‘The First Study of Its Kind’
Sponsored by Visa, the research is conducted by Cambridge University Judge Business School’s Centre for Alternative Finance. Even though there are over 300 academic articles published on Bitcoin and other cryptocurrencies over the past few years, the report claims that they “tend to take a narrow focus.” This study is the center’s “inaugural research focused on alternative payment systems and digital assets,” the report reads. “It is the first study of its kind to holistically examine the burgeoning global cryptocurrency industry and its key constituents, which include exchanges, wallets, payments and mining.”
The research is based on non-public data from 114 cryptocurrency organizations and individual miners in 38 countries globally. Four surveys were conducted online, from September 2016 to January 2017. Report authors, Dr. Garrick Hileman and Michael Rauchs, wrote:
We estimate that our benchmarking study captured more than 75% of the four cryptocurrency industry sectors covered in this report.
Below are just some highlights of the report’s findings.
Data was collected from 51 exchanges in 27 countries globally, with most of them in Europe and Asia-Pacific. Among other findings, the study reveals that 52% of small exchanges hold a formal government license while only 35% of large exchanges do. In addition, “85% of all exchanges based in Asia-Pacific do not have a license, whereas 78% of North American-based exchanges hold a formal government license or authorisaton,” the report reads.
“73% of exchanges control customers’ private keys, making them a potentially attractive ‘honeypot’ for hackers,” the report further details, citing how “these exchanges have possession of user funds denominated in cryptocurrency”. On the other hand, 23% of exchanges do not control customers’ private keys, which prevents them from accessing customer funds.
For security reasons, 92% of exchanges use cold-storage systems, with 87% of funds kept in cold storage on average. Multi-signature addresses are also employed by 86% of large exchanges and 76% of small exchanges.
Twenty-six different wallets, including wallet services and projects, participated in the survey. The number of active wallets in use today is estimated to be between 5.8 million and 11.5 million; between 2.9 million and 5.8 million of which are unique, active users. The report notes that 96% of all wallets sampled support Bitcoin.
Companies in North America and Europe provide 81% of the wallets globally, yet only 61% of their users are based in these two regions. As for giving their users control over their private keys, 73% of wallets surveyed do not. 12% let users decide whether to have full control over their private keys, and 32% of wallets polled have closed-source code.
Furthermore, 24% of wallet services hold some sort of formal government license. All wallets surveyed that provide centralized national-fiat-to-cryptocurrency conversion perform KYC/AML checks of some kind, typically done in-house.
The study polled 48 companies from 27 countries that provide some kind of payment service using cryptocurrencies. The findings show that 79% of payment companies already have banking relationships and other types of payment networks. They unanimously agree that their sector’s biggest challenge to overcome is the difficulty obtaining and maintaining these relationships.
The offerings in this sector are diverse. Merchant services are the most popular type of payment service, offered by 52% of companies surveyed. Only 21% of payment companies have been set up to exclusively process national fiat at both ends of the transaction, with cryptocurrency-rails in the middle. Half of the payment companies polled do not process any of this type of payments at all. The report notes that the Bitcoin network is by far the most popular payment rail, used by 86% of the companies as the main payment rail for cross-border transactions.
Licensing is more common than not, with 54% of the companies surveyed having a formal government license. Meanwhile, 83% of all payment activities and platforms providing business-to-business (B2B) payment services have obtained their license. In addition, 86% of payment companies perform KYC/AML checks.
Bitcoin miners were thoroughly surveyed and categorized as either a large or a small mining organizations. Out of 48 miners that participated, 18 (38%) were organizations and 30 (62%) were individuals. Only 11 of the largest organizations were designated as “large” miners.
The report notes that the sector has grown from a desktop hobby to a major industry with its own supply chain in just a few short years. Miners have collectively earned the equivalent of over $2 billion to date.
70% of large miners polled believe that they have a “high or very high” level of ability to influence protocol development, while only 51% of small miners do.
Legal and regulatory risk factors are not particularly concerning for most miners, large or small. The biggest concern for small, individual miners is the prospect of mining fees drying up, despite all data showing a significant uptick in the proportion of transaction fees to total Bitcoin mining revenues during 2016. They are also more worried about the prospect of centralization of hashing power than large miners are.
CSC Asia Pacific Ltd – April 10, 2017