Professional Documents
Culture Documents
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
LITECOIN RIPPLE
SECTION CONTENTS
BTC OVERVIEW
BTC BY THE NUMBERS
BTC NETWORK HEALTH
BITCOIN BTC ASSET OUTLOOK
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
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.
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
fig.3 fig.4
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
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)
SECTION CONTENTS
LTC OVERVIEW
LTC BY THE NUMBERS
LITECOIN
LTC NETWORK HEALTH
LTC ASSET OUTLOOK
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%.
fig.3 fig.4
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
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.
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.
SECTION CONTENTS
ETH OVERVIEW
ETH BY THE NUMBERS
ETHEREUM
ETH NETWORK HEALTH
ETH ASSET OUTLOOK
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.
fig.3 fig.4
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
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.
SECTION CONTENTS
DASH OVERVIEW
DASH BY THE NUMBERS
DASH
DASH NETWORK HEALTH
DASH ASSET OUTLOOK
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.
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.
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
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
XrzFPh46.8 TH/s
Xk7u 4.5 TH/s $2.5 BN
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.
SECTION CONTENTS
RIPPLE OVERVIEW
RIPPLE BY THE NUMBERS
RIPPLE
RIPPLE NETWORK HEALTH
RIPPLE ASSET OUTLOOK
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.
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
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
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.
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
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 ($0.25)
successfully take its newly enterprise tested 6 MO. SIGNAL LIGHTS 1 100 10,000
DAYS SINCE LAUNCH (LOG SCALE)
xCurrent product to market, enabling banks to
settle cross-border payments instantly, with end- The chart above offers relative context to
+740% +8% N/A%
to-end tracking. both the growth and perception (unit cost)
of crypto-assets by benchmarking the unit
6 MONTH NETWORK NETWORK price against assets which belong to more
PERFORM GROWTH POWER traditional classes. The ‘days since launch’
provides a sense of the speed of growth.
SECTION CONTENTS
SUMMARY
SIGNALS
CHARTS
6 Mo. Returns By Crypto Asset Correlations of Daily Returns Common Crypto & Analog Assets
6 Mo. ($) Volume Distribution Across Top 15 Exchanges By Asset & Geo 7 - 2 Yr Sharpe Ratio Of Bitcoin, Litecoin, Ether, Dash & Ripple
8% 5% 1%
0.75
Litecoin 37% 16% 25% 4% 17% 1%
0.50
Ethereum 30% 16% 26% 14% 1%
8% 4%
$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
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
CoinShares (UK) Limited is part of a group of companies (the “CoinShares Group”) which includes XBT Provider AB (Publ), the issuer of four series of Certificates listed on
Nasdaq Stockholm: COINXBT:SS and COINXBE:SS, which are both referenced to Bitcoin, and COINETH:SS and COINETHE:SS, which are referenced to Ethereum. Members
of the CoinShares Group are committed to strong standards of service and corporate governance and are proud of the CoinShares Group’s reputation and standing within
the world of crypto-currencies and other digital assets.
Crypto-currencies can be extremely volatile and subject to rapid fluctuations in price, positively or negatively. Investment in one or more crypto-currencies may not be
suitable for even a relatively experienced and affluent investor. Each potential investor must make their own informed decision in connection with any such investment
(after having sought independent financial advice thereon). Past performance is not necessarily a guide to future performance. Any estimates of future performance
contained herein are based on assumptions that may not be realised.
This research document is not intended for the use of retail investors. (Accordingly, should a retail investor obtain a copy of this report they should not base an
investment decision upon the content of this document and are strongly recommended to seek independent financial advice upon any investment which they are
contemplating).
However, no guarantee can be (or is) provided in relation to the accuracy or completeness of the same. To the extent permissible at law, CoinShares (UK) Limited does not
accept:
• any liability arising from the use, misuse or non-use of the material contained or referred to herein; or
• responsibility for any financial loss incurred as a result of a decision to invest in one or more crypto-currencies.
Please also note that no member of the CoinShares Group is under an obligation to disclose or otherwise take into account the contents of this document if or when
advising customers or dealing with investments on their customers’ behalf.
Material contained in this report satisfies the regulatory provisions concerning independent investment research as required under MiFID. Information concerning conflicts
of interest, and the management thereof by the CoinShares’ Group, is contained in the CoinShares Group’s ‘Policy for Managing Conflicts of Interests regarding
Investment Research.’ It should be noted that certain members of the Global Advisors’ group of companies, of which the CoinShares Group is a division thereof, do, from
time to time, act as a market-maker or adviser in relation to crypto-currencies for individuals and/or entities mentioned in this document (and may be represented on the
board or other governing body of such entities). Additionally, such members of the Global Advisors’ group do, from time to time, act as a principal trader in the crypto-
currencies referred to in this report and may hold those (and other) crypto-currencies. Employees of the Global Advisors’ group (including the CoinShares Group), or
individuals and entities connected thereto, may also from time to time hold one or more of the crypto-currencies mentioned in this document.
The views and sentiments of the CoinShares Group, expressed or which are reflected in this document, are subject to change from time to time and without notice. The
CoinShares Group may (and does intend), from to time, to prepare and issue other reports. These further reports may be inconsistent with, and reach different conclusions
to, the information contained or referred to herein. Please note that members of the CoinShares Group are under no obligation to ensure that such other reports are
brought to the attention of any recipient of this report.
The content of this document is subject to copyright with all rights reserved. This document (and any part(s) thereof) may not be reproduced, modified, linked-to or
otherwise used for any purpose without the prior written consent of the copyright holder.
Additional notice to U.S. Persons: This document is not appropriate for any person (natural, corporate or otherwise) who is a US Person as defined under Regulation S
of the United States’ Securities Act of 1933, as amended (which such definition includes, for the avoidance of doubt, any US resident, corporation, company,
partnership or other entity established under the laws of the United States). Accordingly, this document should not be distributed to, used or relied upon by any US
Person.
Additional notice to UK residents: Although not intended to be, this document and the communication of it may contain material that is interpreted as a ‘financial
promotion’ for purposes of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”). The contents of this document and any communication of it have
not been approved by any person for the purposes of Section 21 of FSMA. Accordingly, this document and the communication of it is issued only to, or directed at
persons in the United Kingdom who are reasonably believed to be: (i) Investment Professionals within the meaning of Article 19 of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005 ("FPO"); (ii) Certified High Net-Worth Individuals within the meaning of Article 48 of the FPO; (iii) High Net-Worth
companies, unincorporated associations etc. within the meaning of Article 49 of the FPO; (iv) Sophisticated Investors within the meaning of Article 50 of the FPO; (v)
Self-certified Sophisticated Investors within the meaning of Article 50(A) of the FPO; and (vi) Associations of High Net-Worth or Sophisticated Investors with the
meaning of Article 51 of the FPO.