By now, most people have heard about Bitcoin, although many probably still don’t know much about it, other than, maybe, the fact that it’s the currency that was used for transactions done on dark web’s Silk Road (making in the process the US Government a [the?] major Bitcoin holder). Roughly a year after the news, Bitcoin remains an ‘underground’ currency whose legal status is rather uncertain. Nonetheless, the core technology behind it, known as blockchain, is poised to be heard of, and used, more and more in the near future.
The concept is quite simple, every transaction that get done is packed in block of encrypted data and made public. Blocks follow a logical order and, together, form the blockchain. As computers connected to this network find these blocks, they decrypt them and validate the transactions. Although every transaction is therefore public and visible by all, the sender and recipient remain anonymous as the only information tracked are amount and sending/receiving addresses. As time passes, more and more independent machines confirm the blocks thus validating the transactions. In exchange, computers that power this decentralized infrastructure – called miners – are rewarded with coins for doing so. The reward is fixed but the level of difficulty is variable depending on volume of miners and of transactions on the network.
So, what’s the connection with M&A? Well, the blockchain is seen by many as a perfect mechanism to conduct financial transactions. The NASDAQ, for example, is testing the technology as mechanism to transfer shares – and keep track of transfers and ownership in real time – using more specifically Open Asset as the underlying blockchain technology. Indeed, the blockchain present the advantages of allowing for near real-time transactions with an extensive public record of the transations that remains, at the same time, very private, and does so in a cost effective way. It is also decentralized, thus reducing the vulnerability of centralized data centers while allowing to scale the infrastructure easily and cost effectively as needed.
The ability to transfer rapidly, securely, and cost-effectively money between two parties irrespective of their respective location is another facet of the blockchain technology that many in the financial world see as determinant for its future. Citi, for example, is one of the various large global financial institutions that’s taking the technology seriously. They have started to play around with the blockchain technology and, rumor has it that they even created their own cryptocurrency, labeled – creatively – Citicoin. They must have hired a creative agency to come up with such an innovative name. France’s leading bank, BNP Paribas is also said to be interested in the field.
3 Financial groups are into the Blockchain. So what?
To be fair, these are merely examples. Companies involved in the field of Bitcoin and other cryptocurrencies based on the blockchain are expected to raise in 2015 alone close to $1.2Bn from established VCs and Companies alike. Earlier in 2015, leading Bitcoin (and other ‘altcoins’) market and wallet Coinbase closed a C round of $75M led by DFJ Growth. Other investors include the NYSE, BBVA, NTT Docomo, as well as Andreessen Horowitz, Reddit Capital and Union Square Ventures (the last three being returning investors). This gives Coinbase a $400M valuation.
Two months later, in March, 21, a stealth-mode startup announced the largest Bitcoin-related funding to date – $116M from Andreessen Horowitz, RRE Ventures, Qualcomm and more. The company developed and sells a consumer-focused Bitcoin ASIC that allows you to run a “Bitcoin micro payment server”.
Meanwhile, a startup led by a former JP Morgan Chase exec, Digital Asset Holdings, is acquiring various other companies and integrating them into what could become an alternative infrastructure for financial institutions to settle transactions in real time.[Updated 10/8/2015] Felt the need to add a note after reading CB Insights’ post on Bitcoin startup funding. It appears that I may have been a bit hasty in posting this as, according to CB Insights, Bitcoin-related startup funding “fell to a 5-quarter low in Q3’15”. Now, this does not invalidate the main point of the post above… just means that maybe the Blockchain technology is not becoming “mainstream” as fast as it appeared based on earlier trends. What do you think?
Image Credits: CC0 Public Domain.