The Bitcoin Business Ecosystem

CRYPTOCURRENCIES MEETING
BUSINESS ECOSYSTEMS: THE

CASE OF BITCOIN
by
Michel Rauchs
Master in International Business (MIB)

Grenoble Ecole de Management
2014-2016
Thesis Submitted in Partial Fulfillment

of the Requirements for the Degree of
Master of Science
In the
Grenoble Graduate School of Business
Michel Rauchs 2016

Fall 2016
Abstract
Bitcoin, a decentralised cryptocurrency system conceived by a mysterious
person or group of people using the pseudonym Satoshi Nakamoto, promises to
revolutionise the way that we think about money and the transfer of value in
general. After a quiet launch in 2009, it has evolved several years later into a
multi-billion dollar industry and has inspired the creation of hundreds of similar
cryptocurrency systems. However, little research has been undertaken so far to
study the vibrant business ecosystems that form around these decentralised
networks. The aim of this project is thus to explore the emergence of the Bitcoin
business ecosystem and its evolving structure using a data-driven approach, and
identify the factors that drive this evolution. For this purpose, a theoretical
market segment framework is developed and applied to a longitudinal dataset of
514 companies and projects that was specifically built for this project. Using a
visualisation approach, the business ecosystem is mapped in terms of the
affiliations of entities to market segments over a time window from 2010-2015 in
order to visually analyse how the structure evolves. The key findings and
observations are presented and several factors influencing the evolution of the
business ecosystem are identified. Finally, the results are discussed in relation to
the existing theory. The project provides the first comprehensive and data-driven
analysis of the Bitcoin business ecosystem and offers interesting insights into its
structure and evolution. Moreover, it contributes to the understanding of the
factors that drive this evolution and provides a unique dataset that can be used
for further research.
Preface
Having been interested for a long time in the inner workings of the
financial system and the concept of money, I came across Bitcoin in early 2015
and was immediately fascinated by the prospect of what a decentralised stateless
currency could achieve. In the middle of the emerging hype around blockchain
technology, I had a lot to catch up with and dove right away into the large
depository of knowledge that had already been formed by the Bitcoin community
and other cryptocurrency advocates. It took me several months to grasp the
basics, and many more to cut through the large amount of smoke grenades and
unsubstantial claims made by consultants and blockchain experts that seemed
to make sense though at first glance. Nevertheless, I slowly realised the beauty
of the system that Satoshi had designed way back when I was still in high school
and was thrilled by the endless possibilities that the network enabled. When the
time came for choosing a topic for my Masters thesis, I saw the opportunity of
spending a whole year full-time on Bitcoin and related systems. After consulting
with my tutor, we decided to focus on the Bitcoin business ecosystem, and I set
out to build a database of bitcoin-related companies and projects. The timeconsuming research process offered me the fantastic possibility to dive into all
sorts of aspects regarding Bitcoin and other cryptocurrencies, to attend
conferences and meet-ups and to connect with a lot of wonderful people. The
result of that year is a dataset of 514 companies and projects over a time window
from 2010-2015, which I plan to make freely available for anyone interested in
using the data for whatever purpose. This is my small contribution to the open-
ii
source community that has taught me many valuable lessons and inspired me to
continue with this path in the future.
I would first like to express my gratitude to Kary Bheemaiah for being the
first to introduce me to Bitcoin, for many interesting follow-up discussions and
for providing valuable advice and assistance. Next, I would like to thank my
tutor Federico Pigni, who helped me guide through the particularities of
academia and suggested to focus the analysis on the ecosystem level. Marco
Tonellato deserves also to get praised for his admirable patience and willingness
to help me getting introduced to network visualisation. Of course, I cannot thank
enough my parents who have always supported me in everything I do. I would
also like to thank the Bitcoin community and all the individuals I had the
pleasure to meet in this space, you did a fantastic job. Moreover, Im grateful for
all the people that have supported me during my journey in one or another way.
Finally, I want to thank Satoshi Nakamoto for designing one of the most
revolutionary systems in the last decades that has the potential to shape the
future in ways we still cannot imagine.
iii
Table of Contents
CHAPTER 1: INTRODUCTION ................................................................................................................. 1
1.1 CONTEXT .................................................................................................................................................................. 1
1.2 DECENTRALISED CRYPTOCURRENCY SYSTEMS .................................................................................................. 2
1.3 RESEARCH PROBLEM .............................................................................................................................................. 2
1.4 STRUCTURE .............................................................................................................................................................. 3
1.5 SIGNIFICANCE .......................................................................................................................................................... 4
CHAPTER 2: BITCOIN ............................................................................................................................... 6
2.1 CONCEPT .................................................................................................................................................................. 6
2.2 MECHANICS ............................................................................................................................................................. 7
2.2.1 How does it work? ........................................................................................................................................... 7
2.2.2 Nakamoto consensus ..................................................................................................................................... 9
2.3 BITCOIN SOFTWARE ............................................................................................................................................. 10
2.3.1 Bitcoin Core ...................................................................................................................................................... 10
2.3.2 Core developers .............................................................................................................................................. 11
2.3.3 Developer funding ......................................................................................................................................... 12
2.4 VALUE PROPOSITION(S) ...................................................................................................................................... 12
2.4.1 Decentralised digital cash ......................................................................................................................... 13
2.4.2 P2P payment network ................................................................................................................................. 14
2.4.3 New asset class ............................................................................................................................................... 15
2.4.4 Immutable time-stamped file system .................................................................................................... 15
2.4.5 Implications ..................................................................................................................................................... 16
CHAPTER 3: LITERATURE REVIEW ................................................................................................... 18
3.1 BUSINESS ECOSYSTEMS ........................................................................................................................................ 18
3.1.1 Concept .............................................................................................................................................................. 18
3.1.2 Definition and characteristics ................................................................................................................. 19
3.1.3 Technology platforms .................................................................................................................................. 20
3.2 ECOSYSTEM TRAJECTORIES ................................................................................................................................. 23
3.2.1 Factors ................................................................................................................................................................ 23
3.2.2 Frameworks and approaches ................................................................................................................... 24
3.3 BITCOIN AND CRYPTOCURRENCIES .................................................................................................................... 26
3.4 RESEARCH GAP ...................................................................................................................................................... 28
CHAPTER 4: METHODOLOGY .............................................................................................................. 30
4.1 BOUNDARY SPECIFICATION ................................................................................................................................. 30
4.1.1 The Bitcoin ecosystem ................................................................................................................................. 30
4.1.2 The Bitcoin business ecosystem ............................................................................................................... 33
4.2 DATA COLLECTION ............................................................................................................................................... 35
4.2.1 Identification of relevant entities ........................................................................................................... 35
4.2.2 Type of data collected .................................................................................................................................. 36
4.2.3 Data sources .................................................................................................................................................... 37
4.2.4 Resulting dataset ........................................................................................................................................... 38
4.3 MARKET SEGMENT FRAMEWORK ...................................................................................................................... 38
4.3.1 Categories of subindustries ....................................................................................................................... 38
4.3.2 Development of framework ...................................................................................................................... 39
4.3.3 Framework ....................................................................................................................................................... 40
4.4 DESIGN .................................................................................................................................................................... 43
4.4.1 Visualisation approach ............................................................................................................................... 43
4.4.2 Computation of network graphs ............................................................................................................. 44
iv
CHAPTER 5: FINDINGS ........................................................................................................................... 47

5.1 SUMMARY STATISTICS ......................................................................................................................................... 47
5.2 NETWORK VISUALISATION .................................................................................................................................. 48
5.2.1 Bitcoin business ecosystem 2010 ............................................................................................................ 49
5.3 KEY FINDINGS ........................................................................................................................................................ 64
5.3.1 Diversity ............................................................................................................................................................. 64
5.3.2 Diversification ................................................................................................................................................. 67
5.3.3 Funding patterns ........................................................................................................................................... 70
5.3.4 Entries and exits ............................................................................................................................................. 73
5.3.5 M&A, pivots and rebranding ..................................................................................................................... 76
CHAPTER 6: ANALYSIS AND DISCUSSION ........................................................................................ 80
6.1 ANALYSIS ................................................................................................................................................................ 80
6.1.1 Factors driving the emergence and evolution of market segments ........................................ 80
6.2 FACTORS IMPACTING THE EVOLUTION OF THE OVERALL ECOSYSTEM ........................................................ 86
6.2.1 Regulatory uncertainty ............................................................................................................................... 86
6.2.2 Public perception ........................................................................................................................................... 87
6.2.3 Dependence on market price .................................................................................................................... 88
6.2.4 Changes in organisational firm structure .......................................................................................... 90
6.2.5 Environmental dynamics ........................................................................................................................... 91
6.2.6 Competing ecosystems ................................................................................................................................ 92
6.3 DISCUSSION ............................................................................................................................................................ 93
CHAPTER 7: CONCLUSION .................................................................................................................... 98
7.1 SUMMARY ............................................................................................................................................................... 98
7.2 IMPLICATIONS .................................................................................................................................................... 100
7.2.1 Theoretical implications: ........................................................................................................................ 100
7.2.2 Managerial implications ......................................................................................................................... 101
7.3 LIMITATIONS AND FUTURE RESEARCH .......................................................................................................... 102
7.3.1 Limitations .................................................................................................................................................... 102
7.3.2 Future research ........................................................................................................................................... 103
BIBLIOGRAPHY: ................................................................................................... 104
APPENDIX A: MARKET SEGMENT EMERGENCE AND EVOLUTION ............ 118
APPENDIX B: SUB-GRAPH FIGURE 2013 ............................................................... 120
APPENDIX C: SUB-GRAPH FIGURE 2014 ............................................................... 121
APPENDIX D: SUB-GRAPH FIGURE 2015 ............................................................... 122
Chapter 1: Introduction
1.1 Context
In the aftermath of the financial crisis of 2007/2008 and the subsequent
economic recession, many have voiced critics and concerns about the state of the
financial system, which was in large parts responsible for the financial and
economic downturn. As a result, new start-ups have popped up that apply
technology to traditional financial services and unbundle the offerings of
traditional banking. This has led to the emergence of the so-called FinTech
(Financial Technology) ecosystem, an alternative within the traditional financial
services industry that offers complementary services and/or disrupt existing
processes in fields ranging from insurance and everyday banking to wealth
management and capital raising. Especially the traditional value transfer
system, which is built on automated clearing houses and intermediary banks, is
prone to rapid changes with the emergence of alternative payment schemes.
While most new entrants focus on improving the customer and merchant
experience and leaving the underlying payments infrastructure undisrupted
(WEF, 2015: p.28), there is a variety of nascent non-traditional payment
schemes (WEF, 2015: p.43) that rely on alternative infrastructure to deliver
payments.
1.2 Decentralised cryptocurrency systems

Within the growing FinTech ecosystem, a new subsystem of decentralised
virtual currency schemes (ECB, 2012) has emerged that enable alternative
payment channels and instruments outside of the traditional financial system
and legacy infrastructure. A unique feature of these systems is the creation of an
internal token system fuelling the integrated payment network, whose units can
be used as digital currency or money. Unlike other virtual currencies, however,
there is no central authority issuing the currency and verifying transactions.
Instead, this is all accomplished by a clever combination of a P2P (peer-to-peer)
network, cryptography and economic incentive structures that encourage honest
behaviour. As a result, there is no formal platform owner or dominator, a
necessary requirement for a system enabling a decentralised digital currency.
These systems are based on open-source software and usually assemble a diverse
community of developers, entrepreneurs and other stakeholders who jointly
maintain
and
develop
the
core
platform,
upon
which
complementary
infrastructure, applications, products and services are built. As a consequence,

there are entire business ecosystems that emerge around these decentralised
platforms.
1.3 Research problem

However, little is known so far about the characteristics and evolution of
the business ecosystems forming around decentralised cryptocurrency systems.
We believe the evolutionary trajectories to be different from other digital
2
business ecosystems due to the unique nature of their value propositions and the
absence of a platform owner or dominator. They effectively constitute a new type
of platform-based business ecosystems that have not yet been thoroughly studied
in the literature. To fill this gap, this study attempts to explore how an entire
business ecosystem is emerging around such platforms, how its structure is
evolving over time and what factors drive this evolution. For this purpose, we
focus the study on Bitcoin, the first and largest of these decentralised
cryptocurrency systems. Bitcoin, first described in 2008 and launched in January
2009, has attracted a large and thriving ecosystem of entrepreneurs, developers
and users around its platform since its inception and remains the most popular
decentralised cryptocurrency system.
1.4 Structure
The remainder of the paper is organised as follows. In Chapter 2, we
describe the concept and mechanics of Bitcoin and give further reading advice.
We then discuss the value propositions that the Bitcoin platform offers and how
they differ from traditional financial services platforms. Chapter 3 introduces
the concept of business ecosystems and presents an overview of the literature
regarding business ecosystems, technology platforms and their evolutionary
trajectories before addressing the research gap. Chapter 4 defines the boundaries
of the study, describes the data collection process and introduces a theoretical
framework that groups the diverse product and service offerings into market
segments. Subsequently, the methodology used for transforming the raw data
into bipartite network graphs is depicted. In Chapter 5, the key statistics of the
dataset analysis are summarised, the resulting network graphs from 2010-2015
are presented and briefly commented, and the key findings, observations and
trends are highlighted. Chapter 6 attempts to determine the factors that drive
this evolution and have an influence on the overall business ecosystem. The
findings are then discussed and being related to the existing theory. In Chapter
7, the implications and limitations of the study are presented and exciting new
research avenues are suggested.
1.5 Significance
We believe that this study contributes to the understanding of the
emergence and evolution of platform-based business ecosystems in general, and
specifically to business ecosystems forming around decentralised cryptocurrency
systems, which offer a unique value proposition that touches a fundamental
concept of human society and civilisation - money. To our knowledge, this is the
first comprehensive study on the Bitcoin business ecosystem, based on a unique
longitudinal dataset specifically built for the purpose of this project. Bitcoin
represents one of the most exciting revolutions in technology and money in
recent decades, and we consider it to be worthwhile studying the economic
community that has formed around this system, which exhibits a market
capitalisation of over $9 billion1 as of August 2016.
Retrieved from: https://coinmarketcap.com/ [Accessed: August 30, 2016].

4
The findings can help entrepreneurs and investors get a better

understanding of the Bitcoin business ecosystem structure and its evolutionary
patterns to identify interesting business opportunities. Furthermore, the
analysis of the driving factors influencing the business ecosystem may be of
interest to regulators and government agencies in their attempt to create a
coherent regulatory and legal environment that does not stifle innovation.
Finally, academics can use the theoretical framework and apply it to other
decentralised cryptocurrency systems to test its validity. Similarly, they can use
the freely available dataset for undertaking further research on the Bitcoin
business ecosystem.
Chapter 2: Bitcoin
2.1 Concept
Bitcoin was first described in October 2008 in a self-published white paper
on a cryptographic mailing list by an anonymous person or group of people under
the name of Satoshi Nakamoto. The founder(s) described it as a system
enabling a purely peer-to-peer version of electronic cash that allows two parties
to send online payments to each other without having to go through a centralised
institution (Nakamoto, 2008: p.1). The European Central Bank (2015: p.25)
refers to Bitcoin as the first decentralised virtual currency scheme2, a term
that includes both the underlying value transfer system (payment network) as
well as the native token or currency (bitcoin3) needed to fuel the system. Bitcoin
thus is a new form of currency (Ali, Barrdear, Clews & Southgate, 2014b:
p.276) combined with an innovative payment system that together provide a
censorship-resistant because decentralised way of sending online payments
without having to rely on a central authority. Given the complexities of the
different components that act together to make the system work, we tend to
favour the definition of Bitcoin as a collection of concepts and technologies that
form the basis of a digital money ecosystem (Antonopoulos, 2015: p.1).
The Bank of England uses the term digital currency schemes and defines it as a combination
of new decentralised payment systems and new currencies. (Ali, Barrdear, Clews & Southgate,
2014a).
3 Bitcoin with uppercase B generally refers to the protocol and system, while bitcoin with
lowercase b refers to the currency unit.
2
Indeed, Bitcoin draws upon on a combination of concepts from various disciplines

ranging from cryptography (among others public key cryptography, digital
signatures and cryptographic hash functions4) to economics (game-theoretic
analyses of incentive structures and monetary theory) and P2P networking. The
Bitcoin system consists of a P2P network allowing participants to connect to and
communicate with each other, a protocol that sets the rules of the network and
the consensus mechanism, and a distributed ledger called the blockchain that
records all transactions happening in the network and that is shared among all
participants.
2.2 Mechanics
There are a number of excellent books and articles exploring the inner
workings of the Bitcoin network in detail for a more technical (Antonopoulos,
2015; Bonneau et al., 2015) as well as non-technical audience (Bhme, Christin,
Edelman & Moore, 2015, Narayanan, Bonneau, Felten, Miller & Goldfeder,
2016). Therefore, we are only going to briefly describe the basic functioning of the
system.
2.2.1 How does it work?

When a user wants to initiate a transaction, he digitally signs with his
private key a message referencing the unspent transaction outputs (UTXO) from
A cryptographic hash function is a mathematical algorithm that transforms an input of
arbitrary size (called the message) into a bit-string of fixed size (called a hash or digest). It is a
one-way function in the sense that it is trivial to compute the same output given the input, but
infeasible to determine the input given the output.
4
a previous transaction that he wants to spend, and indicates the recipients

public address and the amount of value that shall be transferred. The
combination of public and private key acts as a unique identifier of users and
removes the need for a central authority to assign accounts and identities. This
transaction is then broadcasted and propagated via the P2P network to all full
nodes. In order to compensate for the absence of a central authority to prevent
double-spends, all full nodes keep a complete copy of the global ledger so that
they can independently verify that the funds have not yet been spent.
Special nodes called miners then take this unconfirmed transaction and
group it together with other unconfirmed transactions in a candidate block. The
miners, competing with each other to produce the next valid block, engage in a
computational race contest that consists essentially of finding a special number
called nonce that produces a hash value that is below a predefined threshold.
The miner who manages to first solve the puzzle immediately submits the
block including the proof-of-work (PoW) to the rest of network, which accepts the
block as valid if it meets the requirements. All miners then begin searching for a
new block that will reference the previously found valid block. As a result, a new
data structure - the blockchain - is created consisting of a chain of
cryptographically linked blocks. The cryptographic puzzle that miners most solve
is designed in a way that on average, every ten minutes a block is found.
In some cases, two or more different miners may find a valid block at
approximately the same time, which causes the blockchain to split into two or
more forks. This situation, however, is usually quickly resolved after a few blocks
since the longest chain, i.e. the chain containing the largest amount of
computational power5 is considered to be the valid one. Full nodes on the

network thus maintain a shared state of the global ledger that everybody agrees
upon by independently re-computing the whole history of transactions starting
from the genesis block, the first block mined to launch the network.
Miners are incentivised to provide costly resources by being rewarded with
a specific amount of newly minted bitcoins in addition to the transaction fees in
case they find a valid block that gets accepted by the network. This solution
ensures that the issuance of new tokens and the verification of transactions can
take place in a decentralised way without a central party overseeing the process.
2.2.2 Nakamoto consensus

The core innovation of Bitcoin is not the novel data structure of chained
blocks, but the so-called Nakamoto Consensus that ensures mutually untrusted
parties to reach consensus over the state of the Bitcoin blockchain. It is seen as
an elegant circumvention of the Byzantine Generals problem6 in computer
science through the use of a clever economic incentive structure. The consensus
protocol incentivises miners to behave honestly by making it more profitable for
miners to play by the rules [] than to undermine the system and the validity of
[their] own wealth (Nakamoto, 2008: p.4). This incentive compatibility property
(Bonneau et al., 2015: p.110) states that the system will be stable as long as the
majority of miners follow their own economic interest, which is to maximise
revenues. Hence, an attacker with the majority of hashing power will in theory
Corresponds usually to the chain with the most blocks, but not always.
A problem first described in 1982 by Lamport, Shostak and Pease, that deals with the
challenges of achieving consensus in a distributed computer system in which participants do not
trust each other.
5
6
be more inclined not to abuse his power to double-spend his own payment and
thereby destroying the value of the system, but rather use his dominant position
to mine a large amount of bitcoins and make a profit.
2.3 Bitcoin software

2.3.1 Bitcoin Core
Bitcoin Core is the reference client for the Bitcoin network and specifies the
rules of the protocol. It is based on the original software written and released to
the public by Satoshi Nakamoto in January 2009 under the MIT license. Since
Bitcoin Core is free and open-source software (FOSS), anyone can submit
changes via "pull requests" to the source code, or directly fork the project that is
hosted on GitHub7. As a result, there are several alternative client
implementations and hundreds of forks that have become altcoins, with the
majority being mere copies of Bitcoin that only alter some parameters8. As
Bhme et al. (2015: p.219) put it, Bitcoin lacks a governance structure other
than its underlying software. However, since there is no formal protocol
specification other than the implementation by the reference client, and the
latter remains the most widely used Bitcoin software, all alternative client
implementations must closely follow the rule-defining aspects of the Bitcoin Core
software to ensure compatibility with the Bitcoin network and avoid forking the
blockchain.
Available at: https://github.com/bitcoin/bitcoin.
There are also a number of altcoins that are not simple copies from the Bitcoin source code, but
written from scratch with in some cases very different properties. An example is the privacyfocused cryptocurrency Monero.
7
8
10
2.3.2 Core developers

When the anonymous founder Satoshi Nakamoto surprisingly disappeared
in mid-2010, he handed over the commit access to the GitHub repository to
Gavin Andresen. Since then, hundreds of volunteering developers have
contributed to the maintenance, development and review of the source code, but
only a small number of developers have direct commit access. Over time, these
developers have become known under the term core developers, although they
are rather a group of loosely connected individuals than a united developer team.
This is shown by the fact that they first met in person in May 2013 at a Bitcoin
conference in Silicon Valley (Popper, 2015a: p.214-215). There is no formal
governance structure (Bonneau et al., 2015), but there are mechanisms such as
the Bitcoin Improvement Proposal (BIP) process among others to suggest formal
proposals to make substantial changes to the protocol that are discussed within
the community. While the core developers in theory have the ultimate power of
decision, in practice they have to consider the views of the wider community if
they do not want to risk a hard fork in case the community does not approve
their actions. With the recent block size debate, a number of alternative clients
altering some fundamental parts of the protocol have emerged, but none of them
so far has managed to receive substantial support, cementing Bitcoin Cores
position as the indisputable market leader. Nevertheless, there have been
increased efforts to develop a more open and consistent communication policy by
the lead developers to avoid a similar situation in the future.
11
2.3.3 Developer funding

The protocol development has first been done on a voluntary basis in the
first years and contributors were dependent on donations from other
participants. In 2012, the non-profit Bitcoin Foundation was founded to fund
some of the core developers by raising donations of participating firms of the
Bitcoin ecosystem. However, with the foundation getting into trouble and
heading towards bankruptcy, the MIT Media Labs Digital Currency Initiative
began paying the salaries of three core developers funded by corporate
sponsorship (Van Wirdum, 2015). In addition, the private venture capital (VC)funded company Blockstream was founded to employ a number of core developers
to work full-time on the software maintenance and development of additional
functionalities.
2.4 Value proposition(s)

Since Bitcoin does not rely on a trusted central authority, it exhibits two
key properties that constitute the foundation of its value proposition: censorshipresistance in the sense that nobody can prevent someone from participating in
the network and effectively censoring specific transactions; and the irreversibility
of transactions which ensures that once a transaction has been validated and
sufficiently confirmed9, it cannot be reversed. The Bitcoin network is thus
It is generally assumed that a transaction that received six or more confirmations (i.e. six or
more blocks have been mined on top of the block containing the transaction and accepted by the
network) is safe from being reversed.
9
12
considered to be neutral, which enables a value proposition that can essentially

be broken down into four parts.
2.4.1 Decentralised digital cash

The native tokens10 rewarded to miners for finding valid blocks can be used
as digital cash. The novelty about this digital cash is that it is not issued by a
central authority and the transactions are not validated by a trusted third party,
which makes it censorship-resistant because of the systems decentralised
nature. As a non-sovereign and stateless currency, it is not subject to monetary
policy determined by a central bank and thus the risk of being inflated, but has a
clear inflation schedule defined by the protocol itself that states that there will
only ever be a maximum of 21 million bitcoins11.
Moreover, its global and borderless nature removes the need for exchanging
currency at each border, and makes it an excellent choice for online purchases
since it can be considered to be a native currency to the Internet, reducing
friction for e-commerce. In addition to enabling merchants to reach a wider
audience, the irreversibility of transactions eliminate the risk of chargebacks.
The fact that ownership of a bitcoin is determined by the possession of the
private key encourages users to be [their] own bank12 and avoid the necessity
to trust intermediaries and third parties with their money. This also removes the
In fact, there are no tokens that live on the blockchain, but so-called unspent transaction
outputs (UTXOs), which are essentially entries in the global ledger that are locked in a special
script tied to a specific public key. However, for the sake of simplicity, we do not go into further
detail in this study and use the term digital token as synonym for UTXO throughout the paper.
11 In theory, however, this limit could be lifted via a soft or hard fork, although this would require
overwhelming social consensus, which is very unlikely to happen.
12 The phrase Be your own bank has been a popular slogan to highlight the benefits of Bitcoin
for empowering users by eliminating the need for intermediaries and the reliance on third
parties.
10
13
need for users to identify themselves with personal information and adds a
certain degree of anonymity.13 Finally, bitcoins can serve as a way of improving
financial inclusion for the unbanked and let them participate in the global
economy by providing them with an alternative bank account.
2.4.2 P2P payment network

The Bitcoin network has also an integrated payment system that
propagates and verifies transactions in a P2P fashion and records validated
transactions in the global ledger. It can be used as a cheap and rapid way to
transfer funds from one part of the world to another: on average, a transaction
with sufficient fees will be included in a block within ten minutes, which
drastically improves on traditional bank transfers, and provides near-instant
settlement. Since the launch of the Bitcoin network in January 2009 with the
mining of the genesis block14, the transaction fees have been consistently low
because they get subsidised by the issuance of new currency units for each new
valid block that is found.15 The P2P structure of the network makes it more
robust and resilient because there is no single point of failure: it operates 24/7,
365 days a year, and does not have bank holidays. An additional important
feature is that the use of public key cryptography removes the need for
However, Bitcoin is more accurately described as pseudonymous, because the public nature of
the global ledger recording every transaction that ever occurred often enables to link public
addresses to user identities (Reid & Harrigan, 2013)
14 The genesis block constitutes the first block in a blockchain and is usually hardcoded into the
software.
15 Hence, Bitcoin carries the promise of very low transaction fees, which so far has been proven
true. However, with the amount of newly generated coins per block being halved approximately
every four years, they are expected to increase over time (Ali et al., 2014b).
13
14
confidential data such as personal identity information and credit card numbers
to be stored on insecure servers.
2.4.3 New asset class

As the worlds first digital bearer asset, bitcoin is often termed digital gold
in allusion to the common properties it shares with gold. Both have a fixed
supply and are thus scarce, which makes them a priori a good store of value. In
certain aspects, bitcoin even improves on gold: it can be transferred worldwide in
a very short time at almost no cost, it is a lot cheaper and easier to store, and it
is more easily divisible than gold. As a result, bitcoin is considered to be the first
of its kind of a new asset class (Burniske & White, 2016) that provides
considerable return and diversification benefits to any portfolio thanks to its
almost non-existent correlation to other major asset classes (Brire, Oosterlink &
Szafarz, 2013; Burniske & White, 2016). Hence, bitcoin can also constitute a
speculative digital asset and alternative investment vehicle.
2.4.4 Immutable time-stamped file system

Thanks to its censorship-resistance and the ability to encode specific
metadata in transactions, Bitcoin can be used as a global append-only data store
that enables the creation of non-currency applications16. These can include
among others proving the existence and authenticity of data at a certain point in
time by adding timestamped hashes of the data to bitcoin transactions, which
For the rest of this paper, the term non-currency (or non-monetary) applications will be used to
determine the specific use cases that relate to this aspect of Bitcoins value proposition.
16
15
can easily be verified by any interested party that has access to the original data.
Similarly, particular states from other databases or data layers can periodically
be hashed and anchored in the Bitcoin blockchain for accountability and
verification purposes, enabling to determine the last valid version of a specific
state. Another possibility is to add specific metadata to bitcoin transactions
either via the OP_RETURN opcode or directly encoded in transaction outputs
that add secondary meaning that can be understood by clients of a meta-protocol.
These specially formatted bitcoin transactions enable the creation of an overlay
network on top of Bitcoin. The meta-protocol specifying the overlay network will
benefit from Bitcoins security while at the same time enable new functionalities
that would not be possible on the base layer, thereby opening up endless
possibilities for the creation of new complex systems and applications.
2.4.5 Implications
The three first aspects enable what can be called currency or monetary
applications. These refer to Bitcoin as a new and unique way of creating,
holding, storing, and transferring money on the Internet17. In contrast, the
fourth aspect enables non-currency or non-monetary applications that go beyond
the concept of money and use Bitcoin as a distributed immutable data store.
Interestingly, the latter use case has only been discovered after the network had
already been running for years.
Money over IP: Tweet from Roger Ver (2012, May 24). Retrieved from:
https://twitter.com/rogerkver/status/205622508089647104
17
16
Although currently all four aspects are possible and also being actively
used, there are some considerations regarding the scaling of the system and the
compatibility of the four facets. While both currency and non-currency
applications generally can co-exist together, an increased use of Bitcoin as a data
store in the future might bloat the blockchain and add to scalability issues.
However, this is similarly true for Bitcoin being increasingly used as a payment
network: the arbitrary 1 MB (megabyte) block size limit is considered too small
to accommodate a significant surge in transactions. This has resulted in a fierce
debate within the community over whether the block size should be increased or
not. In addition, there is a conflict between the aspects described in section 2.4.1
and 2.4.3: the deflationary nature of Bitcoin encourages the hoarding of bitcoins
rather than the use as a medium of exchange, which poses major impediments to
it being used as a currency.
17
Chapter 3: Literature Review

3.1 Business ecosystems
3.1.1 Concept
The concept of business ecosystems has emerged in the early 90s (Moore,
1993) to provide a more comprehensive framework to analyse economic
communities composed of interconnected organisations (Basole, 2011). It is
similar to the concept of value networks (Allee, 2000; Peppard & Rylander,
2006), but differs in that it takes a systems perspective to take into account the
whole ecosystem instead of taking the perspective of a focal firm. It has been
examined from various perspectives (Muegge, 2011) and draws upon a variety of
different analogies which all emphasise different aspects of an ecosystem
(Peltoniemi and Vuori, 2004). The most common analogy is a metaphor derived
from the concept of biological ecosystems in which a diverse set of species
occupy specific roles in a particular environment and form a complex network
of symbiotic relationships that ensure the stability and robustness of said
ecosystem. Both types of ecosystems consist of a large number of loosely
interconnected participants that share the same fate due to their reciprocal
dependence on each other (Iansiti and Levien, 2004: p.8). Business ecosystems
share some fundamental properties with natural ecosystems in the sense that
both are complex adaptive systems that follow specific laws (Lewin and Regine,
1999: p.198-199). Business ecosystems also display key phenomenas that are
observed
in
nature,
such
as
competition,
18
specialisation,
co-operation,
exploitation, learning and growth (Rothschild, 1990). However, the main

differences between the two concepts are the ability of business ecosystem
members to make conscious decisions (Moore, 1996: p.18), the competition over
possible new members and the focus on delivering innovation rather than purely
survival (Iansiti and Levien, 2004).
3.1.2 Definition and characteristics

Moore (1998: p.168) defines a business ecosystem as an extended system of
mutually supportive organisations that include companies as well as customers,
suppliers and other stakeholders ranging from governmental institutions and
trade associations to labour unions and universities. According to Peltoniemi
(2006: p.12), a business ecosystem is a dynamic structure that evolves and
develops in time, and in which a population of organisations influence each
other (Peltoniemi and Vuori, 2004: p.13). It can also be thought of a network of
interdependent niches that are populated by organisations (Moore, 2006: p.34).
The principal distinctive feature is the interconnectedness of the ecosystem
members, which entails that changes in the landscape of one firm provoke
changes in the landscape of other participant companies (Lewin and Regine,
1999: p.207).
Key characteristics of business ecosystems include the notions of coevolution, self-organisation and emergence, which help it to adapt to changes in
the external environment (Peltoniemi and Vuori: 2004). Smith and Stacey (1997)
describe emergence as a process emerging from interconnected actors in which
actions from individual actors can lead to unexpected and unpredictable
19
outcomes at the ecosystem level. Competition and cooperation in an ecosystem

are
two
complementary
forces
in
the
interactions
between
ecosystem
participants (Iansiti and Levien, 2004: p.35; Merry, 1995: p.175). This
interconnectedness leads to feedback loops on the micro-level, which coupled
with conscious choices made by firms based on limited knowledge result in
unanticipated
outcomes
at
the
macro-level
(Peltoniemi,
2006:
p.18).
Collaboration between members (Moore, 2006) is a fundamental characteristic,

especially in high-growth, technology-intensive industries (Chesbrough, 2006).
Iansiti and Levien (2004) consider fragmentation within the ecosystem itself to
be a feature. Hearn and Pace (2006) underline the shifts in the conceptualisation
of value creation and speak of value-creating ecologies in which the customers
become co-creators of value.
3.1.3 Technology platforms

In recent years, a growing number of researchers has focused on the role of
technology platforms in building a business ecosystem. In this paper, we are
focusing on the business ecosystem concept as an industry structure anchored
around a technology platform (Muegge, 2011: p.7). Tiwani, Konsynski and Bush
(2010: p.675-677) note that the emergence of software-based platforms has led to
the rise of platform-centric ecosystems, which are a collection of the platform
and the modules connected to it.
Platforms generally are multi-sided markets that bring together two or
more distinct but interacting sides. (Armstrong, 2006; Rochet & Tirole, 2003):
the platform is only of value for one side if the other side is also present, which
20
makes the platform subject to network effects (Gawer, 2009a: p.2). Evans (2009)
shows that multi-sided platforms need to attract enough users on each side in
order to achieve sustainable growth and create enough value for each group of
users.
Gawer and Cusumano (2014) distinguish between internal or companyspecific platforms and external or industry-wide platforms. Industry platforms
are products, services, or technologies developed by one or more firms which
constitute building blocks serving as foundation upon which other firms can
create complementary products, services and technologies (Gawer, 2009b: p.54).
These complementary assets refer to what Amit and Zott (2001) call
"complementarities". Baldwin and Woodard (2009: p.19) argue that all platforms
are fundamentally composed of a set of core components that are stable and
rarely change, a complementary set of peripheral components that are variable
and can be changed, as well as the interfaces between them. This allows a
platform and its surrounding services and applications to continually evolve
without having to fundamentally change the building blocks. Industry platforms
thus tend to get more valuable the more innovation is happening on the
complements (Gawer, 2009b). Similarly, Suarez and Cusumano (2009) highlight
the important role that services play in a platform-based ecosystem in the
creation of indirect network effects, value added and customer experience.
Most research has concentrated on ecosystems based on platforms that are
owned, controlled and/or dominated by a single company or a small set of
companies that are referred to as platform leaders (Gawer & Cusumano, 2002,
2008) or keystone firms (Iansiti & Levien, 2004). Boudreau and Hagiu (2009)
21
compare the leaders of such multi-sided platforms to public interest regulators

and highlight their regulatory role in the governance of the platform. Schilling
(2009) discusses the trade-offs for platform leaders between opening up and
protecting their technology platform, and Eisenmann, Parker and Van Alstyne
(2009) provide a set of strategies serving as guidelines for managers to decide
whether to open or close mature platforms.
However, with the rise of open-source software (Raymond, 1999) new
dynamics emerge in an environment where there is no formal platform or
ecosystem leader, but an open community governing the ecosystem. Muegge
(2011) separates the business ecosystem from the developer community to
analyse community-driven platforms, and argues that the meritocratic developer
community is the locus of value creation while the business ecosystem is the
locus of innovation commercialisation and value capture, with the platform
sitting
in
between
(Muegge,
2011:
p.5).
Some
papers
focus
on
the
commercialisation of open-source software (Morgan, Feller & Finnegan, 2013)

and the economic motives behind companies contributing to open-source projects
(Riehle, 2007). Most research deals with the advantages and disadvantages of
open-source and proprietary software business models (Helander & Rissanen,
2005; Krishnamurthy, 2005).
22
3.2 Ecosystem trajectories

3.2.1 Factors
Mkinen and Dedehayir (2012) review the literature to determine the most
common factors influencing the evolution of platform-based business ecosystems.
They can be divided into exogenous factors (changes in social and economic
environments, technological changes and competing ecosystems) and endogenous
factors (platform architecture and governance, co-evolutionary processes).
Similarly, Tiwani et al. (2010: p.675) assume that the co-evolution of the design,
governance and environmental dynamics have an effect on the evolution of an
ecosystem. Iansiti and Levien (2004) assert that productivity, robustness and the
ability to create niches are the main success factors of business ecosystems. The
diversity of organisations within an ecosystem adds to the platform functionality
and resilience (Iansiti and Richards, 2006). Heikkil and Kuivaniemi (2012)
suggest to consider the clockspeed of six different sub-ecosystems (technological
change, research insights, changes in customer demands, competition/coopetition, social environment, and legal and policy environment) to analyse the
expansion of a business ecosystem. Um, Yoo and Wattal (2015) observe that the
changing combination of existing digital components is a driving factor in the
change of the topological structure of a digital ecosystem. Liu, Kauffman and Ma
(2015) report that competition, cooperation and regulation have jointly shaped
the evolution of the mobile payments technology ecosystem and illustrate each
factor with key events. They make the difference between innovation-spurring
23
and innovation-stalling competition, and analyse the role of regulatory force in

either accelerating or delaying innovation.
3.2.2 Frameworks and approaches

Although there exists a variety of theoretical frameworks to model and analyse a
particular business ecosystem in depth (Tian et al., 2008, Battistella, Colucci, De
Toni & Nonino, 2013; Rong, Hu, Lin, Shi & Guo, 2015), there is a lack of models
to specifically study the evolution of business ecosystems.
Moore (1993) presents a 4-stages framework for the lifecycle of a business
ecosystem: At the birth phase, firms are busy defining the new value proposition
around a new seed innovation. At the expansion phase, companies scale up and
attempt to get maximum market coverage, while at the leadership stage, the
ecosystem reaches stability and high profitability. At the final phase, rising new
ecosystems and innovations threaten the existing ecosystem structure and force
it to either renew itself or to die. Moore (2006) also suggests a framework to
assess the funding patterns in four stages of maturity of an ecosystem. The first
stage is characterised by highly chaotic behaviour and funding provided mainly
by the founders themselves. At the second stage, companies have defined their
value proposition and need growth capital to expand. At the third stage, private
investors have typically exited when centrally positioned firms with strong
economies of scale become very profitable. At the final stage, growth is slowing
down: companies attempt to increase their share of the total ecosystem profits at
the expense of other firms, and there are cases of market power abuse and
consolidation. However, both of these frameworks do mainly apply to more
24
traditional
brick-and-mortar
business
ecosystems
and
less
to
software
ecosystems.
Adomavicius, Bockstedt, Gupta & Kauffman. (2008) propose a model to
understand the role of technological change in the evolution of technology
ecosystems. They define 3 specific roles that technology can play in an ecosystem
(component role, product and application role as well as the support and
infrastructure role), whose complex interactions and interplays shape the
evolution of the ecosystem. Another model for determining the technological
change driving the ecosystem evolution includes the clockspeed measure
(Mkinen and Dedehayir, 2013), an approach that takes into consideration the
dynamics of the various subindustries that are essential for the provision of
services in the main business ecosystem. Jansen (2014) proposes a framework to
measure the health of open-source ecosystems, which, however, is more focused
on the developer community than on the economic actors.
Given the lack of sound analytical frameworks, the evolution of an
ecosystem has often been studied by analysing the inter-firm relationships in a
specific ecosystem to depict the dynamics of the underlying structure (Iyer, Lee
& Venkatram, 2006; Basole & Karla, 2011) and explain changes in the network
structure with changes of strategic positions and roles of focal firms (Iyer et al.,
2006). Similarly, Iansiti and Leviens (2004) framework of the four roles that
exist in a business ecosystem could in theory be used to describe the evolution of
the ecosystem structure by analysing the changing roles of a focal firm.
25
3.3 Bitcoin and cryptocurrencies

Academic publications containing the keyword Bitcoin have increased
exponentially since 2011 (Brenig, Schwarz & Rckeshuser, 2016: p.10),
demonstrating a growing interest from researchers in the economic, legal and
technical aspects of the cryptocurrency system. In a systematic literature review
analysing cryptocurrencies and Bitcoin from an information system (IS)
perspective, Morisse (2015) finds that the vast majority of papers relate to
Bitcoin, and that research focuses on 3 different layers: protocol, network and
ecosystem.
Various researchers have identified potential attack vectors against the
system and its incentive structures (Kroll, Davey & Felten, 2013), showing that
in theory an attack could be successfully executed with less than 51% of hashing
power (Eyal & Sirer, 2014) and highlighting miner strategies for profit
maximisation (Eyal, 2015; Sapirshtein, Sompolinsky & Zohar, 2016). In practice,
however, none of these attacks has been formally documented so far, which
suggests that the systems incentive design is working as intended. A variety of
papers also thoroughly analyse network properties and offer suggestions for
improving various parts of the system (Barber, Boyen, Shi & Uzun, 2012; Decker
& Wattenhofer, 2013; Gervais, Karame, Capkun & Capkun, 2014). Other papers
have analysed the transaction flows in the Bitcoin network (Ron & Shamir,
2013) and demonstrated that bitcoin transactions are not anonymous as wrongly
assumed by many (Meiklejohn et al., 2013, Androulaki, Karame, Roeschlin,
Scherer & Capkun, 2013, Reid & Harrigan, 2013).
26
A number of papers investigate if bitcoin is rather a currency or a

speculative asset (Surda, 2012), and mostly agree that it currently acts more like
an alternative investment vehicle than a functioning currency ((Yermack, 2013;
Glaser, Zimmerman, Haferkorn, Weber & Siering, 2014). Luther (2013)
concludes that cryptocurrencies will likely not gain mainstream acceptance if
there is no explicit government support and/or considerable monetary instability.
Although Morisse (2015) finds that most research has focused on the
ecosystem layer, the majority of these papers consist of basic introductions the
technical, economic, legal and social aspects of Bitcoin (Grinberg, 2012;
Trautman, 2014), its main actors (Cusumano, 2014) and the regulatory and legal
status (Kaplanov, 2012; Brito & Castillo, 2013, De Filippi, 2014).
Nevertheless, there are a small number of papers that focus more
specifically on business aspects involving bitcoin. White (2015) discusses the
market for cryptocurrencies and compares Bitcoin to other cryptocurrencies.
Taylor (2013) provides a comprehensive summary of the emergence and
evolution of the mining industry and highlights the role of rapid innovations in
the development of mining hardware. Moore and Christin (2013) study the risk
that centralised exchanges pose to their customers, and highlight the high
failure rate of these new intermediaries. Moreover, Soska and Christin (2015)
analyse the evolution of a sample of online anonymous marketplaces using
bitcoin and Christin (2013) provides a comprehensive measurement analysis of
the largest darknet marketplace Silk Road.
Kazan, Tan and Lim (2015) develop a unified theoretical framework to
investigate the business models of cryptocurrency companies and apply in in
27
several case studies to companies active in the Bitcoin ecosystem. Using Moores
(2014) technology adoption life cycle - an adaptation of Rogers (1962) diffusion
model of innovation, Wolfson (2015) analyses Bitcoins early market. He suggests
that Bitcoin has moved through the innovation stage (Wolfson, 2015: p. 210) in
2013 and early 2014. He makes the difference between the core developers and
early entrepreneurs, who he ranks among the innovators, and the early adopters
who he describes as less technologists.
3.4 Research gap

While business and management literature has mainly focused on the role
and evolution of privately owned or controlled technology platforms and their
emergence, there is a lack of research regarding business ecosystems formed
around open platforms that are not dominated by a single entity. Although there
has been a growing body of research about decentralised cryptocurrencies and
Bitcoin in particular, only a small number of papers have examined the business
ecosystem itself that has formed around these systems. These studies, however,
are merely of introductory nature and lack a data-driven approach.
Hence, we aim at exploring the emergence and the development of a
business ecosystem that has formed around a decentralised cryptocurrency
system, because we believe that the absence of a platform owner and the
decentralised nature of the core infrastructure will yield interesting findings that
are likely to differ in some instances from the evolutionary trajectories of other
platform-based business ecosystems. Furthermore, given that cryptocurrency
28
systems provide a unique set of compelling value propositions which set them
apart from other business ecosystems, the findings are expected to be different
from traditional business ecosystem research.
We focus our research on Bitcoin, because it has several advantages
compared to other similar cryptocurrency systems from a research perspective: it
was the first digital currency introducing the concept of decentralised
cryptocurrencies to the world in 2008, and has the largest market capitalisation
and user base of all decentralised digital currencies. As Velde (2013: p.317)
asserts, [Bitcoin] has a status of quasi-monopoly in the realm of digital
currencies by virtue of its first-mover advantage. As a result it has received
most media coverage and various aspects of the system are well documented: as
a consequence, most data available regarding cryptocurrency systems is related
to Bitcoin. In addition, it constitutes the most powerful distributed computing
network on earth in terms of computational power, after having largely exceeded
already in mid-2013 the combined processing strength of the world's top 500
most powerful supercomputers (Cowley, 2013). As previously stated, there is no
dominant actor or entity to the platform that has supreme power. Instead, there
is a complex balance of power between core developers, miners, the economic
majority and the wider community.
We believe that by visualising the emergence and evolution of the Bitcoin
business ecosystem and its components over time using a longitudinal dataset,
we can address the knowledge gap that exists with regard to the formation of
economic communities around decentralised cryptocurrency systems.
29
Chapter 4: Methodology
4.1 Boundary specification
In order to define the boundaries of the study, we first describe the different
components of the Bitcoin ecosystem and subsequently limit the study to a
specific part of the overall ecosystem.
4.1.1 The Bitcoin ecosystem

The Bitcoin ecosystem can essentially be broken down into three parts that
are occupied by different types of actors:
1.
Developers maintaining the Bitcoin protocol, network and consensus

system
2.
Firms and projects building complementary applications and services
3.
Other stakeholders of the network
4.1.1.1 Developers
The Bitcoin protocol, network and consensus system constitute the core
infrastructure and backbone of the whole ecosystem. They can be considered as
the set of core components of the open Bitcoin platform that serve as
technological building blocks for other applications and services to be built upon.
As for now, the core developers are working on reviewing, maintaining and
extending the source code of the reference client Bitcoin Core, which essentially
defines the protocol and the system rules.
30
4.1.1.2 Firms and projects

The companies and projects are responsible for building complementary
infrastructure, applications and services that are based upon the foundation that
the technological building blocks provide. They can be labelled as a set of
peripheral components to the platform that are variable and create additional
value to the core Bitcoin platform, often by decreasing the associated costs or
risks of adoption and use (Muegge, 2011: p.5). These complementary assets
extend Bitcoin's functionalities and thereby increase the value of the platform
itself: they either add new functionalities to the system that are not initially
available, or offer services that render the use of already existing functionalities
of the system more convenient and easy. (Brenig et al., 2016).
Similarly,
Cusumano (2014: p.23) notes that Bitcoin as a new technology and platform in
early stages requires "an ecosystem of complimentary products and services to
make the technology truly easy to use". This reflects Adner's (2006) view that
disrupting technologies need complementary and supporting elements and
innovations to attract users. It is worth adding that complementary services do
not necessarily need to be software-based and extend the platforms
functionalities, but do also add value to the platform in the form of supporting
services.
The actors providing all these types of complementary assets and services
constitute the Bitcoin business ecosystem.
31
4.1.1.3 Other stakeholders

In addition to the developers and economic actors18, there are several other
stakeholders that play a role in the Bitcoin ecosystem in one or the other way.
For instance, VC firms are funding Bitcoin start-ups and provide valuable
mentoring and guidance through incubators and accelerators, researchers from
universities are examining and testing the protocol and looking for weaknesses
and suggesting improvements, and governments and regulators are inspecting
the political, legal and regulatory implications of Bitcoin and attempt to adapt
the regulatory environment. Most importantly, the various users of the digital
asset - merchants, consumers and speculators among others - are essential
contributors to the ecosystem by effectively using the systems token.
4.1.1.4 Network effects

The interplay of these "types" of actors and their respective contributions
make Bitcoin an industry-wide technology platform providing a variety of
complimentary functionalities, resulting in positive network effects: the more
users join the platform, the more developers will engage in the maintenance and
development of the software and the more businesses will launch new
applications and services, thereby enhancing the platforms functionalities. As a
result, the increased range of products and services surrounding the platform
encourages user adoption. As more users are attracted, more stakeholders join
the platform, resulting in a positive feedback loop and the ecosystem
One could argue that miners represent a specific type of actors apart from the others because
they are essential for transaction verification purposes and the security of the network. However,
since their operations constitute a commercial activity in the sense that they get a monetary
reward, we assume them to be part of the Bitcoin business ecosystem.
18
32
eventually crossing the tipping point (Gawer, 2009a: p.2-3), i.e. assembling the
majority of users, developers and entrepreneurs on that specific platform.19
4.1.2 The Bitcoin business ecosystem

For the purpose of this study, we are only going to focus on the Bitcoin
business ecosystem. The goal is not to exclude the important role that other
stakeholders play, but to limit the study to primarily explore the business
opportunities that have formed around the open platform. As a result, we do not
include the core developers and other stakeholders as subjects, but do recognise
the role they play in the overall ecosystem in the analysis.
4.1.2.1 Definition
We define the Bitcoin business ecosystem as the set of companies and
projects that build complementary infrastructure, applications, products and
services on top of and around the open technological building blocks to extend
the core Bitcoin platform's functionalities, thereby creating additional value for
the end-user.
4.1.2.2 Inclusion criteria

In order to determine if an entity is part of the business ecosystem and thus
eligible to be included in the dataset, we apply two specific inclusion criteria:
For an in-depth discussion of the various network effects in crypto systems, consult the
following blog post:
Buterin, V. (2014, November 20). On Bitcoin maximalism, and currency and platform effects.
Available at https://blog.ethereum.org/2014/11/20/bitcoin-maximalism-currency-platformnetwork-effects/.
19
33
1. The core activities and operations of the entity need to be related to

Bitcoin in at least one of the four following ways:
a. Use of the digital currency or asset bitcoin
b. Use of the integrated payment network
c. Use of the underlying data structure for non-currency/nonmonetary applications
d. Provision of supporting services to enhance the value of using the
platform
2. The services will either allow for commercial exploitation by the service
provider or another party - although there is no requirement to specifically
do so - or create new business opportunities that other parties can benefit
from.
The first criterion does not include entities that use bitcoin as one of several
payment methods (except if other cryptocurrencies), nor ledger-agnostic
blockchain platforms that offer Bitcoin functionalities as an option among many
others. However, it allows for the inclusion of entities that do not directly use the
systems components, but provide complementary supporting services to the
ecosystem. An example of this would be data providers and media outlets that
specifically focus on Bitcoin.
The second criterion enables the inclusion of non-profit organisations and
projects that provide essential applications and services to the Bitcoin ecosystem,
but do not intend to make a profit. Similarly, it includes entities that actively
34
promote the platform and thereby create a favourable business environment for
other entities. Bitcoin advocacy groups constitute a good example of this.
4.2 Data collection

The study is based on a unique dataset that was created specifically for the
purpose of this paper. It relies on a variety of publicly available data sources to
retrieve relevant data.
4.2.1 Identification of relevant entities

First, we needed to identify relevant entities meeting the inclusion criteria.
This was mostly done by examining existing databases and lists of funded
Bitcoin start-ups provided by venture capitalist firms20 and media sites21.
However, since these lists only included firms that successfully raised venture
capital (VC) funding, we further consulted two other lists provided by start-up
platform AngelList22 and venture capitalist William Mougayar23 that also include
projects and start-ups that have not received funding. In addition, we used
Google's search engine with the key terms Bitcoin companies, Bitcoin start-
Blockchain Ecosystem Database by OutlierVentures.io. Available at:

http://www.blockchainangels.eu/startups/charts/.
- Bitcoin Database by Creandum. Available at:
https://docs.google.com/spreadsheets/d1iVmW45HVN499cW1DEDs8LFgOZiRgYy2dK2GYsQ5kEU/edit?pref=2&pli=1#gid=0.
- Our Network by Digital Currency Group. Available at: http://dcg.co/network/.
21 - Bitcoin* Venture Capital by CoinDesk. Available at: http://www.coindesk.com/bitcoin-venturecapital/.
- Bitcoin* Funding Rounds by CoinFilter. Available at: http://www.coinfilter.com/bitcoinfunding/.
*includes firms that do not meet the inclusion criteria specified in this study.
22 Cryptocurrency Startups. Available at: https://angel.co/cryptocurrency-2.
23 Crypto-technology Landscape. Available at: http://crypto.silk.co/.
20
35
ups, Bitcoin firms and Bitcoin projects which yielded some news articles and
special websites containing lists of specific projects and firms related to a
particular sector or sharing similar characteristics.24
4.2.2 Type of data collected

Next, for each identified entity the data highlighted in table 1 was collected
for each entity if applicable and organised in a simple Microsoft Excel spread
sheet.
Table 1: Type of data collected
Variable
Foundation date
Launch date of each
service/product
Exit date
Exit reason
Funding (+date)
Rebranding (+ date)
Mergers and
acquisitions (+ date)
Partial/complete
pivot (+ date)
Comment
Approximate date of foundation of the entity (not
necessarily date of legal incorporation).
Usually official launch date of product/service, in some
cases also the beta launch.
Approximate date of the entity leaving the ecosystem.
Reason of the entity leaving the ecosystem (also includes
pivots away from Bitcoin).
Refers to raising capital without issuing debt; can
include VC funding, crowdfunding, state grants, etc.
When a company or project changes its name.
All firms involved in a merger and/or acquisition.
Project or firm that stops meeting the inclusion criteria
after changing service offerings (can be partial in the
sense that they keep Bitcoin-related services, but begin
offering services unrelated to Bitcoin).
Examples include 29 Bitcoin wallets that are supercharging cryptocurrency by the Lets Talk
Payments blog (2016, February 19. Available at: https://letstalkpayments.com/29-bitcoin-walletsthat-are-supercharging-cryptocurrency/) and 36 bitcoin exchanges that are no longer with us by
the news site Brave New Coin (2015, October 23. Available at: http://bravenewcoin.com/news/36bitcoin-exchanges-that-are-no-longer-with-us/).
24
36
4.2.3 Data sources

Given that the Bitcoin business ecosystem has only emerged in recent
years, there is no open or proprietary database containing detailed operational
and financial data for Bitcoin firms so far, to our knowledge. Hence, we had to
scrutinise a variety of different public - and sometimes unconventional - data
sources available on the Internet. The most valuable sources turned out to be the
two main Bitcoin discussion forums, consisting of the official Bitcoin Forum
bitcointalk.org, where most new projects and launches have been announced,
discussed and their development been updated, as well as the r/bitcoin thread
on reddit.com, where users report and comment on current and past events.
Other important sources included official company and project websites, blogs
and press releases as well as archival records from cryptocurrency-specific media
sites such as CoinDesk and Bitcoin Magazine, but also traditional news sites
such as Bloomberg and Reuters. However, because the aforementioned services
often started reporting or even being founded after 2012 and 2013, and a number
of entities had already disappeared before the beginning of this research, we had
to rely in many instances on the (remaining) social media presence of entities:
this included examining Twitter feeds, Facebook pages, LinkedIn accounts and
Crunchbase profiles. In some cases, firms and projects also had their own page
with further information about foundation and product and service offerings on
the Bitcoin Wiki25 and if more recently founded also on Wikipedia. If possible, the
data collected from one source was cross-checked with other sources to verify the
25
Available at: https://en.bitcoin.it/wiki/Main_Page

37
accuracy of the data. However, this proved to be difficult because in some cases,
it was often complicated to even find a single data source.
4.2.4 Resulting dataset

The resulting dataset includes 514 companies and projects of the Bitcoin
business ecosystem over the period from 2010-2015. This time frame was
specifically chosen because we could not identify an entity meeting the inclusion
criteria prior to 2010. Although there have been some attempts to build a general
database of Bitcoin companies and projects, most of them only focus on funded
start-ups, do not make a difference between Bitcoin and Blockchain entities
and do not provide temporal data to analyse evolutionary patterns. To our
knowledge, this is the first comprehensive longitudinal dataset of Bitcoin entities
and their respective operations and activities.
4.3 Market segment framework

4.3.1 Categories of subindustries
In order to depict the structure of the Bitcoin business ecosystem and
analyse the evolutionary patterns, there is a need to have a clear definition of
the ecosystems subindustries or what we term market segments. These are
essentially categories of similar products and services that together form what
can be considered a subindustry of the Bitcoin business ecosystem. However, as
Basole, Russel, Huhtamki & Rubens (2012) note, the selection and assignment
of firms to market segments constitutes a challenge, because despite the
38
existence of a variety of industry classifications, they often differ across different

datasets. This is especially true for the Bitcoin business ecosystem, where every
news site and industry expert tend to have diverging definitions and terms of
subindustry categories that often overlap.
4.3.2 Development of framework

To counter this, we attempted to develop a consistent framework to group
the diversity of products and services in the Bitcoin business ecosystem into welldefined, mutually exclusive market segments. This proved to be more difficult
than expected, because some product and service types are often very similar
and the lines between some market segments are blurred. Nevertheless, given
the limitations of existing categorisation attempts, this step was necessary for
the further development of this study.
Initially, a basic framework based on a combination of the categorisation
schemes used for the OutlierVentures.io and Creandum databases as well as a
more general blockchain ecosystem framework by William Mougayar26 served as
starting point. In an iterative process, the product and service offerings of each
new entity added to the dataset were scrutinised and compared with the initial
framework. As more entities with different offerings were added, new patterns
did slowly arise and the framework was gradually updated according to these
patterns observed during the research process. The updated version of the
Available at: http://startupmanagement.org/wp-content/uploads/2015/12/Blockchain-inFinancial-Services-Landscape.pdf.

26
39
framework was then again tested with entities previously added to the dataset to
ensure consistency.
4.3.3 Framework
The resulting framework consists of 22 different market segments and is
presented in table 2. Some market segment names have been truncated to
ensure better readability of labels in the following network graph.
We believe this framework to provide an adequate categorisation of all
existing products and services in the Bitcoin business ecosystem. Naturally,
there are some trade-offs that need to be done to accommodate the diversity of
offerings and still provide an accurate scheme for assigning activities to market
segments without having an over complex and large framework. For instance,
the other services segment was added to include all products and services that
could not clearly be assigned to another market segment and would require the
creation of a special segment specific to them. Similarly, some market segments
are closely linked together and in some instances could be merged, but are
ultimately kept separate to better differentiate between the offerings of
competing firms. For example, some exchanges with powerful trading engines
are not classified as trading platforms if they lack advanced trading
functionalities such as leveraged trading. Nevertheless, this framework is
considered to be sufficient for our purpose.
40
Table 2: Market Segment Framework
Included Services
Manufacturers and operators
Description
Bitcoin Automated Telling Machines
Buy/sell services of bitcoins directly, OTC money exchange,

redeemable gift cards, physical bitcoins
Market Segment
Buy and/or sell bitcoins at fixed price + mark-up
Meta-protocols, sidechains, blockchain anchoring, smart

contracts overlays
ATM
Services building non-currency applications on top of

Bitcoin using special purpose data layers
Brokerage Services
(BrokServ)
Blockchain
Innovations
(BCInnov)
Services focusing on the application of regulations
All products and services related to the verification of

transactions on the Bitcoin network
Services enhancing the privacy of transactions
Small-value payments
Services related to gambling and betting

All services related to investment, including P2P
lending platforms
Platform where buyers and sellers trade goods
exclusively for bitcoins
Services related to communication outlets
Providers of additional financial services
Order-book based marketplaces for exchanging bitcoins

for other currencies
Services providing specific software solutions
C2C and B2B payments, remittances
Mining hardware manufacturers, mining pools, datacenter and

cloud mining providers
Mixers and tumblers
Tipping platforms, paywalls for content providers
Online casinos, betting websites, prediction markets

Stock exchanges, crowdfunding platforms, investment funds,
trading bots, P2P lending platforms,
Darknet black markets, legal marketplaces trading any
goods/services
News, blogs, educational websites, publishing
Savings accounts, insurance, hedged accounts, debit cards, bill

payment services
Centralised and P2P exchanges/marketplaces
Developer Platforms, APIs, special software tools
KYC and AML checks, blockchain screening, legal advisory

services
Blockchain explorers, statistics and analytics, market data,
directories
Internal platforms for money transfer
Services providing data and analytics
Compliance
Data Services
(DataServ)
Developer Tools
(DevTools)
Exchange
Financial Services
(FinServ)
Gambling
Investment
Marketplace
Media
Micropayments
(MicroPaym)
Mining
Mixing
Money Transfer
Platform (MTP)
41
Description
Proof-of-Existence, registering and tracking
Table 2: Market Segment Framework (contd.)

Market Segment
Services using the tamper-resistant ledger for verifying
the existence and authenticity of data
Bitcoin advisory services, consulting, & training, oracles, proofof-reserve, rating/reputation/identity platforms, full node
manufacturer
Included Services
Notary Services
(NotaryServ)
All products and services that do not fit in one of the
other categories
Proxy-buyer services, bitcoin-only online shops, shopping plugins
Other Services
(OtherServ)
Services facilitating the spending of bitcoins
Derivatives platforms, margin trading, sophisticated trading

engine
Merchant service for instantly converting earnings in

bitcoin back to fiat money
More sophisticated trading engines and additional

trading services
Wallets hosted by users, hosted/custodial wallets, vaults
Custody of funds is not indicated
Services storing bitcoins on behalf of customers
Payment Processor
(PaymPro)
Shopping
Trading Platform
(TradPlat)
Wallet
Exchanges and Brokerage Services are usually not classified as wallets, except if advertised and/or downloadable for non-customers
Comments:
Purely money transfer platforms not categorised as wallets; similarly, most wallets not classified as MTPs although in theory they could
Although most firms do provide APIs, only the companies with the most used and popular APIs have been assigned to the Developer Tools
enable this
segment
42
4.4 Design
4.4.1 Visualisation approach
For the purpose of this study, we use a visualisation approach, which
provides a good tool for purposes of exploration, discovery, and sense-making of
abstract data structures (Basole et al., 2011: p.314). Visualisation has
increasingly become popular as a strategic tool in the business research
literature for analysing the structure of company networks (Basole, 2009; Vaz et
al., 2013). Most research has focused on the study of inter-firm collaboration
networks and the formation of alliances (Venkatraman & Lee, 2004; Lomi &
Pattison, 2006; Schilling & Phelps, 2007; Rosenkopf & Padula, 2008; Basole,
2016). Visualisation is also often employed to identify key actors and determine
their strategic position within a specific ecosystem (Jiang et al, 2016), and to
compare the network structure across different industries (Rosenkopf &
Schilling, 2007).
Since the Bitcoin business ecosystem is still a nascent sector, it is
practically impossible to get yearly data on revenues and market share for each
market segment, let alone each entity. Whats more, there is no consistent record
of inter-firm relationships and partnerships. As a result, we map the structure
and dynamics of the business ecosystem not in terms of market share or size of
each industry, but by depicting the affiliations of each company to specific
market segments over time. The resulting network graph for each year is hence
determined by relationships between entities and market segments, with the
43
relationship consisting of the affiliation of an entity to a segment. Hence, we

measure the change in structure of the Bitcoin business ecosystem as the
changes in the number of market segments, the number of entities, and the
number of affiliations of an entity to a market segment.
4.4.2 Computation of network graphs

For each year of the analysis time frame, a binary adjacency matrix was
constructed with all the existing entities of that year, indicating if an entity was
operating in a specific market segment (1) or not (0). In addition, a categorical
variable was introduced to determine the status of the entity. Table 3 shows the
six different possible statuses, each represented by a different colour.
Table 3: Colour codes

Status
Colour
Code
New entrant and active
Green
New entrant but inactive
Grey
Entity is founded and launches

the same year
Entity is founded but does not
launch the same year
Entity is founded and launches,
but also leaves the ecosystem the
same year
New entrant, active and exit Orange

Established and active
Established but inactive
Established/active but exit
Comment
Blue
Entity has been previously

founded and is active
Yellow

founded, but still is not active
Red

founded and is active, but leaves
the ecosystem
44
We then imported the adjacency matrix for each year as csv file into R. R27
is an open-source software environment and programming language widely used
for statistical analysis and graph computing. Custom scripts were written to
compute the network graph of each year and complementary statistics from the
dataset. We opted for the use of the Fruchterman-Reingold algorithm, a popular
force-directed layout algorithm commonly used for drawing undirected graphs
(Fruchterman & Reingold, 1991).
The affiliation network results in an undirected bipartite network graph
because it contains two types of nodes (vertices): entities are represented by
circles, and market segments are represented by black squares. Since the
relationship between the two types of nodes is determined by the affiliation of an
entity to a market segment, the links (edges) between the nodes on the network
graph are undirected. The size of the nodes representing entities, in the absence
of reliable and available operational business data, is proportional to the number
of market segments they are affiliated with (vertex degree): the more market
segments an entity is operating in, the bigger its node. Hence, bigger nodes
represent entities that are more diversified in the sense that they are operating
in more segments. The size of the nodes representing the market segments are
kept constant on purpose to avoid any confusion regarding a possible
interpretation of industry size.
For each year, a graph was created to visually show the evolution of the
business ecosystem structure in terms of entities and their affiliation with
market segments. As such, the use of popular tools and network measures from
27
The software can be found at: https://www.r-project.org/.

45
social network analysis is not very useful in this case because the links only
represent affiliations to market segments instead of inter-firm relationships.
However, the visual representation of the business ecosystem structure does
enable to explore the emergence and evolution of market segments, the lifecycle
of companies and the evolution of their product and service offerings.
For modelling purposes, the most recent company or project name was used
throughout the whole analysis to avoid confusion in case of name changes.
Similarly, entities with multiple different brands and product names were
labelled with the company name, while entities with a company name completely
diverging from their only product or service brand were labelled with the brand
name
46
Chapter 5: Findings
5.1 Summary statistics
Table 2 offers an overview of the summary statistics obtained from the
dataset to get a first impression of the development of the Bitcoin business
ecosystem.
Cumulative
Funding (in
US$ million)
Funding (in
US$ million)
Rebranding
Partial
Pivots
Complete
Pivots
Mergers
Acquisitions
Number of
entities**
Exits*
Year
Foundations
Table 4: Overview of summary statistics
2010
2011
47
55
2012
37
90
2.1
2.1
2013
181
20
266
5***
93.3
95.4
2014
196
27
442
11
13
369
464.4
2015
45
41
460
13
12
448.4****
912.8
Total
514
95
30
28
912.8
Notes:
* This variable includes companies that have completely pivoted away from Bitcoin, but does not
include companies that have been acquired by or have merged with other firms.
** This variable indicates the total number of entities that have existed in the respective year,
including the entities that exit or get acquired/merged later in the year.
*** Newly founded Satoshi Citadel Industries integrates Slush Pool and Coinmap, two services
previously operated by co-founders.
****Complete $116m funding round of 21 Inc. announced in Q1 2015, but probably aggregation of
previous rounds having occurred over the previous 18 months.
47
The data clearly shows that the business ecosystem has been growing
continuously since its inception in 2010 from a modest eight entities to well over
400 companies and projects in 2015. There have been several mergers and
acquisitions as well as pivots and rebranding attempts. The amount of funding
has literally skyrocketed since the first influx in 2012, as have the number of
entities joining the business ecosystem in 2013 and 2014. In the following two
sections, we will go into more detail regarding each variable and provide a
comprehensive overview of the findings.
5.2 Network visualisation

In this section, we present the network graphs obtained from the dataset
and briefly comment each year to highlight the main developments and put them
into context.
Note:
The following network graphs are unfortunately not in the highest resolution due
to the formatting limits of the present paper. Interested readers should feel free to
contact the author for receiving a PDF copy of the network graphs that allows for
zoom-ins without compromising on quality.
48
5.2.1 Bitcoin business ecosystem 2010
Figure 1: Network graph 2010

One year after the release of version 0.1 of the Bitcoin Core software client,
the first small businesses and projects started to emerge. After relative small
growth in the number of downloads and active users, a small paragraph
featuring Bitcoin on Slashdot28 in July triggered an explosion of new users
downloading the software and joining the communication channels. This caused
Slashdot is a news website for tech-savvy people (www.slashdot.org). The paragraph, written
by Finnish Computer Science student and early Bitcoin Core collaborator Martti Malmi, was part
of a small marketing campaign initiated by the projects early contributors to attract more
attention.
28
49
an increase in the networks hash rate and the mining difficulty29, making it
difficult for individual users to get bitcoins through mining. As a result, the first
mining pools were founded to pool their members resources and smoothen
the pay-out. Additionally, exchanges were set up that let users trade bitcoins
for U.S. dollars and vice versa between themselves. These early exchanges
provided barely more than a simple order book and escrow services, and
processed deposits and withdrawals in fiat currency through the owners
personal bank accounts.
In addition, the first wallet service were launched to provide users a
convenient way of storing their bitcoins online in a web wallet, removing the
need for syncing with the network upon each launch of Bitcoin Core and storing
the entire blockchain.30 Interestingly, BitLaundry, a mixing service for privacyconscious users was launched to blend coins in order to obfuscate their
provenance. WeUseCoins, a website providing educational content about Bitcoin,
emerged to make the concept of Bitcoin more accessible to interested outsiders
(Media).
The increased use of more powerful Graphics Processing Units (GPUs) instead of CPUs also
contributed to an increase in the hash rate and ultimately the mining difficulty.
30 The reference client Bitcoin Core comes with an integrated wallet. Because it is a full node,
however, it requires the user to download the entire blockchain for verification purposes and
syncing with the network to get the latest blocks until any transaction can be made.
29
50

In 2011, the business ecosystem had already remarkably grown into a more
diverse set of service offerings: 47 new firms and projects were founded, and
eight new market segments did emerge.
With the creation of the online darknet marketplace Silk Road, bitcoin
became for the first time a real medium of exchange, attracting many new users
mainly looking for buying drugs on the Internet. Moreover, a variety of new
offerings emerged to provide ways to spend bitcoin, among others online casinos
51
(gambling) and e-commerce websites (shopping). In order to further boost

bitcoin usage and acceptance, payment processors were formed to make it
trivial for merchants to accept bitcoins by instantly converting received bitcoin
payments into fiat currency.
The constantly growing demand for acquiring bitcoins led to the creation of
brokerage services providers, who aim at rendering the buying/selling process
more convenient and easier for mainstream users. Similarly, the number of
exchanges skyrocketed, making it the largest market segment in terms of active
companies. Many new exchanges started focusing on local markets by offering
trading pairs with local fiat currencies31 and differentiating themselves through
their deposit and withdrawal options. With the market price reaching parity
with the U.S. Dollar in February and the subsequent price rally and crash,
traders and speculators started to enter the ecosystem in order to benefit from
bitcoins high volatility. This gave rise to more professional trading platforms
offered by some exchanges, and resulted in the creation of market data site
Bitcoinity (data service provider) to provide supporting services to the still
small business ecosystem.
Moreover, newly founded GLBSE launched the first stock exchange listing
bitcoin-denominated stocks and bonds (investment), although it was started
rather as a fun cool project by its cofounder
32than
a serious business. This
Examples include among others Britcoin (GBP), Bitmarket.eu (EUR and others), Bitomat
(Polish Zloty) and Bitcoin Brasil (Brasilian Real).
32 James McCarthy in an interview with Vitalik Buterin from Bitcoin Magazine (October 15,
2012). Available at https://bitcoinmagazine.com/articles/interview-with-glbses-nefario1350319173.
31
52
applied to most of the projects and firms involved at that time, an observation
that will be further elaborated in the analysis chapter.
The discovery of the benefits gained by using Field Programmable Gate
Arrays (FGPAs) for mining further increased competition among miners and
drove the creation of new mining pools and firms specialising in the
manufacturing of mining hardware. New wallet providers also entered the
ecosystem to provide alternative storage options. Many of them took full custody
of user funds to avoid less tech-savvy users having to bother with key
management.
For the first time, businesses did start diversifying their offerings and
entering new market segments: Blockchain.info was expanding their wallet
service to provide data on the status of the network as well as a block explorer,
while BTCC (then BTC China) started offering consumer wallets in addition to
its exchange. Similarly, for the first time companies did not directly launch the
same year they were founded: this applied to exchanges and trading platforms
Kraken and Mirror as well as mining firm Butterfly Labs that was working on
the development of new mining equipment.
The business ecosystem also witnessed the first casualties with wallet
provider MyBitcoin being hacked and customer funds stolen as well as the firstever bitcoin exchange Bitcoin Market being forced to shut down after PayPal had
blocked their account.
53

Although the number of new entrants decreased from 47 to 37 firms and
projects compared to the previous year, 2012 saw the emergence of five new
market segments and a variety of innovation within existing segments.
Blockchain.info started offering their API to other firms to build
applications with (developer tools), while BitInstant and newly founded
Bitcurex began providing the first bitcoin debit cards (financial services). For
the first time, two newly founded projects in development sought to harness the
54
Bitcoin blockchains potential as an immutable, timestamped data store: Proof of

Existence started working on enabling users to certify the existence and
legitimacy of documents using the blockchain (notary services), whereas the
project Omni Layer (then Mastercoin) was building a meta-protocol on top of
Bitcoin33 enabling users to create and release their own assets and
cryptocurrencies
(blockchain
innovations).
Remarkably,
the
business
ecosystem welcomed its first advocacy group with the creation of the Bitcoin
Foundation (other services), acting as a public spokesman for Bitcoin and the
business ecosystem.
A lot of new developments also happened within existing market segments.
The business ecosystem got its first printed news magazine with the foundation
and launch of Bitcoin Magazine and benefitted from the entrance of many new
exchanges and brokerage service providers that offered alternatives to existing
services. Some of the brokers also began offering their customers a consumer
wallet to provide a better customer experience. Newly founded Bitbox became the
first exchange to also provide payment processing services for merchants.
Increasing interest from the broader financial system and the inability for large
investors to easily participate in the price speculation led to the emergence of
bitcoin-focused investment funds and the foundation of an institutional exchange
and trading platform (itBit, still in development at that time). Similarly, lending
platform BTCjam and alternative stock exchanges and crowdfunding platforms
The idea of using small subunits of bitcoins to represent existing assets that can then be
traded on the Bitcoin blockchain has been first raised in early 2012 on the Bitcoin forum (User
phelix on March 1, 2012, available at https://bitcointalk.org/index.php?topic=66868.0) and has
gained attention under the name Coloured Coins. Systems such as Omni and Counterparty,
however, use a different mechanism to create and release new assets. There exist currently
several implementations of coloured coins.
33
55
were established to expand the ecosystems offer in terms of investment

opportunities. The launch of SatoshiDice, a provably-fair gambling site, further
increased user adoption and triggered an explosion of the number of transactions
on the Bitcoin blockchain.
The business ecosystem had to mourn further casualties in 2012: two
exchanges needed to shut down after being hacked (Bitcoinica) and losing
customer funds through speculation (Bitmarket.eu). Moreover, stock exchange
GLBSE pre-emptively shut down due to concerns on the legality of its
operations.
56

2013 marked a pivotal year for the business ecosystem: in early 2013,
Bitcoins market capitalisation hit $1 billion for the first time before experiencing
a tremendous price rally shooting the price above $1000 per coin in December. A
staggering 181 new projects and firms entered the ecosystem, and a total of five
new market segments emerged.
The explosion in the market capitalisation and increased media coverage
soon attracted increasing scrutiny from regulators and authorities, and put
57
pressure on bitcoin companies dealing with fiat currency and holding customer
funds to comply with existing KYC (Know your customer) and AML (Anti-money
laundering) regulations, requiring them to do rigorous background checks of
their customers. As a result, specialised blockchain intelligence and compliance
firms emerged to help businesses with identity verification processes, flag
suspicious activities and provide legal advisory services (compliance). A new
industry emerged to increase user adoption by providing a simple and tangible
way to acquire bitcoins (ATM). Bitcoin ATM manufacturers and operators
teamed up to build physical ATM networks all over the world. Moreover, some
began revisiting Bitcoins potential as cheap and reliable payment system, and
started building internal money transfer platforms to offer customers
instantaneous off-chain payments. Similarly, so-called rebittance34 firms did
arise to build bitcoin-based remittance platforms in emerging countries to
compete with existing international money transfer providers. Furthermore,
newly founded firm ChangeTip unveiled a tipping platform powered by bitcoin
micropayments and Bitwall launched a paywall for accessing quality content via
bitcoin micro-transactions (micropayments). F
A variety of distinct services
ranging started to emerge that do not fit a particular category, and are thus
grouped together for simplicity in the other services market segment. In 2013,
those services included consulting and training providers, the development of
rating, identity and reputation platforms as well as the inception of oracle
services acting as trusted providers of information of the state of the outside
world to smart contracts living on the blockchain. According to the dataset, the
34
A portmanteau word combining remittance and bit(coin).

58
first exchanges, brokerage services and payment processors started offering

other cryptocurrencies in addition to bitcoin, partly out of market demand for
trading other popular cryptocurrencies, but in some cases also to bypass laws
and regulations applying to fiat currencies by only processing cryptocurrencies.
The media and data services industries were rapidly growing, providing decisionsupporting information and expanding media coverage about the ecosystem and
its participants. The shopping and gambling segments were also quickly
expanding with the entrance of bitcoin-only shops and proxy-buyer services as
well as betting websites, providing even more places for users to spend bitcoins.
The mining sector also massively grew following the drastic increase of the
market price.
59

In 2014, a record number of 196 new entities joined the Bitcoin business
ecosystem, whose structure in terms of market segments did not change
anymore: there were no new market segments emerging, but therefore a lot of
optimisation and innovation within the market segments. For instance,
OpenBazaar started being developed to become a decentralised marketplace
entirely powered by bitcoin, prediction markets in the gambling segment aimed
at revolutionising the way people make predictions on certain statements or
60
events through what can be called event derivatives, and firms like Elliptic
launched insurance services to add consumer protection mechanisms for their
customers. A growing number of special software firms did specialise in
providing software solutions for accounting or legal purposes, white-label
exchanges and mining configurations, to only name a few. Similarly, the first
hardware wallets were being released to make secure key management trivial
for professionals as well as inexperienced users. Moreover, with the Bitcoin
Foundation struggling, newly founded advocacy group Coin Center attempted to
taking over that role and address policy issues regarding cryptocurrencies,
starting a dialogue with regulatory authorities to proactively promote favourable
regulation. The foundation of Blockstream also marked a difference in that it was
the first time that a company formally employs core developers to focus on the
protocol development.
Nearly all market segments did grow rapidly: several new projects began
focusing on the fourth aspect of the value proposition by building additional
networks on top of the core platform, and the use of Bitcoin as a cheap payment
system become more popular. Additionally, the rise of developer platforms
providing interfaces to the backbone protocol and other applications providing
similar middleware services facilitated the development of applications by other
companies and drastically reduced time, costs and complexity. We can also
observe that firms started increasingly pursuing diversification strategies.
However, the business ecosystem also experienced its largest challenge up
to then in early 2014 when one of the first and largest exchanges Mt. Gox went
bankrupt following a continuous theft that went unnoticed for some years and
61
resulted in the loss of over 650000 bitcoins. This key event let the business
ecosystem fall into a state of shock and attracted lots of negative media
attention, which severely tarnished Bitcoins image and public standing. The
shutdown added further downward pressure to bitcoins market price, which had
already been falling since the end of 2013. Nevertheless, this event also raised
awareness among companies, developers and users that more efforts should be
put into building secure infrastructure and improving key management services.
Moreover, a number of both established and newly founded exchanges set out to
restore confidence in the system by providing more reliable alternatives and not
compromising on security and customer support.
62

For 2015, the dataset indicates a slowdown in the number of new entrants
and massive growth in the number of exits. The business ecosystem was slowly
maturing, and a growing number of firms were forced to shut down due to
unsatisfied profit expectations, low growth and lagging user adoption. Similarly,
the emerging blockchain hype that started in 2014 further amplified and
caused several companies to pivot away from Bitcoin. Nevertheless, the business
ecosystem was growing in absolute terms regarding the number of entities and
63
the wide variety of products and services within the existing market segments.
Micropayments, notary services and ATM exhibited the largest relative growth
of all market segments. The majority of active entities had already been
established and some began further diversifying their offerings. We can observe
that there are a growing number of entities exiting the business ecosystem for
various reasons that will be explained in the following section.
5.3 Key findings

In this section, we are going to highlight the key findings that can be
observed from the analysis of the dataset and the network visualisation.
5.3.1 Diversity
The Bitcoin business ecosystem has evolved from a small community
formed around an experimental decentralised digital currency and payment
system into a large sector composed of distinct, but complementary subindustries that offer a wide variety of products and services, that has expanded
beyond simple financial services. A staggering 22 different market segments
have emerged over the last 6 years, creating a diversity of service offerings
ranging from currency and payment applications to middleware and supporting
services as well as non-currency applications. Some applications are built to add
further capabilities to the core platform, while other services are emerging to
offer end-users a variety of channels to easily access the platform and enhance
the convenience of using the additional functionalities. The goal is to make it
64
look simple on the surface for end-users so that they do not have to bother with
the complex technology that sits underneath35
While the majority of applications and services are replicated or derived
from existing traditional industries but specifically tailored to Bitcoin36, there
are also several new services and applications enabled by the platform that have
not existed before in any established industry.37
Appendix A summarises the date of emergence of each market segment in
chronological order and the nature of its respective first product or service.
Furthermore, it shows the total number of firms and projects operating in each
specific segment per year, with the number in brackets representing the number
of companies that have not launched operations yet
The findings demonstrate that services related to the acquisition and sale of
bitcoins have been operating since the early days in 2010, quickly followed by the
emergence of services that allow the spending and trading of bitcoins in 2011. In
2012, we witness the arrival of segments focusing on the first non-currency
applications as well as the first API platform for other developers. Moreover,
Bitcoin gets its first advocacy group and formal sponsor of core developers. 2013
marks the final year of the formation of new market segments with the
emergence of bitcoin ATM networks, compliance services, micropayment
applications and money transfer platforms. During the two following years, there
A result of this, however, is the reintroduction of centralised intermediaries that hold custody
of customer funds, something that Bitcoin was specifically attempting to eliminate.
36 This applies for example to supporting services such as data providers, news outlets, consulting
and advisory firms, as well as currency applications such as payment platforms, exchanges,
investment vehicles, financial services and brokerage services.
37 This concerns market segments such as the mining industry, mixing services and blockchain
innovations.
35
65
are no new segments emerging in the ecosystem, but there is growing diversity
with the rise of new distinctive product and services within and across the
existing market segments. The Bitcoin business ecosystem has evolved into a
sort of internal economy that coexists parallel with the outside/real economy
and is connected to the latter by gateways such as exchanges, brokerage services
and payment processors. Hence, it could be self-sustainable in theory, although
because of the mostly speculative use of the underlying tokens rather than the
use as a currency, it is too dependent on gateways that act as a bridge to the
outside world.
The results also illustrate that there are some market segments that are
more densely populated than others: we can observe that Exchange is the
largest market segment for each year in terms of number of firms, followed by
Wallet, Brokerage Services and Payment Processor. Interestingly, with
exception of the wallet providers, these are all services that act as gateways
connecting the bitcoin economy to the outside economy, demonstrating the
importance of entry and exit points to the Bitcoin business ecosystem. Trading
Platform, Data Services and ATM (including both Bitcoin ATM manufacturers
and operators) have also massively grown over the last years in terms of number
of firms, as have Money Transfer Platform, Financial Services and
Developer Tools.
66
5.3.2 Diversification
5.3.2.1 Overview
Figure 7: Vertex degrees of entities

Figure 7 presents the degree distribution of the entities in the Bitcoin
business ecosystem for each year. It represents the number of market segments
that entities are affiliated to. The figure reveals that the vast majority of
businesses are operating in a single market segment during the time of analysis.
In the early stages of the business ecosystem, most entities have focused on a
single market segment or have served customers in two closely related segments.
However, we can observe a trend towards diversification emerge in 2012/2013
and continue accelerating over the next years.
67
In 2013, a total of seven companies are active in four market segments,

although four of them have not launched yet. In 2014, the number of companies
operating in at least four market segments has already grown to 20, of which two
firms are even competing in seven market segments, one in six segments and
four firms in five subindustries. This trend is accelerating in 2015, with Coinbase
and BTCC being the most diversified companies operating in a total of eight
different market segments.
5.3.2.2 Related vs. unrelated diversification

When taking a look at the different network graphs, we can observe that
there some market segments that are more isolated in the sense that companies
active in those industries, with some rare exceptions, tend not to diversify but
rather specialise in their respective niche. This is the case especially for
Marketplace, Gambling and Mixing Services, but also for non-currency
applications Blockchain Innovations and Notary Services. There are also a
number of market segments that are closely related to each other, and thus tend
to be populated by the same company: most exchanges have started to offer
sophisticated trading platforms, many media as well as compliance firms also
provide data services, and wallet service providers often offer brokerage services.
Related diversification is the most common form in the Bitcoin business
ecosystem, although there are some notable exceptions that expand their product
palette by providing entirely different services from their core activities
(unrelated diversification).
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5.3.2.3 Patterns
Appendices B, C and D feature three sub-graphs of the Bitcoin business
ecosystem network graphs from 2013 to 2015 that highlight entities that are
affiliated with at least four different market segments. An interesting
observation is that there seems to be a concentration around a few specific
market segments: the most diversified firms tend to be mostly active in the
Wallet, Brokerage Services, Exchange, Payment Processor, Money
Transfer Platform and Financial Services industries. This is equally true for
companies operating in more than two market segments. This suggests that
there are some key market segments that are especially attractive for companies
to enter and/or constitute an indispensable complementary service offering for
their customers. Indeed, when analysing the diversification strategies from
individual firms, we notice that there are a set of companies that provide a full
service model aimed at offering a comprehensive customer experience by
combining convenient purchases and sales of bitcoin, secure storage, customer
protection features and easy payments. This model also usually includes trading
infrastructure and merchant services in an attempt to establish a universal goto internal platform that offers users nearly all functionalities within the
company platform itself. We can also see that a small number of firms pursue
the strategy of vertical integration by engaging in mining operations themselves
in addition to providing a variety of other services: this ensures frequent
revenues in bitcoin if they have sufficient hashing power in order to subsidise
and fund their other offerings.
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5.3.3 Funding patterns

Note: The term funding in this paper refers to any raise of capital that is
not financed by debt: this can include VC funding, crowdfunding rounds, state
grants and personal funding (if figures have been made public). The vast majority
of funding, however, emanates from VC firms. The numbers per year represent the
minimum amount of funding that the business ecosystem has received, because
there are a considerable number of funding rounds with undisclosed amounts.
5.3.3.1 Overview per year
Figure 8: Funding
In the first two years, projects and firms had to rely on internal funding for
financing their operations, although there are no figures available to quantify
the amount. This changed in 2012, when the first VC money entered the Bitcoin
business ecosystem: BitInstant and Coinbase received $2.1 million, and wallet
service Armory did a successful but limited crowdfunding of $2611.
70
In 2013, total funding had grown to at least $93 million shared between 38
firms. In addition, the meta-protocol project Omni Layer (then Mastercoin
Project) performed a successful token sale through crowdfunding valued at some
$500000. Coinbase secured a whopping $31.6 million after adding money
transfer and API developer platforms to their offerings, followed by the exchange
Bitstamp ($10m) and newly founded but not yet launched Circle ($9m) and 21
Inc. ($5.05m). A number of new institutional exchanges also receive funding to
build secure and reliable alternatives to market leader Mt. Gox and to facilitate
access for institutional investors.
In 2014, a staggering amount of almost $369 million was distributed among
a record number of 96 firms, with seven companies receiving additional funding
but not disclosing the amounts. Mining firm BitFury and secure vault provider
Xapo both raised $40 million each, followed by Blockchain.info ($30.5m) and
BitPay ($30m).
In 2015, the total amount of funding received by 69 companies increased to
over $448m, with 13 additional firms not disclosing the amounts raised. 21 Inc.
managed to get a record amount of $116 million, although it appears that this
number is an accumulation of several founding rounds that have taken place
over one year and a half. Coinbase comes next in what can be described as the
largest funding round ever occurred in the Bitcoin business system ($75m),
quickly followed by the consumer platform Circle who raised $30 million in
addition to previous funding rounds.
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5.3.3.2 Patterns
We can observe that VC funding has literally exploded in 2013 and the
subsequent years after first entering the business ecosystem in 2012. While most
funding in the beginning has gone to a minority of firms, a rising number of
companies has secured growth capital in 2014 and 2015. Nevertheless, the
results clearly show that there is only a limited number of firms that have
continuously received funding over the years, often in several rounds. This
suggests that companies that raised considerable amounts in the past are likely
to engage in subsequent funding rounds. Although it is difficult to attribute
funding to specific market segments since many firms are active in more than
one, we notice that the majority of funding has flowed to firms that are providing
integrated consumer and merchant services (money transfer platforms,
brokerage services, wallets, payment processors) as well as gateways and mining
hardware manufacturers. In 2014 and 2015, developer platforms are also raising
significant amounts, which shows the growing importance of middleware
services. The findings suggest that funding needs differ among entities, and that
they increase with the business ecosystem maturing. Supporting services have
not raised significant amounts so far, which might be due to their less capitalintensive nature.
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5.3.4 Entries and exits

5.3.4.1 Overview
Figure 9: Entries and Exits

Over the years, a growing number of projects and companies have exited
the Bitcoin business ecosystem for a variety of different reasons. In 2011, only
two companies were shutting down, compared to a staggering 41 firms in 2015 .
The exit ratio38 has indeed grown from 5.62% in 2012 to 7.55% in 2013, before
going down to 6.26% in 2014. In 2015, it has risen again to a record of 9.47%,
mostly because of companies failing to get enough traction. Nevertheless, this
has largely been compensated by the entrance of new projects and firms,
resulting in an overall growth of the total number of companies per year in the
business ecosystem. While exchanges have been by far the industry most
impacted by departures, followed by wallets and mining firms, almost every
market segment has experienced the death of at least one company.
38
Exit ratio = (Exits per year)/[Number of companies (active and inactive) per year]
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5.3.4.2 Main exit reasons

In the first years, the difficulty for many bitcoin companies to secure
banking relationships has been one of the main reasons for firms to shut down
activities. This has mainly applied to exchanges and brokerage services that
were dealing with fiat currency without having the necessary licenses and/or
accurately doing KYC/AML checks. Similarly, regulatory issues regarding the
legality of certain services have caused projects such as bitcoin-powered stock
exchanges to shut down in anticipation. The seizure of darknet black markets
and the arrest of the operators by the FBI have also led to the disappearance of
certain services.
Security breaches and hacks of exchanges and custodial wallets leading to
the loss of customer funds and subsequent forced bankruptcy have also been very
common, although there seems to be a tendency in recent years for companies to
be able to absorb the losses incurred and resume operations instead of closing.
These attacks consist mostly of server breaches and account takeover of cloud
hosting services, social engineering and insider attacks, as well as the
exploitation of software vulnerabilities in the systems of the concerned
companies.
In addition, some services have been reported to defraud customers, either
through running Ponzi schemes and/or initiating exit scams, thereby running off
with customer funds. The absolute number of scams and security breaches
remains more or less stable over time, suggesting that there has been a
reduction in relative terms.
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Some projects have been paused or shut down following the departure of the
founders and lead developers, while a growing number of companies in the last
two years have been forced to shut down due to a lack of interest in their services
and the inability to achieve profitability and secure funding. In 2014 and 2015,
some mining hardware manufacturers were filing for bankruptcy for their
incapacity of delivering pre-ordered mining rigs on time. During the same time
period, a growing number of companies have left the Bitcoin business ecosystem
by pivoting towards blockchain-based solutions that do not require the use of
bitcoin.
5.3.4.3 Observations and patterns

An interesting observation is that companies that are active in at least four
market segments generally do not leave the business ecosystem: only a single
firm (CoinJelly) terminates operations in 2014 after being active in four market
segments without indicating a formal reason. This suggests that more diversified
firms seem to have a better strategic position and are more likely to withstand
endogenous and exogenous shocks, thereby also reducing the likelihood of giving
up their strategic position by pivoting.
When observing the entry patterns of new projects and companies, it
becomes apparent that most businesses launch operations the same year that
they are founded. In 2011, we can see the first two companies that do not launch
directly, but prefer taking time for further development. This trend is growing in
subsequent years, although the vast majority still launches as soon as possible,
which in most cases means the same year as they were founded. An interesting
75
observation is that there are also existing companies already established in

different ecosystems that join the Bitcoin business ecosystem by offering bitcoinrelated services in addition to their core operations. This is mostly undertaken
by the foundation of a separate entity dedicated to Bitcoin and owned by the
parent company, but in some cases the firms also entirely tie their value
proposition to the Bitcoin platform and drop unrelated activities.
5.3.5 M&A, pivots and rebranding

5.3.5.1 Mergers and acquisitions
Figure 10: Mergers and Acquisitions

The Bitcoin business ecosystem has also seen a number of mergers and
acquisitions. The first-ever acquisition in the business ecosystem was rather
born out of a emergency situation: newly founded Polish exchange Bitomat lost
access to its wallet containing 17000 bitcoins of customer funds and needed to be
acquired by the leading exchange Mt. Gox. In contrast, subsequent acquisitions
starting in 2013 were undertaken for business motives such as expanding a
firms product palette, increasing market share in a specific segment and/or
76
eliminating competitors. The number of acquisitions has risen from five in 2013
to 11 in 2014 and even 13 in 2015, with brokerage service provider and payment
processor Coinify holding the record with a total of three acquisitions. The
findings do indicate that acquisitions are not specific to a particular market
segment, but happen throughout a variety of subindustries.
According to the dataset, there has only been one merger per year in the
business ecosystem since 2013. Two of the three total mergers have been related
to mining firms, effectively combining hardware manufacturing with datacenter
and cloud mining infrastructure.
5.3.5.2 Pivots
Figure 11: Pivots

Increased popularity of non-currency applications in 2014/2015 and growing
interest from financial institutions in the accompanying technology39 (Popper,
2015b) have resulted in a blockchain without bitcoin hype and have caused
several companies to cease operations and concentrate on non-bitcoin related
39
Often termed blockchain technology by outsiders to the Bitcoin space.

77
activities. Some firms have undertaken partial pivots, i.e. expanded services to
incorporate activities not based on the Bitcoin platform while still providing
bitcoin-related services. Other companies have realised complete pivots by
leaving the Bitcoin business ecosystem and migrating to other platforms40. There
are also a small number of firms that have pivoted within the ecosystem,
effectively completely switching to segments that were not related to previously
offered, now dropped services. There are reasons to believe that lagging user
adoption and inflated expectations from investors and entrepreneurs alike have
a negative impact on the profitability and growth expectations of a number of
bitcoin companies, causing them to focus on other markets. Similar as for the
exits, the results indicate that entities that are more diversified are less likely to
pivot.
5.3.5.3 Rebranding
Figure 12: Rebranding
This is done either by using a different blockchain as base layer/foundation, or by building

their own blockchain-like data structure.
40
78
Similarly, a growing number of firms have opted for rebranding in the last
two years, with some minor exceptions in the years before. The main reason has
been the elimination of specific pre- and suffixes41 to appear more serious and to
disguise the underlying technology powering the applications and services in an
attempt to increase mainstream user adoption by simplifying the understanding
of the services. Similarly as for the acquisitions, there is no particular market
segment that is more subject to rebranding initiatives than others, although one
could argue that they are more likely to apply to companies providing services to
mainstream consumers.
Figure 13: Pivots and Rebranding
When combining the number of pivots and rebranding in a single figure (see
figure 13), we can observe that 2013 marks a turning point for the Bitcoin
business ecosystem: a number of entities attempt to reposition themselves either
by changing their brand characteristics and/or pursuing other activities not
directly related to Bitcoin. This trend is accelerating in 2014 and 2015, which
suggests that the business ecosystem is slowly maturing.
41
E.g. bit, coin.

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Chapter 6: Analysis and

Discussion
6.1 Analysis
In this section, we will first present the main factors that have a direct
influence on how market segments form and evolve. Some of these factors do also
apply to the ecosystem as a whole, but primarily concern specific market
segments. We then identify the change drivers that influence the business
ecosystem at a macro level and thus have an effect on all market segments.
6.1.1 Factors driving the emergence and evolution of market

segments
6.1.1.1 Changes in market needs
The main raison dtre of any firm is to cater for a need that arises in the
market by providing solutions that fulfil those needs. Hence, changes in market
needs have unsurprisingly been the main driver in the emergence of new market
segments, products and services, and their evolution over time in the Bitcoin
business ecosystem. User needs and wishes create a certain market demand,
which in turn is met by newly formed and/or established entities who build
solutions and fill the gap. In the Bitcoin business ecosystem, this is best
illustrated by for instance the successive emergence of more convenient services
for the acquisition and sale of bitcoins, the creation of powerful trading
infrastructure, the appearance of wallet providers tackling the issues of secure
80
key management, as well as the rise of developer tools and platforms facilitating
interaction with the protocol and other applications. These applications and
services, among many others, did emerge after the market expressed demand for
solving a particular issue.
6.1.1.2 Regulatory forces

Regulatory forces play a very important role in the Bitcoin business
ecosystem due to the unique nature of its main value proposition that promises
to alter a fundamental concept of human society: digital cash that is censorshipresistant because it is not controlled by a state or licensed company.
In the early stages, the emerging Bitcoin economy received little attention
from authorities and regulators, mainly because of its small size and trivial
relevance. Frequent occurrences of scams and fraud schemes in an early grey
legal environment without regulation and consumer protection led the ecosystem
actors to address these problems and self-regulate themselves by adopting
standard security practices, warning about scams and frauds in the main
communication forums, and building services specifically tailored to address
these issues. This self-organisation worked remarkably well considering the
context of value exchange with unknown strangers on the Internet using an
obscure digital currency. With the rise of online black markets, however,
regulators and authorities increasingly raised concerns over the illicit use cases
of bitcoin and advocated for the application of existing financial regulation to
ecosystem participants.
81
As a result, the ecosystem basically split in two parts: On the one side,
there is the unregulated economy composed of services in which the lack of
regulation and pseudonymity are considered to be features and part of their
value proposition. This mainly applies to specific industries such as mixing
services, online black markets, gambling sites, but also to particular actors from
other industries, which differentiate themselves by offering services without
prior KYC (Know your customer) and AML (Anti-money laundering) checks42,
often at a premium for increased privacy. This part of the business ecosystem is
still self-organising and to a greater or lesser extent self-regulating as it was
before. On the other side, there is an emerging regulated economy that consists
of usually formally incorporated firms who adapt to the new regulatory
environment. These firms are mostly operating in market segments serving
consumer needs, which are subject to strict rules. The regulatory requirements
contribute to the emergence of new market segments such as compliance firms,
and the rise of software companies providing specialised accounting and tax
reporting
software,
but
also
the
appearance
of
legal
consulting
and
cryptocurrency-only exchanges that bypass money transmitting laws by avoiding

dealing with fiat currencies. This part is dominated by the adaptation to the
existing regulatory environment.
Hence, we witness both regulation-delayed
and ironically regulation-driven innovation as a result: some market segments

are
over
proportionately
concerned
by
complying
with
time-consuming
regulatory requirements and costly applications for licenses, while other market
segments either emerge or thrive as a consequence of the increasing regulatory
42
An example would be the exchange BTC-e and P2P marketplace LocalBitcoins.

82
burdens. Unsurprisingly, the results show that complying with regulation is a

prerequisite for receiving VC funding.
6.1.1.3 Evolution of value proposition

The different value propositions enabled by the platform highlighted in
section 2.4 provide the basis for the creation of value-adding niches. The analysis
shows that at different stages of the evolution, companies have focused building
products and services based on a specific value proposition, which has evolved
over time.
In the beginning, all services were related to the use of Bitcoin as a digital
currency. The focus was then expanded to promote the use of Bitcoin as a digital
asset for speculation, trading and investment, resulting in the creation of
sophisticated trading platforms, investment vehicles and vaults for secure
storage. Soon enough, some individuals discovered that the immutable nature of
the underlying blockchain could be used to build complex meta-protocols and
overlay networks on top of Bitcoin, as well as serving as a mechanism for
distributed proof-of-existence. This led to the emergence of new market segments
focusing on non-currency applications. Finally, the use of Bitcoin as a cheap and
rapid payment system was rediscovered and gave rise to internal money
transfer platforms, remittances services and micropayment systems.
The available evidence suggests that over time, firms and market segments
have put the focus on different aspects of Bitcoins value proposition when
building products and services. Most of these aspects such as currency, payment
system and digital asset are closely related to each other (currency applications),
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but differ in scope and infrastructure needs. The perceived nature of Bitcoin by
users and network participants is constantly evolving, and so are the
applications and services built around the platform.
6.1.1.4 Low barriers to entry

The open nature of the FOSS-based Bitcoin platform enables easy
participation in the network by simply downloading a software client. At early
stages, the barriers were low for literally all market segment: all that was
required to start a project or business was a minimum technical understanding
of the system and limited programming skills. This made it trivial for anyone
interested to start a business, translating into a large number of new entrants
and the emergence of various niche industries. The lack of mature and adequate
infrastructure and the often-horrible customer support might have been a
consequence of these low barriers to entry. Over time, though, the barriers to
entry did increase for most market segments, although the reasons differ:
hardware manufacturers (for example mining rigs and ATMs) required intensive
capital investments, while other market segments were already populated and
served by a considerable number of companies with reputation and functioning
infrastructure, making it more difficult for new entrants to establish themselves.
On the other hand, however, the emergence of developer platforms and other
middleware solutions have reduced the barriers to entry to certain industries by
removing the need to build a service infrastructure from scratch. Hence,
depending on the segment one wishes to build a business in, the barriers can be
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low or high, although they tend to have increased in general over the last years
mainly due to the large number of established companies that are well funded.
6.1.1.5 Technological changes/advances

Technological advances have also been a driving factor in the evolution of
certain market segments. The structure of the mining industry has been
completely reshaped with the successive introduction of more powerful mining
hardware following breakthroughs in the development of microchips. This has
resulted in the creation of enormous data centres and mining farms controlled
and operated by a small number of influential firms43. Frequent innovations on
the protocol and network level, the crucial building blocks of the Bitcoin
platform, require certain service providers to adapt: wallet providers for instance
compete with each other for implementing new BIPs such as for example
providing the functionality of multi-signature44 and HD (hierarchically
deterministic) wallets. Firms are expected by the market to adapt to changes and
alter their infrastructure to stay competitive: those who do not adapt will be left
behind and lose market share. Although technological changes at the protocol
level concern all entities regardless of their affiliations, some market segments
are more affected than others. This applies especially to segments that deal
directly with the protocol and/or offer interfaces to the technological building
blocks.
This raises the question if Bitcoin can still be considered a decentralised system if the majority
of mining power is concentrated in the hands of a few. Nevertheless, the designed incentive
structure seems to work well because there have not been attempts so far of influential miners to
abuse their dominant position.
44 Multi-Signature refers to a bitcoin transaction that requires M-of-N private keys to be
authorised, with M <= N. This enables a set of interesting possibilities to build more complex
types of transactions.
43
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6.2 Factors impacting the evolution of the

overall ecosystem
6.2.1 Regulatory uncertainty
Regulatory uncertainty has played a major role in the development of the
business ecosystem. The incapacity of legislators and regulators worldwide to
clearly communicate the legal obligations for bitcoin entities has resulted in a
variety of distinct regulatory approaches and taxation regimes differing from
country to country, adding further complexity and potentially unexpected legal
outcomes As a consequence, many bitcoin firms ran into difficulties maintaining
good banking relationships, eventually leading to the demise of some companies.
Moreover, financial institutions in general had been reluctant to join the
ecosystem out of fear of reputational risk due to the unclear legal status of the
nature of Bitcoin and the threat of potential government intervention.
Nevertheless, with increased acceptance of the potential of Bitcoin among
regulators and a majority of firms complying in recent years, the Bitcoin
business ecosystem has gained legitimacy in the eyes of consumers and outside
firms. This has resulted in greater user adoption and increased interest and
activity from traditional financial institutions. We can thus claim that initial
regulatory uncertainty regarding the appropriate reaction and in some cases
premature responses in the first years have slowed down innovation in some
market segments, caused several firms to close, delayed interest and
involvement of established financial institutions and contributed to a rather
negative public perception of Bitcoin. However, recently, a more open regulatory
86
approach with less resistance and positive comments from various central banks,
supervisory authorities and other government agencies have helped Bitcoin get
more legitimacy in the eyes of the general public, something that has been
missing for many years. As a consequence, the business ecosystem has attracted
further attention, investment and talent.
6.2.2 Public perception

Public perception has played a crucial role in the development of the Bitcoin
network itself as well as the surrounding ecosystem. As with any money or
currency, the value of bitcoin is derived from the trust that users put into the
underlying system. One might argue that unlike fiat currencies, whose value is
essentially based on the fact that they act as legal tender and are required to be
used for paying taxes, bitcoins are backed by computational power and the trust
put into the security of the network. However, this trust is ultimately the
"consensus about the value of coins" (Narayanan et al., 2016: p. 168), a general
agreement among users that bitcoins have current and future value. This
agreement is largely dependent on public perception, which exerts a tremendous
influence on the value of the underlying currency units, expressed by the market
price.
Hence, growing media attention and coverage at the beginning has been
beneficial and indispensable for raising awareness and attracting early adopters
and developers, but the initial focus on Bitcoin's association with crime, security
breaches and large price swings have severely tarnished its image in the general
public in the first years. Especially the negative undertone of early news articles
87
by the traditional press, who mostly focused on the currency aspect of Bitcoin
and largely omitted pointing out the value of the underlying network, may have
delayed increased adoption by deterring potentially interested "outsiders" in
their decision to join the ecosystem. The repeated emphasis on the unregulated
and allegedly anonymous features of bitcoins gave Bitcoin the image of an
obscure kind of Internet money that served as a perfect tool for criminal
activities. Along with market failures due to security breaches and exit scams,
this also attracted scrutiny from regulators and authorities. However, public
perception has recently shifted with the emergence of the "blockchain hype" that
has emanated from Bitcoin and the influx of renowned investors and VC firms.
The systems enhanced public standing in the mainstream has attracted more
investment and was partly responsible for increased adoption.
6.2.3 Dependence on market price

Bitcoins value is currently represented by the market price of its tokens
expressed in other currencies, and determined by the supply and demand in
terms of these other currencies. Due to the paradigm shift that Bitcoin
represents, the market has had difficulties to accurately assess the value of the
system and price the tokens. As a result, bitcoin has experienced high volatility
and large price swings, leading to huge speculation.
Bitcoins market capitalisation45 plays a very significant role in the
development of the business ecosystem. Rising market prices have attracted
45
Market capitalisation = (Market price per bitcoin) x (Number of outstanding bitcoins).

88
many speculators, but also investors and hence expanded the number of
stakeholders in the ecosystem. With the increased amount of money at stake,
various stakeholders vocally advocate for improvements to their benefit and it
has become increasingly difficult to align the interests of all participants. There
are some market segments that are more directly impacted by the market price
than others. For some industries, the market price plays a dominating role
regarding profitability, while especially for non-currency applications, it
currently only plays a minor role46 Some market segments benefit from high
volatility, while others suffer due the loss of faith from consumers incurred by
the same volatility. Similarly, many firms pay their employees in bitcoin and/or
get revenues in bitcoin, and are thus subject to volatility if they do not directly
convert them to fiat.
However, the market price can also have a huge influence on a specific
market segment and at the same time the whole system itself. The best example
is the mining sector, who ensures the verification of transactions which
constitutes one of the most crucial components of the Bitcoin platform: the
higher the market price per bitcoin, the higher the potential reward, which leads
to an increase in the total hash rate because more miners want to participate. At
the same time, the market price is also an important proxy for assessing the
security of the underlying blockchain47: the higher it is, the more costly an
The number of outstanding bitcoins refers to the total number of bitcoins mined. However, this
does not take into account the bitcoins that have been lost forever due to private key losses,
hardware failures, proof-of-burns, etc.
46 It might become more important in the future if the price were to rise to new record levels.
However, due to the close relationship between public perception and market price, non-currency
applications are also affected by high price volatility, albeit to a lesser extent.
47 In this context, security refers to the probability of the blockchain not being altered
retroactively.
89
attempted 51% attack will become and thus in theory less likely, thereby
increasing the value of Bitcoin as a secure because immutable system. Hence,
the market price not only has a huge impact on profitability of miners, but also
on the security of the network.
Finally, the market price and public perception are also closely linked:
Glaser, Haferkorn, Weber and Zimmermann (2014) show that media coverage
and positive sentiment exert a significant influence on bitcoins price volatility.
6.2.4 Changes in organisational firm structure

In the early days of the ecosystem, most projects and firms were barely
passing the proof-of-concept stage, yet already launched their services on
immature and often improvised infrastructure. Many entities consisted in fact of
a single person having set up a couple of servers somewhere in the world and
working from his or her desktop at home. Most companies at that time were thus
not formally incorporated and did not have an organisational structure. They
mainly consisted of tech-savvy innovators often taking over the role of miners,
developers, entrepreneurs and users at the same time, and libertarians and antistatists guided by ideological motivations. As a result, these early businesses
lacked management skills and a performing infrastructure, among others, and
did only appeal to a small audience of early users.
Over time, some of these businesses started become more pragmatic by
formally incorporating48 and building organisational structures to attract
Entities active in certain market segments still are not incorporated and lack traditional
organisational structure because it is not deemed necessary for their purposes. This applies
48
90
venture capital and gain more legitimacy among potential customers. However,
the infrastructure built by these early firms was still immature and could not
handle loads of traffic. Additionally, they were also frequently insecure, which
led to a number of security breaches and hacks.
However, with the market price soaring in 2013 and Bitcoin receiving a lot
of attention, a new wave of firms entered the ecosystem and introduced notable
changes: successful business people and entrepreneurs with professional
experience at major financial institutions and technology firms joined
established companies or founded their own, attracting venture capital, talent
and networks of influential people. The tone of the conversation also slowly
changed: some companies began marketing the advantages of Bitcoin over other
alternatives and turned away from the ideological motivation of creating a
radical different financial system entirely built on Bitcoin. The websites and
presentations of the companies became more professional, customer service and
support were improved and nice graphical user interfaces (GUIs) were
introduced to facilitate ease of use for the mainstream user. As a result, the
business ecosystem gained more legitimacy and credibility among the general
public, which encouraged previously sceptical outsiders to join the platform.
6.2.5 Environmental dynamics

Exogenous events can both have positive and negative impacts on user
adoption and public perception. These environmental dynamics can be of
mainly to darknet black markets, mixing services, some gambling sides and unregulated
exchanges.
91
economic, political and social nature, and the magnitude of the impact on the
ecosystem does vary. Examples of positive effects include the Wikileaks financial
blockade in 2011 as well as the Cypriot financial crisis and the resulting partial
bail-in of bank customers in March 2013, two events that both raised awareness
of bitcoin in the general public and provoked an influx of new users. Similarly,
more long-term economic turmoil such as the hyperinflation in Venezuela and
Argentina coupled with strict capital controls make Bitcoin an interesting
alternative. On the other hand, events such as the People's Bank of China and
the Chinese government effectively restricting the use of bitcoin for financial
institutions in late 2013 have a negative impact on the ecosystem by causing the
market price to plunge and thereby slowing down the ecosystem's growth.
6.2.6 Competing ecosystems

Bitcoin emerged as an alternative to the traditional financial services
industry, and as such is competing in various aspects with large and powerful
incumbents. More importantly, though, it has to compete with the wellcapitalised FinTech ecosystem that offers similar services, but is more embedded
in the traditional payment systems and therefore has a wider reach and larger
user adoption. Moreover, the centralised nature of FinTech firms enables more
cost-effective services. In addition, the rise of alternative cryptocurrency and
"blockchain" ecosystems in recent years have put Bitcoin under more pressure,
although it has retained its first mover advantage so far. All these distinct
ecosystems are competing for user adoption, VC funding and talent. Market
failures in one ecosystem can have beneficial effects on others, but the opposite is
92
also true: since Bitcoin and other cryptocurrencies are closely linked, massive
technological deficiencies in one system can severely impact confidence and
public perception in another system.
6.3 Discussion
After having explored the emergence and evolution of the distinct market
segments and identified the main change drivers and factors leading to the
expansion, we will discuss the findings in the light of the existing theory. The
findings indicate that the Bitcoin business ecosystem shares some characteristics
and evolutionary trajectories with other business ecosystems, but also exhibits
distinct patterns that have not been highlighted yet in previous research.
The findings confirm previous research (Moore, 1998; Peltoniemi & Vuori,
2004) that the emergence and development of a business ecosystem is mainly
self-organised through decentralised decision-making by a variety of interacting
entities. This applies especially to the context of a cryptocurrency system like
Bitcoin that has no formal owner nor platform dominator who dictates the rules.
Instead, a diverse set of independent organisations are interacting around the
common platform and create macroeconomic dynamics at the ecosystem level
through their individual conscious choices at the individual organisation level.
These interactions are characterised by both competition and cooperation at the
same time (Iansiti & Levien, 2004; Merry, 1995): the entities are competing for
market share in their respective market segments, but also collaborate (Moore,
2006) on various occasions because it is in their best interest to contribute to the
93
common platforms overall value. This is manifested for instance by the

emergence of developer platforms that provide APIs to facilitate the development
of applications for other firms, while competing with entities who provide similar
services. The findings also confirm Chesbrough's (2006) view that collaboration is
essential in high-growth and technology-intensive business ecosystems, because
the technology and basic infrastructure is in early stages and needs to be jointly
tested and developed. All business ecosystem members have an interest to
promote the use of the Bitcoin platform, which becomes more valuable the more
services and functionalities are built on top of it (Gawer, 2009b). The abundance
of supporting services to the platform that provide additional services such as
the provision of information for instance does reinforce Suarez and Cusumanos
(2009) argument that services play an essential role in an ecosystem: they create
value by attracting new users (Adner, 2006) and retaining existing users through
indirect network effects (Suarez & Cusumano, 2009).
One phenomenon that Peltoniemi (2006) refers to as emergence is especially
prevalent in the Bitcoin business ecosystem: individual actions of interconnected
actors resulting in unpredictable outcomes at the ecosystem level
(Smith &
Stacey, 1997). The actions of a specific entity can unexpectedly contribute to the
creation of a totally new market segment and/or a new business model that has
not been anticipated before. As a result, the business ecosystem witnesses the
emergence of a huge diversity in offerings, distributed among a variety of niches
occupied by specialised entities. This huge diversity creates more options and
services for end-users and enhances the ecosystems resilience and robustness
(Iansiti & Richards, 2006), because it reduces the ecosystems dependence on a
94
small number of specific market segments and actors, as was the case in the
early days of Bitcoin. Another result of the diversity is the creation of new spaces
(Moore, 2006), i.e. business opportunities that did not exist before: Bitcoin has
enabled the formation of new industries and types of firms with distinctive
business models. A good example is the emergence of the mining industry, which
consists of hardware manufacturers, datacenter providers and mining pools; as
well as the appearance of mixing services, specialised developer platforms and
wallet providers among others. It is this enormous diversity that makes the
business ecosystem attractive for users as well as companies.
The findings also suggest that the evolution of the Bitcoin business
ecosystem has initially been significantly dependent on the public perception of
the outside and the market price, two factors that have not been recognised so
far as significant change drivers by previous research on other business
ecosystems.
In
fact,
these
dependences
amongst
others
establish
interdependence and interconnectedness among the various entities and market

segments (Iansiti & Levien, 2004; Peltoniemi, 2006) in the sense that they share
a common fate based on the effects of uncontrollable internal and external
factors that they can only partly influence. For instance, a security breach at a
large exchange leading to the theft of customer funds severely tarnishes Bitcoins
image and causes the price to drop, while positive news and actions have the
opposite effect on the overall ecosystem. Hence, the participants are co-evolving
(Moore, 1993; Peltoniemi, 2006) by on the one hand collaborating together to
positively influence Bitcoins public image by adopting a common strategy
destined to protect and promote the business ecosystem as a whole, and as a
95
result increase the market price; and on the other hand creating additional value
through innovation-spurred competition (Liu et al., 2015) between themselves.
While regulation is considered to be part of the forces shaping the paths of a
business ecosystem (Liu et al., 2015), it plays a far more influential role in the
Bitcoin business ecosystem due to the nature of its main value proposition. In
the early stages, the business ecosystem was mainly self-regulating in the
absence of any governmental or regulatory intervention. However, increased
media attention, the use of bitcoin for illicit activities and massive price growth
attracted scrutiny from regulators and caused a flood of diverging regulatory
responses and interventions. As a result, the Bitcoin business ecosystem
basically split in two parts: on the one side the regulated economy consisting of
entities that have adapted to external constraints (Peltoniemi & Vuori, 2004) by
complying with the new rules and regulations, and on the other side the
unregulated economy that does not bother adapting and continues regulating
and organising itself49. This development supports Peltoniemis (2006: p.13)
argument that frequently interventions from the public sector either [inhibit]
self-organisation or [create] enabling structures for self-organisation. Similarly,
these interventions in the Bitcoin business ecosystem convey both regulationdriven as well as regulation-delayed innovation as described by Liu et al. (2015).
We claim that self-organisation in the Bitcoin business ecosystem has mainly
taken place in the early stages when stakes and public attention were still quite
low, and that after the interventions from regulators, adaptability to the
In contrast to many other business ecosystems, this is possible thanks to Bitcoins
decentralised nature that makes it practically impossible to censor or prevent undesired
transactions, as well as the frequent use of special software enabling anonymous communication
and the set-up of practically unseizable hidden services (ex: TOR network)
49
96
regulatory environment has been a major change driver for the largest part of
the business ecosystem, including the unregulated part that may benefit from
the inconveniences imposed on their regulated counterparts.
Interestingly, the evolution of perception of the platforms value proposition
and the resulting services built upon different interpretations of the platforms
aspects confirm Moores (2006: p.58) observation that entities in a business
ecosystem tend to have different images and understandings of the business
ecosystem, even in a highly aligned situation. We assume the changes in the
organisational structure of firms, although not described in other papers, to be
similar in other nascent business ecosystems with low barriers to entry. Other
factors such as the influence of environmental dynamics (Mkinen & Dedahayir,
2012; Tiwani et al., 2010), technological advances Mkinen & Dedahayir, 2012)
and competing or rival ecosystems (Moore, 1993) play a role in the Bitcoin
business ecosystem too, albeit a smaller one.
Finally, we agree with Iansiti & Richards (2006) that the success of a
business ecosystem is based on the ability to improve value of products and
services, the ability to persist external influences and the ability to create niches
and opportunities for new firms. The Bitcoin business ecosystem has exhibited
all three aspects and has retained its first-mover advantage by remaining the
largest and most valuable cryptocurrency system in the world.
97
Chapter 7: Conclusion
7.1 Summary
Emerging from a quiet and barely noticed launch in early 2009, the Bitcoin
platform has undergone significant technological changes and improvements.
What started as a small experiment and proof of concept, has developed in less
than seven years into a large ecosystem composed of more than twenty different
subindustries that have formed around the core platform and provide a wide
range of diverse products and services.
The purpose of this paper was to visually explore how the structure of the
Bitcoin business ecosystem has changed since its inception and to identify the
change drivers. To answer these questions, data was collected on 514 firms and
projects whose operations have been related to Bitcoin in some way, resulting in
a unique longitudinal dataset covering a time window from 2010 to 2015
included. A market segment framework was developed to group the various
products, applications and services into mutually exclusive segments. The
framework was subsequently applied to the dataset and network graphs for each
year were generated to show the evolutionary dynamics of the business
ecosystem structure in terms of the affiliations between entities and market
segments over time.
Results show that the Bitcoin business ecosystem surrounding the Bitcoin
network provides a very diverse set of offerings, that range from currency
applications over supporting services and middleware services to non-currency
98
applications, demonstrating that the business ecosystems scope has expanded

beyond currency, payments and financial services and has somewhat created a
sort of internal economy. Entities have been founded to build applications that
add new functionalities to the platform, as well as providing services that
facilitate interaction with and access to these functionalities via different
channels. Moreover, a set of supporting services have emerged in the business
ecosystem to provide an array of complementary services that add further value
to the platform itself. On the one hand, a variety of existing services from
established industries has been replicated and adapted to Bitcoin, but on the
other hand there has also been the development of completely new roles and
subindustries that did not exist before. Growth has exploded in 2013 in terms of
the number of entities, followed by a large influx of VC money, media attention
and scrutiny from authorities. Around the same time, there is a trend towards
diversification and the business ecosystem witnesses the first mergers and
acquisitions, as well as a growing number of bankruptcies for a variety of
different reasons. Starting in 2014, we can observe a rise in the number of
partial and complete pivots as well as rebranding attempts, suggesting that the
business ecosystem is slowly maturing.
Regulation has played a major role in the development of the business
ecosystem, which until then had relied on self-organisation and self-regulation.
Regulatory forces and uncertainty both played roles in the creation of new
market segments and the slowdown of innovation in others, and contributed to a
split of the business ecosystem into two parts. Moreover, the findings indicate
that the different aspects of Bitcoins value proposition have been subsequently
99
emphasised and dominant at various points in time. Moreover, the low barriers
to entry at the beginning and technological advances in certain subindustries
and at the protocol level have been influencing the evolutionary structure of the
business ecosystem. Furthermore, the results also suggest that the business
ecosystem has been very dependent on the market price of bitcoin, which is
closely related to the public perception and standing of the system and
technology. Some market segments have been more affected by this than others,
although one can assert that Bitcoins public standing has improved significantly
since 2014 and the dependence on the volatile price has declined with the
ecosystem slowly maturing. Finally, environmental dynamics, competition with
other ecosystems and the change in the organisational firm structure have had a
certain influence on the evolution of the business ecosystem as a whole.
7.2 Implications
7.2.1 Theoretical implications:
The study has contributed to the research on the evolution of business
ecosystems in general by providing a comprehensive data-driven exploration of
the dynamics of an emergent industry and its components. In particular, it
figures among the first studies to explore and analyse a platform-based business
ecosystem that has no platform owner or leader and whose functionalities enable
the creation of a new kind of money, which constitutes a fairly new knowledge
domain. Specifically, this is the first paper that thoroughly explores the evolution
of a business ecosystem formed around a decentralised cryptocurrency system
100
since its existence using a visualisation approach. Moreover, the findings are
based on a unique longitudinal dataset that is freely available and can be used
for future research. The study also analyses the factors that influence the
emergence and evolution of the Bitcoin business ecosystem and compares them
with prior research, highlighting the dominant role of regulation. Additionally, it
introduced a market segment framework that can also be used for further
research on decentralised cryptocurrency systems and their surrounding
business ecosystems.
7.2.2 Managerial implications

The study also adds some contributions that provide new insights for
practitioners. It introduces the first comprehensive framework for categorising
the plethora of products, applications and services that are offered in the Bitcoin
business ecosystem and groups them into market segments. This enables
professionals to better comprehend the diversity of the Bitcoin industry and
divide it into subindustries. Furthermore, the study visually explores the
emergence and evolution of these segments over a time window of six years,
providing a unique visual perception of the evolutionary dynamics. The
visualisation allows for the observation of individual firm life cycles and
diversification strategies. The key trends and developments of the Bitcoin
business ecosystem are summarised to provide interested actors with a solid
overview over business dynamics in the largest cryptocurrency network: funding
patterns, mergers and acquisitions as well as the causes for entry and exit of the
business ecosystem are examined and put into context.
101
The study can help entrepreneurs and investors to identify interesting

strategic positions and new spaces, better comprehend the reasons why certain
market segments emerge and highlight the factors influencing the evolution of
the overall business ecosystem. In addition, it contributes to the understanding
of the different roles and activities of Bitcoin entities, and highlights the role
that regulation has played in the development process, which may also be of
interest for regulators and government agencies that have so far been struggling
to provide a coherent legal and regulatory framework that applies to
decentralised cryptocurrencies.
7.3 Limitations and future research

7.3.1 Limitations
Unsurprisingly, there are also several limitations to the study. First, we
restricted the scope of the study to only firms and projects operating in the
Bitcoin ecosystem, deliberately omitting the roles that core developers and other
stakeholders play in the ecosystem. Second, the dataset is based on partly
unverifiable public data sources whose reliability could not always been crosschecked. Although every precaution has been taken to limit this issue to a strict
minimum, there might be erroneous data that has slipped in, resulting in an
inaccurate representation of the ecosystem structure. Similarly, it is possible
that some aspects regarding firms and projects as well as market segments and
affiliation links between them might not have been captured, due to the constant
evolution of the product and service offering. Moreover, the theoretical market
102
segment framework might not have captured all relevant segments, or in some
cases closely related activities may have inaccurately been categorised
separately.
7.3.2 Future research

Some of the limitations of this study offer exciting new avenues for further
research. The market segment framework could be reviewed and updated, and
subsequently be applied to other decentralised cryptocurrency systems and
tested for its validity. Furthermore, since the analysis does not take into account
the relationships between firms and projects, further research could analyse
inter-firm relationships between Bitcoin companies such as alliances and
strategic partnerships to get a better understanding of how the market segments
and firms are connected. The dataset could be used to explore business strategies
and the strategic positioning of Bitcoin companies, and analyse in detail their
business models and life cycles to identify the factors of success.
Moreover, it would be interesting to adopt a systems perspective and
examine the relationship between the developer community, the business
ecosystem and the other stakeholders in the process of building the ecosystem
and creating value. This would allow to include factors such as platform
architecture, governance and the role of the community. Finally, a comparison of
the various alternative finance ecosystems could provide interesting insights into
the role and implications of emerging decentralised virtual currency schemes on
traditional financial services ecosystems and firms.
103
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2010
8 (1)
20 (2)
2011
12 (3)
29 (6)
2012
37 (10)
28 (6)
13 (2)
69 (12)
2013
70 (7)
38
23
106 (12)
2014
70 (2)
33
22
96 (6)
2015
Appendix A: Market Segment Emergence and Evolution

table
12
Data Services
Brokerage Services
Bitcoin poker site (Seals with Clubs); betting site (Bets of Bitcoin)
Providers of network statistics/market data (Bitcoinity) and block

explorer (Blockchain.info)
Buy and sell bitcoin conveniently at a fixed rate plus mark-up
13 (1)
13 (2)
14 (2)
38 (12)
11 (1)
19 (5)
13 (1)
32 (1)
69 (9)
9 (1)
23 (1)
14
41
69
Media
First Product/Service
Mining pool (Slush Pool); own mining operations (Genitrust)
10
Market Segment
Mining
Centralised anonymous service mixing deposits for enhanced

privacy (BitLaundry)
Exchange
Mixing
Custodial browser-based wallet (MyBitcoin)
Gambling
First bitcoin-denominated stock exchange (GLBSE)
Simple order-book with deposits and withdrawals through owners

PayPal account (The Bitcoin Market; Mt. Gox; Paymium (then:
Bitcoin Central))
Website with educational resources and videos to raise awareness
and understanding (We Use Coins)
Wallet
Investment
Darknet black markets (Silk Road; Black Market Reloaded)
59 (1)
Marketplace
51 (5)
45 (3)
18 (4)
39 (6)
15
23 (7)
16
7 (3)
17 (2)
29
Removing volatility for merchants (BitPay; BIPS)
4 (2)
27 (4)
Payment Processor
9 (3)
More sophisticated trading engines (Bitfloor; Intersango)

Proxy-buyer service (BitcoinDeals); buy gold/silver with bitcoin
(Coinabul)
API platform (Blockchain.info)
Trading Platform
Shopping
Developer Tools
118
2012
2 (1)
2013
27 (4)
12 (6)
2014
34 (1)
29
13 (1)
2015
Appendix A: Market Segment Emergence and Evolution

table (contd.)
9 (3)
25 (3)
9 (1)
Developer Tools
Financial Services
2011
Development of Omni Layer (then: Mastercoin), the first metaprotocol
12 (6)
3 (1)
2010
API platform (Blockchain.info)
First Product/Service
Debit card providers (BitInstant; Bitcurex)
Market Segment
Development of timestamping service for proving existence and

authenticity of a document (Proof of Existence)
Blockchain
Innovations
Notary Services
35
28 (2)
32 (2)
11
18 (1)
13 (10)
9 (1)
9 (1)
10 (5)
4 (1)
31 (1)
24 (4)
Advocacy group and developer funding

Bitcoin ATM manufacturer and/or operator
Compliance platform (BlockScore); legal advisory services (Diacle;
Coin Validation)
Tipping platform (ChangeTip); paywall for content providers
(BitWall)
Mainly centralised C2C payment platforms and remittance
providers
14 (7)
Other Services
ATM
Compliance
Micropayments
Money Transfer
Platform
119
Appendix B: Sub-graph figure 2013

120
Appendix C: Sub-graph figure 2014

121
Appendix D: Sub-graph figure 2015

122

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CRYPTOCURRENCIES MEETING

BUSINESS ECOSYSTEMS: THE

Master in International Business (MIB)

Thesis Submitted in Partial Fulfillment

Michel Rauchs 2016

CHAPTER 5: FINDINGS ........................................................................................................................... 47

1.2 Decentralised cryptocurrency systems

infrastructure, applications, products and services are built. As a consequence,

1.3 Research problem

Retrieved from: https://coinmarketcap.com/ [Accessed: August 30, 2016].

The findings can help entrepreneurs and investors get a better

Indeed, Bitcoin draws upon on a combination of concepts from various disciplines

2.2.1 How does it work?

a previous transaction that he wants to spend, and indicates the recipients

computational power5 is considered to be the valid one. Full nodes on the

2.2.2 Nakamoto consensus

2.3 Bitcoin software

2.3.2 Core developers

2.3.3 Developer funding

2.4 Value proposition(s)

considered to be neutral, which enables a value proposition that can essentially

2.4.1 Decentralised digital cash

2.4.2 P2P payment network

2.4.3 New asset class

2.4.4 Immutable time-stamped file system

Chapter 3: Literature Review

exploitation, learning and growth (Rothschild, 1990). However, the main

3.1.2 Definition and characteristics

outcomes at the ecosystem level. Competition and cooperation in an ecosystem

Collaboration between members (Moore, 2006) is a fundamental characteristic,

3.1.3 Technology platforms

compare the leaders of such multi-sided platforms to public interest regulators

commercialisation of open-source software (Morgan, Feller & Finnegan, 2013)

3.2 Ecosystem trajectories

and innovation-stalling competition, and analyse the role of regulatory force in

3.2.2 Frameworks and approaches

3.3 Bitcoin and cryptocurrencies

A number of papers investigate if bitcoin is rather a currency or a

3.4 Research gap

4.1.1 The Bitcoin ecosystem

Developers maintaining the Bitcoin protocol, network and consensus

Firms and projects building complementary applications and services

Other stakeholders of the network

4.1.1.2 Firms and projects

4.1.1.3 Other stakeholders

4.1.1.4 Network effects

4.1.2 The Bitcoin business ecosystem

4.1.2.2 Inclusion criteria

1. The core activities and operations of the entity need to be related to

4.2 Data collection

4.2.1 Identification of relevant entities

Blockchain Ecosystem Database by OutlierVentures.io. Available at:

4.2.2 Type of data collected

4.2.3 Data sources

Available at: https://en.bitcoin.it/wiki/Main_Page

4.2.4 Resulting dataset

4.3 Market segment framework

existence of a variety of industry classifications, they often differ across different

4.3.2 Development of framework

Available at: http://startupmanagement.org/wp-content/uploads/2015/12/Blockchain-inFinancial-Services-Landscape.pdf.

Table 2: Market Segment Framework

Manufacturers and operators

Buy/sell services of bitcoins directly, OTC money exchange,

Meta-protocols, sidechains, blockchain anchoring, smart