and Overstock. Even eBay has added a ‘virtual currency’ category to its US and UK sites.

In the offline world, there are approximately 4,000 premises where bitcoin can be used in person and, of these, food establishments are by far the most common type of business accepting the cryptocurrency (Figure 1).

Figure 1: Distribution of offline businesses which accept bitcoin

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Source: CoinMap.org April 2014 (excludes uncategorized merchants). Chart created with DataWrapper.

Emerging signs of industry consolidation

One theme, which was touched on in our earlier State of Bitcoin report, was the emerging signs of bitcoin industry consolidation, and recently we have seen further evidence of this trend.

For example, in recent months exchange trading volumes have been concentrating in the very largest exchanges. We have also seen the rise of what we refer to as the ‘universal’ bitcoin business model.

This universal model definition would include any bitcoin company that is aiming to house multiple components of the bitcoin value chain (ie: wallet, exchange, payment processor) under one corporate roof.

Examples here include Coinbase, Circle and Coinplug. These companies are seeking to establish trusted brands and a convenient one-stop shop for all their customers’ bitcoin needs.

Looking ahead

Our intention is to publish a new State of Bitcoin report every quarter and we very much welcome your feedback and ideas on how we can make it better.

Given bitcoin’s open nature, there is a tremendous amount of information and data on the bitcoin economy already publicly available. A number of forward-thinking companies are also actively working to increase transparency.

There is still more that can be done, however, and we believe greater data transparency represents a significant opportunity for the bitcoin industry for several reasons.

Right now, important information about the industry’s performance is lacking, such as how much total bitcoin commerce is taking place, or how many people are using bitcoin ATMs, and how often. It is in every bitcoin company’s interest to help the general public develop confidence in the bitcoin industry, and greater data transparency can help this cause.

In addition, it is not uncommon for companies outside the bitcoin sphere to work confidentially with firms in industries, such as insurance, to aggregate useful sector data in a way that protects individual company data from being publicly revealed. In this way, bitcoin companies could also directly benefit from more data transparency through a better understanding of their sector.

Individual bitcoin companies understandably want to keep confidential customer information and sensitive operational data that could be used by competitors to their advantage. However, there is room to continue to meet this objective, while also making more sector data accessible.

CoinDesk aims to work with the bitcoin industry on developing additional publicly available data. Do contact us if you would like to be involved and help support this initiative.

We hope you enjoy the State of Bitcoin Q1 2014 report and would like to thank our readers for making CoinDesk the world’s leading source of bitcoin news, analysis and perspective.

[1] While Marc Andreessen compared bitcoin in 2014 to the Internet in 1993, the year 1995 is the earliest for which PriceWaterhouse provides data; please also see this post for additional notes on methodology and data limitations with this comparison.

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