CoinDesk Research’s Q1 2017 State of Blockchain report summarizes key trends, data and events in the public and enterprise blockchain sectors in the first quarter of 2017.
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The first quarter of 2017 was a big one for the blockchain space.
From the spark of what has become a massive cryptocurrency rally to the emergence of major enterprise efforts like the launch of the Enterprise Ethereum Alliance, the first quarter may ultimately come to be seen as a defining one for the industry.
The first quarter also saw initial coin offerings, or ICOs, continue to gain interest despite unclear regulatory guidance from agencies like the US Securities and Exchange Commission (SEC).
As showcased in CoinDesk’s latest State of Blockchain report, the first quarter of 2017 wasn’t all sky-high token valuations and enterprise announcements, however.
Q1 also saw the emergence of all-time highs for bitcoin user transaction fees, while the SEC gave the thumbs-down to two proposed bitcoin ETFs (though one of those decisions is currently under review by the regulator).
Further, the industry saw the People’s Bank of China, the country’s central bank, take on a more active role as a watchdog of the domestic bitcoin exchange ecosystem. This lead to a months-long user balance withdrawal freeze and a shift in the makeup of the world’s trading volume.
In the end, though, it was still a blockbuster quarter for the blockchain industry. To get the birds-eye view of what took place, read on for the six major highlights from CoinDesk’s newly released report.
1. Cryptocurrencies rally in price
Nearly the entire asset class rallied in the first quarter as the overall market cap gained $7bn to an all-time high of $25bn.
In the months since the end of Q1, the collective market cap of cryptocurrencies has rallied north of $90bn.
In the first quarter, each of the top 10 assets gained value and a wide range of tokens set all-time highs, half with double-digit percentage gains and half with triple gains.
Despite bitcoin’s 10% price gain, its market dominance hit an all-time low as smaller assets made significant gains.
As compared to traditional currencies, bitcoin’s rise exceeded that of nearly every major nation, as did precious metals (which are often compared to cryptocurrencies based on limited supply, independence from governments and usage as a hedge against a collapse in traditional financial markets).
2. Transactions and fees rise, prompting scaling focus
The first quarter set the record for the most bitcoin transactions per day (287,098), the largest blocks (0.92 MB) and the most expensive transactions ($0.62).
In June, transaction fees rose to over $5 – see ‘Bitcoin’s Network is Objectively More Congested Than Ever’.
Other major public blockchains experienced increased usage in the first quarter as well, including ethereum and dash, monero and zcash – a growing sector of ‘privacy focused’ cryptocurrencies.
The stage has been set for scaling bitcoin both on-chain through proposals like ‘SegWit’ (which recently went live on litecoin) or increasing fixed maximum block sizes (or hybrids like ‘Segwit2Mb’) and off-chain through projects like the Lightning Network and Raiden.
3. Regulators significantly impact global markets
The composition of trading shifted in the first quarter as agencies around the globe made decisions impacting cryptocurrency trading structures and treatment.
In January, the People’s Bank of China met with the ‘Big 3’ bitcoin exchanges and other domestic exchanges around the issues of zero exchange fees and AML policies. Global volumes plummeted as OKCoin, Huobi, BTCC and other Chinese exchanges responded by pausing features like withdrawals and margin trading, and increasing fees.
As Chinese trading plunged, a more diverse allocation of worldwide volume emerged and continued into Q2 – see ‘3 Reasons the Cryptocurrency Exchange Market Is Maturing’.
Other parts of the world saw major regulatory developments – both positive and negative – during that quarter as well.
In March, the SEC rejected the Winklevoss COIN bitcoin ETF, initially proposed almost four years prior. Just weeks later, the SEC rejected another ETF proposal from SolidX, in both cases citing significant unregulated markets.
Across the world, however, Japanese regulators moved to treat bitcoin as a legal payment method, sparking a renewal in interest in the Asian nation.
A Spotlight Study in the Q1 2017 State of Blockchain used a survey distributed in Farsi on Telegram to gauge “Iranian Blockchain Sentiment” and found that the largest majority of respondents were using cryptocurrency for cross-border payments.
Notably, the majority of respondents thought the Iranian government would be effective in advancing bitcoin and its community.
4. Interest in permissioned blockchains and enterprise developments increases
As more traditional companies have become involved in blockchain, they have added to the research going into the growing ‘permissioned’ side of the space.
Enterprise-oriented blockchain projects had an eventful quarter as consortiums grew in size – and pilot projects continued in partnership with major groups and corporations.
In that time, the Linux Foundation-led Hyperledger project has grown its list of members, proofs-of-concept and frameworks and tools.
The Enterprise Ethereum Alliance, launched in February with a combination of major firms and blockchain startups, has the stated goal of interoperability with the public ethereum network.
5. Dapp tokens and ICOs flourish within small groups
Decentralized applications (dapps) and token sales continue to draw investor interest as short-term returns have been astronomical for many.
As ethereum’s community has grown with more developers coming in (and investors willing to fund them), multiple early projects for different use cases are beginning to appear.
The investor pool is small, however, as only several hundred to thousands of people control the tokens behind several million-dollar market cap projects.
Ethereum dapps are not alone in grouping around use cases, as other broad ‘sectors’ have only become more apparent over time, like privacy-focused cryptocurrencies, dapp platforms, interoperability-based protocols (like Cosmos and Polkadot) and storage-based assets (like Sia and Storj).
The first quarter also showcased notable data on ICOs, which totaled about a third of the total venture capital volume seen in the first quarter.
Numerous token sales were launched, scheduled and announced soon after, including gnosis, cosmos, brave, tezos, civic and kik.
At the end of May, cumulative ICO funding passed venture capital for the year – see ‘ICO Investments Pass VC Funding in Blockchain Market First’.
As the market has grown, the players in the market have evolved, with specialized legal and advisory services, investment funds, and more, launching to cater to and profit from the trend.
6. Ethereum sentiment far outweighs bitcoin
The main Spotlight Study in the Q1 2017 State of Blockchain was the “Bitcoin and Ethereum Sentiment Survey”.
The survey revealed that the community was extremely enthusiastic about most aspects around the ‘state of ethereum’. That said, a number were torn – and bordering on the negative – regarding many aspects of the ‘state of bitcoin’.
The full survey covers numerous aspects of the protocols and ecosystems, but perhaps just one chart says it all when weighing the overall level of sentiment (at least among this group of respondents) – see ‘Enthusiasm for Ethereum Hits an All-Time High’.
To download the full State of Blockchain Q1 2017 report, visit CoinDesk Research.
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