Friday, May 26, 2017

Will the world's 'unbanked' lead cryptocurrency adoption? New research suggests possibly not.

The subject of bitcoin adoption by the world's 'unbanked' has been of interest for some time now to cryptocurrency entrepreneurs thinking about which markets to focus on, policymakers looking to boost financial inclusion, and others.

It has been suggested that those lacking access to a bank account, and the financial system more generally, could drive proportionately greater cryptocurrency adoption over people in advanced economies who already have access to financial services.

My colleague in the Cambridge Centre for Alternative Finance (CCAF), Professor Raghu Rau, presented a new paper this week titled “Law, trust, and the development of crowdfunding”.

In the paper Raghu analyses empirical crowdfunding data collected by the CCAF. Here is the paper's abstract:
I analyze the economic determinants of crowdsourced finance models using a unique hand-collected sample of crowdfunding volume obtained by surveying over 1,300 crowdsourcing platforms in 2015. On the supply side, the quality of the legal system, the level of rents earned by extant intermediaries, and the barriers to entry to formal businesses positively affect volume on crowdfunding platforms. On the demand side, access to the financial system, the sophistication of the user base, and the level of trust individuals have for strangers, all positively affect the volume of crowdfunding. Trust is the only factor that appears consistently significant in explaining the volume on reward- or donation-based platforms.
I've had a chance to read the paper and it is incredibly interesting throughout. Raghu said he'll soon make it publicly available and I'll update this post with a link once it is online. Anyone interested in alternative finance, financial market development, and financial inclusion will want to read it.

One finding that caught my attention was that being unbanked* was negatively correlated with crowdfunding adoption. In other words, markets with more developed financial participation  (generally, advanced economies) are where the greatest amount of crowdfunding activity is taking place.

Now, what does data from crowdfunding adoption have to do with cryptocurrency adoption? 

For one, both are forms of alternative finance, which we define as any new financial instrument, channel or system that emerges outside of traditional financial services (e.g., banks, capital markets, etc). What happens in one area of alternative finance may be relevant to other areas, although this warrants further exploration.

A second reason why this result may matter for cryptocurrency adoption is that this finding lends support to the fact that already possessing a bank account can reduce on-boarding frictions associated with participating in alternative finance. For example, one of the easiest ways to acquire bitcoin is through a cryptocurrency exchange, and transferring funds into a cryptocurrency exchange can be difficult if not impossible without a bank account.

And, of course, there is the fact that someone who already has resources and savings in an existing bank account will likely also have greater financial wherewithal to participate in crowdfunding or adopt cryptocurrency.

Having said all that, one thing that Raghu's paper does not address, and which an earlier paper of mine focused on, is the quality of the financial services available in different countries. 

My paper (downloadable here) suggested that those lacking access to quality financial services, as indicated by data on banking and currency crises, sound monetary policy, cost of cross-border transactions, financial repression, and so on, may be more likely to adopt cryptocurrencies such as bitcoin.

As the regions with relatively low-quality financial services - Sub-Saharan Africa, Latin America, and the former-Soviet countries - are also the same regions with the largest unbanked populations, the question of how likely underbanked regions are to adopt cryptocurrency remains an open question and warrants further empirical research. But certainly one possibility is that it is the already-banked, not the unbanked, within countries with low quality financial services that will be the most likely to adopt cryptocurrencies.

*Note: the term 'unbanked' is represented here by a World Bank measure of the percentage of people in a country that hold an "account at a formal financial institution" such as a "bank, credit union, another financial institution (e.g., cooperative, microfinance institution), or the post office (if applicable) including respondents who reported having a debit card".

Monday, May 22, 2017

Presentation slides with 100+ figures & tables from our 2017 Global Cryptocurrency Benchmarking Study

Note: a PDF version of these slides, which includes high-resolution images of the figures and tables, can be downloaded here (annoyingly, SlideShare downscales the resolution of uploads).

And the full 114-page written report can be downloaded here.

Saturday, April 8, 2017

2017 Global Cryptocurrency Benchmarking Study released

We are very pleased to release our report highlighting findings from the 2017 Global Cryptocurrency Benchmarking Study.  The full report PDF can be downloaded here and a brief article summarising the study can be read here.

114-page report presents findings from the first major empirical research study of the cryptocurrency industry that utilises non-public ‘off-chain’ data. It is based on data gathered from nearly 150 cryptocurrency companies and individual operators in 38 countries, and covers four key industry sectors — exchanges, wallets, payments and mining. 

Study highlights include: 

  • our estimate that between 5.8 million and 11.5 million cryptocurrency wallets are ‘active’ as of today
  • transaction volume from users of the largest wallets generally ranges between 10-25% of total bitcoin transaction volume
  • detailed information about security and compliance practices at cryptocurrency companies 
  • a global map of cryptocurrency mining by country

We hope you find the study findings useful, and as we will be benchmarking the cryptocurrency industry on annual basis we very much welcome your suggestions and feedback.

Tuesday, February 7, 2017

"La revoluciĆ³n del bitcoin"

Full El Mercurio article here

Wednesday, January 18, 2017

Why participate in Cambridge's cryptocurrency and blockchain benchmarking study?

Below is an edited transcript of remarks I delivered at the Bitcoin and Blockchain Leadership Forum meeting on 9 December, 2016.

The Cambridge Centre for Alternative Finance, which is part of the Judge Business School, was started in January 2015. We define alternative finance as any new financial instrument, channel, or system that emerges outside of traditional financial services and capital markets. This includes crowdfunding, peer-to-peer lending, new forms of credit analytics, and the areas I focus on, cryptocurrency and blockchain.

The Centre has approximately ten people working full time; we’re very multidisciplinary, coming from fields such as finance, economics, sociology, geography – we even have a physicist on staff. I started at the centre in early 2016 and I was brought in to build our research program on cryptocurrency and blockchain/distributed ledger technology. Like many of my Centre colleagues, prior to moving to academia I worked in various private sector roles, including technology, investment banking, and start-ups.

In terms of funding, the Centre has raised approximately $3 million to date, primarily from private organisations such as the CME Group Foundation, Visa, KPMG, and other firms. We’re starting to diversify our funding base and seeing more support from government bodies. For example, the UK Financial Conduct Authority recently partnered with us to work on alternative finance research. The funds we have raised help support our teaching at the Judge Business School – we were the first UK university to offer a blockchain course as part of Cambridge’s Masters in Finance – as well as our research.

To date, our primary research outputs have been a series of alternative finance benchmarking studies, which are free to download from our website. They’re empirically driven studies that focus on presenting new data that describes what’s happening in alternative finance. For example, what are the aggregate financial flows? In what sectors and locations are we seeing the most movement? Why has there been so much recent growth in peer-to-peer real estate lending?

This last area is of particular interest to some policymakers and regulators, who have informed us that they do not have much visibility into the real estate lending taking place through alternative finance channels. You may recall that it was a sudden decline in real estate prices, driven in part by changes in the lending environment, that triggered the 2008 financial crisis.

Collecting data helps us to develop and inform research questions, such as what is the relationship between alternative finance activity and economic growth? This question is not only interesting from an academic perspective, it may have significant policy implications. Many policymakers are thinking about how to balance a desire for increasing economic growth with regulating alternative finance, and our research has shaped the policy discussion around this topic.

However, we are not able to address such research questions unless we have strong participation from you in our research surveys.

It’s important to make clear that the data published in our studies is aggregate data, not individual organization data. For example, we show country level data, or sector level data (e.g., data for all wallets, or all exchanges) but never _____ organization’s individual data. We take data privacy and confidentiality very seriously and work hard to ensure that our research does not threaten trade secrets or security in any way.

We are currently running our first global blockchain and cryptocurrency benchmarking study. On the blockchain side we’re looking at permissioned distributed ledgers and non-monetary use cases, such as provenance, as well as public sector blockchains (e.g., central bank digital currency) and what’s happening with distributed ledger technology in U.S. states like Delaware. For cryptocurrencies we’re examining exchanges (specifically security), payments, wallets, and mining.

There are many good reasons for organizations to support this research by completing our surveys. Firms can benefit from the wide exposure these reports receive as we offer all participants the opportunity to have their logo included in the report. This study will also help with the formation of key performance indicators. 

But perhaps the biggest reason for cryptocurrency and blockchain firms to participate in our benchmarking study is that this study can help the industry constructively engage regulators and policymakers. Many regulators are keen to learn more about the alternative finance sector without burdening companies with invasive and time consuming data requests. Benchmarking is a time honoured way to achieve this goal, and participation in this study is a way to signal to the world that the blockchain and cryptocurrency space is maturing.

Thank you for supporting this research by completing our surveysYou can find more information about the study, including a video of my study kickoff presentation at Shanghai Blockchain Week, in a prior blog post here. Please also feel free to get in touch by email if you have any questions. 

-Dr Garrick Hileman, Cambridge Centre for Alternative Finance

Wednesday, December 21, 2016

Thursday, October 27, 2016

Video: Introducing the Cambridge Global Blockchain Benchmarking Study - Links to Surveys Below

This presentation was given at Shanghai Blockchain Week in September 2016. The slides for this presentation can be viewed here and the study's press release here.

Links to currently open surveys can be found on the Cambridge Centre for Alternative Finance's website here.

More information about the Cambridge Centre for Alternative Finance can be found on our website, and past alternative finance benchmarking studies can be freely downloaded here.

Tuesday, August 23, 2016

Thursday, August 4, 2016

Convoco 3.0 blockchain panel - Salzburg, Austria, 30 July

My fellow Convoco blockchain panel members: Bruce Pon, Julie Maupin, Marcella Atzori, Ada Zhao.

Wednesday, June 22, 2016

Statement regarding Andrew O’Hagan’s reporting on Craig Wright and the London School of Economics

In a recent article on Craig Wright and the identity of Satoshi Nakamoto (the pseudonymous creator of bitcoin) in the London Review of Books, Andrew O’Hagan made the following comment about LSE:
"Originally, the plan was for the London School of Economics to host a panel discussion about the evidence and the findings, but someone seems to have blabbed to the Financial Times, which ran an article on 31 March. ‘After nearly four months of silence,’ the FT blogger Izabella Kaminska wrote, ‘and a bitcoin community mostly resigned to the notion that the story was an elaborate hoax – conditional approaches are being made to media and other institutions in connection to an upcoming “big reveal” of Wright as Satoshi Nakamoto.’ Her source was clearly inside the project.”
I am one of a small number of LSE staff actively researching bitcoin and my research involves working with hundreds of individuals and organisations who trust me to confidentially manage information and data. As a result of the comment made by Andrew O’Hagan, I feel that it is necessary for me to make it clear that I had no knowledge of or involvement in any discussions between LSE and Craig Wright (and/or his associates) and no involvement in disclosing anything on this matter to the Financial Times. I only first learnt about any discussions in mid-May.

Thank you for taking time to read my statement on this matter, and please feel free to contact me or LSE External Communications with any questions.

Sincerely, Garrick Hileman