Ethereum Emerges, Bitcoin vs. “Bankchains” :: Blockchain Letter, March 2016

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Dear Community,

Bitcoin’s volume-weighted price on the Bitstamp exchange rose 17% in February. Year-to-date, bitcoin price is up by 0.5%.


We will be visiting several cities over the next few months to discuss the blockchain ecosystem. Some of our dates include:

  • March 28–30, New York City/Connecticut
  • April 1, Boston
  • April 28–29, New York City/Connecticut
  • May 2–6, New York City/Connecticut
  • May 31, Los Angeles
  • June 30-July 1, Boston

If you are interested in a meeting, please contact Pantera’s investor relations team at 415–360–3600 or via


Bitcoin price volatility achieved a new all-time low on March 2, 2016 at 47.6%.

The Bitcoin scalability issue has been a nice problem to have. Put simply, there’s too much interest in bitcoin. Transaction volume is growing so quickly that Bitcoin needs to be made more scalable to accommodate the new and future interest (check out the Bitcoin scalability roadmap for more information).

When bitcoin was up 83x year-on-year in late 2013, bitcoin price was clearly ahead of fundamental indicators. Now, bitcoin price is trending upwards in tandem with actual Bitcoin network usage.


While the Bitcoin scalability issue continues to resolve, Ethereum, an alternative digital currency technology, has gained quite a bit of interest and, in fact, traction over the latter half of 2015 and so far in 2016.

Ethereum provides a digital currency token and application-foundational blockchain technology, similar to the Bitcoin scheme. The key difference between the two, however, is that Ethereum was developed from the ground up to focus on smart contracts, whereas Bitcoin was developed to focus on a peer-to-peer digital cash. Ethereum allows “scripting”, or enacting snippets of computer code for various purposes (much like the everyday computer programs we use), a provision which was initially allowed in Bitcoin but disabled during early testing for security reasons. Smart contracts are snippets of computer code or “scripts” that facilitate, verify, or enforce the negotiation or performance of a contact.


Ethereum was proposed by Vitalik Buterin in late 2013. The Ethereum Foundation, primarily responsible for facilitating and funding Ethereum development, raised an estimated $18.5 million (approximately 32,000 bitcoins at the time) in exchange for about 60 million ether (the currency unit of the Ethereum platform, also known as ETH) in a 42-day crowdsale. Because of the attention that surrounded the technology initially and the time it took to finally launch as of July 2015, some ecosystem observers became dismissive of its potential and this became the general attitude of the ecosystem. However, given the increasing number of entrepreneurs building applications on top of Ethereum in recent months and its resurgence in discussions we and other industry members have had, attention to it must be renewed.


Since the launch of Ethereum, there have been concerns about the Ethereum Foundation as an organization in addition to the technology’s scalability (much akin to Bitcoin’s scalability issue).

The Ethereum Foundation raised $18.5 million worth of bitcoin in a highly successful crowd sale but suffered a loss of $9 million per the decline of bitcoin price. Foundation expenses peaked at over €400,000 per month, spent on a combination of development funding, communications services, administrative costs, and security audits. The Foundation has been able to cut down on administrative costs by consolidating their multiple legal entities and reducing office rent, bringing expenses down to now €175,000 per month.

Ethereum recently launched Homestead, the second major version of the Ethereum platform, which includes several protocol changes and a networking change. The Ethereum team will now focus on the development of Serenity, the next version of the Ethereum protocol, which will include powerful software abstraction features: the Casper consensus algorithm (hybrid of proof-of-work and proof-of-stake, i.e., improved security) and basic scaffolding that will allow for the development of scalability features over time with minimal disruption to the platform’s services.


Ether, the digital token-currency of Ethereum, has become the second largest digital currency by market capitalization, behind bitcoin. Recently, ether’s overall market cap eclipsed a $1 billion threshold, which has only been achieved by one other digital currency, Bitcoin. Just before that, earlier this month, Ether’s market cap climbed above $600 million for the first time, surpassing the combined market cap of alternative digital currency veterans Ripple and Litecoin (the now 3rd and 4th largest digital currencies by market cap, long time 2nd and 3rd), up from its usual market cap of around $450 million.

Ether price has recently reached new highs partly driven by public interest generated from a Microsoft partnership and recruitment interest from Thomson Reuters. Microsoft has included the Ethereum startup BlockApps, which provides Ethereum blockchain software for enterprises, into its Azure Blockchain-as-a-Service marketplace (Azure is Microsoft’s open, flexible, enterprise-grade cloud computing platform). The company fits in with Microsoft’s goal of enabling enterprises and developers to quickly deploy a blockchain environment on Azure. Thomson Reuters is in search for a talented blockchain developer, who is well-versed in the Ethereum distributed ledger technology and can design and implement complex distributed ledger solutions for the company, an additional sign of Ethereum’s growing legitimacy.

Ethereum In Action

Pantera has always been ledger-agnostic when evaluating blockchain investments and has been monitoring Ethereum since the beginning. Before taking it seriously, we were waiting for the technology to gain legitimate traction and to see if it could actually be implemented in compelling use-cases. A big indicator of progress to us was when some of our own portfolio companies began incorporating Ethereum into their application technology stacks. Below are some interesting use-cases being built on the technology:

  • Chronicled, a Pantera portfolio company, is a company providing authentication and provenance using blockchain technology. The company has developed pilot implementations on both Bitcoin and Ethereum blockchains and finds the Ethereum framework and coding language to be the most user-friendly and flexible of the two. Chronicled has not formally announced their commitment to Ethereum and are waiting to see convergence in the blockchain space before any commitment. That said, based on our informal conversations with the team, it does feel that Chronicled is leaning in the direction of an Ethereum blockchain implementation.
  • is a “smart contract lock” that is run on the Ethereum blockchain. The company has partnered with energy giant RWE to reinvent how electric cars are charged today. Cars will be equipped with digital wallets and will be able to communicate with autonomous electric charging stations, which use smart contracts to allow users to rent the station, put up a deposit, charge their car, then get their deposit back. In another case, would enable for charging the electric vehicle by tiny increments, using induction points beneath the road while a car is waiting at a traffic light. Smart contracts remove the complexity of paper contracts. Normally the charging stations charge by the hour and there is no way to pay for what you use, so the experience is suboptimal. With, users will be able to see how much energy they are consuming. When charging is complete, the charging station refunds a deposit through a smart contract.
  • R3 is a consortium of about 50 banks looking to collaborate and consult with other banks in order to provide distributed ledger technology to help cut costs in the middle and back offices. Some use-cases for banks of distributed ledger technology include settlements of securities and issuance of syndicated loans. R3 has hired blockchainers like Tim Swanson and Mike Hearn to help develop technology and has stated that they are starting off with building on top of Ethereum. So far, 11 banks have connected using Ethereum: Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit, and Wells Fargo.

Time will tell whether Ethereum can live up to its grand promises. In part to accomplish these, Ethereum leadership must be able to steer the scalability of their organization and technology. Ethereum will also have to outperform or reconcile with up-and-coming competitive technologies like Rootstock, an Ethereum-imitating sidechain that is utilizing the computing power of the Bitcoin blockchain through merge mining. The network security advantages of using Bitcoin over Ethereum proper are still substantially compelling. Nevertheless, Pantera is excited to see the continued development of Ethereum and will continue to evaluate companies building interesting, useful applications on top of the technology.


Many of our existing and prospective investors have asked for clarification on the private versus public blockchain meme that the media has been fascinated with lately. Here’s our two cents.

Internet vs. Intranet

It’s like the private intranet vs. public Internet debate back in the 90s. Banks instinctively want to do their own private network in lieu of participating or building on top of the existing, thriving public network.
Recently, banks and other financial institutions have finally begun utilizing cloud infrastructure over the open Internet, attracted by the “economies of scale” of services like Amazon Web Services and cloud storage such as DropBox.

Since Bitcoin’s invention, the mainstream media has tarnished Bitcoin’s brand by overemphasizing the negative news. Banks don’t want to be associated with bad things, PR-wise and because it may incite greater regulatory scrutiny.

Denying a technology as disruptive and useful as Bitcoin because of an unfairly lame but improving image is not smart business, especially as Bitcoin as making its way out of the limelight and into the backend. In terms of regulation, Bitcoin as a technology is well-tolerated in most jurisdictions and even supported in some jurisdictions like the UK (read: their treasury reports).

Some traditional financial service executives cite that Bitcoin “challenges social norms” too strongly but what new technology hasn’t?

At any rate, renowned venture capitalist Marc Andresen, too, noticed that recent bank attitudes toward Bitcoin may be history repeating itself:

At our Bitcoin Pacifica conference last year, Arvind Narayanan, a computer science professor at Princeton specializing in network security, asked “Isn’t ‘private blockchain’ just a confusing term for a shared database?”

The Value of Blockchain Is Decentralization

The value of the Bitcoin network over shared databases and “bankchains” stems primarily from its decentralized nature. Bitcoin’s decentralized nature affords “censorship resistance”, which, for example, enables incorruptible record-keeping.

The chance of faulty or corrupt records in a distributed ledger system decreases as the number of network peers, all of whom are responsible for auditing these records, increases. As such, there is a substantially higher chance for faulty or corrupt records with only four, five, or even 30 network peers participating in a private distributed ledger system rather than the tens of thousands peers currently comprising public Bitcoin ledger. While the private network is more secure than if a single entity controlled the records, it is much, much less secure than an Internet’s worth of properly-incentivized auditors. This is one of many ways a public, distributed ledger is preferable to a private one shared between a select few entities.

Some companies like our portfolio company Chronicled are building blockchain-based applications that seek to leverage this superior form of record-keeping that would not be possible if not for a public Internet of programmatic money.

Just four or five entities participating in a blockchain network means high risk for collusion between entities, corruption, systemic failure if many or all entities fail, or other downsides inherent to centralized systems. The more entities participating in the network means the lower the risk for these downsides, which is why Bitcoin is so powerful as a network with hundreds of thousands of participants.

There is no overwhelming reason banks shouldn’t fortify the already existent and thriving blockchain by building on it rather than creating their own, other than the perceived downsides of associating with the Bitcoin brand or perhaps very specific, immediate needs for features not yet offered via Bitcoin technology. As a matter of fact, the incentives of joining a public, distributed ledger ecosystem and the disincentives of running their own blockchain will likely result in private blockchain projects folding into the Bitcoin blockchain in the future — that is to say, they’ll eventually join or build with Bitcoin or at least be interoperable with the Bitcoin blockchain. What remains clear however is that the influence of Bitcoin’s technology advances are inspiring banks to explore new approaches to business-as-usual. This cannot be a bad thing.

The choice of blockchain architecture should ultimately be driven by the problem being tackled. Situations where there is a strong need for public and independent verification of events — whether these events are money transfer (Bitcoin) or contract verification (Ethereum) should be addressed by public blockchains, while situations where there is a set of trusted entities (banks /trading partners) can be addressed using private blockchains. The tradeoff between security and transaction speed should be noted. Public blockchains in which parties are anonymous or untrusted will remain slower while private blockchains will enable potentially many more transactions per second.

Bitcoin and “bankchains” can coexist peacefully, despite media narratives painting them as at odds with one another. Much like intranets still exist today, hooking into the public Internet proper, so too will bankchains exist in the future, hooking into the Internet of Money.


Chronicled Raises Seed Round

Chronicled, Inc. recently announced that it has closed a Series Seed financing round, raising an additional $3.4 million. The company is providing authentication and provenance of physical luxury goods on the blockchain, tackling a $1 trillion counterfeiting market. Chronicled is starting off with sneakers but you can imagine the possibilities with Louis Vuitton handbags, expensive wines, classic art pieces, etc. So far, thousands of sneakers have been authenticated, including the recent release of Seattle Seahawks running back Marshawn Lynch’s new sneaker line.
The latest round was led by Mandra Capital, a prominent Hong Kong-based venture capital firm, with participation from New York city based investment firm Colbeck and ourselves. All three investors have participated in previous financing rounds for Chronicled.

21 Launches Micropayments Marketplace

21 has launched the 21 Micropayments Marketplace, enabling developers to trade digital goods for Bitcoin through apps built on the 21 Bitcoin Computer. 21 seeded their marketplace with six apps to showcase what could be built, including a URL Tagger, Social Sentiment Analysis, and Twitter Influence Ranking tools. The company is enabling commerce without the need for bank accounts or government-backed currencies. Hopefully soon a proliferation of new use-cases for Bitcoin will emerge from the Marketplace.

Luddite Comment of the Month

Porsche’s CEO Oliver Blume recently commented that the company doesn’t plan to develop self-driving vehicles. “An iPhone belongs in your pocket, not on the road,” he said. Compare this with GM’s recent acquisition of Cruise Automation for over $1bn.

Let’s see who’s right.

Interesting times,

Dan Morehead

Paul Veradittakit


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