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State of Bitcoin and Blockchain 2016:Blockchain Hits Critical MassGarrick Hileman (@garrickhileman) | Published on January 28, 2016 at 15:50 GMT

1 of 124 State of Bitcoin and Blockchain 2016 from CoinDesk

CoinDesk's 2016 State of Bitcoin and Blockchain report summarizes key trends, data and eventsfrom 2015, details findings from our annual Thought Leaders Survey and includes predictions onwhat to expect in 2016.

This article highlights a few of the key findings from the report.

2015 Review

The major story from 2015 is undoubtedly the increasing focus on bitcoin's underlying technology,commonly referred to as blockchain or distributed ledger technology (DLT). Many parties, fromgovernment authorities to financial institutions, began to examine potential applications of DLT forsecurities transaction settlement and other use cases.

Meanwhile, bitcoins price and exchange trading volume bounced back strongly after a gloomyfirst half of the year.

Venture capital investment increased 36% year-on-year, although the pace slowed down in thesecond half of 2015. Mainstream retail adoption of cryptocurrencies continues to lag due to a lackof compelling use cases, and there are also signs that bitcoin's use on the dark web has peaked.

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Bitcons scalability debate was a hot topic in software developer circles in 2015, and it recentlyspilled over into mainstream discussion with the high-profile departure of developer Mike Hearn.While many proposed scalability solutions exist, none have achieved sufficient consensus fordeployment.

However, industry leaders who were surveyed state they are confident that the question ofbitcon's scalability will be resolved, at least in the short-run.

Overall, the tempo of industry regulation slowed 2015.

The New York BitLicense, the state's industry-specific licensing regime, went into effect in August,and the European Court of Justice (ECJ) announced that bitcoin transactions are exempt fromvalue-added tax (VAT) in October.

'Blockchain, blockchain, blockchain!'

R3CEV has made significant progress by gathering 42 major banks and financial institutions toparticipate in its DLT initiative.

The combined market cap of the consortium is $600bn, and 60% of the financial institutionsparticipating are global systemically important financial institution (SIFIs) (Slide 99).

However, R3 has attracted criticism (Slide 101) and now faces competition in the form the recentlyannounced SWIFT consoritum.

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Looking ahead, expect to see various deployments of DLT, along with further attention given toarguably DLTs 'killer app', smart contracts (Slide 95).

Of particular interest will be whether the Open Ledger Project, which will be managed by the theLinux Foundation, can address the many governance problems observed around softwaredevelopment in 2015 (Slide 118).

Also expect to hear more about Ethereum in 2016 and the decentralized applications being builton its public blockchain, including Slock.it, Augur and Vunk (Slide 109).



Bitcoin price ends at one-year high

After gradually picking up in Q3, bitcoins price reached its one-year high of $430.05 in Q4.

Following, a dismal 2014, bitcoin once again sits atop the worlds best performing currenciesleaderboard (Slide 28).

Most believe bitcoins price has been largely driven by financial instability in China (Slide 30),while others point to the expected July 2016 halving of the block reward to 12.5 BTC and theresultant reduction in the supply of new bitcoins entering the market.

Sixty percent of the top 10 most-viewed stories on CoinDesk in Q4 were price-related (Slide 42).Furthermore, media coverage of bitcoin on Chinas Sina increased 42% quarter-on-quarter (Slide43) as Chinese yuan denominated trading represented 95% of total exchange volume (Slide 44).



Total exchange volume, which tends to increase during periods of higher volatility, was eighttimes greater in December than in September (Slide 33).

VC investment continues to slow

Total bitcoin venture capital increased by 3% to $949m in Q4.

The growth rate of VC investment has been declining for the past three quarters after peaking at50% in Q1 2015 (Slide 14).

Investors may be concerned by the viability of current business models and slow consumeradoption. New investment in digital wallets and payment processors has effectively ceased overthe past year (Slide 58).

Two more startups announced closure this quarter, bringing the bitcoin deadpool to a total of 24companies (Slide 17). In addition to lack of funding, security is the most commonly cited reasonfor closure.



However, most survey respondents remain optimistic about the venture capital investment in thebitcoin and blockchain ecosystems in 2016, and Digital Asset Holdings recently announced $50mround lends this view some early support.

Regulation and central bank digital currency initiatives

Towards the end of the 2015, the European Court of Justice announced its decision to exemptbitcoin transactions from value-added tax (VAT).

European bitcoin companies welcomed this rule and regarded it as a milestone in bitcoinregulation (Slide 81).

Overall, regulation remained light touch in 2015, and some European countries, like Luxembourg,are are actively seeking to attract startups by fostering a friendly regulatory environment.

The Bank of England recently released a paper examining the macroeconomic consequences ofcentral bank digital currency (Slide 79), and is also actively developing the technology that wouldallow the bank to deploy its own bitcoin-like currency.



Along with a recent announcement by China, it would not be surprising to see one of the worldsgovernments deploy its own digital currency or blockchain-based system in 2016.

View the full State of Bitcoin and Blockchain 2016 report by subscribing to our researchnewsletter.

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