Mindworks Ventures Blockchain Report 2017

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MindWorks Ventures is a Hong Kong venture capital firm with investments in early and expansion-stage technology start-ups in the Southeast Asia and Greater China region.
mindworks.vc
BLOC KC HAIN RE P ORT
SEPT 2017

2. Blockchain Trends 2017
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1. Introduction to Blockchain
1.1 Payment Example
1.2 Asset Registry Example
1.3 Smart Contract Example
1.4 New Internet 3.0
1.5 New Age of Blockchain
1.6 Putting the World’s Money into Perspective
1.7 Market Potential
1.8 Growth Fueled by Cost Savings
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2. Industry Trends
2.1 Industry Trends- Banking
2.2 Industry Trends- Financial Services
2.3 Industry Trends- Cryptocurrency Trading, Wallets and
Exchanges
2.4 Industry Trends- Merchant Services
2.5 Industry Trends- Crowdfunding/ ICO
2.6 Industry Trends- Supply Chain Management
2.7 Industry Trends- IOT
2.8 Industry Trends- Insurance
2.9 Industry Trends- P2p Lending/ Marketplaces
2.10 Industry Trends- Other Blockchain Application Examples
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3. Blockchain Startups Funding History
3.1 Blockchain Startups Funding by Category
3.2 Blockchain Startups Funding Event Count
3.3 923 Blockchain Companies with Total $2.2B Funding
3.4 Top 10 VC- Backed Blockchain Startups
3.5 Top 5 ICO-Backed Blockchain Startups
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4. Potential Risks and Regulations
4.1 International Views Towards Cryptocurrencies
4.2 Timeline of Key Events from Regulators
4.3 China PBOC Declares ICO Illegal
4.4 China’s Top Exchanges Suspend Trading
4.5 China Pushes to Explore Blockchain
4.6 USA GSA Ramps up Blockchain Exploration
4.7 Russian Bank Announces Opening of Blockchain Research
Center
4.8 Regulations are Necessary to Foster Long Term Adoption
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5. MindWorks Paradigm Fund Focus
5.1 Our Ethos
5.2 MindWorks Investment Parameters
5.3 MindWorks Investment Focus
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3. A distributed database where information is public and verifiable
Traditional ledgers are centralized
and use intermediaries to
approve/record transactions
Blockchain distributes ledger across
network - no central authority is required
1. Introduction to Blockchain
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4. 1.1 Payment Example
In order for a transaction
to occur, there must be a
digital wallet to send and
receive currencies. Each
user with a wallet is able
to initiate transactions.
Because many
transactions occur in the
network simultaneously,
these pending
transactions are grouped
into a block. Each block is
unique and it references to
the previous block.
Miners compete to verify
each transaction. Each
verification is done through
solving complex
cryptographic problems.
Once the block is verified
and added to the
blockchain, the transaction
is complete and ownership
of tokens have changed.
The miner who verified the
block receives some of the
cryptocurrency token as a
prize, as payment for the
work.
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1.1 Payment Example

5. Tokens on the blockchain
can digitally represent an
asset’s intrinsic value. The
value of a token correlates to
a commitment made by the
asset issuer. These tokens
are mostly used with digital
assets e.g. a document.
The document itself is not stored on
the blockchain. Instead, the token that
contains information regarding the
ownership of the document is stored
on the blockchain. Everyone on the
network then agrees on the ownership
of the token when it is placed on the
blockchain.
To change ownership the
ownership of the
document, only the token
can be sold or exchanged.
Consequently, the
ownership information is
updated once the
transaction of the token is
verified.
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1.2 Asset Registry Example

6. Smart contracts are
lines of code in a
blockchain that
perform actions
depending on specific
inputs. This allows
contracts to be
automated between
two parties.
For example, an option
contract between two
parties can be written as
code on the blockchain.
They can remain
anonymous but the contact
is the public ledger.
A triggering event like
an expiration date or
strike price occurs and
the contract executes
itself according to the
coded terms.
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1.3 Smart Contract Example

7. “This is it. This is the thing we’ve been waiting for. The distributed trust network the internet
always needed and never had.”
Marc Andreessen
The Internet of Information The Internet of Assets
1.4 New Internet 3.0
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1.4 New Internet 3.0

8. Creates a true
sharing
economy
Eliminates the
remittance rip-
off
Enables citizens
to own and
monetize their
data & protect
privacy
Protects rights
through
immutable
records
Ensures
compensation
for the creators
of value
1.5 New Age of Blockchain
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1.5 New Age of Blockchain

9. Image Source: howmuch.net
1.6 Putting the World’s Money into Perspective
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1.6 Putting the World’s Money into Perspective

10. Revenue Created through Blockchain
Technology
2016 2021
$210.2m
$2.3 billion
Source: Research and Markets (“Blockchain Market”)
$45 billion
2027
Mainly driven by:
➢ more seamless
payment processes
➢ more secure digital
identities
1.7 Market Potential
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1.7 Market Potential

11. 1. Banking, financial services, and insurance sector predicted to dominate the market
2. Media and entertainment vertical is expected to have highest growth rate
3. Healthcare and life sciences vertical will also show considerable growth
Santander estimates that over $20 billion in costs can be saved annually by 2022 through the
usage of blockchain technology as it:
• bypasses current rigid, redundant legacy frameworks
• reduces administrative costs
• streamlines processes to increase industry-wide operational efficiency
1.8 Growth Fuelled by Cost Savings
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Source: The Fintech Paper 2.0: Rebooting Financial Services
1.8 Growth Fueled by Cost Savings

12. U.K. research firm Juniper Research:
➢ 57% of world's big corporations
(over 20,000 employees)
consider to adopt blockchain
technology
➢ Two thirds of 400 surveyed
companies will integrated
blockchain technology into
their systems by the end of
2018
2. Industry Trends
Startups Large Scale
Pioneers Disruptors
Average Funding
AverageAge
Bitcoin Mining
Bitcoin Trust &
Verification
Crypto Services
Crypto Wallets
Crypto
Payments
Crypto Exchanges
Blockchain
Innovation
Crypto
Infrastructure
Financial
Services
Crypto News
& Data
Crypto
Gambling
Data source from venture scanner 12

13. Banks that are working on blockchain projects
The World Economic Forum estimates:
➢ 80% of banks are exploring blockchain opportunities
IBM study 2017:
➢ 15% of 200 surveyed global banks will implement blockchain technology by 2017
➢ 91% of banks are investing in blockchain for deposit-taking
Accenture Report 2017, banks that utilise blockchain technology could:
➢ reduce 30% banking infrastructure costs
➢ save $8-12 billion annually
2.1 Industry Trends - Banking
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2.1 Industry Trends - Banking

14. ➢ Address problems of fraud, clearance, data
management, and settlement etc in financial
institutions
2.2 Industry Trends - Financial Services
● Offer a global real-time
payment system that
enables banks and financial
institutions to directly
transact with each other
without the need for a
central correspondent
● Raised $93.6M
● Provider of blockchain
technologies, on the forefront
of work in cryptography and
distributed systems
● Solve problems that
undermine trust in today's
financial systems
● Raised $126M
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2.2 Industry Trends - Financial Services

15. In total of 868 cryptocurrencies with a combined market cap of
US$150B as of Sept 12, 2017 (CoinMarketCap.com)
➢ Real time processing of payment with very low fees
➢ Maintain audit trail
➢ High security and prevent fraud
Data source from
coinmarketcap.com
2.3 Industry Trends - Cryptocurrency Trading, Wallets and Exchanges
● Digital currency wallet
service that allows traders
to buy and sell digital
currency
● Raised $217.21M
● Digital currency wallet
and platform where
merchants and
consumers can transact
with new digital
currencies
● Raised $136M
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2.3 Industry Trends – Cryptocurrency, Wallets and Exchanges

16. ➢ Cryptocurrency and blockchain solutions for
merchants and sellers
➢ Eliminate intermediary financial institutions
➢ Reduce chargebacks and increase profit margins
● Offer solutions for SMEs
to send and receive
payments
● Eliminate need for
intermediary banks with
blockchain
● Raised $ 44.25M
● Offer an enterprise-grade,
multi-sig, multi-user Bitcoin
wallet, as well as API access
to its underlying security
platform
● Raised $ 12M
2.4 Industry Trends - Merchant Services
● Blockchain payment
service provider
● 3000 merchants will
be able to accept
bitcoin through its
partnership with POS
● Raised $4M
● Offer fraudless
worldwide
payment
processing to
businesses
● Raised $8 M
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2.4 Industry Trends – Merchant Services

17. ICO:
• Trust is created through smart contracts
• Eliminate middlemen
• Raise fund with shorter time frame and lower fee
• Release own tokens that can be exchanged for
products, services or cash
• Pace of ICO fundraising surpassed angel & seed VC
funding
Coindesk data:
• $1.366 billion was raised in ICOs in 2017
• $295 million was raised in ICOs between 2014 and the
end of 2016
2.5 Industry Trends - Crowdfunding/ ICO
Source: CoinSchedule, CB Insights, Goldman Sachs Global Investment Research
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2.5 Industry Trends – Crowdfunding / ICO

18. ➢ Permanent record of transactional histories
➢ No single party could manipulate or change the
items’ history
➢ Transparency of cost of goods
2.6 Industry Trends - Supply Chain Management
● Add greater visibility and
efficiency across the
entire supply chain to
deliver higher value to
your customers and
trading relationships with
IBM Blockchain
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2.6 Industry Trends – Supply Chain Management

19. ➢ Eliminate the need for central location to handle
communication for IOT devices
➢ Devices communicate directly to update software, bugs
and monitor usage
➢ IBM invested $200 M in blockchain- powered IOT
➢ IBM dedicated 2000 employees to blockchain powered
IOT projects
2.7 Industry Trends - IOT
● IBM Watson IoT™
Platform enables IoT
devices to send data
to private blockchain
ledgers for inclusion
in shared transactions
with tamper-resistant
records
● Secure smart home
IoT ecosystems by
storing biometric and
authentication data
on a private
blockchain
● Offers an integrated
hardware and software
solution that enables
self-forming wireless
mesh networks over
long-range radio
● Raised $22.37M
● Leverages blockchain
and smart labels to
create an open system
of authenticity,
ownership, provenance
& connectivity for
assets
● Raised $4.83M
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2.7 Industry Trends – IOT

20. ➢ Mitigate the lemons problem
➢ Verify many types of data in insurance contracts such
as the authenticity of customers, policies and
transactions etc
➢ More data can be collected via IoT to develop more
accurate actuarial models
➢ Provide usage based insurance
2.8 Industry Trends - Insurance
● Insurance products on a
scalable blockchain platform
that enables high bandwidth
transacting, smart contracts,
and decentralized oracles
● Raised 24.33 M in ICO
● Specialising in property and
casualty insurance
● Blockchain-based smart
contracts are met
● Raised 60 M in 4 rounds
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2.8 Industry Trends – Insurance

21. ➢ Allow both parties to arrange terms and
condition without third party providers
➢ Very low or zero fees
➢ Transaction data will not be owned by any
third party provider
2.9 Industry Trends - P2p Lending / Marketplaces
● P2p lending using bitcoin
● $13M volume, 15,000
loans serviced
● Raised $9.2M
● A free online marketplace
to buy and sell goods /
services using Bitcoin.
● P2p e commerce platform
with no fees or restrictions.
● Raised 4.2 M in 3 rounds
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2.9 Industry Trends – P2p Lending / Marketplaces

22. Real Estate
• Reduces the need for paper-based record keeping
• Assists in the tracking and verifying ownership of property, ensuring the accuracy of property
deeds and documents
Music
• Musicians are able to be paid directly from fans without splitting revenue with distributors
• Smart contracts prevent licensing issues and enables creators to catalog their own songs
Cloud Storage
• Open source blockchains can break up, encrypt and distribute files among many different nodes in
a network
Ride Sharing
• Smart contracts allow car owners and passengers to arrange terms and condition securely without
any third party provider
2.7 Real Estate2.10 Other Blockchain Application Examples
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2.10 Other Blockchain Application Examples

23. 3. Blockchain Funding History 2013-2017
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Data source from Architect Partmers

24. The blockchain innovations category accounts for 33% of venture funding and 17% of total
companies in the blockchain technology sector
Data source from venture scanner
3.1 Blockchain Startups Funding by Category
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25. Data source from venture scanner
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3.2 Blockchain Startups Funding Event Count

26. Crypto Exchanges Bitcoin Mining Crypto Wallets
Crypto Payments Bitcoin Infrastructure Blockchain Innovation
Big DataTrust
Bitcoin Financial Services
Financial Services
GamblingNews
3.3 923 Blockchain Companies with Total $2.2 B Funding
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3.3 923 Blockchain Companies with Total $2.2 B Funding

27. 3.4 Top 10 VC-Backed Blockchain Startups
Company Industry Total Funding ($M)
1. Coinbase Wallets & Crypto Trading & Exchange 217.2
2. Circle Wallets & Crypto Trading & Exchange 136
3. Blockstream Blockchain Infrastructure 126
4. 21 Inc IOT 121
5. Ripple Financial Services 96
6. Bitfury Blockchain Infrastructure 90
7. Blockchain Wallets & Crypto Trading & Exchange 70
8. Digital Asset Financial Services 67
9. Veem Merchant Services 44
10. Chain Financial Services 43
As of Sep 2017
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3.4 Top 10 VC-Backed Blockchain Startups

28. 3.4 Top 10 VC-Backed Blockchain Startups
As of Sep 2017
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3.5 Top 5 ICO-Backed Blockchain Startups
Company Industry Total Funding ($M)
1. Filecoin Blockchain p2p 257
2.Tezos Blockchain Infrastructure 232
3. Bancor Crypto Trading & Exchange 153
4. The DAO Blockchain Infrastructure 152
5. Status Blockchain Innovation 108

29. Supportive:
have initiatives that
support the transactions of
cryptocurrencies
Opposed:
regulatory bodies do not
view cryptocurrencies as
an asset
Uncertain
4.1 International Views Towards Cryptocurrencies
Source: http://36kr.com/p/5092390.html
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4.1 International Views Towards Cryptocurrencies

30. June 2014
Swiss Federal Council issues
report stating there is no need
for legislative measures
against virtual currencies
November 2016
Japan Exchange Group leads
establishment of the
Japanese blockchain
consortium
June 2016
Singapore government set up
‘Regulatory Sandbox’ which
allows blockchain companies
to experiment with expedited
legal processes
September 2017
Chinese regulatory authorities
ban ICOs, identifying them as
an illegal form of fundraising
amidst fraud claims
May 2017
US Securities and Exchanges
Commission rejects
application of bitcoin
exchange-traded fund
4.2 Timeline of Key Events from Regulators
Source: http://36kr.com/p/5092390.html
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September 2017
BTC China, one of China’s top
exchanges, suspends trading
following instructions from the
government
4.2 Timeline of Key Events from Regulators

31. National Internet Finance Association of China
Unauthorized by regulators as some of the ICOs are suspected of fraud, illegal equity offerings and
fundraising
“ICO projects have unclear assets, no investor suitability standards and gravely lack information
disclosure and therefore have relatively high risks”
China's Central Bank Declares Initial Coin Offerings Illegal
A total of $1.6 billion has been raised globally via ICOs
China PBOC says all ICOs must be stopped and refunds provided
4.3 China PBOC Declares ICO Illegal
Source: https://www.bloomberg.com/news/articles/2017-09-04/china-central-bank-says-initial-coin-offerings-are-illegal
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4.3 China PBOC Declares ICO Illegal

32. September 14, 2017
China’s oldest bitcoin exchange, BTC China, states that it will suspend trading for all China-based
customers, causing the value of the cryptocurrency to fall drastically. The move follows pressure
from the Chinese government and regulatory bodies in a bid to stamp out potential financial risk.
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4.4 China’s Top Exchanges Suspend Trading
Source: https://www.reuters.com/article/us-china-bitcoin-btcc/bitcoin-exchange-btcchina-says-to-stop-trading-sparking-further-slide-idUSKCN1BP1J8
4.4 China’s Top Exchanges Suspend Trading

33. Essential Stakeholders
Government
• People’s Bank of China vows to push for blockchain technology in the Five Year Plan
Regulators
• China Banking Regulatory Commission plans to implement rules for blockchain in finance sector
• People’s Bank of China will provide specific regulatory framework for Ethereum industry
4.5 China Pushes to Explore Blockchain
Source: http://www.gov.cn/xinwen/2017-06/27/content_5205951.htm
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4.5 China Pushes to Explore Blockchain

34. United States General Services Administration’s Emerging Citizen Technology program launched
the U.S. Federal Blockchain program for federal agencies and U.S. businesses who are interested in
exploring distributed ledger technology and its implementation within government.
4.6 USA GSA Ramps Up Blockchain Exploration
Source: https://www.gsa.gov/portal/content/168102
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4.6 USA GSA Ramps Up Blockchain Exploration

35. State owned Vnesheconombank launches research center as Russia continues
its push into blockchain technology.
4.7 Russian Bank Announces Opening of Blockchain Research Center
Source: https://www.financemagnates.com/cryptocurrency/news/russian-bank-announces-opening-blockchain-research-center/
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4.7 Russian Bank Announces Opening of Blockchain Research Center

36. • Blockchain technology and marketplace lending could present risks to financial stability
• Risks may not emerge until blockchain solutions are deployed at scale
• Unregulated blockchain systems may be vulnerable to fraud through collusion
• Blockchain-based systems may operate over multiple regulatory jurisdictions or national
boundaries
In the next few years, there will be more coordination between companies and regulators to
ensure safe and reliable adoption of blockchain technologies
Almost all countries are working to improve certification behind cryptocurrencies as the
collective attitude towards blockchain adoption is positive
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4.8 Regulations are Necessary to Foster Long Term Adoption

37. We believe:
• Amidst regulatory uncertainty, the adoption of blockchain technology will become ubiquitous
• The adoption of blockchain will disrupt several industries
5.1 Our Ethos
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38. Focus on all three layers of
blockchain
5.2 MindWorks Investment Parameters
Source: World Economic Forum
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5.2 MindWorks Investment Parameters

39. Targeting industries that:
• are built on legacy systems
• exhibit high potential for widespread
disruption
• will be incentivized to adopt due to cost
savings
• are aligned with government and
regulatory goals
• have processes reliant on B2B SaaS
models
Banking & Payments
Cryptocurrency Trading,
Wallets and Exchanges
Merchant Services
Insurance
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5.3 MindWorks Investment Focus

40. Thank You
David Chang
Managing Partner
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Joe Chan
Partner
Wayne Chu
Principal
Cassidy Wong
Associate
cassidy@mindworks.vc
Jeffrey Wu
Associate
jeff@mindworks.vc
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