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Bitcoin EcosystemOxana Kunets

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Contents

Definition and Ecosystem Overview 3 Wallets

9 Payment Processors

19 Exchanges 29 Hardware and Equipment

41 Investment Vehicles

52 Borrowing and Lending 61 Other Companies and Opportunities

71 Investability Comparisons and Conclusions

73 Sources

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Definition and Ecosystem Overview

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Bitcoin Definition

Bitcoin is a consensus-based peer-to-peer network that enables a new payment system and a completely decentralized digital currency.

The network consists of the same copy of a digital file, listing accounts like a ledger and maintained on every computer on the network.

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Bitcoin Stats (Oct 15, 2013, Mt.Gox Exchange)

7/17/2010 0:00

8/25/2010 0:00

10/3/2010 0:00

11/11/2010 0:00

12/20/2010 0:00

1/28/2011 0:00

3/8/2011 0:00

4/16/2011 0:00

5/25/2011 0:00

7/9/2011 0:00

8/17/2011 0:00

9/25/2011 0:00

11/3/2011 0:00

12/12/2011 0:00

1/20/2012 0:00

2/28/2012 0:00

4/7/2012 0:00

5/16/2012 0:00

6/24/2012 0:00

8/2/2012 0:00

9/10/2012 0:00

10/19/2012 0:00

11/27/2012 0:00

1/5/2013 0:00

2/13/2013 0:00

3/24/2013 0:00

5/2/2013 0:00

6/10/2013 0:00

7/19/2013 0:00

8/27/2013 0:00

10/5/2013 0:00$0

$50$100$150$200$250

0

200,000

400,000

600,000

Bitcoin Price and Trading Volume Evolution

Volume, Thousans BTC Weighted Price

Market Price: $160.43 USD Trade Volume: 20,263 BTCAll-Time High: $266.00 USD Total BTC Mined: 11.85M BTCMarket Cap: $1,901M USD Total BTC Minable: 21.00M BTC

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Transactions

Bitcoin Process and Bitcoin Supply

Blocks Chain

•Openly broadcasted to network•Unique digital signature• Links with previous transactions•50K-70K transactions daily

•Consists of blocks referencing each other (double spending protection)• Simultaneously solved blocks

build several branches•Chain is switched to a longest

branch•Attacking the system is not

economically viable

•Determine the order of transactions•Answer unique math problem•Built by pools of miners:

approximately 144 blocks/d per day•Now 25 bitcoins are released to

pool of miners for a solved block

“Mining” is a competitive and decentralized process of spending computing power to process transactions and secure the network by using specialized hardware and collecting new bitcoins in exchange for this service.

Mining Rewards Schedule – Capping the Total Supply2009 -2012: 50.0 BTC 2013-2016: 25.0 BTC 2017-2021: 12.5 BTC ∙ ∙ ∙

Blocks

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Bitcoin Ecosystem Participants

1

2

4

b

b

a

c

c

v

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1. Obtain and load a wallet: a) Cash Deposit; b) Bank Transfer; c) ATM.

2. Transact with Bitcoin network: a) Merchants; b) Exchanges; c) Investment Vehicles (no wallet needed); d) Borrow and Lend.

3. Transactions are confirmed by the network.4. Store the remaining balances of Bitcoins: a) In Bitcoin wallet; b) In bank account; c) Withdraw via ATM.

a

d

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Companies in Bitcoin Ecosystem

• Software Wallets;• Web and Mobile Wallets.

Wallets 1 4

Payment Processors 1 2

• Payment Service Providers;• Payment Networks.

• OTC Bitcoin Exchanges;• Spot and Forward Exchanges;• Stock Exchanges.

Exchanges 2

Hardware and Equipment 1 3 4

• Bitcoin Mining Hardware;• Bitcoin ATMs.

Investment Vehicles 2

• Bitcoin ETFs and Investment Trusts;• Bitcoin Venture Funds.

Borrowing and Lending 2

• Peer-to-peer borrowing and lending;• Bank-like borrowing and lending.

Others 5 6 N

• Bitcoin Binary Options;• Bitcoin Casinos;• Bitcoin Microwork Sites.• Etc…

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Wallets

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Bitcoin WalletsFUNCTION Responsible for storing, sending, and receiving of bitcoinsTYPES Software wallets – store Bitcoin on user’s computer:

•Full Bitcoin client – contributes to checking network transactions, heavy resource usage, locally stored complete block chain;•Lightweight Bitcoin client – does not store the block chain history, but uses

remote server; fast, but less secure.Web wallets – store bitcoins in the cloud:•Do not require download of the full chain; accessible on any device;•User gives up some security.

Mobile wallets – brings Bitcoin to user’s pocket:•Fast and easy point of sale payment method;•User gives up some security.

REVENUE MODEL Can be free, “donationware”, and fee-based;Added fees for extra functions, such as conversion of BTC to USD.

RISKS Software wallets: malicious software or loss of wallet leads to loss of bitcoins;Web and Mobile wallets: bitcoins are protected by a third party.

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Bitcoin Wallets: Examples in BriefSoftware Wallets

• Bitcoin QT – full Bitcoin client, open source, free; original software by BTC founder (Satoshi Nakamoto)• Armory – full Bitcoin client with advanced features, open source, free, by Armory Technologies• Multibit – lightweight Bitcoin client, open source, free, “donationware”• Electrum – lightweight Bitcoin client, open source, free

Web and Mobile Wallets

• Bitcoin Wallet and Mycelium Wallet – Android free applications • Blockchain.info – free web, Android, and Apple (restricted mode) wallet• Coinbase – free web and Android wallet with payment processing tools for merchants• BIPS – web wallet offered with BIPS payment processing solutions for European merchants• EasyWallet –web-based wallet with fees for transactions• StrongCoin – free hybrid Bitcoin wallet• Flexcoin – call themselves “Bitcoin bank”, a web-based wallet with fees for transactions

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Notable Wallets: Armory Technologies Inc.ABOUT The most secure and feature-rich

Bitcoin wallet application: pioneers in storing and transacting BTC. Deemed as an “Add-On” to the main Bitcoin client.

LOCATION: n/a

ESTABLISHED 2011

VALUE CHAIN Bitcoin full client

FOUNDERS Alan Reiner: •Advanced degrees in mathematics focusing on cryptography and statistics;•Previously worked as a physicist at Johns Hopkins University.

REVENUE MODEL

Not monetized yet

FUNDING 9/2013: $600K seed (partially in dollars and partially in BTC)Investors: Trace Mayer, Kevin Bombino, Jim Smith

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ABOUT Blockchain explorer; operates a hybrid wallet1 – “largest and most secure wallet service.” January 2013: 110K registered users; enables 10-20% of all Bitcoin transactions.

LOCATION UK

ESTABLISHED 2011

VALUE CHAIN Web/mobile wallet and data provider

FOUNDERS Ben Reeves:•Freelance software developer based in the UK;•Apps include AIM Addict & FTSE.

REVENUE MODEL

Service is free

FUNDING Per Angel List, “We are seeking investment to reach more mainstream markets.”

Notable Wallets: Blockchain.info

1. In a hybrid wallet, the bitcoins are not stored with the server, but instead are held in the user’s web browser. The service provider or a hacker, hence, cannot access or spend from such wallet.

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ABOUT Digital wallet and provider of the Bitcoin payment processing capabilities to merchants. Allows cashing out in the local currency. Per site, 299K wallets, 11K merchants.

LOCATION San Francisco, CA

ESTABLISHED 2012

VALUE CHAIN: Web/mobile wallet and payment processing

FOUNDERS Brian Armstrong:•2011-2012 worked on fraud prevention at Airbnb as a software engineer;•Co-founded UniversityTutor.com in 2004.

Fred Ehrsam:•Former trader at Goldman Sachs.

REVENUE MODEL

Free wallet; no charge or transaction fee to accept payments; 1% fee to convert bitcoins into a local currency.

FUNDING 9/2012: $600K seedInvestors: Alexis Ohanian, Y Combinator, Greg Kidd, Garry Tan, FundersClub5/2013: $6,11M Series AInvestors: USV, Ribbit Capital, SV Angel, Red Swan, Interplay Ventures, FoundersClub

Notable Wallets: Coinbase

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ABOUT Instead of a traditional combination of username and password to protect the access to a wallet, this service uses a secret link, created for a new visitor automatically.

LOCATION Finland

ESTABLISHED 2012

VALUE CHAIN Web wallet

FOUNDERS The site refers all questions to Jeremias Kangas, the CEO of LocalBitcoins.com, “a marketplace for trading bitcoins locally for cash or online payments of user’s choice.”

REVENUE MODEL

0.003 BTC per outgoing transaction (including Bitcoin network fee); if a wallet balance is over 12 BTC, a 0.0335% daily (about 1 percent monthly) storage fee applies.

FUNDING n/a

Notable Wallets: EasyWallet

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ABOUT Hybrid Bitcoin wallet, providing additional safety to a user’s bitcoins. Per site, 7K users.

LOCATION London, UK

ESTABLISHED 2011

VALUE CHAIN Web wallet and payment processing

FOUNDERS Ian Purton:•Also runs OTC bitcoins exchange, Bitcoinary;•Currently builds “distributed exchange” allowing people buy and sell bitcoins for fiat currency.

REVENUE MODEL

Wallet is free; 0.5% transaction fee for merchant capabilities.

FUNDING n/a

Notable Wallets: StrongCoin

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ABOUT Provides a user with a centralized Bitcoin account accessible from any device; gives a simple flexcoin ID replacing a complex address, and pays “discount payments” on the incurred fees back to account owner.

LOCATION Canada

ESTABLISHED 2011

VALUE CHAIN Web wallet and Bitcoin bank

FOUNDERS n/aWas sold from Yooter (digital marketing) to group of Canada investors, headed BY James Gray in 2012

REVENUE MODEL

Flexcoin to flexcoin – free; flexcoin to email – free; Bitcoin to flexcoin – free; flexcoin to Bitcoin – greater of 0.01BTC or 1.5% of transaction amount; cold storage transaction fee (outbound) – greater of 0.02BTC or 1.0% of transaction amount; cold storage transaction fee (inbound) – greater of 0.01BTC or 1.5% of transaction amount.

FUNDING n/a

Notable Wallets: Flexcoin

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Bitcoin Wallets: Conclusion

Although a necessary part of the Bitcoin infrastructure, most of the reputable Bitcoin wallets are not monetized per se. Additional services, like currency exchange or merchant tools, provide revenue generating capabilities.

Safety of a wallet is a prime concern for a user.

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Payment Processors

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Bitcoin Payment ProcessorsFUNCTION Enabling users to accept and make payments in bitcoins

TYPES Payment service providers (including merchant acquiring and gateway):•Payment services for exchanges;•Payment services for online and offline merchants.

Payment networks:• Independent payment network with Bitcoin as one of the serviced currencies.

REVENUE MODEL Fees for transferring funds; fees for converting payments into local currency; subscription fees; bank wire fees; security fees.

RISKS Ability to quickly generate a critical number of businesses and individuals served;Competition puts downward pressure on fees;Switching between providers is not complex.

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Payment Processers: Examples in BriefPayment Service Providers

• BitInstant – payment processer to main Bitcoin exchanges • BitPay – payment service provider to merchants globally• BIPS – payment processing solutions for European merchants• BitPagos – payment service provider to Latin American merchants• Coinbase – free web and Android wallet with payment processing tools for merchants

Payment Networks

• Ripple Labs – Distributed payment network with Bitoin as one of the currencies

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ABOUT Allows quick transferring of funds to online exchanges. Currently, BitInstant is re-launching the website due to numerous complains and class action lawsuit filed against it.

LOCATION New York, NY

ESTABLISHED 2011

VALUE CHAIN Payment processor for exchanges

FOUNDERS Charlie Shrem:•Also a partner at EVR, lounge in Manhattan;•Vice Chairman of BitCoin Foundation;•Co-founder of Daily Checkout (sold to BlueSwitch), ecommerce in deal-a-day space.

REVENUE MODEL

Fee for transferring of funds: depending on type of transaction, fee ranges from as low as 0.26% up to 3.99%.

FUNDING 5/2013: $1,5M seedInvestor: Winklevoss Capital Management

Notable Payment Processors: BitInstant

ABOUT Enables merchants to accept bitcoins for payment, keep revenues in BTC or deposit local currency daily into their bank account. Per site, 10K+ merchant network, 164 countries.

LOCATION Atlanta, GAESTABLISHED 2011

VALUE CHAIN Payment service provider

FOUNDERS Anthony Gallippi:•Former District Sales Manager at Aerotech;•Regional Sales Manager at Industrial Devices Corporation.

Stephen Pair:•20 years of building software systems in the financial and telecom industries;•Entrepreneur, architect, manager, team lead and developer.

REVENUE MODEL

1% flat fee to process and convert payments; beginning November, three levels of service with 0% transaction fee and a flat monthly payment ($30 Professional, $300 Business, $3,000 Enterprise).

FUNDING 1/2013: $510K seed: Shakil Khan, Barry Silbert, Jimmy Furland, Roger Ver, Matt Mullenweg, Ben Davenport, Trace Mayer, Ashton Kutcher5/2013: $2M seed: Founders Fund

Notable Payment Processors: BitPay

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ABOUT The largest provider of Bitcoin payments in Europe for both e-commerce and in-store transactions. Per site, serves 15K+ customers worldwide .

LOCATION DenmarkESTABLISHED 2011 (2013 launch)

VALUE CHAIN Payment service provider with web and mobile wallet

FOUNDERS Kris Henriksen:•Also the founder of WalletBit, shut down in July 2013 due to declining popularity and founders’ switch to BIPS; •Bitcoin miner.

REVENUE MODEL

Sell BTC to PayPal – 11%, sell to EgoPay (e-currency processor) – free plus bank wire fees; Buy BTC with Money Gram – 3.99%, buy with EgoPay – free plus bank wire fees.

FUNDING n/a

Notable Payment Processors: BIPS

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ABOUT The first payment gateway focused on Argentina. BitPagos accepts credit card payments and pays out to merchants in Bitcoin while charging a fee.

Location: San Francisco, CAEstablished: 2013

Value Chain: Payment service provider

FOUNDERS Sebastian Serrano:•Founded devsAr, a software development company;•“Developer since 7, MBA, python lover.”

Mugur Marculescu:•Previously at Lytro, Citrix, Viacom, MTV Networks;•Co-founded animated gif social startup WeGIF.

Luciana Gruszeczka:•MBA and COO of devsAr.

REVENUE MODEL

Generates “low fees” on the processed transactions

FUNDING Summer 2013: participates in the Boost VC accelerator’s 12 week program, founded by Adam Draper (son of Tim Draper)

Notable Payment Processors: BitPagos

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ABOUT Mobile application that will allow individuals to sell bitcoins for fiat currency and receive that payment in PayPal, credit card, prepaid card, or directly into a bank account .

LOCATION New York, NY

ESTABLISHED 2013 (coming soon)

VALUE CHAIN Payment service provider: virtual ATM

FOUNDERS Andre De Castro:•Active member of Bitcoin NYC community;•President of RightClick LLC (parent company controlling eCoin Cashier);•Outspoken proponent of Bitcoin.

REVENUE MODEL

n/a

FUNDING n/a

Notable Payment Processors: eCoin Cashier

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ABOUT Distributed payment network enabling free and instant payments to merchants, consumers, and developers in any currency - including Bitcoin. Maintains its own currency – XRP. Per site, 144K transactions, 24.5K active users.

LOCATION San Francisco, CA

ESTABLISHED 2012

VALUE CHAIN Payment network with payment processing, wallet, and currency exchange

FOUNDERS Chris Larsen:•Former CEO of Prosper.com, a P2P lending marketplace;•Co-funder of E-LOAN, financial ecommerce, offering savings accounts and certificates of deposit.

REVENUE MODEL

No merchant fees (no transaction, no network, no operator fees), security cost fee— “a tiny cost for transactions that only impacts abusive users.”

FUNDING 4/2013: Angel round: Andreessen Horowitz, FF Angel LLC, Lightspeed Venture Partners, Vast Ventures, BitCoin Opportunity Fund;5/2013: Angel Round: Google Ventures, IDG Capital Partners.

Notable Payment Processors: Ripple Labs

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Bitcoin Payment Processing: Conclusion

Payment processing appears to be an attractive business model due to a large volume of transactions daily and a growing number of merchants accepting Bitcoin. Ability to acquire merchants is the key to success.

Competition, however puts downward pressure on fees.

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Exchanges

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Bitcoin ExchangesFUNCTION Allowing users trade Bitcoin in exchange for local currency, precious metals, or stockTYPES OTC BitCoin Exchanges:

•Aggregate and display outstanding Bitcoin supply and demand; •Allow users transact with each other directly, taking counterparty risk.

Spot and Forward Exchanges:•Allow users transact through the centralized system;•Exchange Bitcoin to multiple currencies, single currency, or bet on future Bitcoin

price.BTC Stocks:• Stocks: Invest Bitcoin in projects in exchange for shares in the business

(crowdfunding).REVENUE MODEL Fee as a percentage of a completed transaction amount; deposit fees; withdrawal

fees.RISKS In OTC exchanges, users heavily rely on counterparty reputation;

In centralized exchanges, ability to quickly generate a critical number of businesses, individuals, and/or currencies served is the key to scaling.

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Bitcoin Exchanges: Examples in BriefOTC BitCoin Exchanges

• LocalBitcoins.com – decentralized exchange for users to buy and sell BTC• Bitcoinary – peer-to-peer exchange and “reputation system”• #bitcoin-otc – aggregator of outstanding demand and supply for BTC

Spot and Forward Exchanges• MtGox – Japan based largest and oldest Bitcoin exchange • BitStamp – European Union based Bitcoin marketplace• Coinsetter – New York based platform that aggregates trades on major exchanges• Kraken – exchange for Bitcoin, Litecoin, and Ripple currencies• Coinabul – first Bitcoin to gold and silver exchange• BitBox – California-based Bitcoin exchange• ICBIT – Sweden based exchange, offering Bitcoin futures trading

BTC Stocks and Options

• Crypto::Stocks – crowdfund projects, trade shares in projects, pay dividends

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ABOUT Decentralized exchange where users post advertisements with stated exchange rate and payment methods for buying or selling bitcoins. Per site, 180 countries, 3246 cities.

LOCATION Finland

ESTABLISHED 2012

VALUE CHAIN Bitcoin OTC exchange

FOUNDERS Jeremias Kangas:•Also connected to EasyWallet, a Bitcoin web wallet;•Programmer and entrepreneur;•With his brother and a team of Internet technology specialists, participated in Startup Sauna, one of the world leading startup acceleration programs.

REVENUE MODEL

No fee related to buying and selling without advertisement; 1% fee for buying and selling as advertiser, and 0.0001-0.0004 BTC per outgoing transfer.

FUNDING Site states that venture capital raised is €0. The team, however, participated in an accelerator program.

Notable Exchanges: LocalBitcoins.com

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ABOUT A peer to peer exchange and reputation system, building a web of trust between buyers and sellers to enable easier transfers in and out of Bitcoin.

LOCATION London, UK

ESTABLISHED 2012

VALUE CHAIN Bitcoin OTC exchange

FOUNDERS Ian Purton:•Also runs StrongCoin, web wallet and payment processing;•Currently builds “distributed exchange” allowing people buy and sell Bitcoin for fiat currency.

REVENUE MODEL

Per Bitcointalk.org, 2.5% fee for a BitCoin to PayPal trade.

FUNDING n/a

Notable Exchanges: Bitcoinary

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ABOUT Hosts and operates the leading Bitcoin trading platform, facilitating the exchange of bitcoins between individuals and businesses internationally. Also provides merchant tools.

Location: Japan

Established: 2010

Value Chain: Currency exchange and payment processor

FOUNDERS Jed McCaleb:•Sold MtGox to Tibanne (now managed by Mark Karpeles) in 2011;•Also co-founder of Ripple, distributed payment network with BTC as one of the currencies;•Created eDonkey in 2000, largest p2p file sharing network at the time;•Some speculate that he might be Satoshi Nakamoto, creator of Bitcoin;•“Dropped out of UC Berkeley in his freshman year to start building things.”

REVENUE MODEL

2.5% premium when a trade involves orders in different currencies (buy BTC in euro and sell BTC in dollars); 0.25%-0.60% transaction fee depending on volume.

FUNDING n/a

Notable Exchanges: Mt.Gox

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ABOUT European Union based Bitcoin marketplace. It allows people from all around the world to safely buy and sell bitcoins. Despite European location, USD-BTC is the main pair.

LOCATION SloveniaESTABLISHED 2011

VALUE CHAIN Currency exchange

FOUNDERS Nejc Kodric:•Prior, owned a company selling computer components and laptops;•Marketing Director & Co-Founder at GSračunalniki .

REVENUE MODEL

0.20%-0.50% trading fee depending on volume; free to establish deposit through SEPA (Single European Payments Area); 0.90 € for withdrawals.

FUNDING n/a

Notable Exchanges: BitStamp

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ABOUT Built by Wall Street professionals,New York based platform aggregates trades on major exchanges to offer the best price and soon plans to offer earning interest on BitCoin loans.

LOCATION New York, NYESTABLISHED 2012

VALUE CHAIN

Currency exchange

FOUNDERS Jaron Lukasiewicz:•Co-Founder of Ticketometer, a social media-focused online ticketing platform;•Former Associate at The CapStreet Group, a Houston-based private equity firm;•Former investment banker at J.P. Morgan and Sanders Morris Harris.

Yo Sub Kwon:•Co-founder of LaunchKey, providing passwordless online authentication services;•Partner at Ticketometer;•Co-founder of Shirts By Me, crowd funded T-Shirt community.

REVENUE MODEL

0.30%-0.50% trading fee; 010%-0.20% for market-makers.

FUNDING 04/2013: $500K seed: Barry Silbert (SecondMarket CEO), Tribeca Venture Partners

Notable Exchanges: Coinsetter

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ABOUT Exchange system with advanced order features allowing trading Bitcoin, Litecoin, and Ripple currency (13 currency pairs in total) with USD and EUR.

LOCATION San Francisco, CA ESTABLISHED 2012

VALUE CHAIN Currency exchange

FOUNDERS Jesse Powel:•President at Verge center for the Arts;•Co-founder of Internet Ventures & Holdings (networks catering to the gamer community);•Former CEO at Lewt, “services for virtual worlds.”

Walter Stanish:•Systems Architect Saffron Digital; •Founder of China Hotel Startup.

REVENUE MODEL

0.05%-0.30% trading fee depending on volume and currency pair

FUNDING Per Angel List, their investor is Roger Ver (invested in BitPay, works at BitInstant, partner at Bit Angels, and AKA “bitcoin Jesus”).

Notable Exchanges: Kraken (Payward)

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ABOUT A platform for individuals interested in buying and selling Bitcoins using an assortment of world currencies, including the U.S. dollar, Russian ruble, and other cryptocurrencies like Litecoin and Namecoin. Handles 11.2% of Bitcoin transactions.

LOCATION n/aESTABLISHED 2011

VALUE CHAIN Currency exchange

FOUNDERS n/a

REVENUE MODEL

0.2% fee on each transaction;fee 0.5% or USD/RUR conversion

FUNDING n/a

Notable Exchanges: BTC-E

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ABOUT Coinabul is the first platform to offer conversion of Bitcoins into gold and silver, both coins and bars of various weights. By the end of 2012, transacted 120K BTC.

LOCATION Wyoming

ESTABLISHED 2011

VALUE CHAIN BTC to gold and silver exchange

FOUNDERS Jay Shore:•Self-described “metal bug”

Jon Holmquist:•Resigned from Coinabul to work with Roger Ver on BitCoin Store, an ecommerce site that sells electronics for bitcoin.

REVENUE MODEL

Selling precious metals for BTC

FUNDING n/a

Notable Exchanges: Coinabul

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ABOUT Established on the premise that Bitcoin economy is simply too large for one exchange (Mt.Gox?) to handle, no matter how efficient and scalable its architecture may be.

LOCATION Ann Arbor, Michigan

ESTABLISHED 2013

VALUE CHAIN Bitcoin exchange and payment processor

FOUNDERS Kinnard Hockenhull:•Dropped out of University of Michigan to start a company.

Corey Goldstein:•Entrepreneur since 5th grade; •University of Michigan.

REVENUE MODEL

0.25%-0.75% trading fee depending on volume for “liquidity takers”;0.20%-0.70% trading fee depending on volume for “liquidity providers” plus fees for deposit and withdrawal.

FUNDING Summer 2013: participates in the Boost VC accelerator’s 12 week program, founded by Adam Draper (son of Tim Draper);TechArb: the University of Michigan's student startup incubator.

Notable Exchanges: BitBox

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ABOUT Crowdfunding platform that allows supporting projects in exchange for shares and potential dividends. Supports Bitcoins, Litecoins or Devcoins. Options can be written on any securities listed.

LOCATION n/a

ESTABLISHED 2012

VALUE CHAIN Bitcoin crowdfunding and stock exchange

FOUNDERS Service from the developers of Vircurex (Virtual Currency Exchange)

REVENUE MODEL

Trading: 0.15% plus security specific fee; list a security: 2BTC; issue an option and buy an option: 0.01BTC; exercise an option 0.30%; withdrawal fees: 0.01BTC; share transfer fees: 0.01%.

FUNDING n/a

Notable Exchanges: Crypto::Stocks

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Bitcoin Exchanges: Conclusion

Despite the presence of the dominant player, Mt.Gox, startups see a lot of space to innovate with additional trading services, exchange pairs (both currency and precious metals), and financial instruments (forwards, shares).

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Hardware and Equipment

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Bitcoin Hardware and EquipmentFUNCTION Provide hardware and equipment for the entire bitcoin infrastructure

TYPES Mining Hardware:•Hardware that secures the network and facilitates building of the chain;•Electricity consuming equipment varies by computational strength.

Bitcoin ATMs:• Invented to enable cashing out BTC into a local currency and loading bitcoin

account by using cash;•Provide an alternative to transferring of BTC info a bank account or PayPal from

a wallet.

REVENUE MODEL Revenues from sales of hardware and equipment;Maintenance fee for ATMs plus a share of transaction fees.

RISKS Mining hardware may cost more in energy than the benefits it generates;Limited total Bitcoin supply caps the demand for mining hardware;Success of ATMs depends on acceptance and security measures.

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Bitcoin Hardware and Equipment: Examples in Brief

Mining Hardware

• Butterfly Labs – high speed line of miner and encryption processors for bitcoin mining, research, telecom, and security application

• Avalon – hardware specifically for mining bitcoins, supporter of open source movement and releases chip data sheets, unit reference designs, and controller codes

• HashFast Technologies - semiconductor company specializing in extreme performance of bitcoin mining chips and machines

Bitcoin ATMs

• Lamassu Bitcoin Ventures – cash to bitcoins one way machine• RoboCoin – machine that allows buying and selling bitcoin• BitcoinATM – exchanges BTC to the local currency and vise versa

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ABOUT Manufactures a line of high speed encryption processors for use in bitcoin mining, research, telecommunications, and security applications.

LOCATION El Monte, KSESTABLISHED n/a

VALUE CHAIN Bitcoin hardware and consulting services

FOUNDERS Sonny Vleisides:•VP of Product development, serial entrepreneur in encryption platforms for banking and communication and online gaming;•Was implicated in $25 Million mail order fraud.

Nasser Ghoseiri:•15 years of design experience, both software and hardware;•Held IT Consultant/Engineering roles at Societe-Generale bank of France, Embedded systems consultant at LOTSYS; software engineer in Marchal Technologies.

REVENUE MODEL

Revenues from equipment sales: prices range from $75 for a mining chip to $22,48 for a processor; consulting revenues.

FUNDING n/a

Notable Equipment and Hardware: Butterfly Labs

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ABOUT Manufactures ASIC-based bitcoin miners, custom-built rigs with specially designed chips. Makes all design information publically available.

LOCATION New York, NY

ESTABLISHED 2012

VALUE CHAIN Bitcoin mining hardware

FOUNDERS Yifu Guo:•Founding member of BitSyncom, which holds auctions of mining units, allowing participants to submit their own bids;•Also created Bitcoin Navigator, a website that showed verified physical locations that accepted bitcoins;•None of the Avalon team has their mining units except for testing.

REVENUE MODEL

Revenues from equipment sales: equipment is priced in BTC; prices range from 4BTC to 15BTC. 600 miners batch was sold out in 15 minutes.

FUNDING n/a

Notable Equipment and Hardware: Avalon

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ABOUT Semiconductor company specializing in extreme performance of bitcoin mining chips and machines. Per site, the first chip is in final stages and will ship in October.

LOCATION San Francisco, CAESTABLISHED 2013

VALUE CHAIN Bitcoin chips and mining hardware

FOUNDERS Simon Barber (CTO):• In 2011, he proposed the development of ASIC chip specifically for Bitcoin mining;•Former research engineer at Palo Alto Research Center, influential tech think tank;•Founder of Deviscape, a provider of advance WiFi solutions for mobile platforms.

Eduardo deCastro (CEO):•Founder of Deviscape – secured$7 Million on investment;•Former general manager at European Operations at Contact Networks.

REVENUE MODEL

Revenues from chips: at launch, first three batches were sold out immediately

FUNDING 6/2013: completed the first financing round for unknown amount

Notable Equipment and Hardware: HashFast Technologies

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ABOUT ATM-like machine that accepts fiat currency from over 200 countries in exchange for bitcoins within 15 seconds. First 15 pre-orders production started in August 2013.

LOCATION Manchester, UKESTABLISHED 2013

VALUE CHAIN Bitcoin ATM

FOUNDERS Zach Harvey and Josh Harvey:•Former owners of guitar stores;•Bitcoin enthusiasts since 2010.

Matt Willock:•Network security expert and software/hardware engineer.

REVENUE MODEL

Instead of licensing and charging software and franchise fees, they sell device outright: 1-4 unit cost $5,000, 5-9 units for $4,500, 10 and more units for $4,000.

FUNDING Self-funded; considering external funding in future.

Notable Equipment and Hardware : Lamassu Bitcoin Ventures

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ABOUT ATM kiosk accepting and dispensing cash in exchange for Bitcoins. First orders are shipped to Canada in October 2013. Federally compliant biometrics locks to provide security.

LOCATION Las Vegas, NVESTABLISHED 2013

VALUE CHAIN Bitcoin ATM

FOUNDERS Jordan Kelley:•CEO and Chief of Product of Handii, handyman on demand;•Founder and CEO of Decent Enterprise, platform for other mobile technologies;•Founder of jobbi, an international job website.

REVENUE MODEL

Machine is priced at $20,000 ($18,500 for early birds). The owner of a machine will earn transaction fees.

FUNDING n/a

Notable Equipment and Hardware: Robocoin

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ABOUT Developed a bi-directional Bitcoin ATM for accepting an dispensing cash for BTC. Currently, claim to have 300+ orders from 30+ countries.

LOCATION Los Angeles, CA

ESTABLISHED 2013

VALUE CHAIN Bitcoin ATM

FOUNDERS Jeff Berwick:•Founder of StockHouse Media Corporation (financial website in Canada);•Founder of The Dollar Vigilante, a joint venture publication featuring the theme of US dollar based financial system collapse.

REVENUE MODEL

Fee of $10,000 to ATM operators in maintenance, 3% user fee is split between operator and Bitcoin ATM.

FUNDING Self-funded; currently seeking investors $1-3Million to fulfill orders.

Notable Equipment and Hardware: Bitcoin ATM

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Bitcoin Hardware and Equipment: Conclusion

Hardware and equipment, built specifically for BitCoin, represent one of the most recent development in the value chain.

Despite the novice and potentially capped demand for the mining equipment due to the capped Bitcoin supply, the demand seems to exceed the supply of the market leaders’ offerings.

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Investment Vehicles

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Bitcoin Investment VehiclesFUNCTION Investment in Bitcoin with the goal of generating returnsTYPES Bitcoin ETFs – tracks BTC price and trades like a stock:

•Allows exposure and simplifies access to digital currency;•Sell short, buy on margin, hold small or large number of shares.

Bitcoin Investment Trusts – generates capital gains on NAV of fund shares:•Open-ended funds with one share equal to a portion of BTC;• Invest solely in BTC for the purpose of its appreciation .

Bitcoin Venture Funds – providing capital to high-potential Bitcoin startups:•“Professional” investing of institutional capital;• Investing of one’s private capital.

REVENUE MODEL Management fee (or management expense ratio); performance fee (in case of active investments);Dividends, share buybacks at premium.

RISKS ETFs require liquidity of assets and efficiency of exchanges;Volatility of BTC and security issues may make returns completely speculative;Large enough, ETFs and mutual funds can start affecting the BTC price;Lack of acceptance of BTC may not award attractive exits for VCs.

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Bitcoin Investment Vehicles: Examples in Brief

ETFs and Investment Trusts

• Exante BitCoin Fund – mutual fund-like investment vehicle in Europe • Bitcoin Investment Trust – mutual fund-like investment vehicle in the US• Winklevoss Investment Trust – Bitcoin ETF-like investment vehicle

Venture Funds

• CoinLab – Bitcoin infrastructure startup incubator• Boost VC BitCoin Fund – California-based Bitcoin startup incubator• BitAngels – world’s first distributed veteran entrepreneur and angel investor group

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ABOUT “The fund that invests in the economy of the next generation”; the investment objective is to achieve capital gains in the NAV of the Fund Shares. Minimum account starts from 10K € for individual and 50K € for institutional clients.

LOCATION Bermuda

ESTABLISHED 2011

VALUE CHAIN Mutual fund-like vehicle

FOUNDERS Alexey Kirienko:•Trading derivatives on the global market since 2003.

Gatis Eglitis:• Institutional Sales Trader and institutional business sales manager at Saxo Bank.

Anatoliy Knyazev:•Mathematician and programmer, director at Global Hedge Capital Group.

REVENUE MODEL

Up-front subscription fee to 0.5% of the subscription amount; Safekeeping and Administration fee is 1.75% of the net share value. Redemption Charge of 0.5%.

FUNDING Open-ended investment vehicle. The fund currently manages a portfolio of 90,000 bitcoins.

Notable Investment Vehicles: Exante Bitcoin Fund

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ABOUT A private, open-ended trust invested exclusively in Bitcoin and derives its value solely from the price of bitcoin. For accredited investors only with $25K minimum investment.

LOCATION New York, NY

ESTABLISHED 2013

VALUE CHAIN Mutual fund-like vehicle

FOUNDERS Barry Silbert:•CEO of Second Market;• Investor in Coinsetter (Bitcoin forex), BitPay (BitCoin payment processor), CoinLab (Bitcoin incubator), and numerous other startups.

REVENUE MODEL

Annual administrative and safekeeping fee of 2%; the front-end fee (waived for investments made in 2013), will be 1.5%. Once investors are allowed to sell shares on Second Market in 2014, the back-end fee will be 1.5%.

FUNDING Open-ended investment vehicle sponsored by Alternative Currency Asset Management, wholly owned subsidiary of SecondMarket.

Notable Investment Vehicles: BitCoin Investment Trust

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ABOUT Investment vehicle with the objective for its Shares to reflect the performance of the Blended Bitcoin Price, less the Trust’s expenses. Shares will be sold in Baskets (10,000BTC = 50,000 shares) to investors.

LOCATION New York, NY

ESTABLISHED 2013

VALUE CHAIN Bitcoin ETF

FOUNDERS Cameron and Tyler Winklevoss:•Founders of Winklevoss Capital Management;• Investors in BitInstant, SumZero, and Hukkster (instant sale alerts).

REVENUE MODEL

The Sponsor’s Fee will accrue daily at an TBD rate equal and will be payable monthly in arrears.

FUNDING IPO Value of $20 million

Notable Investment Vehicles: Winklevoss Bitcoin Trust

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ABOUT Bitcoin business incubator that builds businesses that provide fundamental infrastructure for Bitcoin. Launched Alydian, turnkey at-scale Bitcoin mining solutions.

LOCATION Seattle, WA

ESTABLISHED 2011

VALUE CHAIN Bitcoin infrastructure startups Incubator

FOUNDERS Peter J. Vessenes:•Serial tech entrepreneur and served on the board of a few tech companies;•Degree in Theoretical Mathematics with an emphasis in cryptography.

Jodie Brady:•Private financing, M&A, IPO and experience with technology companies;•Strategic planning at Clearwire Corporation, business operations at Pixelworks, Inc.

REVENUE MODEL

Return on investments in portfolio companies. Prior to becoming an incubator, they planned to monetize idle computing resources in online gaming to use in BitCoin mining.

FUNDING 5/2012:Partial Close $500K: Draper Fisher Jurvetson4/2013: Debt $575K

Notable Investment Vehicles: CoinLab

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ABOUT Incubator/accelerator providing office, housing, and investment to Bitcoin companies; 12 week program. Incubated BitBox and BitPagos.

LOCATION San Mateo, CA

ESTABLISHED 2012

VALUE CHAIN Bitcoin startups Incubator

FOUNDERS Adam Draper:•Son of Tim Draper;•Founder of Ender's Fund (Asynchronous Mobile Games Studio), Xpert Financial (online platform for capital raising and secondary trading of private companies).

Brayton Williams:•Worked at Morgan Stanley Smith Barney and Xpert Financial.

REVENUE MODEL

Return on investments in portfolio companies

FUNDING Lightspeed Venture Partners, Rothenberg ventures for the n/a amount

Notable Investment Vehicles: Boost VC Bitcoin Fund

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Bitcoin Investment Vehicles: Conclusion

ETF and mutual find-like investment vehicles are yet to gain popularity due to the high volatility of the digital currency and strong potential of a large player to influence the price.

Very prominent venture capital investors increasingly fund companies providing services within the Bitcoin ecosystem.

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Borrowing and Lending

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Bitcoin Borrowing and Lending FUNCTION Provides an opportunity to borrow and lend bitcoins and earn interest on the

amount of loan

TYPES Peer-to-Peer – allows a creditor to choose which loan to fund:•Borrowers are graded by creditworthiness, which defines repayment parameters;•Lenders browse loans listings to find ones meeting their investment criteria.

Bank-like Lending 1 – borrower or lender are not identified for each other:•Deposit BTC to earn high interest rate;•Borrow BTC from the platform in form of a loan.

REVENUE MODEL Closing fees as percentage of loan amount;Late payment fees and credit rating fees;Interest rate spread.

RISKS For peer-to-peer: site reputation heavily depends on borrowers quality;For bank-like lending: ability to generate positive spread defines success of the enterprise;Volatility of BTC relatively to fiat can quickly wipe out the loan value for a lender.

1. The term is used unofficially to contrast these transactions to peer-to-peer alternative; the companies in this group are explicitly not government-insured banks.

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Borrowing and Lending: Examples in BriefPeer-to-peer Lending

• Bitbond.net – connects small business borrowers and lenders directly• BitLendingClub – peer-to-peer Bitcoin lending network with Dutch auction• BTCJam – peer-to-peer Bitcoin lending network

Bank-like Transactions

• BitDeposit.net – offers interest on deposits, business loans, insurance on the BTC price, and small business funding

• CoinLenders – the website offering loans, credit rating verifications, and certificates of deposit

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ABOUT The platform conducts an appraisal of borrowers’ creditworthiness, allows small business owners to publish projects, and lenders – to fund the projects all around the world.

LOCATION Berlin, GermanyESTABLISHED 2013

VALUE CHAIN P2P lending platform

FOUNDERS Radoslav Albrecht:•Previously, restructuring consultant at Roland Berger Strategy Consultants;•Analyst at Deutsche Bank and Greenhill.

Jürgen Walter:•Before, Senior Rails Developer at Wimdu (online marketplace for apartment rentals);•Director Middleware Applications at San Francisco State University.

REVENUE MODEL

Auctioned loan is funded either if the requested amount is reached during the auction or if the funded amount is 1.0BTC or more at the end of the auction;Borrowers pay rating fee of EUR5 (SEPA area)or 0.05BTC (non-SEPA area);Origination fees range from 0.5%-3.0%; no lenders’ fees.

FUNDING Bitbond.net is run by CreditSix Marketplace GmbH, a German private limited company.

Notable Borrowing and Lending Platforms: BitBond.net

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ABOUT BitLendingClub is a peer-to-peer Bitcoin lending platform. Lending is conducted via a Dutch auction: the lenders submit competing offers to fulfill the request in part or in whole. The Platform combines the lowest offers that add up to the requested loan amount.

LOCATION Streamwood, ILESTABLISHED

2012

VALUE CHAIN

P2P lending platform

FOUNDERS Kiril Gantchev:•Software engineer, Bitcoin investor and an entrepreneur;•Adgooroo (keyword suggestion and tracking), Tanager (cyber security) – 7 years of experience in developing software, MS in Software Engineering.

Yansen Yankov:•Software engineer, entrepreneur and all-around technology guru;•Cisco Systems, Axway (software and services) – 7 years of software development

experience.

REVENUE MODEL

1% flat loan fee collected with each repayment (to align the platform’s interests with those of lenders)

FUNDING n/a

Notable Borrowing and Lending Platforms: BitLendingClub

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ABOUT Allows investors earn higher returns and borrowers choose rates they can afford within the community of globally trusted people.

LOCATION Campinas, Brazil

ESTABLISHED 2012

VALUE CHAIN P2P lending platform

FOUNDERS Celso Pitta:•Built cryptography systems for Visa and Citibank EDI platforms;•Patented neural network computer vision device;•Computer Engineering at UNICAMP.

REVENUE MODEL

BTCJam is not responsible for loan repayment and does not moderate the listings. Free for lenders; Loans below 10 BTC are charged a 4% closing from the amount funded;All other loans are charged a 1% closing fee;Late payment fee is the greater of 5% of the unpaid value or 0.5BTC.

FUNDING Owned by Ovo Cósmico LTDA

Notable Borrowing and Lending Platforms: BTCJam

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ABOUT Bitcoin “bank” offering up to 21.2% interest on BTC deposits. Per site, deposited bitcoins are used to help the Bitcoin economy by buying mining contracts, investing in and lending to Bitcoin businesses. 35,108.243 BTC deposited.

LOCATION Amsterdam, Netherlands

ESTABLISHED 2013

VALUE CHAIN Bank-like transactions

FOUNDERS Call themselves “a tight team of bitcoin lovers, financial experts and IT experts.”NOTE that bitcointalk.org contains a thread discussing the company’s legitimacy: checking the address the bitcoin deposit needs to be submitted to in the block chain explorer indicated 0 BTC (and 19.68BTC total received as of 19/10/13 vs. claimed total deposits)

REVENUE MODEL

Earning the spread between interest earned on investing and lending and interest paid to depositors.

FUNDING n/a

Notable Borrowing and Lending Platforms: BitDeposit.net

ABOUT A website that provides (and keeps track of) bitcoin loans, and offers credit ratings / ID verifications. CoinLenders gives fee rebates for having balance on platform (22.23% annually) as well as buying CDs (22.8% annually).

LOCATION Sydney, Australia

ESTABLISHED n/a

VALUE CHAIN Bank-like transactions

FOUNDERS Nicknamed TradeFortress:• Google search of his name finds a few posts claiming that he is a scammer (yet posts

are written by people rated poorly, whereas TradeFortress is rated highly); he is also the one who proclaimed BitDeposit.net a scam).

NOTE that the site has the following disclaimer on every page: This is a demo instance of the CoinLenders Bitcoin Bank Script. While this demo is fully functional, nothing is real, and nothing is an investment.

REVENUE MODEL

Investing users deposits in Bitcoin loans issued to low risk borrowers; Bitcoin denominated securities and assets; Funding for new cryptocurrency businesses and ventures; Margin trading. Loan application fee of 0.05BTC; 1% daily of the outstanding loan for late payment.

FUNDING n/a

Notable Borrowing and Lending Platforms: CoinLenders

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Bitcoin Borrowing and Lending: Conclusion

While Borrowing and Lending platforms represent a great potential with Bitcoin credit card being a part of it, the site owners release themselves of the liability for the loan repayment and from the guarantees on deposit investments.

Release of the liability causes significant volume of discussion about the platforms legitimacy and feasibility of the returns.

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Other Companies and Opportunities

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Other Companies and Opportunities: Examples in Brief

• Miner Lease – Bitcoin mining contracts for investment;• BTC Levels – platform allowing a user to profit from correct prediction of the BTC price forecasts;• Satoshidise – leading Bitcoin gaming site;• Coinster – cryptocurrency search engine with search results only related to cryptocurrencies;• BTCVoip – provides VOIP services at low prices for BTC only;• BitcoinGet – allows earning bitcoins by watching the videos and completing simple tasks;• Cryptcard - international prepaid Bitcoin loadable virtual MasterCard to get money to the people, who

do not accept bitcoins.

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Investability Comparison and Conclusions

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Bitcoin Ecosystem Map1Armory

Technologies 14Bitcoinary 27Robocoin

2Blockchain.info 15Mt.Gox 28BitcoinATM

3Coinbase 16BitStamp 29Exante

4EasyWallet 17Coinsetter 30BitCoin Investment Trust

5 StrongCoin 18Kraken 31Winklevoss Bitcoin Trust

6 Flexcoin 19BTC-E 32CoinLab

7BitInstant 20Coinabul 33Boost VC

8BitPay 21BitBox 34BitBond.net

9BIPS 22Crypto::Stocks 35BitLendingClub

10BitPagos 23ButterflyLabs 36BTCJam

11eCoin Cashier 24Avalon 37BitDeposit.net

12Ripple Labs 25HashFast Technologies 38CoinLenders

13 Localbitcoins.com 26 Lamassu Bitcoin Ventures

The size of the bubbles corresponds with the revenue-generating potential, given the pricing, site traffic, and users’ behavior on site.

Red Stars - very small or un-monetized companies from various sectors;Yellow – wallets; Light Blue - payment processors; Green – exchanges; Peach - hardware and equipment; Grey - investment vehicles;Dark blue - borrowing and lending.

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Bitcoin Ecosystem Map Methodology

• User adoption, defined by the site ranking and the time spent on the site per visit, affects a company's success

• We assume that, aside from the differences in the bounce rate, the conversion rate of an engaged user is approximately the same on all sites

• Bounce rate is the rate of people leaving the site after opening only one page

• Hence, we assume that the product of the site traffic and bounce rate allows comparing companies in terms of number of paying users

• We assume that an average user performs same number of transactions and average transaction size is the same for all the companies

• We assume that difference in the size of the fees and number of paying users allows comparing companies for the revenue-generating potential

• High revenue potential does not mean, however, that a company is actually making money

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Bitcoin Ecosystem: Conclusions• While a necessary part of Bitcoin ecosystem, most of the wallets are provided for free. Coinbase,

positioning itself as a wallet, earns its money by converting BTC to USD;• Benefitting on the large number of transactions, Bitcoin payment processors hold a strong position

in the value chain; downward pressure on fees from competition and establishment of new payment networks for different cryptocurrencies (Ripple) can weaken the processors;

• While maintaining a loyal user base, Bitcoin exchanges seem to compete on price and new trading opportunities, adding more instruments and currency pairs;

• Bitcoin mining hardware and ATMs experience sellers’ market; capped supply of BTC, however, would not allow such imbalance to carry on for a long time;

• The main problem with the Bitcoin traded investment vehicles is the ability of a big player to affect the Bitcoin price, hence, disrupting the forces of market supply and demand;

• A number of startups is receiving funding from prominent venture capital investors to grow services within the Bitcoin ecosystem;

• Borrowing and lending in Bitcoin seems to be the space where a lot of new opportunities are being created; the lack of legal protection, however, results in a great caution from the users;

• The Bitcoin vale chain is still in formation with the number of services are yet to come.

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Bitcoin Ecosystem: Sources

http://www.weusecoins.com/en/ http://www.ecoincashier.com https://bitcoinatm.com/

http://bitcoin.org/en/ https://ripple.com/ https://exante.eu/products/BTC/

http://btcsec.com/ https://localbitcoins.com/ http://coinlab.com/

http://www.coindesk.com/ https://www.bitcoinary.com/ http://boost.vc/

http://bitcoinmagazine.com/ https://www.mtgox.com/ https://www.bitbond.net/

https://bitcointalk.org/ https://www.bitstamp.net/ http://bitlendingclub.com/

http://www.crunchbase.com/ https://www.coinsetter.com/ https://btcjam.com/

http://bitcoinarmory.com/ https://www.kraken.com/ http://www.bitdeposit.net/

http://blockchain.info/ https://btc-e.com/ https://www.coinlenders.com/

https://coinbase.com/ http://www.coinabul.com/ http://www.minerlease.com/https://easywallet.org https://bitbox.mx/ http://btclevels.com/https://www.strongcoin.com/ https://cryptostocks.com/ http://coinster.info/

http://www.flexcoin.com/ http://www.butterflylabs.com/ http://www.btcvoip.com/https://www.bitinstant.com/ http://avalon-asics.com/ http://www.bitcoinget.com/https://bitpay.com/ https://hashfast.com/ http://www.satoshidice.com/https://bips.me/ https://lamassu.is/ http://cryptocard.myshopify.com/https://www.bitpagos.net/ https://robocoinkiosk.com/ https://en.bitcoin.it/wiki/Trade

https://angel.co/