Blockchain is not just Bitcoin

Preview of our research report covering the economics of Blockchain, the current ecosystem of startups, successful projects in DeFI, Coins, and distributed ledger

It’s been more than a decade since the Bitcoin white-paper was published by Satoshi Nakamoto (presumed a pseudonym) in 2008 titled Bitcoin: A Peer-to-Peer Electronic Cash System. The term Blockchain is never used in that paper- it instead talks about a peer-to-peer network and the network timestamps transactions by hashing them into hash-based proof-of-work forming a record that cannot be changed (emphasis added) without redoing the proof-of-work. This pattern and the immutable nature that later on came to be called Blockchain and distributed ledger technology are now the underpinnings of several applications and the new decentralized or trust-less business models.

The iValley team has been at the forefront of Blockchain technology and its disruptive impact. Since our first annual FINTECHTALK(TM) conference, we have been featuring Blockchain innovations and startups. We have postulated its disruptive potential not only in fintech but as the system of truth eventually disrupting internet business models. See here for what we said about this in 2017.

Economics in Decentralized networks

While Bitcoin had a specific purpose of making payments across the internet easy, Blockchain’s economic potential comes from network economics.

The law of increasing marginal value of a network

In any network, centralized or decentralized, the network's value increases with more participants or nodes. The value is accretive to the network as a whole and for centralized networks, the shareholder of the network has discretion on how the value is shared with the participants. For large networks, this is typically a consortium or a government entity and the governance around pricing for new entrants and value distribution is managed centrally. For example, Visa, Fedwire, Swift.

In a decentralized network that is self-regulating, typically early adopters get the larger share of the value addition. For example, the first 100 buyers of Bitcoin have better returns vs. the first time buyer today. This is true for permissioned decentralized networks too but those could have some overarching governance for the pricing of new entrant and value distribution than a self-regulating network like Bitcoin.

The cost of the consensus principle governs when centralized networks will migrate to decentralized networks in any value chain. I define it as follows; In a free market condition, all centralized networks will migrate to sustainable decentralized network overtime when the cost of building consensus and proof-of-work is less than the cost of centralization. Consensus and proof of work are inefficient, especially in large multi-node networks. This cost depends on the number of nodes in the network, which becomes an important factor. The threshold determinants of this cost are computing power, network bandwidth, and the amount of loss and fraud that the network can sustain. In a not too distant future, all information and value will eventually reside or be denoted in a distributed ledger. The network becomes the custodian with exchanges, tokens, and Defi applications which brings us to the categories in the new research and the ecosystem infograph below.

The Blockchain ecosystem

In this new iValley research, we analyzed the evolution of the Blockchain-based ecosystem and see growth across 3 broad innovation areas. See the preview infographic below.

  • Blockchain infrastructure and platforms - At the base of the stack is the distributed ledger infrastructure. This includes exchanges like Coinbase, Binance, and wallets to hold digital assets and also platforms like Hyperledger, Ethereum, and Corda that have been the foundation of distributed ledger applications.

  • Coins and Tokens - Bitcoin, the most popular cryptocurrency, is hardly the only kid on the block (no pun intended). Stablecoins that are pegged to a fiat currency (like Tether) and central bank digital currencies, a variant of stable coins issued by a central bank directly to citizens (CBDC). Stablecoins and CBDC are essentially programmable money and that concept is very powerful with immense potential. For example, during an economic crisis like the pandemic we are in, the federal government may issue programmable money that can be used only for things areas such as payroll (the PPP program) or on travel to boost that industry. This would be a disruptive solution mainly due to the speed and effort for such stimulus but would also have the potential of eliminating massive overhead on tracking, reporting, and has the potential of reducing fraud.

  • DeFI or decentralized applications are trustless networks (self-clearing and self-settling networks without a 3rd party) that have seen a rapid rise in the last decade mostly in financial services but now in supply chain and other areas like e-government. In fintech, the most successful areas of application have been in capital markets, lending, and securitization, cross-border payments, and insurance.

The full report and the listing of all the blockchain companies included in our analysis will be available to our clients. Click here to be added to the list.

Paddy Ramanathan is the Founder and Managing Director of the iValley Innovation Center in the East San Francisco bay area. iValley Innovation Center ( is a corporate venture studio and host of FINTECHTALK™. iValley's mission is to incubate and catalyze the development of big ideas and innovation.