One of the most exciting things about a novel technology like bitcoin is watching its infrastructure be built right before our eyes.
The need for infrastructure creates boundless opportunities for innovators and entrepreneurs to focus their efforts on developing products that solve problems in many different sectors of the industry.
But which sectors in the bitcoin ecosystem are commanding the most attention?
To explore this, we analyzed CoinDesk’s venture capital investment data, which groups companies in the bitcoin industry into six broad sectors: exchanges, wallets, payment processors, financial services, mining, and ‘universal’, which includes companies working across multiple sectors.
Venture capital flow into the bitcoin space has been a key driver of the industry’s growth over the past two years. In addition to the obvious monetary benefits, multimillion-dollar investments from revered investors like Marc Andreessen and Tim Draper help bring legitimacy to the often misunderstood technology.
As such, VC investment data serves as a helpful tool to gauge which areas in the ecosystem are being built on the most – or in other words, which sectors in bitcoin are the ‘hottest’.
To be considered for this analysis, a company must have raised a minimum of $250,000 from a venture capital firm, angel investor or a combination of the two. These criteria were chosen because a number of companies in our database are enrolled in accelerators like Boost VC and, while important to the industry, are still in beta.
The result was 46 different companies that, as of 1st September, have raised a total of $264m since our first recorded investment in mid-2012.
While the six sectors we classified aren’t always mutually exclusive – nor do they encompass every area in the industry – they’re representative of the different types of services in which businesses are specializing.
The data show that exchanges and financial services companies account for 56% of all companies with VC funding.
Popular names like Bitstamp and OKCoin (exchanges) and Chain (financial services) have raised substantial investment rounds, but when we look at how much money is going into each sector instead of just the number of companies in each sector, we see more diversity.
The hottest sectors in bitcoin
1. Universal companies
Total VC investments: $62.7m | Number of companies: 6
Coinbase and Circle dominate the universal company sector, which has seen more venture capital invested than any other area. Other universal companies like Korbit and Coinplug offer a wide range of services to customers, often acting as an exchange, wallet and payment processor all at once.
2. Financial services
Total VC investments: $43.4m | Number of companies: 12
BitGo, Chain and Ripple Labs lead the pack here, with younger companies like Vaurum and TradeBlock also posting multimillion dollar investments from investors. Companies in the financial services sector offer a variety of services, with some focused on block chain infrastructure and others on technical analysis of bitcoin’s price.
Total VC investments: $43.1m | Number of companies: 14
Exchanges are the most populated sector in bitcoin, with 14 companies that have all raised $250,000 or more from investors. Despite the abundance of players in the field, VC investment in exchanges has been disproportionately low, with the average funding per company sitting at $3.1m.
Total VC investments: $43.1m | Number of companies: 4
There are fewer companies in the wallet sector than any other, probably because most of the universal companies have wallets built into their business models too. As for companies keeping their focus primarily on wallets, Xapo reigns king with $40m raised so far – more than any other business in the industry.
5. Payment processors
Total VC investments: $37.7m | Number of companies: 5
BitPay has raised most of the VC money that has gone to the payment processor sector. The company’s recent $30m Series A funding round was the single largest investment into the bitcoin space, and included support from notable investors like Index Ventures and Virgin Group founder Richard Branson.
Total VC investments: $34m | Number of companies: 5
Arguably the bread and butter of the industry, it’s a bit ironic that the mining sector hasn’t received more support from venture capitalists. It’s worth noting that this data was compiled before KnCMiner announced its $14m Series A funding round on 4th September.
The investment, led by Swedish VC firm Creandum, certainly helps balance out the amount of money each sector has received in the ever-growing bitcoin industry.
Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay.
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