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CRYPTO-ASSET REPORT

H2 2017
Over the course of last year, cryptocurrencies have climbed from the valley of
obscurity, up sheer cliffs of opposition, and into the public eye. The second
half of 2017 in particular, saw names like Bitcoin, Ethereum, and Ripple
transform from niche technologies, to hotly debated topics in the future
layout of the financial system.
Below the hype, speculation, and public imagination that has gripped this
emerging asset class there are market fundamentals. Indicators which offer
essential insights to the inner workings, developmental pace, and overall
health of these revolutionary technologies. At CoinShares Research, we
strive to distill this information for our readers; to separate the signal from
the noise; and to provide the sort of clear, intelligible, and relevant insights
that are required for investors to keep pace with one of the fastest moving
industries of our time.
This inaugural version of our bi-yearly Crypto-Asset Report aims to educate,
inform and stimulate the creation of new ideas in our readers, as we cover
five of the most promising, rapid-growing and technologically interesting
cryptocurrencies in the industry.

CoinShares Research CS
Copyright © 2018 CoinShares
H2 2017 CRYPTO REPORT CoinShares Research
Lead Analyst (AC): Christopher Bendiksen

BITCOIN DASH

2 BTC OVERVIEW 18 DASH OVERVIEW


4 BTC BY THE NUMBERS 19 DASH BY THE NUMBERS
5 BTC NETWORK HEALTH 20 DASH NETWORK HEALTH
6 BTC ASSET OUTLOOK 21 DASH ASSET OUTLOOK

LITECOIN RIPPLE

8 LTC OVERVIEW 23 XRP OVERVIEW


9 LTC BY THE NUMBERS 24 XRP BY THE NUMBERS
10 LTC NETWORK HEALTH 25 XRP NETWORK HEALTH
11 LTC ASSET OUTLOOK 26 XRP ASSET OUTLOOK
ETHEREUM SUMMARY

13 ETH OVERVIEW 28 SUMMARY


14 ETH BY THE NUMBERS 28 SUMMARY SIGNALS
15 ETH NETWORK HEALTH 29 SUMMARY CHARTS
30 CITATIONS
16 ETH ASSET OUTLOOK
31 LEGAL/DISCLAIMER
32 LEGAL/DISCLAIMER
33 BLANK FOR NOTES

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT CoinShares Research

SECTION CONTENTS
BTC OVERVIEW
BTC BY THE NUMBERS
BTC NETWORK HEALTH
BITCOIN BTC ASSET OUTLOOK

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT // BITCOIN // ASSET OVERVIEW

Technology Time Series Projection of Bitcoin Block Reward (BTC) Versus Total Coins Mined
Bitcoin is the original trustless, decentralised cryptocurrency. Launched in
2009 it is not only the longest continually operating network among 50 Block Reward # of Coins Mined 25MM

Total Coins Mined


cryptocurrencies, but also the most popular and valuable.
40 20MM

BTC Block Reward


While originally developed by the mysterious Satoshi Nakamoto, Bitcoin is 30 15MM
currently maintained by a loose confederation of volunteer developers as an 20 10MM
open source project. There is no centralised foundation or entity responsible
for funding or directing protocol development, and developers are either 10 5MM
self-funded or sponsored by industry participants such as Chaincode Labs, 0 0MM

2009

2015

2021

2027

2033

2039

2045

2051

2057

2063

2067
Blockstream and Bitmain.
Core Innovation CoinShares Research
The main functionality of Bitcoin is its use as decentralised money. While Bitcoin was the first digital currency proposal to practically solve the double
the protocol does support its own scripting language, it is non-recursive and spending problem without the use of a trusted third party. The use of
only allows for relatively simple smart contracts such as n of m proof-of-work to achieve distributed consensus of transaction histories
multisignature addresses, time-locked transactions and other conditional across a decentralised set of network participants represents nothing short
payout functions. It is important to stress, though, that this is limitation is of a revolution of computer science.
intentional as it makes Bitcoin much less vulnerable to bugs and also limits
potential attack vectors.
From the total sum of protocol capabilities, bitcoins can be considered the
first true digital bearer assets. Its permissionless peer-to-peer architecture
Transactions are pseudonymous, allowing for relative privacy if desired. enables fast, global payments between any two parties wishing to
However, information on transaction amounts and address history is fully transact, without the possibility of censorship by any third party.
public, making tracking of funds tied to verifiable identities a trivial matter.
For the first time we now have the technology to implement a standard of
Bitcoin consensus is secured by a Proof-of-Work (PoW) function using the hard, digital money. Bitcoin has the monetary properties of gold coupled
SHA-256 hashing algorithm. The relative straightforwardness of SHA-256 with the transactional capability of the Internet.
hashing makes Bitcoin mining viable using Application-Specific Integrated
Circuits (ASICs), enabling mining on industrial scales.
Expected Use Cases
Issuance of bitcoin is programmatically capped at slightly less than BTC The use cases of Bitcoin are as diverse as any other type of money. It can be
21MM, making it a scarce digital asset. Furthermore, the issuance rate is used as a store of value, a unit of account and a medium of exchange.
halved roughly every four years, before eventually rounding to zero. Out of Although it must be acknowledged that its current volatility makes it less
the ~21MM coins scheduled for creation, more than 16.5MM have already suitable for these tasks than many current monies, this should not detract
been issued, with 99% issuance expected around 2036 and 100% issuance from its potential to fulfill all of those roles better than any current money
estimated around a hundred years later. upon reaching maturity and full valuation.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 2 CoinShares Research


H2 2017 CRYPTO REPORT // BITCOIN // ASSET OVERVIEW

If any of Bitcoin's single use cases deserve special mention it is the extremely ownership inside of pools, meaning that, technically, a 51% owner of mining
cheap and secure transfer of huge sums of money. Bitcoin transaction fees do hardware could mask its position by subscribing to multiple pools. Similarly, a
not scale with the transferred amount. Using the same transaction structure, single pool can be comprised of a huge number of individual hardware owners.
the cost of transferring BTC 1 is the same as transferring BTC 1,000,000.
Assuming a continuation of the long-term trend towards lower volatility, this The development of the Bitcoin protocol has seen major exciting events this
property makes Bitcoin uniquely suited for global, large-scale settlements. year, the largest of which being the long-awaited activation of the Segregated
Witness or SegWit alteration to the block structure via a backwards-
In addition, successful implementation of The Lightning Network on top of compatible upgrade (soft-fork). Apart from increasing the transaction capacity
the Bitcoin protocol would allow for instant, high-capacity and extremely low- per block by a maximum of ~70%, one of the most remarkable properties of
cost transactions using Bitcoin as the settlement layer. SegWit is that it allows for many future upgrades to the protocol to be
included via soft-forks, greatly diminishing the risk of accidental chain-splits.
Network Health
Bitcoin has seen healthy node growth over the last six months. The malicious Implementation speed of SegWit has been moderate, but steady, helping to
fork attempts by Bcash and S2X certainly helped drive this trend as users alleviate the pressure on the mempool and increase the on-chain transaction
flocked to protect the network by running their own nodes. throughput capacity. We expect SegWit adoption to continue its upwards
trajectory as SegWit transactions are drastically cheaper than legacy
transactions and adds less data to the blockchain.
On the mining side, due to its market dominance, Bitcoin has traditionally had
few if any serious competitors for hash power. Its enormous lead in raw hash
power means that even a tiny fraction of its miners could rewrite and destroy
smaller coins attempting to use the same mining algorithm. The advent of 1.6E+19 Bitcoin Vs. Bcash Hashrate - 6 Mo.
Application Specific Integrated Circuits (ASICs) in the Bitcoin mining industry
has only served to further this gap, solidifying Bitcoin's status as the BTC BCH
juggernaut of proof-of-work.
1.2E+19

Hashrate
However, the creation of the Bcash altcoin in August created the first large-
scale competitor for SHA-256 hash power. Post-fork, Bitcoin suffered periodic
hash rate fluctuations due to alternating profitability between the two chains 8E+18
resulting in cyclical migrations of hash power. After Bcash hard-forked again
to change its difficulty adjustment algorithm the hash rate has stabilised,
with Bcash settling at roughly 10% of the Bitcoin hash rate.
4E+18
Since June, there has been a moderate tendency towards mining pool
consolidation. Although this is an interesting metric to watch, there are some
important factors that reduce the analytical value of pool distribution: 1)
Different pools can be owned by the same individual or group, and; 2) Pool 1/7/17 31/7/17 30/8/17 29/9/17 29/10/17 28/11/17 28/12/17
distribution gives no information about the actual distribution of hardware Bitinfocharts

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 3 CoinShares Research


H2 2017 CRYPTO REPORT // BITCOIN // BY THE NUMBERS
fig.1 fig.2
BTC Historical Annual Returns H2 17 Monthly BTC ($) Volume By Fiat Trading Pairs - Top 15 Exchanges by Volume
We observe a strong growth in Bitcoin liquidity
versus fiat pairs (and Tether) over the last six
2011 2012 2013 USD EUR GBP KRW JPY CNY USDT months. Measured over the 15 largest global
$150.0 BN exchanges by volume, monthly volumes
1733% 144% 5474% $112.5 BN increased from around USD 15bn in July to
nearly USD 130bn in December. The exchange
2014 2015 2016 $75.0 BN market is still dominated by the USD cross
with notable newcomers KRW and JPY having
-58% 37% 131% $37.5 BN secured significant market shares after the
Correlation: 0.9 discontinuation of all CNY pairs, an event that
$0.0 BN
July Aug. Sept. Oct. Nov. Dec. seems to have had minimal to no impact on
2017 1307% blockchain.info overall market health.
Cryptowat.ch

fig.3 fig.4

Correlations of Returns per Asset 7- 2 Yr Sharpe Ratio Of Bitcoin

An exciting attribute of bitcoin is its entirely uncorrelated S&P 500 Nasdaq Gold Brent 0.80
relationship to more traditional asset classes. The table on
Bitcoin -0.05 -0.04 0.05 -0.01 0.60
the right shows the 7-year correlation of daily returns
between bitcoin, the S&P 500 and Nasdaq Composite
S&P 500 0.93 -0.17 0.27 0.40
Indices, Gold and Brent. As you can observe, the correlation
between bitcoin and any of these ‘mainstream’ Nasdaq -0.15 0.18 0.20
investments is nearly zero, making it a potentially excellent
addition to further diversify a portfolio. Gold -0.04 0.00
7 6 5 4 3 2
FRED, Bitinfocharts FRED, Bitinfocharts, US Treasury
fig.5 fig.6
H2 17 Monthly BTC ($) Volume By Geography - Top 15 Exchanges by Volume Annualised Bitcoin Volatility
$14.96BN $23.17BN $25.73BN $27.5BN $59.25BN $127.92BN Bitcoin volatility measured as the
Includes Fiat Pairs & USDT

1.40
100% annualized standard deviation of daily
1.05
75% returns increased in 2017 after having
50% 0.70 steadily declined since 2013. This
0.35 increase is a natural result of the large
25%
price increase we've seen over the
0% 0.00 course of this year and volatility is
2011

2012

2013

2014

2015

2016

2017
July Aug. Sept. Oct. Nov. Dec.
USA Japan Taiwan Korea UK Luxembourg China Russia now at a 4-year high.
Cryptowat.ch Bitinfocharts
Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 4 CoinShares Research
H2 2017 CRYPTO REPORT // BITCOIN // NETWORK HEALTH
6 MO.
6 MTH GROWTH (# NODES) - TOP 5 REGIONS* NETWORK POWER DIST. NETWORK
+163%
* RANKED BY NET CONTRIBUTION TO NETWORK GROWTH

US
15.2M TH/s POWER
GROWTH + 9.4 M TH/S
TERAHASH / SECOND EST. 6 MO.
3174 TOTAL AS OF DEC. 31
NODES
ND
313 ** BTC.com 2,979,166.7 TH/s NETWORK
GROWTH
+45%
BTC.top 2,581,944.4 TH/s (3123 nodes)
** **
UK AntPool 2,284,027.8 TH/s
6 MO.
595 Slush Pool 1,886,805.6 TH/s

1
RANK
** ViaBTC 993,055.6 TH/s BASED ON

CA 592 ** ** 6 MO. NODE F2Pool 794,444.4 TH/s


NETWORK
GROWTH
no.
GROWTH BitClub 595,833.3 TH/s
Unknown JUL>JAN. 6 MO.
1062 BTCC 496,527.8 TH/s
TOP 5 REPRESENTS TOP 5 MARKETS BY VOLUME
57.1% OF NETWORK Source: bitinfocharts.com BitFury 496,527.8 TH/s $100 BN
58coin 297,916.7 TH/s

Includes Fiat Pairs & USDT


80.8
6 Month Network Growth - Relativity Map $75 BN 72.0
Kano CKPool 99,305.6 TH/s
GBMiners 99,305.6 TH/s
$50 BN 44.4
38.6
BW Pool 99,305.6 TH/s
23.1
Bitcoin.com 99,305.6 TH/s $25 BN

45% 28% 26% 10% 8% All Others 496,527.8 TH/s


$0 BN
The network metrics of each of these coins are not necessarily comparable US TW JP KR CN
(LOG SCALE)
to each other due to core differences in technology. However, growth rates
Source: coin.dance/blocks/thisweek Cryptowat.ch
can provide a relative measure of both pace of expansion and adoption.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 5 CoinShares Research


H2 2017 CRYPTO REPORT // BITCOIN // ASSET OUTLOOK

INITIATIVES, UPGRADES & FORKS 6 MOS. IMPORTANT DATES RELATIVE MILESTONES PASSED
The Bitcoin improvement pipeline is nothing short of jam-packed DAYS SINCE LAUNCH PRIOR TO EACH MILESTONE
with exciting initiatives. With the Segregated Witness (SegWit) Aug -17 Bitcoin Cash Fork
improvement successfully implemented, a large range of 1 Tonne Nickel
2,700
($12,680)
optimisations and upgrades can now be implemented via soft- Aug -17 SegWit activation
fork, allowing all changes to remain opt-in, and eliminating the Carat Diamond
risks of chain splits. 2,645
($5,546)
Sept -17 Bitcoin Core 0.15.0
Block space can be further optimised by adding new signature Oz. Gold 2,476
($1312)
schemes, thus adding transaction capacity without adding more SegWit2x fails
Nov -17
data to the blockchain. Furthermore, Invertible Bloom Lookup 1 Tonne Steel
Tables (IBLTs) will reduce the bandwidth requirements for block 1,215
($367)
propagation and make any potential future block size increases First cross-coin
Nov -17 Atomic Swap Bbl Brent
safer to implement. 982
with LTC ($66.6)
With SegWit's solution to the transaction malleability bug, the Oz. Silver
Lightning Network 323
road is now also paved for efficient implementations of The ($16.92)
Nov -17 cross-platform
Lightning Network. Several versions are already in beta testing compatibility
and have successfully tested cross-implementation compatibility achieved U.S. Big Mac 298
between each other. ($5.30)

May -18 Consensus 2018 Dollar Parity 208


The Lightning Network will allow for cryptographically secure, ($1)
near-instantaneous transactions with extremely low fees,
effectively building a small-transactions oriented payments rail Gumball 112
as a Layer 2 solution on top of Bitcoin. Lightning transactions are ($0.25)
made through continually open channels, requiring only two on- 1 100 10,000
chain transactions, one to fund the channel, and one to settle it. 6 MO. SIGNAL LIGHTS DAYS SINCE LAUNCH (LOG SCALE)

The chart above offers relative context to


Another exciting feature enabled by SegWit is cross-protocol
+433% +45% +163% both the growth and perception (unit cost)
Atomic Swaps. Users of different SegWit-enabled of crypto-assets by benchmarking the unit
cryptocurrencies such as Bitcoin and Litecoin can now safely price against assets which belong to more
swap currencies cross-chain without involvement of third parties. ASSET traditional classes. The ‘days since launch’
NETWORK NETWORK
PERFORM GROWTH POWER provides a sense of the speed of growth.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 6 CoinShares Research


H2 2017 CRYPTO REPORT CoinShares Research

SECTION CONTENTS
LTC OVERVIEW
LTC BY THE NUMBERS
LITECOIN
LTC NETWORK HEALTH
LTC ASSET OUTLOOK

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT // LITECOIN // ASSET OVERVIEW

Technology
Litecoin is one of the first altcoins and one of the earliest ones to achieve Because of its close similarity to Bitcoin, Litecoin has traditionally been
substantial success. First proposed by Charlie Lee as a faster confirmation extremely quick to implement upgrades intended and written for the
alternative to Bitcoin, it went live on 13 October 2011, having been released a Bitcoin protocol, sometimes adopting them before Bitcoin itself. In a sense,
few days earlier on GitHub and BitcoinTalk.org. Litecoin can therefore be seen as a high-value real-life testnet for new and
ground-breaking cryptocurrency technology, and while this does come with
Like most altcoins, Litecoin was forked off the Bitcoin source code with a unique set of risks, it also ensures that Litecoin maintains its position at
minor modifications to change a few key attributes. On a technical level, the bleeding edge of technological development.
Litecoin is therefore nearly identical to Bitcoin, meaning that pretty much
all software upgrades created for Bitcoin can be equally well implemented Expected Use Cases
into Litecoin. Litecoin has been extensively described as the digital silver to Bitcoin's
digital gold. Its intended use cases have always been smaller denominated
The few actual differences between the two relate mainly to block transactions requiring faster confirmation times and less security.
generation times, coin issuance and the mining algorithm. Litecoin block
generation times are targeted at 2.5 minutes instead of the 10-minute With its early implementation of the Segregated Witness (SegWit)
block generation target used by Bitcoin. The idea behind the modification is software upgrade, Litecoin has positioned itself right at the forefront of
to allow for 4x faster confirmation times than Bitcoin. payments-rails innovation with successful tests of both Atomic Swaps
between Bitcoin and Litecoin and Lightning Network payments completed
Even though the block generation target is 4x that of Bitcoin, the block this autumn.
reward remains the same, starting at LTC 50 per block. However, Litecoin
block rewards are cut in half every 840,000 blocks, as opposed to every Network Health
210,000 blocks in Bitcoin. As a result the Litecoin inflation schedule plays Active peering nodes have grown by approximately 26% over the last six
out over the same length as Bitcoin (~130 years), but the total number of months with South Korea, China and Romania as the three fastest-growing
Litecoins will be 4x that of Bitcoin: a total of approximately LTC 84MM. countries. The highest node counts are still found in the US (25%, previously
28%), Germany (9%, previously 8%) and China (7%, previously 5%).
Core Innovation
One of the main innovative ideas behind Litecoin was the intention to make Since the start of Q3, 2017 Litecoin has seen an increase in hash rate
mining ASIC resistant to prevent mining centralisation. By employing a distribution among mining pools. F2Pool saw a particularly large decrease in
memory heavy mining algorithm, the founders were attempting to make market share, going from 47% on 1 June to 14 on 1 December, notably large
Litecoin ASICs uneconomical and therefore retain the possibility of mining percentages were added by AntPool, growing from 13% to 26% and
on undedicated hardware. LitecoinPool.org, growing from 6% to 27%.

The Scrypt mining algorithm also served a second purpose of being


intentionally incompatible with Bitcoin mining hardware, thereby ensuring a
state of non-competitiveness between the two coins in terms of hash
power from existing hardware.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 8 CoinShares Research


H2 2017 CRYPTO REPORT // LITECOIN // BY THE NUMBERS
fig.1 fig.2
LTC Historical Annual Returns H2 17 Monthly LTC ($) Volume By Fiat Trading Pairs - Top 15 Exchanges by Volume Litecoin liquidity has seen strong growth
coupled with significant swings in
USD EUR GBP KRW JPY CNY USDT exchange traded volume over the last
2012 2013 2014
$30.0BN six months. The addition of Litecoin
pairs to GDAX and Bitstamp has
120% 32815% -88% $22.5BN certainly aided in offsetting the impact
of the discontinuation of the CNY pairs
2015 2016 2017 $15.0BN
on Chinese exchanges. With the demise
$7.5BN of China, the strongest Litecoin liquidity
27%Correlation:
25% 0.9 5028% is now found in the USD and KRW
$0.0BN exchange pairs, with more than 90% of
July Aug. Sept. Oct. Nov. Dec.
blockchain.info Cryptowat.ch total volume traded.

fig.3 fig.4

Correlations of Returns per Asset 5 - 2 Yr Sharpe Ratio Of Litecoin


Litecoin is also entirely uncorrelated to our basket of more S&P 500 Nasdaq Gold Brent 0.80
traditional asset classes. The table on the right shows the
5-year correlation of daily returns between litecoin, the S&P
Litecoin -0.04 -0.05 0.00 -0.00 0.60
500 and Nasdaq Composite Indices, Gold and Brent. As is S&P 500 0.93 -0.17 0.27 0.40
evident from the table, the correlation between litecoin and
any of these mainstream investments is nearly zero, Nasdaq -0.15 0.18 0.20
making it a potentially excellent addition to further
diversify a portfolio. Gold -0.04 0.00
5 4 3 2
FRED, Bitinfocharts FRED, Bitinfocharts, US Treasury
fig.5 fig.6
H2 17 Monthly LTC ($) Volume By Geography - Top 15 Exchanges by Volume Annualised Litecoin Volatility
$6.18BN $3.67BN $10.57BN $2.76BN $4.57BN $21.13BN 2.40
Includes Fiat Pairs & USDT

Litecoin volatility measured as the


100%
1.80 annualised standard deviation of daily
75% returns increased in 2017 after having
1.20 intermittently declined since 2013. This
50%
25% 0.60 increase is a natural result of the large
price increase we've seen over the
0% 0.00
course of this year and volatility is now
2012

2013

2014

2015

2016

2017
July Aug. Sept. Oct. Nov. Dec.
USA Japan Taiwan Korea UK Luxembourg China Russia at a 4-year high.
Cryptowat.ch Bitinfocharts
Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 9 CoinShares Research
H2 2017 CRYPTO REPORT // LITECOIN // NETWORK HEALTH
6 MO.
NETWORK POWER DIST.
6 MTH GROWTH (# NODES) - TOP 5 REGIONS* NETWORK
+1439%
* RANKED BY NET CONTRIBUTION TO NETWORK GROWTH

UK
48 TH/s POWER
GROWTH + 103 TH/S
TERAHASH / SECOND
67 6 MO.
EST. AS OF DEC.3O
US
** 262 LitecoinPool.org 24,700 GH/s NETWORK
26%
** TOTAL GROWTH
CN NODES Antpool 24,100 GH/s (220 nodes)
73 F2Pool 16,400 GH/s 6 MO.

**
3
LTC.top 15,700 GH/s RANK
BASED ON
** 6,900 GH/s
DE
ViaBTC NETWORK
no.
**

GROWTH
BW.com 6,700 GH/s
91 ** 6 MO. NODE 6 MO.
GROWTH LQoMbJnzRK... 2,200 GH/s
Unknown JUNE>DEC. TOP 5 MARKETS BY VOLUME
TOP 5 REPRESENTS 126 ProHashing 1,800 GH/s
58% OF NETWORK Source: bitinfocharts.com $20.0 BN
18.0

Includes Fiat Pairs & USDT


BTCChina 1,800 GH/s
6 Month Network Growth - Relativity Map
$15.0 BN
LffGyZyd4q... 600 GH/s
12.2
TBDice.org 600 GH/s $10.0 BN
8.4 7.7
Batpool 200 GH/s
$5.0 BN
45% 28% 26% 10% 8% P2Pool 200 GH/s 1.8

The network metrics of each of these coins are not necessarily comparable 1 100 10,000 (LOG SCALE) $0.0 BN
US KR CN TW LU
to each other due to core differences in technology. However, growth rates
Source: www.litecoinpool.org/pools Cryptowat.ch
can provide a relative measure of both pace of expansion and adoption.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 10 CoinShares Research


H2 2017 CRYPTO REPORT // LITECOIN // ASSET OUTLOOK

INITIATIVES, UPGRADES & FORKS 6 MOS. IMPORTANT DATES RELATIVE MILESTONES PASSED
DAYS SINCE LAUNCH PRIOR TO EACH MILESTONE
Because of its close similarity to Bitcoin, Litecoin's Successfully
improvement pipeline is nearly identical to that of May -17 implements 1 Tonne Nickel
Bitcoin as most Bitcoin improvements can be SegWit THRESHOLD NOT YET REACHED
($12,680)
implemented to Litecoin with little to no
modifications. Charlie Lee (LTC Carat Diamond THRESHOLD NOT YET REACHED
Jun -17 Creator) Goes ($5,546)
Full Time
Equally important to the near- to mid-term Oz. Gold
($1312) THRESHOLD NOT YET REACHED
development of Litecoin is improvements to its First cross-coin
liquidity through new exchange offerings. Since the Nov -17 Atomic Swap with 1 Tonne Steel
start of Q3 2017, Litecoin has seen several exciting THRESHOLD NOT YET REACHED
Bitcoin ($367)
additions of currency pairs on major exchanges.
Notably a EUR cross on GDAX and USD, EUR and BTC Bbl Brent 2,149
Litecoin added to
($66.6)
crosses on Bitstamp, two of the largest exchanges in Dec -17 bloomberg
the US and Europe. terminal Oz. Silver 776
($16.92)
Recently, Litecoin's creator Charlie Lee announced Charlie Lee divests
Dec -17 all litecoins (to U.S. Big Mac 767
that he had completed the sale of all his personal ($5.30)
‘remove conflict’)
Litecoins with the exeption of a small number of
physical collectibles. His statement went on to Dollar Parity 536
May -18 Consensus 2018 ($1)
explain that he had taken this action in order to
remain detached from the fluctuations of the Gumball 514
Litecoin price while continuing his work on protocol ($0.25)
development. 100 1,000 10,000
6 MO. SIGNAL LIGHTS DAYS SINCE LAUNCH (LOG SCALE)

While his announcement was interpreted in multiple The chart above offers relative context to
ways we leave it up to investors to make up their +1439% both the growth and perception (unit cost)
+449% +26%
own mind with regards to the potential implications of crypto-assets by benchmarking the unit
of his divestment on the development of Litecoin. price against assets which belong to more
ASSET NETWORK NETWORK traditional classes. The ‘days since launch’
PERFORM GROWTH POWER provides a sense of the speed of growth.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 11 CoinShares Research


H2 2017 CRYPTO REPORT CoinShares Research

SECTION CONTENTS
ETH OVERVIEW
ETH BY THE NUMBERS
ETHEREUM
ETH NETWORK HEALTH
ETH ASSET OUTLOOK

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT // ETHEREUM // ASSET OVERVIEW

Technology
The Ethereum protocol represents a dramatic increase in functional The creation of the ERC20 token standard has also paved the way for the
ambition for distributed ledger technology. Envisioned as a distributed 2017 boom in ICO funding by allowing for easy creation and operation of
world computer it aims to provide something akin to a global, decentralised, bespoke crypto assets on top of the Ethereum protocol. Besides allowing for
censorship resistant computational hosting service. the tokenisation of entire segments of the digital economy, this innovation
also carries the potential to radically change current models of business
Built into the protocol is a Turing Complete programming language called funding.
Solidity, capable of executing arbitrarily complex computations in a
distributed fashion. This capability enables the Ethereum protocol to run Expected Use Cases
smart contracts of any given complexity in a permissionless manner on the The Ethereum Enterprise Alliance has a stated goal to connect network
Ethereum blockchain. participants, ranging from Fortune 500 companies to academics and
startups, in order to share experiences, learn, and together build the
enterprise software of the future using Ethereum smart contracts and
Supporting the proper functioning of the protocol is the Ethereum native distributed computation.
token, ether. Users wishing to utilise the computational power of the
network pay a so-called gas fee, denominated in ether, for the consumption We have also observed significant growth in startups using the Ethereum
of calculation resources. The separate class of users providing protocol as a part of their product infrastructure. Applications range from ID
computational power to the network are in turn rewarded for their services to in-game betting or even ticketing services. The multi-purpose
contribution by receiving the gas fee paid by computation users. design of Ethereum makes the protocol inherently interesting to developers
as it offers a wide range of programmatic capabilities under the same
Ether is envisioned more as a crypto fuel than crypto money. Its issuance is system umbrella.
uncapped, although the inflation rate is nominally flat, making it decreasing
in a percentage fashion. Somewhat frustratingly for analysts, the Ethereum Network Health
issuance model keeps changing based on the decisions of the Ethereum Ethereum node growth over the last six months has been healthy with an
developers, making long-term accurate inflation predictions impossible. approximate 28% addition to the overall node count. Simultaneously, hash
rate distribution among mining pools has held more or less steady.
The current consensus model of Ethereum is Proof-of Work, which puts it in
line with common industry standards. However, developers have stated Over the course of the last six months Ethereum has struggled with
their intention to change the consensus model from Proof-of-Work to intermittent, but short-lived, capacity issues resulting from huge
Proof-of-Stake. If actually implemented, this will be the most radical transaction pressures from ICOs. With the recent cooling of the ICO market,
change ever attempted to a multi-billion dollar protocol and represents a transaction throughput has somewhat stabilised, although the continuous
fundamental change to the mechanics of Ethereum. launch of new products places a strong pressure on developers to increase
transaction throughput.
Core Innovation One of Ethereum’s main reference clients, Parity, suffered from a critical
Ethereum's core innovation is the decentralisation of computation. With bug in November when more than ETH 500,000 held in multi signature
the addition of the Turing Complete Solidity programming language, wallets were accidentally made unspendable by a user tinkering with smart
developers now have the option to run distributed apps (dApps) on a contract libraries. Parity developers have called for a hardfork to to
censorship resistant, global virtual machine. eliminate the bug and unfreeze the funds.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 13 CoinShares Research


H2 2017 CRYPTO REPORT // ETHEREUM // BY THE NUMBERS
fig.1 fig.2
ETH Historical Annual Returns H2 17 Monthly ETH ($) Volume By Fiat Trading Pairs - Top 15 Exchanges by Volume Having peaked in July/August at
approximately USD 13bn monthly
USD EUR GBP KRW JPY USDT volumes, ether liquidity slowly
2014 2015
$30.0BN declined over the next few months
until November and December
-74% 32% $22.5BN brought a rebound past previous
highs to more than USD 23bn. The
2016 2017 $15.0BN USD and KRW exchange pairs
$7.5BN dominate the ether market with USD
737%
Correlation: 0.98923% having steadily increased its market
$0.0BN
July Aug. Sept. Oct. Nov. Dec. share at the expense of KRW over the
blockchain.info course of Q3 and Q4.

fig.3 fig.4

Correlations of Returns per Asset 4 - 2 Yr Sharpe Ratio of ETH


Somewhat unsurprisingly, ether is also entirely S&P 500 Nasdaq Gold Brent
uncorrelated to our basket of more traditional asset 0.80
classes. The table on the left shows the 3-year correlation Ether -0.00 0.01 0.05 -0.05
0.60
of daily returns between ether, the S&P 500 and Nasdaq
Composite Indices, Gold and Brent. The correlation between S&P 500 0.93 -0.17 0.27
0.40
ether and any of these mainstream investments is nearly
zero, making it a potentially excellent addition to a Nasdaq -0.15 0.18 0.20
diversified portfolio.
Gold -0.04 0.00
3 2
FRED, Bitinfocharts FRED, Bitinfocharts, US Treasury
fig.5 fig.6
H2 17 Monthly ETH ($) Volume By Geography - Top 15 Exchanges by Volume Annualised Ether Volatility Ether volatility has remained
$12.74BN $12.91BN $11.59BN $5.66BN $12.66BN $24.35BN relatively stable over the last 3 and
Includes Fiat Pairs & USDT

2.20 half years with a significant spike in


100%
1.65 2015, its first complete year of price
75%
signal data. The annualized standard
50% 1.10
deviation of daily returns is
25% 0.55 comparatively high in ether versus
0% 0.00 old-timers like bitcoin and litecoin,
2014

2015

2016

2017
July Aug. Sept. Oct. Nov. Dec. but more in line with relative
USA Japan Taiwan Korea UK Luxembourg Russia
newcomers such as Dash and Ripple.
Cryptowat.ch Bitinfocharts
Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 14 CoinShares Research
H2 2017 CRYPTO REPORT // ETHEREUM // NETWORK HEALTH
6 MO.
NETWORK POWER DIST.
6 MTH GROWTH (# NODES) - TOP 5 REGIONS* NETWORK
+151%
* RANKED BY NET CONTRIBUTION TO NETWORK GROWTH
157 TH/s POWER
GROWTH + 94 TH/S
GIGAHASH/SECOND
RU 6 MO.
US EST. AS OF DEC.3O
1560 **
9,065
TOTAL
NODES
EtherMine

NanoPool
2,719.66 GH/s
1,404.3 GH/s
NETWORK
GROWTH
28%
(6380 nodes)
** F2Pool 1,060.42 GH/s
6 MO.
CA 1510 UUPool 802.46 GH/s

2
RANK
** ** MiningPoolH 528.15 GH/s BASED ON
ETCPool 241.29 GH/s NETWORK
no.
**

DE GROWTH
91pool 208.51 GH/s
2194 ** 6 MO. NODE 6 MO.
GROWTH Private 166.69 GH/s
CN JUNE>DEC. TOP 5 MARKETS BY VOLUME
TOP 5 REPRESENTS Private 139.67 GH/s
56% OF NETWORK 1817 Source: bitinfocharts.com
$50.0 BN
Private 86.09 GH/s

Includes Fiat Pairs & USDT


6 Month Network Growth - Relativity Map ZET Te 80.18 GH/s $37.5 BN 33.9

Private P 77.55 GH/s


$25.0 BN 24.3
Epool 67.93 GH/s
16.4
Private 61.85 GH/s $12.5 BN

45% 28% 26% 10% 8% Privat 42.43 GH/s 3.1


0.9
$0.0 BN
1 100 10,000 (LOG SCALE)
The network metrics of each of these coins are not necessarily comparable US KR TW LU RU
to each other due to core differences in technology. However, growth rates
Source: etherchain.org/statistics/miners Cryptowat.ch
can provide a relative measure of both pace of expansion and adoption.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 15 CoinShares Research


H2 2017 CRYPTO REPORT // ETHEREUM // ASSET OUTLOOK

INITIATIVES, UPGRADES & FORKS 6 MOS. IMPORTANT DATES RELATIVE MILESTONES PASSED
DAYS SINCE LAUNCH PRIOR TO EACH MILESTONE
The Ethereum protocol has undergone an extremely Byzantium
eventful six months of upgrades and additions of new Oct -17
hard-fork
capabilities. As we discussed in some detail in our 1 Tonne Nickel
THRESHOLD NOT YET REACHED
Ethereum Asset Highlight earlier this year, many large- ($12,680)
scale protocol changes are currently being planned and Carat Diamond
much of the groundwork for these changes was laid in Q4 Ethereum THRESHOLD NOT YET REACHED
($5,546)
this year. Oct-17 Exchange Traded
Product Launched Oz. Gold THRESHOLD NOT REACHED
The long-awaited Metropolis hard-fork ended up being ($1312) AS OF DEC. 31
divided into two separate parts, the first of which,
Byzantium, was successfully implemented on 16 October. CryptoKitties 1 Tonne Steel 938
Byzantium included several performance and capability Becomes Largest ($367)
Dec-17
upgrades, improved privacy features with the addition of Ethereum-Based
Zero-Knowledge proofs, and a delay of the Ethereum Ice Decentralised Bbl Brent 894
Age meant to insentivise the future migration from Application ($66.6)
Proof-of-Work to Proof-of-Stake.
Oz. Silver 575
($16.92)
Although there is no firm activation date released for the Ethereum Denver
Feb -18
second part of the Metropolis hard-fork, Constantinople, Hackathon U.S. Big Mac 452
it is anticipated in the early part of 2018. The exact ($5.30)
specifications of Constantinople are unknown, but are
expected to remove the Ice Age delay and include the Ethereum Dollar Parity OVER THRESHOLD @ LAUNCH
long-awaited addition of Casper, Ethereum’s new Proof- May -18
Developer ($1)
of-Stake (PoS) consensus mechanism. Conference
Gumball OVER THRESHOLD @ LAUNCH
It is hard to overstate the magnitude of the proposed ($0.25)
migration to PoS. The Ethereum developers claim that 100 1,000 10,000
this new consensus mechanism will massively lower the 6 MO. SIGNAL LIGHTS DAYS SINCE LAUNCH (LOG SCALE)
energy consumption of the Ethereum network and move
the burden of transaction verification from miners over to The chart above offers relative context to
Ethereum stakeholders. While PoS has seen some +147% +28% +151% both the growth and perception (unit cost)
success in various altcoins, Ethereum’s consensus of crypto-assets by benchmarking the unit
mechanism change will be the first one ever attempted by price against assets which belong to more
an already operational, multi-billion dollar system. 6 MONTH NETWORK NETWORK traditional classes. The ‘days since launch’
PERFORM GROWTH POWER provides a sense of the speed of growth.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 16 CoinShares Research


H2 2017 CRYPTO REPORT CoinShares Research

SECTION CONTENTS
DASH OVERVIEW
DASH BY THE NUMBERS
DASH
DASH NETWORK HEALTH
DASH ASSET OUTLOOK

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT // DASH // ASSET OVERVIEW

Technology
Dash was launched on 18 January 2014 under the name XCoin. Like most PrivateSend transactions are a class of Dash transactions using a derivative
other altcoins, its current code is forked from the Bitcoin protocol, although of the CoinJoin mixing service to add an extra layer of privacy to Dash
originally it was actually forked from the Litecoin codebase, itself a fork off transactions. These transactions are enabled by the use of Masternodes
of Bitcoin. It was rebranded as DarkCoin on 28 February 2014 and then to and can handle transaction sizes up to 1000 Dash.
Dash on 25 March 2015.
InstantSend transactions are a class of Dash trasactions that allow for near-
In addition to the standard Bitcoin features, Dash offers four main instant transfers. This capability is also made possible by the use of
modifications to Bitcoin. These modifications include the addition of Masternodes to achieve consensus on InstantSend transactions allowing for
Masternodes and the offering of two special transaction formats: a solution to the Double-Spending problem without the longer confirmation
PrivateSend and InstantSend. On top of that, Dash offers a governance times of traditional blockchain-based solutions like Bitcoin or Litecoin.
model based on a Distributed Autonomous Organisation (DAO), intended to
fund network development and allow for voting on codebase changes by Dash Network Health
Masternode owners: a sort of digital plutocracy.
The Dash hash rate distribution saw little to no change over the last six
months. Top ratio holders remain the same as before with AntPool (39%),
Whereas on the Bitcoin network, miners could perform all tasks, Dash uses ViaBTC (16%), Dash.top (6%) and Coinmine.pl (6%) representing the four
a two-tiered network where tasks like creating new blocks are handled by largest pools by estimated hash rate.
miners, and PrivateSend, InstantSend and governance functions are
handled by Masternodes.
Masternode distribution saw some small changes in distribution without
being large enough to change the count order. The three largest countries
Like Litecoin, Dash has a 2.5-minute block frequency target, but unlike both remain the US (26%, previously 25%), Netherlands (21%, previously 25%)
Bitcoin and Litecoin, Dash's inflation decreases by 1/14 every 210240 blocks. and Germany (11%, previously 10%).
The total number of Dash issued is not predetermined, but rather depends
on the votes of Masternode owners. There is a range, however, such that we
can state with some certainty that when issuance is finalised, sometime
towards the end of the 25th century, the total amount issued will be
between Dash 17.7MM and Dash 18.9MM.

Dash uses the chained X11 mining algorithm. It is a combination of 11


sequenced hashing algorithms originally created with the intent of delaying
the development of economical ASICs for mining Dash.

Core Innovation
The Dash Foundation operates as a DAO, which use machine code instead
of regular company bylaws to operate. The idea is to automate certain parts
of governance based on algorithms, and simultaneously allow for voting on
protocol changes based on network stakes.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 18 CoinShares Research


H2 2017 CRYPTO REPORT // DASH // BY THE NUMBERS
fig.1 fig.2

DASH Historical Annual Returns H2 17 Monthly DASH ($) Volume By Fiat Trading Pairs - Top 15 Exchanges by Volume After a few turbulent months, Dash
liquidity received a huge boost from
USD EUR GBP KRW JPY USDT Korean exchange volumes towards
2014 2015 $4.0BN the end of the year. From total
monthly volumes of around USD
$3.0BN
38% 73% 500m in July, November saw
$2.0BN increases in monthly liquidity to
2016 2017 nearly USD 2bn, followed by a slightly
$1.0BN stronger December. The dominant
240%
Correlation: 0.98803% pairs are KRW and USD, with KRW
$0.0BN
July Aug. Sept. Oct. Nov. Dec. regularly representing two thirds or
blockchain.info more of monthly volumes.

fig.3 fig.4

Correlations of Returns per Asset 3 & 2 Yr Sharpe Ratio of DASH


Like most of its cryptocurrency brethren, Dash is also S&P 500 Nasdaq Gold Brent
0.80
entirely uncorrelated to our basket of more traditional
asset classes. The table on the right shows the 4-year
Dash 0.05 0.03 -0.01 0.05
0.70
correlation of daily returns between Dash, the S&P 500 and S&P 500 0.93 -0.17 0.27
Nasdaq Composite Indeces, Gold and Brent. Again, the 0.60
correlation between Dash and any of these mainstream Nasdaq -0.15 0.18
investments is nearly zero, making it a potentially excellent 0.50
addition to a diversified portfolio. Gold -0.04
0.40
3 2
FRED, Bitinfocharts FRED, Bitinfocharts, US Treasury
fig.5 fig.6
H2 17 Monthly DASH ($) Volume By Geography - Top 15 Exchanges by Volume Annualised Dash Volatility
$0.41BN $0.94BN $0.79BN $0.35BN $1.99BN $2.46BN 4.00 Dash volatility measured as the
Includes Fiat Pairs & USDT

100%
3.00 annualised standard deviation of
75% daily returns has slightly increased in
2.00 2017 after having declined since 2014.
50%
1.00 This increase is a natural result of the
25%
large price increase we've seen over
0% 0.00 the course of this year although
2014

2015

2016

2017
July Aug. Sept. Oct. Nov. Dec.
USA Japan Taiwan Korea UK Luxembourg China Russia volatility is still near 4-year lows
Cryptowat.ch Bitinfocharts
Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 19 CoinShares Research
H2 2017 CRYPTO REPORT // DASH // NETWORK HEALTH
6 MO.
6 MTH GROWTH (# NODES) - TOP 5 REGIONS* NETWORK POWER DISTRIBUTION
* RANKED BY NET CONTRIBUTION TO NETWORK GROWTH
NETWORK +32,037%
DE 113 2.2K TH/s POWER
GROWTH + 2203 TH/S
TERAHASH / SECOND EST.
BR 6 MO.
89 ** US AS OF DEC. 30

**
UK
1128
TOTAL
AntPool
ViaBTC
940.2 TH/s
519.8 TH/s
NETWORK
GROWTH
10%
** NODES All others 232.8 TH/s (437 nodes)
183
Coinmine.pl 142.4 TH/s 6 MO.
Dash.top 122.0 TH/s

4
RANK
** ** Mining Pool H… 85.9 TH/s
BASED ON
cybtc 52.0 TH/s
SuprNova.cc 45.2 TH/s
NETWORK
GROWTH
no.
** 6 MO. NODE P2Pool-DASH27.1 TH/s
6 MO.
RU 1310 GROWTH XxHS6RDp1 20.3 TH/s
JUNE>DEC.
XgmfWd 15.8 TH/s TOP MARKETS BY VOLUME
TOP 5 REPRESENTS
56.8% OF NETWORK Source: bitinfocharts.com
Xv7TTkLifna15.8 TH/s $5.0 BN
4.3

Includes Fiat Pairs & USDT


XeMs2 9.0 TH/s
6 Month Network Node Growth - Relativity Map
XtwMWF 6.8 TH/s $3.8 BN

XrzFPh46.8 TH/s
Xk7u 4.5 TH/s $2.5 BN

XiEFG 4.5 TH/s 1.7

XsZ84.5TH/s $1.3 BN 0.9


45% 28% 26% 10% 8% Xhjj 4.52TH/s
$0.0 BN
The network metrics of each of these coins are not necessarily comparable 1 10 100 1,000
KR TW US
to each other due to core differences in technology. However, growth rates (LOG SCALE) chainz.cryptoid.info Cryptowat.ch
can provide a relative measure of both pace of expansion and adoption.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 20 CoinShares Research


H2 2017 CRYPTO REPORT // DASH // ASSET OUTLOOK

INITIATIVES, UPGRADES & FORKS 6 MOS. IMPORTANT DATES RELATIVE MILESTONES PASSED
DAYS SINCE LAUNCH PRIOR TO EACH MILESTONE
Dash is undergoing a major set of upgrades intended
to strengthen its capabilities as a payments system Sep -17 DashPay Wallet
Alpha 1 Tonne Nickel
and ready it for mass-market adoption. Dubbed THRESHOLD NOT YET REACHED
($12,680)
Evolution, the upgrade will be implemented in
stages, some of which have already taken place. DashPay Carat Diamond
Nov-17 ($5,546) THRESHOLD NOT YET REACHED
Evolution
Wallet Testnet Oz. Gold
On 17 August, Dash Core developers Evan Duffield 1,433
Release ($1312)
and Andy Freer released the Official Dash Roadmap
detailing their vision for protocol development. The 1 Tonne Steel
goal is for each successive stage of development to 1,321
Feb -18
DashPay ($367)
increase network capacity by an order of magnitude. Evolution Wallet
Livenet Release Bbl Brent 1,151
($66.6)
The DashPay Wallet Alpha was released with the 12.2
release in November. This release also included a Oz. Silver 1,114
Evolution v1
block size increase and various other efficiency ($16.92)
Jun -18 Mainnet upgrade
upgrades. DashCore 12.3, released in December, with DashCore U.S. Big Mac
13.0 119
included the addition of HD wallets, rehauling of ($5.30)
network code and various test functions of APIs and
SDKs. Dollar Parity OVER THRESHOLD @ LAUNCH
Jun -18 New DASH ($1)
Offices Open
A full version of the Evolution package is expected in Gumball OVER THRESHOLD @ LAUNCH
Q2 2018 with the release of DashCore 13.0. Changes ($0.25)
include improvements to DashPay, governance, state 1 100 10,000
transitions, wallets and limited sharding ability. 6 MO. SIGNAL LIGHTS DAYS SINCE LAUNCH (LOG SCALE)

Furthermore, the foundation are planning to open The chart above offers relative context to
offices in Arizona, Europe (CORE) and Asia (Dash +33K% both the growth and perception (unit cost)
+457% +10%
Labs). of crypto-assets by benchmarking the unit
price against assets which belong to more
6 MONTH NETWORK NETWORK traditional classes. The ‘days since launch’
PERFORM GROWTH POWER provides a sense of the speed of growth.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 21 CoinShares Research


H2 2017 CRYPTO REPORT CoinShares Research

SECTION CONTENTS
RIPPLE OVERVIEW
RIPPLE BY THE NUMBERS
RIPPLE
RIPPLE NETWORK HEALTH
RIPPLE ASSET OUTLOOK

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT // RIPPLE // ASSET OVERVIEW

Technology
Compared to our other four protocols, Ripple represents an entirely separate 80bn were gifted to Ripple Labs, who retain most of those funds to this day
class of digital asset. Originally developed as an evolution of the Ripplepay (more than XRP 60bn in October 2017). This simultaneously allows for the
protocol invented in 2004 by Ryan Fugger, the project was expanded and possibility of price stabilisation efforts by Ripple Labs, but also for price
improved by Jed McCaleb, Arthur Britto and David Schwarts who took disruption should Ripple Labs act in a manner that is detrimental to price
inspiration from the technological breakthroughs of Bitcoin to create a stability.
faster, less energy-intensive protocol.
Core Innovation
While it shares many goals and attributes of more "standard" Ripple allows cross-currency transactions for businesses and users in a
cryptocurrencies, Ripple is less of a generalist application and instead matter of seconds. Balances and accounts are validated instantly and
attempts to specialise in real-time gross settlement, currency exchange and payment notifications are delivered with low latency. The use of XRP as a
remittance. Its platform caters much more directly to the traditional bridge currency allows for exchange between two currencies even if no
banking industry and aims to become their go-to tool for the direct exchange is available.
aforementioned functions.
Fees in the Ripple protocol are charged as an anti-spam measure. To send
Ripple can be used to send other currencies besides its own native token transactions, users must pay a dynamic transaction fee that depends on the
(XRP), necessitating the creation of debt instrument balances for any non- frequency of outbound transactions by the user: the higher the ratio, the
XRP currencies. When using the protocol to transfer other currencies than higher the fee. It is important to note that no one actually collects the
the native XRP, the system is neither trustless nor strictly peer-to-peer, but transaction fees; they are simply destroyed. This property makes XRP a
rather uses a transactional architecture more similar to the current banking deflationary currency as the total number will decrease in line with
system. transaction demand.

Transactions require users to deposit funds with a third party Gateway,


effectively acting in the same fashion as a bank. Because of this
requirement, there is inherent counterparty risk in all non-XRP Ripple
transactions: users must always be willing to trust the entire amount they
want to send over the network to the creditworthiness of the Gateway
owner. XRP transactions also require Gateways for transactions, but unlike
non-XRP transactions they carry no counterparty risk.

The consensus ledger in the Ripple protocol does not employ any mining or
proof-of-work. Instead, it uses independent validating servers, continuously
comparing the internal transaction records to ensure agreement across the
network. Ripple payments are irreversible, and there are no chargebacks.

Unlike many other digital currencies, the native token XRP was completely
pre-mined with no ongoing issuance. All 100bn XRP that will ever exist were
created at inception, 20bn of which was kept by the creators. The remaining

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 23 CoinShares Research


H2 2017 CRYPTO REPORT // RIPPLE // BY THE NUMBERS
fig.1 fig.2

XRP Historical Annual Returns H2 17 Monthly XRP ($) Volume By Fiat Trading Pairs - Top 15 Exchanges by Volume Ripple has experienced significant
liquidity growth over the last six
2013 2014 USD EUR GBP KRW JPY USDT months. From a little more than USD
$30.0BN 1bn traded across all fiat pairs on the 15
365% -11% largest global exchanges by volume in
$22.5BN July, trading volumes exploded in
2015 2016 December, with volumes totaling more
$15.0BN
than USD 23bn. Like Dash, Ripple's main
-75% 7% $7.5BN exchange pair is the KRW, regularly
Correlation: 0.9
representing more than three quarters
$0.0BN
July Aug. Sept. Oct. Nov. Dec. of total volumes traded.
2017 35,564% bitinfocharts

fig.3 fig.4

Correlations of Returns per Asset 4 - 2 Yr Sharpe Ratio of Ripple


S&P 500 Nasdaq Gold Brent 0.80
Ripple, too, is entirely uncorrelated to our basket of more
traditional asset classes. The table on the right shows the Ripple 0.01 0.02 0.02 -0.01 0.60
5-year correlation of daily returns between Ripple, the S&P
500 and Nasdaq Composite Indices, Gold and Brent. The S&P 500 0.93 -0.17 0.27 0.40
correlation between Ripple and any of these mainstream
investments is nearly zero, making it a potentially excellent Nasdaq -0.15 0.18 0.20
addition to a diversified portfolio
Gold -0.04
0.00
4 3 2
FRED, Bitinfocharts FRED, Bitinfocharts, US Treasury
fig.5 fig.6
H2 17 Monthly XRP ($) Volume By Geography - Top 15 Exchanges by Volume Annualised Ripple Volatility
$0.89BN $4.38BN $1.99BN $3.88BN $3.68BN $24.6BN
Includes Fiat Pairs & USDT

100% 3.00 After slowly declining since 2014,


2.25 Ripple volatility exploded in 2017.
75%
1.50 After touching a low of 66% in 2016,
50% volatility nearly quadrupled last year
0.75
25% to an all-time-high of almost 275%.
0.00
2013

2014

2015

2016

2017
0%
July Aug. Sept. Oct. Nov. Dec.
USA Japan Taiwan Korea UK Luxembourg China Russia
Cryptowat.ch Bitinfocharts
Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 24 CoinShares Research
H2 2017 CRYPTO REPORT // RIPPLE // NETWORK HEALTH
6 MO.

6 MTH GROWTH (# NODES) - TOP 5 REGIONS* NETWORK POWER DISTRIBUTION


Because Ripple does not use mining or
* RANKED BY 1) NET CONTRIBUTION TO NETWORK GROWTH & 2) OVERALL % OF NETWORK REGIONS RANKED BY proof-of-work as a part of its consensus
VALIDATOR COUNT mechanism, there is no comparative way
JUNE 1/DECEMBER 1*
FR 5 *DUE TO BEST AVAILABLE United States 89
to measure its network power.
SNAP SHOT DATA

AU** ** Japan 25
JP
5
25
Germany

Unknown
21
20
NETWORK
GROWTH
8%
TOTAL KR 18 (19 validators)
** VALIDATORS Other 11
CN Singapore 9 6 MO.

8 8

5
China RANK
Canada 6 BASED ON
** ** RU 6 NETWORK
no.
Ireland 5 GROWTH
** 6 MONTH France 5 6 MO.
VALIDATOR UK 5
TOP 5 REGIONS GROWTH TOP RIPPLE MARKETS BY VOLUME
REPRESENT 25% DE AU 5
OF NETWORK 21 Source: xrpcharts.ripple.com HK 4 $30.0 BN

Includes Fiat Pairs & USDT


ND 4 $24.8
6 Month Network Growth - Relativity Map NO 3 $22.5 BN
EE 2
UA 2 $15.0 BN
TR 2
SI 2 $7.5 BN $6.2
$4.8
IN 2 $3.6
45% 28% 26% 10% 8%
ZA 2 $0.0 BN
The network metrics of each of these coins are not necessarily comparable 1 10 100 KR TW USA LU
to each other due to core differences in technology. However, growth rates
(LOG SCALE) xrpcharts.ripple.com Cryptowat.ch
can provide a relative measure of both pace of expansion and adoption.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 25 CoinShares Research


H2 2017 CRYPTO REPORT // RIPPLE // ASSET OUTLOOK

INITIATIVES, UPGRADES & FORKS 6 MOS. IMPORTANT DATES RELATIVE MILESTONES PASSED
DAYS SINCE LAUNCH PRIOR TO EACH MILESTONE
The Ripple team have an impressive six months to XRP Available on
Dec - 17
look back on. Since July alone, Ripple has announced 50 Exchanges
1 Tonne Nickel
dozens of new uses for its platform, with clients Worldwide THRESHOLD NOT YET REACHED
($12,680)
including major international banks, payment
processors and multinational corporations. Carat Diamond
RippleNet Grows to THRESHOLD NOT YET REACHED
More Than 100 ($5,546)
Oct - 17
Financial Institutions
Two main new products, xRapid and xVia have Oz. Gold THRESHOLD NOT YET REACHED
entered late stages of development, adding new ($1312)
and exciting capabilities to the Ripple product suite. Ripple Supports
1 Tonne Steel
xRapid is targeting payments providers facing Singapore’s Fintech THRESHOLD NOT YET REACHED
Sept -17 Hub Aspirations ($367)
liquidity challenges in emerging markets, and xVia is With New Office
meant for clients wanting to send international Bbl Brent THRESHOLD NOT YET REACHED
($66.6)
payments using RippleNet via their existing banks Ripple Launches
and payment providers. Sept -17 New Mumbai Office Oz. Silver
to Serve India’s ($16.92) THRESHOLD NOT YET REACHED
Digital Economy
On a corporate level, Ripple has added several U.S. Big Mac
industry heavy-weights to its organization with Ron THRESHOLD NOT YET REACHED
($5.30)
Will taking the mantle as CFO and its Board of Ripple Announces
Aug -17
Inaugural Swell Dollar Parity 1,235
Directors adding Zoe Cruz and NY BitLicense Annual Conference ($1)
architect Benjamin Lawsky.
Gumball 1,015
Over the next two quarters, Ripple hopes to ($0.25)
successfully take its newly enterprise tested 6 MO. SIGNAL LIGHTS 1 100 10,000
DAYS SINCE LAUNCH (LOG SCALE)
xCurrent product to market, enabling banks to
settle cross-border payments instantly, with end- The chart above offers relative context to
+740% +8% N/A%
to-end tracking. both the growth and perception (unit cost)
of crypto-assets by benchmarking the unit
6 MONTH NETWORK NETWORK price against assets which belong to more
PERFORM GROWTH POWER traditional classes. The ‘days since launch’
provides a sense of the speed of growth.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 26 CoinShares Research


H2 2017 CRYPTO REPORT CoinShares Research

SECTION CONTENTS
SUMMARY
SIGNALS
CHARTS

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018


H2 2017 CRYPTO REPORT // SUMMARY + SIGNALS

6 mo. summary 6 mo. signals summary


The second half of 2017 was another spectacular period of growth and development for the cryptocurrency 6 MONTH NETWORK NETWORK
industry. Cumulative market cap grew from USD 100bn to USD 597bn (coinmarketcap.com), a 497% increase PERFORM GROWTH POWER
that defied even the most bullish predictions. Juggernauts grew to massive new all-time-highs, while crypto- BITCOIN
incumbents, some relatively unknown even within industry ranks, rose from seemingly nowhere to multi-
billion-dollar network values.
+433% +45% 163%
Major protocols like Bitcoin, Litecoin and Ethereum implemented radical changes to their code bases. For
Bitcoin in particular, some of these changes were controversial enough that a small fraction of the
community chose create their own altcoin, Bcash, forked off the Bitcoin code base on which they could
implement their own vision for protocol development.
LITECOIN
The Bcash hardfork set off a cascade of new altcoins. These coins were not only using the Bitcoin code base
(as a majority of altcoins already do), but also the Bitcoin transaction history, meaning that holders of
bitcoin on the day of the hardfork received an amount of the new hardforked coins equal to their bitcoin +449% +26% 1439%
balances. This fad is still playing out, with more than a dozen coins created since August.
Meanwhile, Ethereum again used hardforks successfully for software upgrade implementations. The first
part of its Metropolis dual hardfork, Byzantium, was implemented without incident in October, while the ETHEREUM
second part, Constantinople, is expected sometime during 2018. After having overcome a serious bug in one
of its main reference clients, Parity, Ethereum shook off the uncertainty and ended H2 up by almost 170%.
+147% +28% 151%
Dash released a major new roadmap in August and launched an alpha version of its new DashPay Wallet
software in November. In the same period its hashrate saw astronomical growth, with increases estimated
at more than 30,000%. As it stands Dash is now second only to Bitcoin in terms of total hash rate.
But among our five covered cryptos the undisputed price growth champion of H2 2017 was Ripple. Rising DASH
from around USD 0.25 at the beginning of Q3, XRP ended the year at USD 2.30, for a whopping 6-month
growth of more than 800%.
+457% +10% 33K%
Across our five covered currencies, total fiat and Tether (USDT) trade volumes, measured over the 15 largest
global exchanges by volume, grew from USD 35bn in July, to USD 200 bn in December, a 470% increase.
The much-feared discontinuation of Chinese cryptocurrency trading barely made a dent in global volumes
and seem to have had little to no overall effect on the market. Meanwhile, Japan and Korea swept in to RIPPLE
replace Chinese cryptocurrency dominance in Asia with impressively strong volumes on relatively young
exchanges.
+740% +8% N/A%
All in all, two spectacular quarters to look back at while we analyse, plan and prepare for all that 2018 may
bring. If the past is any indicator, we suspect to see another wild year ahead.

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 28 CoinShares Research


H2 2017 CRYPTO REPORT // SUMMARY CHARTS

6 Mo. Returns By Crypto Asset Correlations of Daily Returns Common Crypto & Analog Assets

ETH LTC DASH XRP S&P NDAQ Gold Brent


Bitcoin 433% >>
BTC 0.25 0.52 0.28 0.08 -0.05 -0.04 0.05 -0.01
Litecoin 449% ETH >> 0.28 0.37 0.15 -0.00 0.01 0.05 -0.05
LTC >> 0.32 0.23 -0.04 -0.05 0.00 -0.00
Ethereum 147% >>
DASH 0.16 0.05 0.03 -0.01 0.05
Dash 457% XRP >> 0.01 0.02 0.02 -0.01
S&P >> 0.93 -0.17 0.27
Ripple 740% >>
NDAQ -0.15 0.18
0% 200% 400% 600% 800% DAILY RETURNS BEGINNING OCT 2015 >> DEC 2017 Gold >> -0.04

6 Mo. ($) Volume Distribution Across Top 15 Exchanges By Asset & Geo 7 - 2 Yr Sharpe Ratio Of Bitcoin, Litecoin, Ether, Dash & Ripple

USA Japan Taiwan Korea UK Luxembourg China Russia 1.00


Bitcoin Ether Litecoin Ripple DASH
BTC 29% 16% 26% 14% 1%

8% 5% 1%
0.75
Litecoin 37% 16% 25% 4% 17% 1%

0.50
Ethereum 30% 16% 26% 14% 1%

8% 4%

Dash 13% 25% 62% 0.25

Ripple 12% 16% 63% 9%


0.00
0% 25% 50% 75% 100% 7 6 5 4 3 2

6 Mo. Volume Across Top 15 Exchanges Annualised Crypto Asset Volatility

$1,000 BN 4.0
BTC LTC XRP ETH DASH
3.0
(LOG SCALE)

$100 BN
2.0
$278.53 BN
$10 BN $79.90 BN $48.87 BN 1.0
$39.43 BN
$6.94 BN
$1 BN 0.0
BTC ETH LTC XRP DASH 2011 2012 2013 2014 2015 2016 2017

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 29 CoinShares Research


H2 2017 CRYPTO REPORT // CITATIONS

BLOCKCHAIN.INFO

CRYPTOWAT.CH

CHAINZ.CRYPTOID.INFO

COIN.DANCE/BLOCKS/THISWEEK

XRPCHARTS.RIPPLE.COM

US TREASURY

BITINFOCHARTS

FRED

THE ECONOMIST

LME.COM/EN-GB/METALS/FERROUS

LME.COM/METALS/PRECIOUS-METALS

IDEXONLINE.COM/DIAMOND_PRICES_INDEX

SOURCE: ETHERCHAIN.ORG/STATISTICS/MINERS

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 30 CoinShares Research


H2 2017 CRYPTO REPORT // LEGAL

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H2 2017 CRYPTO REPORT // LEGAL

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(1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and
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Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 32 CoinShares Research


H2 2017 CRYPTO REPORT // NOTES

Copyright © 2018 CoinShares | Last Updated: 15 Jan. 2018 33 CoinShares Research


CS

CoinShares Research @coinsharesco coinshares.co.uk

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