The blockchain ecosystem is evolving rapidly. Wing Venture Capital has put together a Blockchain 101 Presentation to serve as a primer for the emerging cryptoasset economy.

1. BLOCKCHAIN 101
January 2018

2. DISCLAIMER:
This presentation is being made for general purposes, and is not part of any offer or sale
of securities or other interests associated with or sponsored by Wing Venture Capital.
This information does not purport to be all-inclusive or to contain all of the information
that an individual may require to understand the concepts discussed herein. Recipients
of this presentation should not construe this as any legal, tax or investment advice, and
each such recipient should consult with his or her personal counsel, accountants or
other advisors as to the legal, tax, technological or economic implications of any
investment in, or other endeavor related to, blockchain and related technologies.
The information in this presentation speaks as of the date indicated and has been
compiled from sources reasonably believed to be reliable. However, Wing Venture
Capital neither makes any representation or warranty regarding the accuracy of such
information nor assumes any obligation to update any historical or forward-looking
information contained herein.
All logos and trademarks in this presentation, marked and unmarked, are the property
of their respective owners.
2

3. BLOCKCHAIN 101
• Crypto Overview
• Why Tokens Matter
• Blockchain Investing
3

4. Crypto Overview

5. #
BITCOIN 101
5

6. BITCOIN IS POLARIZING
“[Bitcoin] is a remarkable cryptographic achievement… The ability to create
something which is not duplicable in the digital world has enormous
value…Lot’s of people will build businesses on top of that.”
– Eric Schmidt in 2014
“Bitcoin is a technological tour de force.”
– Bill Gates in 2014
Source: https://medium.com/@MartinRosulek/14-bitcoin-quotes-by-famous-people-6e7a1a009281;
https://twitter.com/joelight/status/918899226771427328 6

7. …BUT EVERYONE SHOULD UNDERSTAND
CRYPTOASSETS
“For example, one of the most interesting questions in technology right now is about
centralization vs decentralization. A lot of us got into technology because we believe it can be
a decentralizing force that puts more power in people's hands. (The first four words of
Facebook's mission have always been "give people the power".) Back in the 1990s and 2000s,
most people believed technology would be a decentralizing force.
But today, many people have lost faith in that promise. With the rise of a small number of big
tech companies — and governments using technology to watch their citizens — many people
now believe technology only centralizes power rather than decentralizes it.
There are important counter-trends to this --like encryption and cryptocurrency -- that take
power from centralized systems and put it back into people's hands. But they come with the
risk of being harder to control. I'm interested to go deeper and study the positive and negative
aspects of these technologies, and how best to use them in our services.”
Source: Facebook 7

8. BITCOIN INCEPTION
• On 18 August 2008, the domain name
bitcoin.org was registered
• On October 31st, a link to a paper
authored by Satoshi Nakamoto titled
Bitcoin: A Peer-to-Peer Electronic Cash
System
– Detailed a “a system for electronic
transactions without relying on trust”
• In January 2009, the bitcoin network
came into existence with an open
source bitcoin client and the issuance of
the first bitcoins
– Embedded in the coinbase of the “genesis
block” was the text: “The Times 03/Jan/2009
Chancellor on brink of second bailout for
banks”
8

9. #
BITCOIN DESIGN INPUTS
9
HashcashDistributed Ledger Public Key Cryptography

10. BITCOIN: DECENTRALIZED PUBLIC LEDGER
• Satoshi proposed a protocol whereby: i) an individual could make it easy for
a counterpart to verify they had the funds while ii) making it hard for the
counterpart (or third party) to access the private information that would
typically be needed to prove authenticity for such verification
• Key cryptographic ingredient used in blockchain is the SHA-256 which
creates a “digital fingerprint”
– The resulting Hash for “Wing”:
• A set of new transactions are combined in a “block” to facilitate efficient
processing
– Included in the block is also the hash from the block immediately prior to it on the chain
– If a malicious agent tries to make a change in the ledger containing historical transactions,
the hash that they are proposing to the other nodes will not match the hash in the ledger
“Truth” = decentralized consensus
Source: http://blockchain.mit.edu/hash; HBS Case: “Blockchain, Cryptocurrencies and Digital Assets”
by Professor Nanda and White 10

11. BITCOIN: MINING
• When proposing a new block to the network, that node must solve a
computationally demanding problem by brute force that can be easily
verified by other nodes – “proof of work”
• Game theory: it pays to propose an honest block that is accepted by other
nodes, as this is the only node for which proof-of-work is (probabilistically)
rewarded
• BTC circulated capped at 21mm tokens: initial reward was 50 BTC per
accepted block (this halves every 210,000 blocks or ~4 years)
Source: www.blockchain.info, www.bitcoinblockhalf.com; HBS Case: “Blockchain, Cryptocurrencies and Digital
Assets” by Professor Nanda and White 11

12. BITCOIN: MINING CONCENTRATION
~65% of the hashrate is divided among four mining pools alone
Source: https://blockchain.info/pools 12

13. BITCOIN: TRANSACTION EXAMPLE
Source: https://steemit.com/bitcoin/@innoserv/understanding-bitcoin-transactions.com 13

14. BITCOIN FACTS*
• Price per coin: $16,300
• Circulation: 16.8mm
• Total Supply: 21mm (64% of Bitcoins have never been used)
• Market capitalization: $275bn
• Inflation per annum: 4%
• Hash rate: 14.25 ehashes/s
• Transactions per day: 480k
• 24 hour trade volume: $15bn (5% of market cap)
• 24 hour network transaction volume: $5bn (2% of market cap)
• Forbes Survey: 78% of Americans have heard of Bitcoin (<4% have owned)
• Top 1k addresses control ~35% of BTC in circulation
• 90% of Bitcoin addresses have less than 0.1 BTC
* Market data as of 1/7/18
Source: https://blockchain.info/stats; https://bitinfocharts.com/bitcoin/;
https://www.forbes.com/sites/panosmourdoukoutas/2017/09/18/four-facts-about-bitcoin/#1a382a005abf;
https://bitcoinplay.net/58-insane-facts-about-bitcoin/; https://coinmarketcap.com/currencies/bitcoin/
14

15. MISSING BITCOIN
An estimated 2.8 – 3.8mm BTC are missing forever, reducing the supply by ~30%
Source: http://fortune.com/2017/11/25/lost-bitcoins/; Chainalysis 15

16. TRANSACTION FEES*
The median Bitcoin transaction fee is ~$17 and avg. is ~$33
* Market data as of 1/7/18
Source: https://bitinfocharts.com/comparison/bitcoin-median_transaction_fee.html#3m 16

17. BITCOIN CONCENTRATION
There are only ~1.25mm Bitcoin accounts that hold over $10,000 USD
– Note: this may be slightly understated as the exchanges don’t hold 1 Bitcoin address for
every user; Coinbase has ~12mm users
Source: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html 17

18. BITCOIN: BALANCE SHEET
Positives
• Security
• Predictable supply
• Censorship resistant
• Immutable ledger
• Product Market Fit: Usability -
easy to send, divide, carry and
track
Negatives
• Slow: takes 10 – 60 minutes to clear
• Limited transaction throughput
(7tx/sec)
• Energy costs: network spending
~$2bn in annual electricity cost
• No customer service or support
• Governance and regulatory
uncertainty
Source: https://digiconomist.net/bitcoin-energy-consumption; https://blog.chain.com/a-letter-to-jamie-
dimon-de89d417cb80 18

19. BITCOIN AS A CURRENCY
Medium of Exchange:
– Bitcoin not widely accepted as ~100k merchants accept BTC globally
– In 2016, 46% of Coinbase user reported they are using Bitcoin as a “Transactional
Medium”, with 54% HODLing*
Unit of Account:
– Almost nothing is priced in BTC (e.g. food, clothing, cars)
– Divisible down to a “Satoshi”
Store of Value:
– Bitcoin is too volatile for settlements
Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7 19

20. BITCOIN VALUATION: EARLY DAYS
This illustrative valuation was done in 2015 by leading crypto analyst, Chris
Burniske, but he has since cited a number of updates including using a
higher velocity estimate (~6.5) and using 21 million BTC as the total supply
instead of the current amount of BTC in circulation; Note: this remittance
valuation analysis would be additive to other use case valuations
Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7 20

21. VALUING BITCOIN: DIGITAL GOLD
If Bitcoin is used primarily as a store of value and becomes “digital gold”, BTC
could be valued in the range of:
Source: https://www.fool.com/investing/2017/08/17/how-does-bitcoins-market-cap-stack-up-next-to-
gold.aspx; http://numbersleuth.org/worlds-gold/ 21
$ in Millions
Global Market Cap of Gold: $7,000,000 $7,000,000 $7,000,000 $100,000,000
Bitcoin Market Share of Gold: 5% 15% 25% 5%
Bitcoin Market Cap: $350,000 $1,050,000 $1,750,000 $5,000,000
BTC price (M / Tokens): 21 $16,667 $50,000 $83,333 $238,095
BTC price, net of discounting: 30% $11,667 $35,000 $58,333 $166,667

22. #
• If a cryptoasset serves as a currency in the protocol economy
it supports, the equation of exchange becomes a tool to
value cryptoassets:
MV = PQ
• M = size of the asset base
• V = velocity of the asset
• P = price of the digital resource being provisioned
• Q = quantity of the digital resource being provisioned
• M is the size of the monetary base necessary to support a
cryptoeconomy of size PQ, at velocity V, thus M = PQ/V
VALUING BITCOIN: EQUATION OF EXCHANGE
22

23. VALUING BITCOIN: EQUATION OF EXCHANGE
Starting with M = PQ/V
– Empirically, 2016 bitcoin velocity was 6.5 (USD M1 is 5.5)
Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7 23
$ in Millions
Transactions per day ($USD): $5,000 $10,000 $15,000 $20,000 $25,000
Less: 30% of exchange trades: ($1,500) ($3,000) ($4,500) ($6,000) ($7,500)
Bitcoin's GDP (P * Q), on chain transactions: $1,277,500 $2,555,000 $3,832,500 $5,110,000 $6,387,500
M = Bitcoin's GDP / V of 6.5, $M: 6.5 $196,538 $393,077 $589,615 $786,154 $982,692
BTC price (M / Tokens): 21 $9,359 $18,718 $28,077 $37,436 $46,795
BTC price, net of discounting: 30% $6,551 $13,103 $19,654 $26,205 $32,756

24. BITCOIN NVT: NETWORK VALUE TO
TRANSACTION RATIO
2015 – 2017: Bitcoin NTV has stayed within a stable band of 40 – 100; thus, as
the price per BTC has increased, so has the network usage
Source: http://charts.woobull.com/bitcoin-nvt-ratio/
24
Network Value
NVT

25. BITCOIN VOLATILITY
Bitcoin volatility is declining as the network grows, but daily volatility is still ~5%
Source: Morgan Stanley Research 25

26. BITCOIN RELATIVE VOLATILITY
Bitcoin is significantly more volatile than alternative store of values given
Bitcoin’s demand-driven price fluctuations
Source: Goldman Sachs: Bitcoin as Money (January 2018) 26

27. BITCOIN IS A FORCE
Bitcoin is now larger than:
* Market data as of 1/7/18
Source: Coinmarketcap, Nasdaq, NYSE 27

28. BITCOIN RELATIVE TO VISA
• Est. <$300mn in Bitcoin daily purchase volume vs. $17bn for Visa
• Bitcoin only accepted by 3 of the top 500 eCommerce merchants
Source: https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/; http://www.businessinsider.com/morgan-
stanley-on-bitcoin-value-2017-12 28

29. NET INFLOWS RELATIVE TO VALUATION
• According to JPM, cumulative net inflows to Bitcoin and Ethereum have
been ~$8bn (avg. price that year * number of new tokens mined that year)
• Cryptos are unique, because unlike other asset classes, there is no
corresponding increase in supply when prices surge
Source: JPM Flows and Liquidity, December 2017; https://www.zerohedge.com/news/2017-12-02/jpmorgan-
has-some-bad-news-bitcoin-bears 29

30. TRACKING DEMAND
• Korea and Japan dominate Bitcoin demand, two countries that don’t have
hyperinflating currencies or capital controls
• Prices are correlated with google search volume; suggesting significant
retail investor participation
Source: Goldman Sachs: Bitcoin as Money (January 2018) 30
Demand Growth from Japan and Korea Prices Correlated with Search Volumes

31. VALUATION CONCERNS
1. How many unbanked people have we banked?
2. How much censorship-resistant commerce for the common people have we enabled?
3. How many dapps have we created that have substantial usage? Low added value *per user*
for using a blockchain is fine, but then you have to make up for it in volume.
4. How much value is stored in smart contracts that actually do anything interesting?
5. How many Venezuelans have actually been protected by us from hyperinflation?
6. How much actual usage of micropayment channels is there actually in reality?
7. The answer to all of these questions is definitely not zero, and in some cases it's quite
significant.
8. But not enough to say it's $0.5T levels of significant. Not enough.
31

32. DOTCOM BUBBLE VS. CRYPTO TODAY
• The Dotcom Bubble lost ~$5tn of value: the market value of Nasdaq
companies peaked at $6.7tn in March 2000 and bottomed out at $1.6tn in
October 2002
• The total market cap of cryptoasset today is ~$800bn
* Market data as of 1/7/18
Source: http://articles.latimes.com/2006/jul/16/business/fi-overheat16;
http://www.cetusnews.com/business/Bitcoin--The-World's-Most-Dramatic-Bubble-Ever-.HkmkEq1QJG.html 32

33. #
ETHEREUM 101
33

34. ETHEREUM INCEPTION
• Ethereum was proposed in late 2013 by
Vitalik Buterin, a cryptocurrency
researcher and programmer, followed
by a crowdsale in August 2014
• The system went live on 30 July 2015,
with 11.9 million coins "premined" for the
crowdsale, ~13% of circulating supply
• “Featureless world supercomputer”:
instead of building a DApp from
scratch, you can build one on top of
Turing-complete Ethereum because a)
the network already exists and b) it’s
not designed for a specific application
but rather as a toring-complete
platform to build applications
– Vitalik: Bitcoin as a calculator and Ethereum
as a smartphone
34
Vitalik Buterin

35. THE DAO & ETHEREUM ALLIANCE
June 2016: the DAO (decentralized
autonomous organization), a crowdsourced
venture fund supporting Ethereum projects,
was hacked and lost ~$60mm of Ether after
raising $150mm; Vitalik subsequently forked
Ethereum to return the stolen tokens, creating
Ethereum and Ethereum Classic
February 2017: 30+ blue chip companies
including Microsoft and JPMorgan, formed
the Enterprise Ethereum Alliance, a nonprofit
designed to create a standard version of the
Ethereum software that businesses around
the world can use to track data and financial
contracts; Accenture estimated 10 largest
banks can save $8 - $12bn in infrastructure
costs, or 30% of total costs
Source: https://www.nytimes.com/2017/02/27/business/dealbook/ethereum-alliance-business-banking-
security.html; https://www.coindesk.com/dao-attacked-code-issue-leads-60-million-ether-theft/ 35

36. STATE OF THE DAPPS
There are ~850 Dapps built on Ethereum with a new +100/month
Source: https://www.stateofthedapps.com/
36

37. CASE STUDY: CRYPTOKITTIES
• Like Beanie Babies before them, CryptoKitties are collectibles
(demonstrates value of digital scarcity)
• In December 2017, 180,000 people have signed up and they’ve spent about
$20 million in ether, and more than 10 kitties have sold for over $100,000
• CryptoKitties has accounted for ~16% of Ethereum transaction bandwidth
(at peak)
Source: https://www.nytimes.com/2017/12/28/style/cryptokitties-want-a-blockchain-snuggle.html
37

38. ETHEREUM NETWORK VALUE TO
TRANSACTION VALUE
Strong correlation between Ethereum transaction value and network value
Source: https://www.forbes.com/sites/wwoo/2017/09/29/is-bitcoin-in-a-bubble-check-the-nvt-
ratio/#14ba1ac36a23 38

39. #
• Price per coin: $1,100
• Circulation: 97mm
– Issuance of Ether is capped at 18 million ether per year (25% of the initial
supply of 72mm)
• Market capitalization: $110bn
• Hash rate: 170 Thash/s
• Transactions per day: 1.1mm
• 24 hour trade volume: $5.5bn (5% of market cap)
• 24 hour network transaction volume: $13bn (12% of market
cap)
* Market data as of 1/7/18
Source: https://bitinfocharts.com/ethereum/; https://coinmarketcap.com/currencies/ethereum/
ETHEREUM FACTS*
39

40. Why Tokens Matter

41. TOKENS: OPEN NETWORKS + INCENTIVES
Tokens help overcome the bootstrap problem by adding financial utility when
application utility is low
Source: https://medium.com/@cdixon/crypto-tokens-a-breakthrough-in-open-network-design-
e600975be2ef 41

42. TOKENS ENABLE NETWORK EFFECTS
ON STEROIDS
As network grows, the utility of the service and the wealth of its token-holders grows
Source: https://thecontrol.co/the-token-economy-81becd26b9de 42

43. METCALF’S LAW
• Metcalfe's law states that the value of network is proportional to the square
of the number of connected users of the system (n2)
• Bitcoin and Ethereum networks well modeled by Metcalfe's Law (~94% R2)
Source: http://www.sciencedirect.com/science/article/pii/S1567422317300480?via%3Dihub,
http://www.businessinsider.com/bitcoin-price-movement-explained-by-one-equation-fundstrat-tom-lee-
metcalf-law-network-effect-2017-10 a 43
Comparative Price of Bitcoin against a “Model-based Bitcoin” using volume and unique addresses

44. FAT PROTOCOLS
Disproportionate value accrues to the protocol layer via tokens
Source: http://www.usv.com/blog/fat-protocols 44

45. #
• Corporate equities serve companies
• Government bonds serve nations, states, municipalities
• Mortgages serve property owners
• And now: cryptoassets serve decentralized applications
Source: https://blog.chain.com/a-letter-to-jamie-dimon-de89d417cb80
NEW ASSET CLASS
45

46. #
TOKEN MODEL FIT: a unit of value that an organization creates to self-govern
its business model, and empower its users to interact with its products, while
facilitating the distribution and sharing of rewards and benefits to all of its
stakeholders
Source: https://medium.com/@wmougayar/tokenomics-a-business-guide-to-token-usage-utility-and-value-
b19242053416
TOKEN USAGE AND VALUE
46

47. #
10% of Global GDP ($8 trillion) will be stored
in cryptoassets by 2025
– World Economic Forum
Source: https://blog.chain.com/a-letter-to-jamie-dimon-de89d417cb80; https://www.coindesk.com/world-
economic-forum-governments-blockchain/
CRYPTOASSET EXPLOSION
47

48. CRYPTOASSETS MARKET CAP*
$820bn market cap across ~1,400 cryptoassets; 34% BTC dominance
* Market data as of 1/7/18
Source: https://coinmarketcap.com/ 48

49. ICO AND BLOCKCHAIN VENTURE FUNDING
In 2017, there have been ~180 ICOs raising over $2bn
Source: Adapted from CoinDesk data 49

50. 10,000 YEAR VIEW ON CRYPTOASSETS
Are we in the dawn of the digital age of cryptoassets?
Source: http://woobull.com/the-10-000-year-view-of-cryptocurrency/ 50

51. BLOCKCHAIN PROJECT ECOSYSTEM
There has been a Cambrian explosion of the crypto ecosystem
51
Source: Compound VC

52. CRYPTO FUND PROLIFERATION
100+ dedicated crypto funds with $2bn+ in AUM launched in 2017
Source: Morgan Stanley Research 52

53. Blockchain Investing

54. USES FOR BLOCKCHAIN
• New protocol to create digital scarcity, improve security, establish trust,
optimize process, add transparency and remove a single point of failure
• What can blockchain technology do unique better than existing software?
Where can blockchains benefit from network effects?
Source: https://bravenewcoin.com/news/moodys-new-report-identifies-25-top-blockchain-use-cases-from-
a-list-of-120/ 54

55. #
• Notable founders / early contributors
• Technical integrity of whitepaper and protocol design (note:
white paper is the new slide deck)
• Decentralized edge: native protocols and applications
• Deep integration of token into protocol and service
• Organizing behaviors that are naturally transactional
• Non zero-sum actors
• Developer and community support
Source: https://jordancooper.blog/2017/05/23/what-i-look-for-in-cryptocoins/
PROTOCOL EVALUATION
55

56. #
• Digital currency reading list by Dan Romero
• Digital currency reading list (updated) by Dan Romero
• Beginner’s guide series on cryptoassets by Linda Xie
• Overview YouTube Video
• Hash Power Podcasts by Patrick O’Shaughnessy
• A Letter to Jamie Dimon by Adam Ludwin
• Why Crypto Tokens Matter Podcast by A16Z
• Cryptoassets: The Innovative Investor's Guide to Bitcoin and
Beyond by Chris Burniske
• https://prestonbyrne.com/blog/ (bear case)
RESOURCES
56

57. Zachary DeWitt
zach@wing.vc
www.wing.vc