3RD GLOBAL CRYPTOASSET
BENCHMARKING STUDY
Apolline Blandin, Dr. Gina Pieters, Yue Wu, Thomas Eisermann,
Anton Dek, Sean Taylor, Damaris Njoki
September 2020

supported by

Disclaimer: Data for this report has been gathered primarily from online surveys. While every reasonable effort has been madeto verify the accuracy of the data collected, the research team cannot exclude potential errors and omissions. This report should
not be considered to provide legal or investment advice. Opinions expressed in this report reflect those of the authors and notnecessarily those of their respective institutions.

TABLE OF CONTENTSFOREWORDS...................................................................................................................................................4RESEARCH TEAM...........................................................................................................................................6
ACKNOWLEDGEMENTS.............................................................................................................................7
EXECUTIVE SUMMARY............................................................................................................................ 11
METHODOLOGY......................................................................................................................................... 14
SECTION 1: INDUSTRY GROWTH INDICATORS.......................................................................... 17
Employment figures...............................................................................................................................................................................................................17
High-growth enterprises.....................................................................................................................................................................................................18
Financial performance of service providers...............................................................................................................................................................19

SECTION 2: MINING, THE BACKBONE OF THE INDUSTRY.................................................... 21
Hashing as a business............................................................................................................................................................................................................21
Where are we on PoW’s energy consumption?........................................................................................................................................................26
Mining pools...............................................................................................................................................................................................................................28
Mining hardware manufacturing.....................................................................................................................................................................................32
The financialisation of mining............................................................................................................................................................................................34

SECTION 3: THE OFF-CHAIN STORY.................................................................................................36
On-chain and off-chain stories ........................................................................................................................................................................................36
Off-chain cryptoassets and fiat currency support................................................................................................................................................. 37
Off-chain activity providers...............................................................................................................................................................................................39

SECTION 4: PROFILING CRYPTOASSET USERS............................................................................44
User number and activity................................................................................................................................................................................................... 44
User geography........................................................................................................................................................................................................................45
User types...................................................................................................................................................................................................................................46

SECTION 5: REGULATORY AND COMPLIANCE........................................................................... 49
Compliance benchmarks.....................................................................................................................................................................................................49
Authorisation of service providers.................................................................................................................................................................................52
AML and KYC procedures..................................................................................................................................................................................................54
Regulation impact: redefining geographies................................................................................................................................................................56

SECTION 6: IT SECURITY......................................................................................................................... 59
The development of best market practices................................................................................................................................................................59
Resources allocation to IT security.................................................................................................................................................................................60
Security audits.......................................................................................................................................................................................................................... 61
Insurance.....................................................................................................................................................................................................................................62

SECTION 7: BALANCING BETWEEN INTEGRATION AND INNOVATION........................64
Enhanced transparency and compliance.....................................................................................................................................................................64
A decoupling of functions across the value chain ...................................................................................................................................................65
The growth of ‘decentralised finance’...........................................................................................................................................................................65

APPENDIX....................................................................................................................................................... 67
Miners’ influence.....................................................................................................................................................................................................................67
Operational risks for miners..............................................................................................................................................................................................67
Additional risks for miners..................................................................................................................................................................................................68
Operational risks for service providers........................................................................................................................................................................69
Future developments............................................................................................................................................................................................................70

3rd Global Cryptoasset Benchmarking Study

FOREWORDS
The rapid pace of innovation and increased investment in the cryptoasset industry
is increasing the need for information analysing these developments. With the
publication of the first edition of the Global Cryptoasset Benchmarking Study
three years ago, the CCAF set out to progressively track and take the pulse ofthis nascent industry by transparently collecting, analysing and disseminatingknowledge about cryptoassets. Similarly, the 3rd Global Cryptoasset
Benchmarking Study seeks to shed light on the market dynamics of thecryptoasset industry since late 2018.
The report collates data from entities operating in four main segments of theindustry: exchange, payments, custody, and mining. A total of 280 entities
from over 50 countries across various regions responded to the surveys. Thisbenchmarking report is compiled using data from one of the most comprehensive
and robust databases currently available in the cryptoasset industry.
The research findings suggest that the industry has entered a growth stage
despite the notable headwinds the cryptoasset markets had encountered since
2018. Additionally, regulators’ collaborative dialogue and regulatory interventionsin the industry appear to be supporting its growth by providing regulatory clarityand harmonisation on the treatment of cryptoassets and related activities. Thisis an important development that has had immediate effects. For instance, thepublication of updated AML and CFT standards by the Financial Action Task Force(FATF) in June 2019 encouraged compliance by industry participants, with anincreased share of the surveyed service providers performing KYC & AML checks
on their customers.
Nevertheless, our analysis has identified several hurdles – ranging from regulatorycompliance, IT security, and insurance – which need to be addressed for theindustry to grow to scale.
Our hope is that the findings captured within this study will offer insight into theevolution of the industry and inform the decisions that industry stakeholders
will face as the space matures. As with all of our research projects, we appreciatethat our ability to produce high quality research is highly dependent on thecooperation of industry players and we extend our thanks to all the entities thathave contributed towards the publishing of this report. Finally, I want to gratefully
acknowledge the financial support of Invesco as a long-standing supporter of
CCAF’s research and whose support made this study possible.

Dr. Robert Wardrop
Director
Cambridge Centre for Alternative Finance4

3rd Global Cryptoasset Benchmarking Study

Despite the uncertainty and economic rollercoaster ride that 2020 has brought
us with the introduction of the global Covid-19 pandemic, we have learned thateven in trying times, businesses and markets have reached a critical point whereoperations can sustain even a majority of their employees working remotely. Evenas the pandemic continues forward, finance still moves, and specifically alternative
finance has its place in a post-pandemic world and the research and analysis oftrends in emerging still press forward.
2020 brings us the Cambridge Centre for Alternative Finance (CCAF) third
edition of its Global Cryptoasset Benchmarking Study. In this study the CCAF
gathered data points from approximately 280 entities including representationfrom 59 countries across four main market segments: exchanges, payments,
custody, and mining. While most of the data was collected prior to the pandemic,
the aggregated learnings and insights from the report remain relevant in current
times.
This year’s cryptoasset benchmarking study comes at a particularly appropriate
time for Invesco as we completed a successful asset tokenization proof of concept(POC) this year that explores various facets of the token lifecycle including thecreation and custody chain of real asset backed tokens and how they may be
distributed and exchanged in practice in the real world. The results of the POC
validate key findings uncovered in the study in the areas of industry growth,
service providers, regulatory standards, and future outlook of cryptoassets. Our
own journey in token economics provided us with experience with third party
providers of token creation, digital token exchanges, token custodianship, andnavigating the complex legal and regulatory requirements for such an endeavor.
As we read through the study, a few highlights stood out in confirmation of ourown experiences. One notable observation was the growth patterns of full-time
equivalent (FTE) employees within the cryptoasset industry and at the firm level.
The industry saw overall slowdown in growth in employment; whereas individual
firms saw growth in FTEs indicating that while overall opportunities are shrinking,the existing players are gaining traction and prominence within their area ofexpertise. This is something we have witnessed ourselves firsthand throughthe disappearance or consolidation of industry consortiums as the cryptoasset
industry sees increased participation from institutional investors and traditional
players in the financial sector.
Invesco is proud to provide sponsorship to enable the Cambridge Centre of
Alternative Finance to continue their research in alternative finance industry
including this cryptoasset benchmarking report. We’d like to thank all of thecontributors in the research team who made this report possible throughcollecting and analyzing data. These ongoing reports provide valuable insights
for benchmarking in emerging financial markets and trends and scenarios that wemonitor to enable our own growth and the growth of alternative finance models ingeneral around the globe.

Dave Dowsett
Global Head of Technology Strategy, Emerging Technology,
and Intentional Innovation
Invesco5

3rd Global Cryptoasset Benchmarking StudyRESEARCH TEAMAUTHORS
Apolline Blandin: is a Research Associate at the Cambridge Centre for Alternative Finance and leads theCentre’s cryptoasset research programme.
a.blandin@jbs.cam.ac.uk     @ApollineBlandin

Gina Pieters (Dr.) is a Lecturer at the Kenneth C. Griffin Department of Economics, University of
Chicago, and a Research Fellow at the Cambridge Centre for Alternative Finance.
gcpieters@uchicago.edu     @ProfPieters

Yue Wu is a Data Scientist at the Cambridge Center for Alternative Finance and helps to manage thedatabase and develop digital tools at the CCAF.
y.wu@jbs.cam.ac.uk     @ClaireYueWu1

Thomas Eisermann is a Cryptocurrency and Blockchain Research Administrator at the Cambridge
Centre for Alternative Finance and assists with the data collection process.
t.eisermann@jbs.cam.ac.uk
Anton Dek (Dr.) is a Research Associate at the Cambridge Centre for Alternative Finance and leadson the development of digital tools at the CCAF, such as the Global Alternative Finance Benchmark
Dashboard.
a.dek@jbs.cam.ac.uk     @dektoxSean Taylor is a Research Intern at the Cambridge Centre for Alternative Finance and is currently
pursuing a B.A in Entrepreneurship and Innovation at Lund University School of Economics andManagement.
Damaris Njoki is a Research Intern at the Cambridge Centre for Alternative Finance and a PhD student
at the University of Huddersfield.
d.njoki@jbs.cam.ac.uk
Other contributors include Felipe Ferri de Camargo Paes, Hatim Hussain, Steven Edwards,
Karim Nabil, Sean Stein Smith, Michel Rauchs, Bryan Zheng Zhang, Alexi Anania, and Nikos
Yerolemou.

63rd Global Cryptoasset Benchmarking Study

ACKNOWLEDGEMENTS
The Cambridge Centre for Alternative (CCAF) would like to thank Invesco for sponsoring the researchstudy, and specifically Dave Dowsett, Kevin Lyman, Henning Stein, Bradley Bell, and Heather Wied fortheir continuous support throughout the research process.
We would also like to extend our gratitude to our research partners from the different regions. Without
the help of these industry associations, our survey dissemination would not have been possible. These
research partners were: Association pour le Developpement des Actifs Numeriques (ADAN), Asociación
Chilena de Criptotecnologías, Asociación FinTech Paraguay, Asociación FinTech Uruguay, Associação
Brasileira de Criptoeconomia (ABCripto), Association of Cryptocurrency Enterprises and Startups
Singapore (ACCESS Singapore), Bitcoin Argentina, Blockchain Nigeria User Group, Blockchain Ukraine
Association, Coin Center, Colombia Fintech, Crypto Valley Association, Fintech Mexico, Global Digital
Finance (GDF), German Blockchain Association, MinerUpdate, National Association of Blockchain and
Cryptotechnologies, SA Crypto, Thai Fintech Association, The Bitcoin Association of Hong Kong.

C

We greatly appreciate the help of the following media organisations, whose role was instrumental tosuccessfully disseminate our surveys and research: 8btc, ChainNews, CoinDesk, MinerUpdate and the
CryptoTool podcast.
We are also grateful to CryptoCompare for supplementing our survey data with additional data that
underpin their annual Exchange Benchmarking Report. We acknowledge their contribution whereverapplicable throughout the report.

We would also like to thank the entire CCAF team, especially Robert Wardrop, Raghavendra Rau, Hunter
Sims and Herman Smith, for their support. Special thanks go to Louise Smith for her fantastic design
work, as well as Kate Belger, Yvona Duncan, and Neil Jessiman for their hard work behind the scenes.

7

3rd Global Cryptoasset Benchmarking Study

In addition, we wish to thank Philippa Coney and Charles Goldsmith from the Cambridge Judge Business
School for their assistance in producing and publishing the report.
Finally, we would like to express our utmost gratitude to all survey respondents from across the globe
who participated in the surveys. Their contribution is core to the realisation of this study.
Note: some survey respondents prefer not to publicly disclose their participation.

RGBсhilkoot8

3rd Global Cryptoasset Benchmarking StudyMININGSTORE

9

3rd Global Cryptoasset Benchmarking Study

10

3rd Global Cryptoasset Benchmarking StudyEXECUTIVE SUMMARY
Over the past three years, the Cambridge Centre for Alternative Finance (CCAF) at the University ofCambridgeJudge Business School, has tracked and analysed the development of the global cryptoasset
industry. Since the publication of the 2nd Global Cryptoasset Benchmarking Study in December 2018,
the industry has undergone significant changes: the 2017-2018 initial coin offering (ICO) bubble
has sparked closer scrutiny from regulators resulting in greater efforts with regards to regulatorycompliance, while new professional infrastructure and services have emerged to serve the increased
interest from institutional investors. Mining analysts, for their part, have suggested that financial
engineering is underway in the mining sector.
This report reviews some of these market trends and provides insights into the state of the cryptoasset
industry. For the 3rd edition of its Global Cryptoasset Benchmarking Study, the CCAF gathered datafrom 280 entities from 59 countries and across four main market segments, namely exchange, payments,
custody, and mining. The sample consists of 175 service providers, 75 mining companies and 30
individual miners. Data was collected between March and May 2020.
The key findings from this global cryptoasset benchmarking study are as follows:
Analysing growth indicators of the cryptoasset industry
Full-time equivalent (FTE) employee growth slowed considerably following the late-2017 market
frenzy. Respondents across all market segments, reported year-on-year growth of 21% in 2019, downfrom 57% in 2018.
Industry-wide, the growth in FTE employment declined by 36 percentage points between 2017 and2019, whereas the median firm reported a 75-percentage point downward change in employment
growth. The difference in the industry-level and the firm-level employment growth figures reflects therise of large firms within each industry group that dominates in the aggregate change in employment andsuggests that a few large players are dominating the industry.
However, not all firms are equal: individual firm employment data shows that a notable proportionof companies (26%) have sustained an annualised growth in employment level above 10% over the
past three years. Using established definition and criteria, which sets the size threshold of a firm at
the beginning of the growth period at 10 FTE employees, these companies qualify as “high-growthcompanies”.1
A deep dive into mining: from its environmental impact and the financialisation of the sector tocentralisation concerns
The survey findings estimate that on average 39% of proof-of-work mining is powered by renewableenergy, primarily hydroelectric energy. Understanding the energy source of mining is important because
electricity costs account for the majority of hashers’ operational expenditures - albeit with somevariability across world regions - and hashers have long competed on accessing the cheapest energy
source.
Faced with increased competition and tight profit margins, miners with access to sophisticatedfinancial products, such as hashrate or cryptoasset derivatives, have begun using them to hedge theirrisks (between 12% to 14% of all miners). This is paving the way for the financialisation of mining.

1

Eurostat Glossary (2014) Glossary: High-growth enterprise. European Commission. Available from: https://ec.europa.eu/eurostat/
statistics-explained/index.php/Glossary:High-growth_enterprise [Last accessed: 20 August 2020].

11

3rd Global Cryptoasset Benchmarking Study

Significant differences arise when comparing the cost structure of American and Chinese hashers:
capital expenditures - primarily constituted of mining equipment purchase - take up to 56% of
American hashers’ costs, compared to 31% for Chinese ones. This suggests that Chinese hashers
have a competitive edge in the acquisition of mining machines explained mostly by the concentrationof hardware manufacturers in China, leading to a shorter supply chain, easier business conduct (e.g.
language, working culture, local connections), and absence of international shipping fees and importtariffs. Aligned with this, the study found that 52% of ASIC manufacturers total sales go to Chinese
hashers in 2019.
28% of surveyed hashers report receiving support from governments, primarily in the form of locallyfocused support, such as electricity subsidy for users within a region. Nearly two-fifths of those receiving
local governmental support are based in China.
Off the chain story: understanding service providers’ internal flows
Aligned with 2018 findings, new survey data shows that off-chain transactions, both in terms ofvolumes and numbers, continue to be dominated by fiat-cryptoasset trades (and vice-versa), meaningthat users primarily interact with ‘gateway’ service providers, such as exchanges, to enter and leave thecryptoasset ecosystem.
Usage seems to vary with the geographic location of the service provider. For instance, exchanges
based out of APAC record the highest share of cryptoasset-cryptoasset trades (40%) and mosttransactions initiated at these exchanges are directed to the open-market (i.e. exchange’s order-book).
This suggests that APAC exchanges are primarily used for trading purposes.
Stablecoins are becoming increasingly available. The share of service providers supporting Tether grewfrom 4% to 32% between 2018 and 2020, compared to 11% to 55% support growth for non-Tether
stablecoins. This is aligned with the rising value of transactions denominated in stablecoins.
Demographics of service providers’ customer baseAn updated estimate of the number of cryptoasset users indicates a total of up to 101 million uniqueusers across 191 million accounts opened at service providers as of Q3 2020. In 2018, the 2nd Global
Cryptoasset Benchmarking Study estimated the number of identity-verified cryptoasset users at about
35 million globally.
While firms continue to serve users from their region of operations, North American, Middle Easternand African companies appear to have a more geographically diversified clientele. Service providers
in both regions report that 42% of their customers are from other regions - primarily in Europe for MEA
firms and Latin America for North American ones.
Service providers operationally headquartered in North America and Europe indicate that businessand institutional clients make up 30% of their customers. This figure is much lower for APAC and Latin
American firms at 16% and 10% respectively.
The composition of business and institutional clientele differs from region to region. While North
American and European firms primarily serve cryptoasset hedge funds and traditional institutional
investors, Middle Eastern and African service providers that cater to non-retail clients focus on online
merchants (50%). Meanwhile, a notable share of APAC service providers deals with miners (41%), in part
explained by the high level of mining activities in the region, especially in China.
Regulatory and compliance standards across the industry and geographies
Just over two out of five surveyed firms are licensed or in the process of obtaining a license; thesefirms are primarily located in Europe. However, the remaining 58% should not be perceived as the shareof entities conducting unregulated activities or evading regulations: some surveyed service providers areengaged in activities that do not yet warrant any authorisation process (e.g. non-custodial functions) or
are operating in jurisdiction(s) where no regulatory framework or guidance has been put forth.
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3rd Global Cryptoasset Benchmarking Study

Compliance with KYC/AML obligations is heterogeneous across regions. Nearly all customer accounts
at European and North American service providers have been KYC’ed, whereas this is the case for only
one out of two accounts at MEA-based service providers.
The share of cryptoasset-only companies that did not conduct any KYC checks at all dropped from
48% to 13% between 2018 and 2020, most likely resulting from the progressive harmonisation of
KYC/AML standards across jurisdictions, such as initiated by the Financial Action Task Force (FATF).
The inclusion of firms exclusively supporting cryptoassets featured in FATF’s updated standards andrecommendations is believed to have spurred greater compliance among this group of firms. However,this should not be interpreted as these companies becoming fully KYC compliant as some KYC checks
are only applied to a subset of consumers.
54% of surveyed custodial service providers indicated that they performed an externally-led audit of
their cryptoasset reserves over the past 12 months. This is a 24-percentage points decline compared toour 2018 sample. Firms that have undergone an independent audit are most likely to be operating out ofEurope or the APAC region.
The development of best industry practices for IT security, security audits, and insurance coverageplans
Regardless of their location or size, the vast majority of surveyed cryptoasset service providers keep
cryptoasset funds in cold storage (90%). To a lesser extent, they make use of multi-signature approaches
to secure their cold (81%) and hot (70%) storage systems.
Nevertheless, enhanced IT security measures do not automatically come alongside robust insurance
plans: 46% of service providers report not being insured against any risks. Those who do haveinsurance plans are primarily insured against cybercrimes, professional errors, hazards, and loss or theftof private keys.
The median non-custodial service provider usually spends a greater share of its resources, bothfinancial and human, on IT security, between 11% to 20% compared to 6% to 10% for custodians.
This is partially explained by the fact that non-custodial systems are generally associated with greater
development costs and timeline.
Future outlook: striking the balance between integration and innovation?
A decoupling of duties, such as between custody, clearing and settlement responsibilities, appears to
be underway and may lead to greater resemblance with traditional financial market infrastructure.
For instance, 45% of respondents indicate using a third-party, primarily crypto-native custodians, as partof their cold storage system.
However, further intertwining with the traditional financial system and greater institutional adoption
are conditional on enhanced compliance with international standards, such as those laid out by the
FATF. Survey data found that cryptoasset service providers legally incorporated in a jurisdiction memberof FATF are more likely to serve traditional institutional investors.
More risky and experimental innovations, such as in the realm of decentralised finance (“DeFi”), mightalso come to fruition in the near future. Service providers, particularly large ones, expect that future
developments in the DeFi space will have considerable impact on their business operations and model in
the next 12 months.

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3rd Global Cryptoasset Benchmarking Study

METHODOLOGY
For the third edition of the Global Cryptoasset Benchmarking Study, four market segments weresurveyed: (i) mining, (ii) payment, (iii) custody, and (iv) exchange. Two separate surveys were constructed
and distributed to respondents between March and May 2020, via secure web-based questionnaires.
1. The Cryptoasset Service Providers Survey was sent to entities active in one or more of thepayments, custody and exchange segments. The breakdown of respondents per market segment
is shown in Figure 1.
Figure 1: The exchange market segment is the most represented in the survey sample with more than two in threesurveyed respondents offering exchange services

Respondents Breakdown by Market Segment
Share of service providers

6%

29%

10%

Payment services

Exchange services
18%
5%
17%

15%

Storage services

2. The Cryptoasset Mining Survey was sent to individuals and organisations involved in the mining
industry, such as hashers, hardware manufacturers, and pool operators. The breakdown of mining
respondents is shown in Figure 2.
Figure 2: Nearly one in two respondents mine as part of a pool

Respondents Breakdown by Mining Activity
Share of mining actors
44%

Mining as part of a pool

34%

Mining hardware manufacturer and/or reseller

32%

Remote hosting services (central administrator)

24%

Solo mining

21%

Cloud mining services (central administrator)

20%

Mining pool operator (central administrator)

14%

Other

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3rd Global Cryptoasset Benchmarking Study

The surveys were globally distributed to ensure a representative sample of geographic dispersion
across market segments. Both surveys were made available in English, Spanish, Portuguese, Chinese,
Japanese, Russian, and Korean. In addition, the Cryptoasset Mining Survey was translated into Arabic.
Respondents were able to choose their preferred language for the web-based questionnaire.
Over 500 invitations to complete the surveys were disseminated by email to known industry contacts
and to other participants whose email addresses were obtained through desktop research. Membersof relevant industry groups on different messaging platforms, such as Telegram and WeChat, were sent
invitation links to complete the surveys. Information and open invitations to complete the surveys wereposted on social media platforms, including Twitter, LinkedIn, Reddit, and BitcoinTalk. News outlets (e.g.
Coindesk, 8btc, ChainNews) assisted with distribution of the survey. Finally, the research team worked
and partnered with 26 national cryptoasset associations to ensure local and national distribution of thesurveys, thereby increasing wider global participation.
This study also saw the contribution of a third-party data provider: CryptoCompare provided the CCAF
with selected data underpinning their Annual Exchange Benchmarking Report to supplement datacollected via our own online surveys. 2
All collected data was encrypted, safely stored and made accessible only to the CCAF research teamresponsible for the production of this study. The privacy of all individual and company respondents was
ensured by anonymising all the data gathered from the surveys. In addition, the data was only analysed inaggregate, using a range of categories that include industry segment, organisation size, supported assets,
custody types, and region.
Data was collected from 280 entities globally across 59 countries

In some instances, the survey data was supplemented by desktop research. This included web scraping
using manual techniques as well as Python scripts which were then verified and augmented througha manual search process. Data from company websites, research reports, media outlets, and otherpublic sources was used to gather additional complementary data. If survey responses required
clarification, follow-up phone calls were made, or emails were sent to respondents. Where required, andif feasible, additional checks were made by comparing survey results with other publicly available data
and responses on prior surveys. All responses were anonymised before the data was processed andanalysed.
280 entities across 59 countries and five continents contributed to the surveys. 175 firms participatedin the Cryptoasset Service Providers Survey and 105 entities (75 organisations and 30 individuals)
completed the Cryptoasset Mining Survey.
Figure 3 provides a breakdown of survey participants by geographic region. European countries make up
more than a third of the Service Provider Survey sample. Compared to the previous study, respondents
from the Middle East and Africa (MEA) now make up 12% of global respondents, doubling the number
from last year. Latin America and the Caribbean (LAC) has also seen an increase from respondents, up
from 9% to 15% this year. This change in geographical distribution of respondents helps to provide amore balanced dataset globally.

2

CryptoCompare Research (2020) Exchange Benchmark Report - July 2020. Available from: https://www.cryptocompare.com/
media/37072188/cryptocompare-exchange-benchmark-july-2020.pdf [Last accessed: 24 August 2020].

15

3rd Global Cryptoasset Benchmarking Study

Figure 3: APAC and European respondents constitute the majority of surveyed entities

Geographic Breakdown of Respondents
Share of service providers

Share of mining actors
5%

12%

8%
12%

38%

38%
24%

15%

23%

Asia-Pacific   Europe   25%
Latin America and the Caribbean   Middle East and Africa   North America    Asia-Pacific (APAC) respondents still dominate the Mining Survey sample. The proportions ofrespondents from Europe and North America remain approximately the same as 2018, with a 3%
increase from the MEA region and a 4% decrease from LAC. The three most represented countries inour mining sample were China (24%), USA (16%), and Russia (8%).
The distribution of respondents in terms of age is relatively similar across both samples (Figure 4). Halfof surveyed firms have been in operation for up to 3 years. The other half of surveyed service providers
have been operating for between 3 and 10 years, compared to 3 to 8 years for the second half ofsurveyed mining actors. Further, we observed a significant difference in age distribution across regions.
In MEA, the majority of firms are young (less than 2 years old), whereas in Europe and North America
almost a fifth of firms are almost as old as the industry itself (7+ years old).
Figure 4: For both samples, the median firm has been operating for three years

Age Distribution of Respondents
Third quartile: 6 years

Service providers

First quartile: 2 years

Outlier: 13 years

Median: 3 years

Third quartile: 4 years

Mining actors

First quartile: 2 years

Outlier: 7 years
Outlier: 8 years

Median: 3 years
0    1    2    3    4    
5    6    
7    8    
9    
10   11   12   13   1416

3rd Global Cryptoasset Benchmarking Study

SECTION 1: INDUSTRY GROWTH
INDICATORSEMPLOYMENT FIGURESThe growth of the cryptoasset ecosystem has conventionally triggered a corresponding surge in job
opportunities. However, throughout 2018, employment growth decelerated as the effects of the late2017 market frenzy abated. The mining industry was particularly impacted by the slowdown: with a 37
percentage points (pp)3 decline in the segment aggregated employment level, compared to 36 pp forservice providers (Table 1).
The difference in the industry-level and the firm-level year-on-year (YoY) growth figures reflects the riseof large firms within each industry group that dominate in the aggregate. Larger companies appear to beless affected than individual firms, which may suggest that a few large players dominate the industry.
Table 1: Global patterns of employment levels at the industry- and firm-level
YoY 2017-2018

YoY 2018-2019

Industry aggregate

Firm-level (median)4

Industry aggregate

Firm-level (median)

All market segments

57%

88%

21%

13%

Service providers

55%

100%

19%

0%

Mining

65%

60%

28%

0%

Cryptoasset industries in the different regions have not been impacted equally by this slowdown.
Employment growth in Europe decreased by 14 pp, from 32% between 2017-2018 to 18% between
2018-2019. This is roughly half as much as in Latin America (from 45% to 6%) and MEA (from 69%
to 35%). Figures from the APAC and North American cryptoasset industries reveal a sharp decline
in employment growth - from 73% to 21% for APAC and from 134% to 33% for North American,
amounting to a fall of 52 and 111 pp respectively (Table 2).
Firm-level figures point to other interesting patterns. In contrast to industry-wide figures, firm-level
data shows that individual firms in North America and Europe, alongside MEA companies, have been themost impacted with a 110 and 55 pp negative change in employment growth. This difference between
the experience at the aggregate industry employment and the experience of the median firm is anotherpotential indication that large companies are growing ever larger as a share of the industry.
Table 2: Employment growth is uneven across region, both at the industry and firm levels
YoY 2017-2018

YoY 2018-2019

Industry-levelFirm-level (median)

Industry-levelFirm-level (median)

APAC

73%

78%

21%

41%

Europe

32%

88%

18%

33%

LAC

45%

43%

6%

15%

MEA

69%

83%

35%

0%

North America

134%

100%

33%

-10%

3

“Percentage points (pp)” is the standard unit to express the difference between two percentages. For instance, at the aggregate
level year-on-year growth was 57% between 2017-2018 and 21% between 2018-2019: this is a decline of 57%-21%=36percentage points (pp) decrease, but a 36/57 = 63% decrease in year-on-year growth .

4

Firm-level data is usually long-tailed in most industries (i.e. composed of many small firms and a few very large ones), which resultsin significant discrepancy between the mean and the median. From a firm-level perspective, using the median rather than the meanis therefore more representative of the sample.

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3rd Global Cryptoasset Benchmarking Study

Despite being one of the two most impacted regions by this decline, FTE figures for 2019 show that themedian APAC firm reports a larger workforce size, with a median of 40 FTE employees, than the mediancompanies from other regions. We also note greater variability in staff numbers for APAC companies,
which suggest that the regional industry is greatly diversified, with a mix of small and large entities.
Figure 5: Larger firms tend to operate from APAC and North America

Number of Full-time Equivalent (FTE) Employees
Capped to 210
200
180
160

Number of FTE

140
120
100
80
60
40
20
0
Asia-Pacific

EuropeLatin America andthe Caribbean

Middle East
and Africa

North America

HIGH-GROWTH ENTERPRISESThe share of high-growth companies in an industry is often used as an indicator to assess thedevelopment stage of the sector. A high-growth enterprise may be determined by its workforce size or
profits generated. From an employee figure perspective, an enterprise qualifies as “high-growth” if theaverage annualised growth in number of full-time employees (FTE) is greater than 10% p.a. over a threeyear period and having at least 10 employees at the beginning of the growth. 5
According to our study sample and using established criteria, high-growth companies accounted formore than one out of every four enterprises active in the cryptoasset ecosystem in 2019. This figure isslightly above the share of high-growth firms in other industries. By comparison, in 2017, the European
Commission reported that high-growth firms represented respectively 17% and 13% of European
companies in the Information and Communication, and Professional, Scientific, and Technical Activities
sectors. 6
The median YoY employment growth rate for high-growthfirms was 53% for the period 2017-2018 and 43% for 2018-2019

The share of high-growth firms as a proportion of the number of surveyed firms that provided FTE
figures for three consecutive years, is almost equal across the service providers and mining actors with
27% of surveyed service providers qualifying as high-growth firms compared to 25% of surveyed mining
actors.7 From a geographic standpoint, the majority of these firms are in APAC, where 39% of surveyed
5

Eurostat Glossary (2014) Glossary: High-growth enterprise. European Commission. Available from: https://ec.europa.eu/eurostat/
statistics-explained/index.php/Glossary:High-growth_enterprise [Last accessed: 20 August 2020].

6

Eurostat (2019) 1 in 10 enterprises in the EU classified as high-growth companies. European Commission. Available from: https://
ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20191210-1 [Last accessed: 20 August 2020].

7

Based on the total of respondents that provided FTE figures for three consecutive years, from 2016 to 2019.

18

3rd Global Cryptoasset Benchmarking Study

enterprises active since at least 2017 can be defined as high-growth firms (Figure 6). The lowest shareof high-growth enterprises was found in LAC, where only 13% of surveyed firms in that region met thecriteria.
Figure 6: In 2019, APAC recorded the highest share of high-growth enterprises

High-Growth Enterprises by Region (2019)
Share of surveyed enterprises active since at least 2017
39%

27%
World = 26%

23%
18%
13%

Asia-PacificNorth America

EuropeMiddle East
and Africa

Latin America andthe Caribbean

Higher growth firms account for a larger part of employment in the industry relative to small growthfirms. In 2019, more than two in three employees of surveyed enterprises that have been active since atleast 2017 were employed by a high-growth company. These firms, on average, more than doubled theirworkforce over the three-year period. In 2017-2019, high-growth cryptoasset firms experienced on
average a positive growth in the number of employees from approximately 84 employees in 2017 to 200
employees in 2019. This minority of high growth firms appear to account for higher employment levels
across the industry.
A commonly shared view is that high-growth firms are typically young (but at least three years old).
Although survey data shows that 3-4 years-old firms represent 49% of high-growth enterprises, themedian high-growth firm in the cryptoasset industry is 6 years old (Figure 7).
Figure 7: High growth is primarily a young firm phenomenon

Age Distribution of High-Growth Firms
Share of high-growth firms

49%

3 to 4 years old  30%

5 to 6 years old  

7 to 8 years old  

19%

2%

9+ years old

FINANCIAL PERFORMANCE OF SERVICE PROVIDERS
To perform a longitudinal assessment of the financial performance of service providers over the years,
we collected data on the operating revenues and pre-tax profits. Majority of the surveyed entities thathave been active since 2017, indicate that they have generated operating revenues over the past three
years (Figure 8).

19

3rd Global Cryptoasset Benchmarking Study

Despite the growth in the number of firms reporting operating revenues between 2017 and 2019,from 10% to 16%, the number of firms that realised pre-tax profit stagnated between 2017 and 2018.
2018 corresponds to the year when the market experienced a sharp drop in prices and total market
capitalisation, which may have had a debilitating effect on some service providers and their ability togenerate profits.
Figure 8: Surveyed service providers report increased profitability in 2019 in comparison to the preceding years

Operating Revenues and Pre-Tax Profit
Share of surveyed service providers active since at least 2017
89%
80%

75%

66%
59%

2017

57%

2018
Operating revenues   2019
Pre-tax profit

Unsurprisingly, the older the company, the more likely it is to be profitable. 80% of firms aged 7 years old
or older report having earned profits in 2019, compared to 60% for the 3-4 years old age group and 64%
for firms that are 5-6 years old.

20

3rd Global Cryptoasset Benchmarking Study

SECTION 2: MINING, THE BACKBONE
OF THE INDUSTRYWith mining operations reaching industrial scale, the ecosystem has morphed into a complex networkof interdependent actors, 8 often opaque and hard to understand for external observers and the generalpublic. In particular, the crucial role of miners in the functioning and the security of proof-of-work (PoW)
systems, such as Bitcoin, is often underappreciated and overlooked. This section intends to address thiscomplexity by delving into the role of hashers, pool operators, and hardware manufacturers.

HASHING AS A BUSINESS
Hashers’ raison d’être is the existence of PoW, a consensus mechanism to produce a commonly-agreed
history of transactions without relying on a central coordinating authority.9 There are other consensus
mechanisms that exist, such as proof-of-stake, but given PoW’s predominance at the time of writing thisreport, this section exclusively focuses on PoW mining.

COIN SELECTION
The entry cost into cryptocurrency mining has been on the rise since 2013, partly attributable toincreasing computational difficulties that necessitate the utilisation of specific-purpose hardware.
Figure 9: Financial parameters primarily guide hashers’ choice of coins to mine

Coins Selection Criteria
Share of hashers
Large

Small

Daily reward amount70%

Price of cryptoasset

70%

51%

52%

Market capitalisation

51%

30%

Energy requirement

47%
48%

Proof system

47%
57%

Reputation

47%

13%

Ideology/personal affection

32%
30%

Large number of miners/mining pools
Friends/colleagues recommendation

4%

Low number of other miners/mining pools

4%

Other

68%

26%
11%
8%

30%

15%

8

For an introduction to the mining industry please see Rauchs et al. (2018) 2nd Global Cryptoasset Benchmarking Study. Cambridge
Centre for Alternative Finance. Available from: https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2ndglobal-cryptoasset-benchmarking.pdf [Last accessed: 24 August 2020].

9

In proof-of-work cryptocurrencies, “hashers” provide computing power and are commonly known as “miners”. For further
discussion on the role of hashers, see Rauchs et al. (2018) 2nd Global Cryptoasset Benchmarking Study. Cambridge Centre for
Alternative Finance. Available from: https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-globalcryptoasset-benchmarking.pdf [Last accessed: 24 August 2020].

21

3rd Global Cryptoasset Benchmarking Study

Hashers must therefore carefully select the coin(s) to mine against a set od criteria to break even. For the
majority of hashers that are driven by profit motives and returns, coin selection is generally guided byfinancial criteria, such as daily reward amount or cryptoasset prices (Figure 9).
Conversely, the remaining portion of hobbyist hashers, believed to be mostly located in Europe andNorth America,10 are likely to be driven by more subjective criteria, such as ideology and personalaffection.
Interestingly, energy requirement seems to be a much more determining factor for small hashers thanlarge ones. This difference is also reflected at the regional level: hashers operating out of Europe (56%)
and LAC (63%) more often base their coin choice on this criteria than those from APAC (37%) or North
America (35%). This might be an indication that hashers, and particularly large ones, from APAC andNorth America are more confident in their ability to secure stable access to energy sources.
Bitcoin is the most popular coin mined, with 89% of surveyed hashers indicating that they mine it,followed more distantly by Ethereum (35%) and Bitcoin Cash (30%). Interestingly, while Bitcoin mining
is predominant across all regions, other coins seem more popular in certain areas than others (Figure10). For instance, Ethereum mining appears to be particularly popular among Latin American hashers,
whereas Bitcoin Cash is more popular in APAC and North America. The mining of privacy coins inWestern regions also differs from the global average: 28% and 19% of European and North American
hashers report mining ZCash, and as many North American hashers also engaged in Monero mining.
Figure 10: Beside global consensus on Bitcoin, the popularity of other PoW coins varies across world regions

Coins Mined by Region
Share of hashers
Asia-Pacific

Europe94%

Bitcoin (BTC)
34%

22%

Bitcoin Cash (BCH)

34%

22%

25%

88%

86%

63%

16%

ZCash (ZEC)

16%

28%

Other

16%

28%

Digital Cash (DASH)

13%

6%

9%

6%

33%

25%

33%

Ethereum Classic (ETC)

Monero (XMR)

North America

100%

Ethereum (ETH)

Litecoin (LTC)

Latin America
and the Caribbean

25%

6%

38%
24%
14%
19%

25%
13%

14%
10%
19%

COST OF HASHING
Hashers’ costs comprise capital expenditures (e.g. purchase of mining equipment, infrastructuredevelopment and allied costs), which represent on average 45% of hashers’ total costs. The remaining
55% fund operational expenditures (e.g. electricity bills, maintenance, workforce), of which 75% is utilised
towards the payment of utilities. This figure varies slightly based on the type of coins mined. For instance,
for hashers exclusively focusing on cryptocurrencies that employ the SHA-256 mining algorithm,
10 Genesis Mining (2020) State of Crypto Mining 2020. Genesis Mining. Available from: https://www.genesis-mining.com/state-ofmining2020?download=confirm [Last accessed: 20 August 2020].

22

3rd Global Cryptoasset Benchmarking Studyutility costs correspond to 79% of their operational expenditures. This is in part explained by diverging
production costs of the different PoW coins.
Utility costs represent on average 79% of SHA-256 hashers’ operational expenditures

Differences also arise at the regional level (Figure 11): hashers operating in LAC reported the lowest
share of utilities cost as part of their total cost structure. The clustering of respondents at the bottom
part of the distribution for North and Latin American hashers suggests that a select few hashers in theseregions are able to drastically minimise their utilities costs.
Importantly, Latin American hashers registered the highest share of capital expenditures - although
we note a relative variability across them - possibly explained by a lack of robust supply chains to ship
equipment to the region. In contrast, easy reach of hardware manufacturers is reflected by a lower shareof capital expenditures as part of their total costs for APAC miners (37%).
Figure 11: Most of North and Latin American hashers’ costs go to capital equipment

Cost Breakdown of Hashers per Region
Share of hashers’ cost structure37%

Asia-Pacific

49%

43%

Europe41%

Latin America and the Caribbean

52%

North America

52%
Capital equipment  

21%

6%

7%

7%

9%

6%

16%

38%

Utilities  

Maintenance  

1%

5%
5% 5%

Employees or contractors  

Other

A focus on the two most represented countries in our study sample offers additional insights. Cost
structure data from Chinese and American hashers seems to confirm that Chinese hashers have acompetitive edge in the acquisition of mining machines (Figure 12). The concentration of hardware
manufacturers in China implies well-connected and shorter supply chains to Chinese hashers, simplified
business conduct (e.g. language, working culture), and absence of additional overseas shipping fees.11
Unexpectedly, the share of labour and maintenance costs do not seem to differ significantly between
the two mining regions, despite common belief that cheaper workforce in China would necessarily leadto labour contributing less to their overall expenditures. Cost of labour is indeed cheaper in China, but
Chinese hashers tend to rely on a larger workforce size to run their operations. In contrast, most North
American facilities have deployed sophisticated ASIC management software that reduces the need fortechnicians.
Figure 12: Chinese hashers allocate more than half of their total expenditures to utilities

Cost Breakdown of Chinese and American Hashers
Share of hashers’ cost structure
China
United States

31%

55%
56%

Capital equipment   

31%
Utilities   

Maintenance   

Employees or contractors   

7%

6%

1%

5%

7%

1%

Other

11 For instance, since the introduction of new tariffs on Chinese imports, US hashers have to pay 25% tariffs on ASICs shipped to the
USA.

23

3rd Global Cryptoasset Benchmarking Study

ELECTRICITY PRICE
Utilities, primarily composed of electricity costs, take the lion’s share of hashers’ operational
expenditures. Contrary to the popular assumptions found in academic papers and mainstream media12 ,the vast majority of hashers no longer pay residential electricity prices, but often access preferential/
industrial pricing by entering contractual agreements with power generators. The median electricity
price is comparatively higher in North America - albeit significantly variable across hashers from theregion - and APAC at USD 0.05/kWh, whereas Latin American hashers report the lowest medianelectricity price (USD 0.025/kWh) of all regions (Figure 13).
Globally, electricity price paid by miners averages USD 0.046 per kWh13

There is a notion that electricity surplus in some APAC areas, such as the province of Sichuan in China,
gives hashers who relocate their operations there during the rainy season a competitive advantage inminimising their running costs. However, survey data demonstrates that this seasonal advantage appears
to be offset by less affordable electricity prices throughout the rest of the year when hashers migrateback to other provinces, such as Xinjiang or Inner Mongolia in China.
Figure 13: The median Asian and North American hasher pay the same electricity priceElectricity Price per Region
98

USD cent/kWh

7
6
5
4
3
2
1
0
Asia-Pacific

Latin America andthe Caribbean

EuropeNorth America

GOVERNMENT SUPPORTHashers’ operational costs may be reduced through government support, which may take the formof subsidies or tax exemptions. Government interventions through subsidies and tax exemptions are,however, still relatively uncommon in most regions. Only 23% of the surveyed hashers report receiving
support from governments (Figure 14). This aid primarily takes the form of locally-focused support, suchas electricity price subsidy for users within a region. 38% of surveyed hashers who receive government
support operate in China, followed by Kazakh (19%) and Canadian (12%) hashers.
12 See for instance, Malfuzi, A. et al. (2020) Economic viability of bitcoin mining using a renewable-based SOFC power system to supply theelectrical power demand. Energy. Available from: https://doi.org/10.1016/j.energy.2020.117843 [Last Accessed: 20 August 2020];
Benetton, B., Compiani, G. and Morse, A. (2019) Crypto Mining: Local Evidence from China and the US. University of Berkeley.
Available from: https://faculty.haas.berkeley.edu/morse/research/papers/BenettonCompianiMorse_CryptoMining.pdf
https://doi.org/10.1016/j.energy.2020.117843 [Last accessed: 21 August 2020].
13 The weighted average was calculated by combining survey data on electricity price and the estimated monthly share of total Bitcoin
hashrate per country for the period September 2019 to April 2020, according to the CBECI mining map. See Cambridge Bitcoin
Electricity Consumption Index. Cambridge Centre for Alternative Finance. Available from: https://cbeci.org/mining_map[Last accessed: 21 August 2020].

24

3rd Global Cryptoasset Benchmarking Study

Figure 14: A select few hashers benefit from governmental subsidies

Government Support to Hashers
Share of hashers
75% Locality-focused support
31% Business-focused support

28%

19% Unique agreement

Benefit fromgovernmental
subsidies

Mining activities have attracted greater regulatory scrutiny
CCAF’s regulatory landscape of cryptoasset activities study released in April 2019
revealed that very few jurisdictions have included or explicitly mentioned mining in theirregulatory guidance on cryptoasset activities. Mining has, however, sparked greater
regulatory attention recently, and in some instances led to the development of bespoke
legal frameworks for mining activities, such as in Kazakhstan.14 In other jurisdictions,enforcement actions have provided further clarity on the regulatory treatment of miningrelated products. For instance, in a ruling dated April 2020, the Texan regulator indicatedthat a cloud mining platform breached US securities law by offering unlicensed securities.15
Miners from the same region greatly diverge in their opinion on their immediate
regulatory environment. This heterogeneity in opinion suggests either that miners have
limited awareness of existing regulation, or that regulation is confusing and inconsistent.
Nonetheless, regulatory changes seem unlikely to induce a change in the geographic
location of operations as reported by surveyed miners; only 23% indicated having opened a
new mining facility following a change in local regulation.

14 For an overview of regulatory developments in 2020, see TokenInsight (2020) 2020 Q2 Cryptocurrency Mining Industry Report.
Available from: https://tokeninsight.com/report/1189?lang=en&title=2020-Q2-Cryptocurrency-Mining-Industry-Report [Lastaccessed: 21 August 2020].
15 ‘Texas State Securities Board vs Ultra BTC Mining LLC’ (2020) Emergency Cease and Desist Order. Texas State Securities Board.
Available from: https://www.ssb.texas.gov/sites/default/files/ENF_20_CDO_1801.pdf [Last accessed: 21 August 2020].

25

3rd Global Cryptoasset Benchmarking Study

WHERE ARE WE ON POW’S ENERGY CONSUMPTION?
Despite increasing transparency and research on the environmental impact of PoW mining,16 the topic is
still typically misrepresented in most sources and on both sides of the debate. Similar to 2018, this year’s
survey data shows that a significant majority of hashers (76%) use renewable energies as part of theirenergy mix (Figure 15). However, the share of renewables in hashers’ total energy consumption remains
at 39%.
Hydropower is listed as the number one source of energy, with 62% of surveyed hashers indicating that
their mining operations are powered by hydroelectric energy (Figure 16). Other types of clean energies(e.g. wind and solar) rank further down, behind coal and natural gas, which respectively account for 38%
and 36% of respondents’ power sources.
39% of surveyed miners’ total energy consumption comes from renewables

The data does not allow us to infer what share of natural gas usage corresponds to stranded gas, i.e.
represents energy that would otherwise be wasted or unused. Stranded gas either takes the form of gas
that would be flared at oil or gas wells due to limited pipeline capacity or gas coming from non-exploited
wells due to logistical or economic reasons. Despite reported challenging logistics, certain areas in the
USA have witnessed the installation of a few mining sites powered by stranded gas, such as in Texas orNorth Dakota.
Figure 15: PoW mining is primarily powered by non-renewable energy sources

Renewables as Part of Hashing Energy Mix
Share of hashers

Share of total energy consumption

39%

76%

Of hashing’s
total energy
consumption comesfrom renewables

Use renewableenergies as partof their mix

The spread shape of regional distributions for the share of renewables suggests that there is extreme
variability across miners from the same region, particularly in APAC, Europe, and North America. The
median percentage of renewables in Europe and North America is relatively high at about 70% and 66%
respectively, while the median is much lower in APAC, at 25%.

16 Stoll C., Klaaßen U. and Gallersdörfer, U. (2019) The Carbon Footprint of Bitcoin. Joule. Available from: https://www.cell.com/joule/
pdf/S2542-4351(19)30255-7.pdf [Last accessed: 21 August 2020], Bendikson, C. and Gibbons, S. (2019) The Bitcoin Mining
Network - Trends, Composition, Average Creation Cost, Electricity Consumption & Sources. CoinShares Research. Available from: https://coinshares.com/assets/resources/Research/bitcoin-mining-network-december-2019.pdf [Last accessed: 21 August 2020], andCambridge Bitcoin Electricity Consumption Index. Cambridge Centre for Alternative Finance. Available from: https://cbeci.org/mining_
map [Last accessed: 21 August 2020].

26

3rd Global Cryptoasset Benchmarking Study

Figure 16: Hydroelectricity, coal, and natural gas are the most reported power sources

Regional breakdown of energy
sources reveals that APAC hashers
equally rely on coal and hydropower(Figure 17). Coal-based mining isprincipally adopted in regions such as
the Chinese provinces of Xinjiang andInner Mongolia, and in Kazakhstan,whereas hydroelectric energy ismainly generated in South-Westernregions of China (Sichuan andYunnan).

Power Sources of Hashing Facilities
Share of hashers
62%

Hydroelectric
Coal

38%

Natural gas

36%

Wind

17%

Oil

15%

Solar

15%

China’s oversupply of hydroelectricenergy during the rainy season
has often been used as evidence inGeothermal
8%claims that a vast majority of mining
Other 2%is powered by environment-friendly
power sources. While it is true that
the Chinese government’s strategy toensure energy self-sufficiency has led to the development of massive hydropower capacity,17 18 the same
strategy has driven public investments in the construction of large-scale coal mines. Like hydroelectric
power plants, these coal power plants often generate surpluses. It should not come as a surprise thenthat a significant share of hashers in the region equally report using both hydropower and coal energy to
power their operations.
12%

NuclearFigure 17: North American hashers appear to use a wider range of energy sources19

Energy Sources per Region
Share of hashers
Asia-PacificHydroelectric

65%

Coal

65%

23%

Wind
Oil

12%

Solar

12%

Nuclear12%

Geothermal

60%

North America
67%

61%

20%

38%

Natural gas

Latin America
and the Caribbean

Europe

28%
33%

17%

44%

7%

22%

7%

33%

13%

22%

17%

17%

7%

22%

8%

17%
6%

Other

17 Hydropower accounts for approximately a quarter of the total power capacity in China. See, Youmei (2020) Hydropower andSustainable Development in China. Department of Economic and Social Affairs. Available from: https://www.un.org/esa/sustdev/
sdissues/energy/op/hydro_luyoumei.pdf [Last accessed: 21 August 2020].
18 Consumption of hydropower for mining operations has sometimes been encouraged by Chinese government officials,
including most recently by the Municipal Economic and Information Bureau and the Municipal Development and Reform
Commission of Ya’an District. See, Zamundzinski, A. (2020) Chinese Officials Support Renewable Energy-Powered Cryptocurrency
Mining. Cointelegraph. Available from: https://cointelegraph.com/news/chinese-officials-support-renewable-energy-poweredcryptocurrency-mining [Last accessed: 21 August 2020].
19 Of note, most North American hashers connect their operations to the grid, which naturally combine a mix of power sources.

27

3rd Global Cryptoasset Benchmarking Study

In July 2019, CCAF launched a real-time estimate of Bitcoin’s electricity consumption, the Cambridge
Bitcoin Electricity Consumption Index (CBECI), which was followed by the release in May 2020 of aninteractive map of the geographic distribution of Bitcoin hashpower from September 2019 to April
2020. 20 The findings from the map combined with survey data for SHA-256 hashers offer an alternative
methodological approach to estimate the energy mix of Bitcoin mining. The results of this top-down
calculation are displayed in Table 3 and indicates that about 29% of Bitcoin mining is powered byrenewables.
Table 3: Aggregate share of renewables in Bitcoin mining energy sources
Regional average
share of renewables

Regional share of
Bitcoin hashpower

Regional weighted share of
renewables in Bitcoin mining

Asia-Pacific

26%

77%

20%

Europe

30%

10%

3%

Latin America and the Caribbean

20%

1%

0%
NA

RegionMiddle East and Africa

NA

4%North America

63%

8%

5%

100%

29%

GlobalSource: CBECI mining map, survey data. As of April 2020

MINING POOLSPAYMENT METHODS
Pool operators coordinate the work of thousands of hashers to increase the likelihood of producing avalid PoW. They are also responsible for compensating hashers based on the expected value of theircontribution and according to a chosen payment method (see call-out box). There are more than a dozen
reward systems for pools to choose from. However, one seems to have prevailed to date: the pay-pershare (PPS) model and its associated subalterns full-pay-per-share (FPPS) and pay-per-share + (PPS+). 21
The study of a separate data set focusing on the top-15 Bitcoin mining pools and their respective shareof total hashrate shows that the full-pay-per-share (FPPS) model dominates (Figure 18). This distribution
may vary for other coins, however, in particular those whose transaction fees are insignificant for miners
payouts.
Figure 18: FPPS is the most widely supported across Bitcoin top mining pools

Top-15 Bitcoin Mining Pools' Earning Models
Weighted share
4%

23%

73%

FPPS   

PPS+   

PPLNS

Source: BTC.com, Pools’
individual website

20 Data underpinning the map was provided by three pools, BTC.com, Poolin, and ViaBTC, that together represent 37% of Bitcoin’s
total hashrate.
21 Mining rewards comprise both the block subsidy and transaction fees. While in a PPS model, pools only redistribute the blocksubsidy, the FPPS and PPS+ schemes also include the distribution of transaction fees.

28

3rd Global Cryptoasset Benchmarking Study

The reward systems of mining pools
A reward system corresponds to the payment method used by pool operators to split
mining rewards among hashers contributing to their pool. One key difference between
existing reward systems lies in the valuation of hashers’ work. In the PPS model, a hasher isimmediately rewarded upon completion of work, even though the pool is not guaranteed tofind a block. The amount paid is calculated based on the expected value of a hasher’s work.
As a result, PPS payoffs are deterministic for mining pool participants as the value of thepayoff is known in advance.
Conversely, in the pay-per-last-n-share (PPLNS) system, mining pools define a time window
and pay out rewards to miners only after the pool has found a block. The actual value of thepayoff is based on the share of work produced by the hasher during this time window.
Each model comes with its own set of trade-offs; while the regularity of PPS payments
reduces the variance or “luck factor” on miners’ side, the revenue miners can expectfrom a PPS pool is slightly lower, in the short term, than in a PPLNS model. In the longrun, however, a miner is expected to earn a higher revenue with the PPS model, all else
equal. This is because in a PPS setup, pools will continue to pay even under unfavourable
circumstances (e.g. orphan blocks, blockwitholding attacks). Conversely, in the PPLNS
mode, miners bear the “luck” risk, but usually pay a lower fee to the pool and might receive
higher earnings, in the short term, depending on how lucky the pool is in finding blocks.
Most reward systems are constructed to prevent “pool-hopping”, whereby hashers regularly switch
between pools as their profitability changes. Hopping-proof reward systems (e.g. PPLNS, score-based)disincentivise hashers from doing so by offering better rewards to “loyal hashers”. A growing body ofacademic literature has emerged to study pool-hopping behaviours and hashers’ migration patterns
between pools.22 23 For instance, Belotti et al.’s (2018) analysis has shown that although pool-hopping
might be more profitable, the practice is not necessarily widespread among hashers.
Pools are also developing novel techniques to better reward hashers and win their loyalty. For instance,at the time of writing, pools are beginning to offer profit-switching algorithms between PoW coins using
the same hashing algorithm (e.g. Bitcoin, Bitcoin Cash, Bitcoin SV, Bitcoin Diamond, all use the SHA256 algorithm). Instead of performing work for a single coin, this service lets the pool direct hashers’
aggregate hashpower to the most profitable coin of those that use the same hashing algorithm. In turn,pools are expected to buy hashrate at a significantly higher price from miners. 24
This is also interesting in light of updated survey data on the distribution of miners’ hashpower
contribution to pools, which, per 2019, suggests that hashpower contributed by the most active miners
follows a power-law distribution. 25 Figure 19 shows that the top-1% of active miners are responsible
for two-thirds of the pool’s total hashpower at the median. If pool-hopping was common practice, pools’
overreliance on a small number of customers would pose risk to their operations. Furthermore, thechange in the median contribution of hashers across all three groups between 2018 and 2020 datasuggests greater concentration at the top.

22 Belotti M., Kirati, S. and Secci, S. (2018) Bitcoin Pool-Hopping Detection. Proc. of 2018 IEEE 4th International Forum on Research andTechnology for Society and Industry. Available from: https://www-phare.lip6.fr/~secci/papers/BeKiSe-RTSI18.pdf [Last accessed:
21 August 2020].
23 Liu, K. and Ohsawa, Y. (2019) Auction based Rewards Distribution Method in Pool Mining. Proc. of 2019 IECC International Electronics
Communication Conference. Available from: https://dl.acm.org/doi/pdf/10.1145/3343147.3343162 [Last accessed: 21 August2020].
24 For a detailed explanation of profit-switching see for instance, Luxor Tech (2020) Introducing Luxor Switch. Available from: https://
medium.com/luxor/introducing-luxor-switch-6c65401d3d71 [Last accessed: 21 August 2020].
25 Active participation is defined as contributing hashpower at least once a week to the pool. The median share of active members is80%, with noticeable variability across pools as a significant number of them report lower activity figures.

29

3rd Global Cryptoasset Benchmarking Study

Figure 19: The median hasher in the top-10% of active contributors produces 84% of the pool’s total hashrate

Top Miners Contribution to Pool Hashrate
Share of total pool hashrate
84%
74%

70%

65%
55%

20%

Top 1%

Top 5%
2020   

Top 10%2018

A NOTE ON MINING CENTRALISATION AND POOL GOVERNANCE
As discussed in the 2nd Global Cryptoasset Benchmarking Study, centralisation risks are mainly
perceived to occur at three levels of the mining value chain: geographic location (and/or ownership) of
hashpower, hardware production, and pool operation. 26 Specifically, pool operations have been of great
concern given the censorship power that they have had to date over the work performed by hashers.
Given this concern, it is important to understand pools’ governance model and their role in the mining
process.
From a governance standpoint, survey data reveals that no clear-cut model stands out: one third ofpools use a mix of approaches in their decision-making process, while another third acknowledged thatdecision-making is a prerogative of pool administrators.
In their coordination role, mining pools retain great leverage over the work done by miners and leavethem with relatively limited bargaining power. 27 If incentivised to, pools could choose to exploit theirinfluence in multiple ways, e.g. to dishonestly mine, blacklist transactions or addresses, or redirect
miners’ hashpower to support another chain. Similar scenarios could also materialise if a pool was to be
attacked and controlled by malicious actors. In response to this centralisation risk, different solutions
have been developed to ensure greater decentralisation in the mining process at the pool level (seecallout box on stratum v2).

26 See page 95, Rauchs et al. (2018) 2nd Global Cryptoasset Benchmarking Study. Cambridge Centre for Alternative Finance. Available
from: https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf [Lastaccessed: 24 August 2020].
27 In practice however, it is commonly believed that pools’ heavy involvement in the mining industry and entire dependence on miners
willing to connect to their pool may have disincentivised more than one to behave dishonestly.

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3rd Global Cryptoasset Benchmarking Study

Stratum v2: handling control back to hashers?
Hashers participating in pooled mining rely on a protocol stack to communicate with poolservices, contribute work, and receive rewards. Since the creation of the first Bitcoin
mining pool in 2011, the dominant mining protocol in use has been stratum. Concerns
raised by multiple developers over centralisation risk and pools’ censorship power spurred
the research and development of an alternative mining protocol. Several actors havelaid the groundwork in putting forth several proposals. One such example is stratum v2.
Simply put, stratum v2 introduces an extra-step in the pooled mining process consistingin a negotiation phase between hashers and pools. During the negotiations, hashers havethe possibility to choose what they will work on (i.e. transaction set) instead of letting thepool unilaterally decide on their behalf. Ultimately this decouples the block building andpropagation to the network phases from payouts to miners.
For this approach to take off, alternatives to the original stratum protocol must be widely
supported and implemented by hashers and pools. From our survey data, a large majorityof surveyed pools and hashers report being undecided regarding the implementation ofStratum v2. A fourth have reported planning to implement stratum v2, but they have yet tofollow through (Figure 20).

Figure 20: In APAC, one-fourth of hashers and pools are unsure about stratum v2 implementation

Implementation of Stratum V2
Share of hashers and pool operators

Unplanned
4%
Other
5%
Asia-Pacific24%

Planned
27%

64%
Are undecided
about Stratum v2
implementation

Undecided
North
America
18%

Europe16%

Latin America and the Caribbean
6%31

3rd Global Cryptoasset Benchmarking StudyMINING HARDWARE MANUFACTURING
The mining hardware industry is another constituent of the mining industry that is often perceived as acomplete black box. Its relatively concentrated and secretive nature may conceal power dynamics andrelationships at play. Firstly, it is important to emphasize that manufacturing industries greatly differ
based on the type of hardware in use and the coin mined. For instance, the hardware space for Bitcoin
mining (and other SHA-256 coins) is dominated by ASIC producers, whereas Ethereum mining has had
a long-lasting loyalty to GPU-mining. Undeniably, the former has received most press coverage to date.
This subsection primarily focuses on the ASIC manufacturing industry.
The introduction of ASICs in 2013 hastened the professionalisation of the cryptoasset mining ecosystem
as a whole. Over the years, ASIC manufacturers have been acknowledged for their role in considerably
improving the efficiency of equipment and lengthening the obsolescence period of hardware. 28
However, the ASIC manufacturing industry is one that is still trying to find its feet. ASIC manufacturers
are particularly dependent on their partnership with third-party foundries that supply them withadvanced integrated circuits technology necessary to build ASIC chips. Given the concentration of thefoundry market, ASIC manufacturers’ operations are heavily reliant on a few fabrication plants, and a risein price, a reduction in the foundry capacity allocation, or simply a deterioration of relationships could be
detrimental to manufacturers’ business.
In this context, it is interesting to examine how these challenges may have impacted the market
distribution of ASIC manufacturers’ equipment. There is, however, a severe shortage of reliable
information on the topic. In an attempt to gauge the scale of the ASIC primary market, several reports
based on publicly disclosed sales information attributed the majority of the market share to a single
manufacturer until 2018. 29 After 2018, these reports found that fiercer competition from othermanufacturers has led to a shift in dominance and to a more diversified landscape.
Figure 21: The vast majority of SHA-256 hashers report using Bitmain’s Antminers

Market Distribution of SHA-256 Equipment
Share of SHA-256 hashers

28 See for instance, Elmandjra, Y. and Hsue, D. (2019) Bitcoin Mining - The Evolution of A Multibillion Dollar Industry. Ark Invest. Available
from: https://research.ark-invest.com/bitcoin-mining-white-paper [Last accessed: 21 August 2020].
29 These reports estimate the market presence of each ASIC manufacturer, either based on the number of machines sold or theamount terahash per second (Th/s) sold. See for instance, BitMEX Research (2020) Battle For ASIC Supremacy. BitMEX. Available
from: https://blog.bitmex.com/battle-for-asic-supremacy/ [Last accessed: 21 August 2020].

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3rd Global Cryptoasset Benchmarking Study

Survey data partially corroborates these findings. For instance, data collected from SHA-256 hashers
reveals that, as of April 2020, Bitmain Antminer machines appear to dominate the market (Figure21). In particular, Bitmain S9 model, which was released in May 2016, was reportedly used by 32% ofsurveyed SHA-256 hashers.30 Interestingly, alternative techniques using network data to estimate theamount of hashpower provided by certain types of hardware suggested that Antminer S9 machines were
responsible for 32% of Bitcoin’s hashpower.31 The next most cited manufacturer was MicroBT, whose
Whatsminer M20S model appears to be particularly popular among hashers (16%).
Figure 22 shows that China accounts for a substantial portion of manufacturers’ total sales (52%),
dwarfing other world regions, including the USA (12%) and Canada (9%). This is consistent with the factthat China is the main hub of mining activities as revealed by pools’ data displayed on the CBECI. The
CBECI mining map also shows that Kazakhstan and Russia occupy a notable share of mining activities
albeit, they each account for only 4% of manufacturers’ total sales. Possibly, hashers from these countries
may primarily be supplied by equipment sold on the secondary market.
Figure 22: In 2019, one in two ASICs produced is distributed to Chinese hashers

Sales Destination of ASIC Manufacturers (2019)
Share of total sales (weighted average)
52%
China   19%Rest of the world   

USA   

Canada   12 %Russia   

9%

4% 4%

Kazakhstan

Accurate figures on the ASIC secondary market are even scarcer than information on the primarymarket. Suspected to be particularly dynamic, the scale of the secondary market is hard to come by as
most trades take place over-the-counter often via informal channels (e.g. Telegram groups). Existingdata sets on deals happening on the secondary market suggest that the market share of each SHA-256
hardware manufacturer is relatively similar to their market share of primary sales.32
Figure 23: Secondary market trades may have help resellers sustain their sales volumes

Sales Volumes of ASIC Manufacturers and Resellers
Year-on-year growth
2018-2019

-26%
148%

172%

2017-2018162%
Manufacturers   

Resellers

Source: CCAF survey data, Ebang IPO filings
30 It should be noted however that data was collected prior to the Bitcoin halving of May 2020. Hence, the market share of each model
may have significantly changed since then, as some machines became unprofitable and obsolete.
31 Helmy, K. (2020) The Half-Time Show: The State of Bitcoin Network Security After the Halving. Coin Metrics. Available from: https://coinmetrics.substack.com/p/coin-metrics-state-of-the-network-fcf [Last accessed: 21 August 2020].
32 Hashrate Index (2020) SHA-256 Rig Index. Hashrate Index. Available from: https://www.hashrateindex.com/machines/sha256-rigindex [Last accessed: 21 August 2020].

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3rd Global Cryptoasset Benchmarking Study

Data obtained from surveyed manufacturers and resellers (including the sale of second-hand machines)
reveals that their volumes have moved in opposite directions after 2018 (Figure 23): while both grewsignificantly between 2017 and 2018 - at +172% and +162% respectively - only resellers sustained thisgrowth between 2018 and 2019, at +148%, albeit at a slower pace. Meanwhile, manufacturers reported
a 26% decline in the number of machines sold.
Preferred distribution channels for manufacturers and resellers have been direct sales to mining
companies (80%), closely followed by online stores which open equipment purchase to all (67%). Thesefigures are fairly consistent across all manufacturers and resellers, regardless of their geographic locationor sale destination. A marginal number of resellers and manufacturers indicate relying on other, often
more informal, channels, such as messaging and social media platforms (e.g. Telegram, Twitter).

THE FINANCIALISATION OF MINING
Hashrate: a new commodity for derivatives markets?
Hashrate refers to the amount of computing power used to generate a valid PoW. Mining
pools have long been described as a simple aggregator of hashrate. In reality, pools andtheir operators do more than pooling hashrate from miners. Practically speaking, pools
purchase hashrate from hashers, contributing to the commoditisation of this computing
power. As for any other commodity, the development of a spot market has led to theintroduction of derivative contracts. At the time of writing, a small number of companies
have started issuing a suite of financial products based on hashrate. Miners may see thisdevelopment as an hedging opportunity to better manage their risks and improve theircashflow situation.
Increased competition among mining players and tighter profit margins have led them to explore various
strategies to hedge risks and generate additional cashflows. In particular, the recent development of new
financial instruments targeted at miners, such as hashrate forwards and difficulty futures,33 has spurred
active discussion in the industry and made the headlines in cryptoasset-native outlets.34

What is a block subsidy halving?
Pioneered by Bitcoin, a “halving” corresponds to a periodic decrease (generally by 50%,
hence “halving”) of the block subsidy distributed to miners for every newly mined blockas determined by the supply issuance schedule. Several PoW coins have adopted thesehalving events; however, it appears primarily consequential for PoW coins with a highproduction cost, such as Bitcoin. Block subsidy is the main component of miners’ revenues
as transaction fees – which constitute the second element of the block reward – remain
marginal for the majority of cryptocurrencies other than Bitcoin and Ethereum. As such,the scheduled reduction of block subsidy directly influences miners’ profitability.

33 Future contracts trading against Bitcoin’s future mining difficulty.
34 See for instance Zhao, W. (2020) New York Power Plant Sells 30% of Its Bitcoin Mining Hashrate to Institutional Buyers. Coindesk.
Available from: https://www.coindesk.com/new-york-power-plant-greenidge-has-sold-up-to-30-of-its-bitcoin-mining-hash-rate[Last accessed: 20 August 2020].

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3rd Global Cryptoasset Benchmarking Study

Figure 24, however, shows that miners’ hedging strategies remain relatively elementary, and primarily
consist of holding cryptoassets (58%) or fiat reserves (41%). Only a handful of miners make use ofsophisticated financial instruments, such as cryptoasset (12%) or hashrate (14%) derivatives, or choose
to collateralise their coins (15%).35
Figure 24: The use of complex financial products is limited to a handful of actors

Hedging Strategies Employed by Miners
Share of mining actors
58%

Holding cryptoasset reserves

41%

Holding fiat national currency reserves

17%

Buying cryptoassets on demand
Collateralising cryptoasset(s)15%

Use of hashrate derivatives

14%
12%

Use or cryptoasset derivatives

Geographic distribution reveals that North American mining actors are twice as likely to use hashrate
derivatives than APAC actors and six times more likely than European actors (Figure 25). However,miners from either APAC or North America are equally likely to enter cryptoasset derivative contracts.
Factors, such as availability of these financial products and regulatory clarity, may explain these regional
discrepancies.
Figure 25: Holding cryptoasset reserves remain the main strategy used by miners across regions

Hedging Strategies by Region
Share of mining actors
Asia-Pacific

Europe56%

48%

Holding cryptoasset reserves
37%

Holding fiat national currency reserves

38%

Buying cryptoassets on demand

19%

10%

Use of hashrate derivatives

15%

5%

Use or cryptoasset derivatives

15%

5%

Collateralising cryptoasset(s)11%Latin America
and the Caribbean

North America

83%

67%

17%
17%

57%
24%
29%

17%
24%

33%

14%
10%

35 The reader should note, however, that this survey response data predates the decentralised finance (“DeFi”) explosion which may
have increased the use of collateralisation by miners. For a discussion on decentralised finance, please refer to Section 7.

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3rd Global Cryptoasset Benchmarking Study

SECTION 3: THE OFF-CHAIN STORY
ON-CHAIN AND OFF-CHAIN STORIES
Most analyses of cryptoasset usage and activity are based on data generated by on-chain activity(“on-chain data”). On-chain activity refers to transactions that clear and settle on the corresponding
blockchain base layer (e.g. Bitcoin, Ethereum). Tracking tools then turn this raw blockchain data intoreadable information to produce valuable data insights (e.g. blockchain explorers). Further investigation,such as those performed by blockchain forensic firms, associates wallet addresses with real-world
entities to examine on-chain transaction flows between known actors on the network.
On-chain data analysis has been helpful in understanding the share of illicit activity using
cryptocurrencies, which is estimated to amount to less than 1.1% of total volumes transacting on 25
chains.36 On-chain analysis is also useful to deduce the value being moved on-chain between real-world
entities, demonstrating for instance that exchanges account for 90% of all funds sent by cryptoasset
services.37
However, on-chain data only tells us part of the story since it highlights what happens between entities
that use the blockchain base layer to settle their transaction, but does not capture transactions between
entities using an intermediary to settle their transaction outside of the blockchain layer, for example two
traders on an exchange’s internal order-book. The latter can only be studied using off-chain data.38
A typical example of off-chain data is trading volumes or market data reported by individual cryptoasset
exchanges, where there have been numerous controversies surrounding faked trade volumes. Anotheroften cited resource for off-chain data has been volumes displayed on peer-to-peer exchanges, such as
LocalBitcoins. The information reported on peer-to-peer trading platforms similarly depicts a somewhat
skewed picture of cryptocurrency usage: the platform is primarily used to identify reliable brokers, andsubsequently a significant share of trade is taking place outside the platform and left unrecorded.
Another unknown in the cryptoasset usage realm is the amount of trades taking place over-the-counter(OTC). These trades cannot purely be captured either by on-chain or existing off-chain data. Previous
estimates place OTC trades at two to three times larger than global exchange volumes. More recent
anecdotes estimate it at around USD 600 million a day.39
In this section, we use data collected from exchanges, which provide a financial market for cryptoassets,
and payment service providers, who facilitate the use of cryptoassets for payments of goods andservices (for example, merchant services, bill payment service, etc.40) to offer a glimpse into the use of
cryptoassets off-chain.

36 Chainalysis (2020). The 2020 State of Crypto Crime. Chainalysis. Available from: https://go.chainalysis.com/rs/503-FAP-074/
images/2020-Crypto-Crime-Report.pdf [Last accessed: 21 August 2020].
37 Chainalysis (2020). Who’s Who On The Blockchains? The Chainalysis Guide to Cryptocurrency Typologies. Chainalysis. Available from:https://go.chainalysis.com/rs/503-FAP-074/images/Typologies-Report-final.pdf [Last accessed: 21 August 2020].
38 In our previous benchmarking study, we made the distinction between two types of off-chain transactions: “trusted” transactions
that are recorded by, and reliant upon, service providers for internal clearing and settlement, and “trust-minimised” transactions
that are based on payment channels using the blockchain exclusively for settlement (e.g. the Lightning Network).
39 Chaparro, F. (2019) Inside B2C2: The crypto market making firm that almost closed shop in 2018, and is now growing market share acrossthe globe. The Block. Available from: https://www.theblockcrypto.com/daily/47750/inside-b2c2-the-crypto-market-making-firmthat-almost-closed-shop-in-2018-and-is-now-growing-market-share-across-the-globe [Last accessed: 24 August 2020].
40 For a full description, see Rauchs et al. (2018) 2nd Global Cryptoasset Benchmarking Study. Cambridge Centre for Alternative
Finance. Available from: https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoassetbenchmarking.pdf [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

OFF-CHAIN CRYPTOASSETS AND FIAT CURRENCY SUPPORTFigure 26: Service providers have rallied to support stablecoins

Supported Cryptoassets
Share of service providers
90%

Bitcoin (BTC)
Ethereum (ETH)

Non-Tether stablecoins

55%
56%

26%

55%

11%

5%

Bitcoin Cash (BCH)48%

Ripple (XRP)
Tether (USDT)Etherum Classic (ETC)
Other cryptoassets

51%

47%

32%

4%

19%

8%

11%

24%

17%

19%

Bitcoin SV (BSV
ERC-2038%

13%

ZCash (ZEC)
Monero (XMR)

98%

74%
76%

33%

Litecoin (LTC)

93%

27%

10%

26%

24%

2020   

58%

40%

2018   

2017

Bitcoin continues to be the most popular cryptoasset on exchanges, payments, and storage service
providers, which is unsurprising given its high convertibility into sovereign fiat currencies and othercryptoassets even though its support has declined slightly over time from 98% of service providers in2017 to 90% in 2020 (Figure 26). Ether has seen rapid gains in its availability since 2017 and is now
the second most common token, reflecting the extent to which smart contracts and decentralised
applications rely on the Ethereum blockchain. The growth in popularity of ERC-20 coins also reflects
this shift. Litecoin, Bitcoin Cash, and Ripple are available at about half of service providers. Despite
increasingly strict regulations and concerns over their use for dark market activities, privacy coins Zcash
and Monero are still becoming increasingly more available, and are supported at 24% and 17% of service
providers respectively.
Stablecoins,41 both asset-backed and algorithmic, are also becoming more available, with Tether support
growing from 4% to 32% of service providers and all non-Tether stablecoins growing from 11% to 55%.
This increase is not simply from service providers holding stablecoins diversifying their holdings, butrather more service providers offering stablecoins. Among exchanges alone, the number of exchanges
offering at least one stablecoin increased from 11% to almost half (48%) of the same. In June 2020 morevalue was transacted using stablecoins than Bitcoin for the first time.42

41 The current generation of stablecoins are digital tokens that offer a fixed conversion rate to a specific asset or commodity reserves(e.g. fiat-collateralised such as Tether, USDC, or the Gemini Dollar).
42 Maddrey, N. (2020) The Rise of Stablecoins. Coin Metrics. Available from: https://coinmetrics.substack.com/p/coin-metrics-state-ofthe-network-f0a [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

Stablecoin issuers promise a fixed, or windowed, conversion rate between their token and corresponding
underlying asset (similar to an exchange rate peg). In response to price deviations from the peg, aninvestor has an incentive to buy (sell) the token from the issuer at a one-for-one rate and sell (buy) the
token in the secondary market when that price trades above (below) parity.
Historically, traders primarily used stablecoins to facilitate quick fiat-denominated transfers between
cryptoasset exchanges for arbitrage. Albeit less commonly, stablecoins have also been used as analternative to highly volatile cryptoassets for temporarily storing wealth.43 Following the price crash of
cryptoassets in March 2020, the tokens saw a surge in demand as investors sought to meet liquidity
needs and avoid exposure to the highly volatile markets. This resulted in several stablecoins trading at
a premium (trading at a higher price than their peg).44 However, deviations in stablecoin parities are not
one sided; collateral concerns (in the case of reserve-backed stablecoins) or mechanism concerns (in thecase of “two-coin” systems) have caused tokens to trade at a discount relative to their peg.
As of August 2020, the largest and most successful stablecoin, Tether, had a market capitalisation of
USD 10 billion, representing 80% of the total stablecoin market cap weathering various controversies.
For example, in April 2019, Tether Limited officials confirmed that only 74% of Tether was backed by cash
and other securities, and not 100% backed as had been understood.45
The scalability of these tokens is hindered by the ever-changing regulation in the cryptoasset space: inJuly 2020 the FATF released a report on stablecoins, emphasising the need for stablecoin issuers tocomply with global anti-money laundering (AML) and counter-terrorist financing (CFT) standards.46
Though monitoring and centralisation may threaten the immediate widespread adoption of stablecoins,such necessary regulatory infrastructure bolsters the legitimacy of both issuers and stablecoins.
Figure 27: All national fiat currencies are becoming more widely available

Supported National Fiat Currencies
Share of service providers
59%

USD

47%
51%

EUR

45%
30%
29%

GBP
21%

JPY
KRW
CNY

9%
16%
7%
12%
11%
62%

Other national fiat currencies

34%

2020   

2018

43 Lyons, R. and Viswanath-Natraj, G. (2019) What Keeps Stable Coins Stable?. SSRN Electronic Journal. Available from: https://jbs.cam.
ac.uk/wp-content/uploads/2020/08/2020-conference-paper-lyons-viswanath-natraj.pdf [Last accessed: 24 August 2020].
44 Coin Metrics Research (2020). The Rise of Stablecoins. Coin Metrics. Available from: https://f.hubspotusercontent00.net/
hubfs/5264302/The%20Rise%20of%20Stablecoins.pdf [Last accessed: 24 August 2020].
45 De, N. (2019). Tether Lawyer Admits Stablecoin Now 74% Backed by Cash and Equivalents. CoinDesk. https://www.coindesk.com/
tether-lawyer-confirms-stablecoin-74-percent-backed-by-cash-and-equivalents [Last accessed: 24 August 2020].
46 FATF (2020) FATF Report to G20 on So-Called Stablecoins. Financial Action Task Force. Available from: www.fatf-gafi.org/
publications/virtualassets/documents/report-g20-so-called-stablecoins-june-2020.html [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

The growth in popularity of stablecoins has not prevented providers from increasing their supported
fiat currencies (Figure 27): US Dollar (USD) support has grown from 47% to 59% of service providers,
while the Japanese Yen (JPY) saw the largest increase from 9% to 21%. Non-major sovereign currencies
are also increasingly offered, with an increase from one third to two thirds of all providers from 2018 to2020 offering a national fiat currency that was not USD, Euro (EUR), British pound (GBP), Chinese Yuan
(CNY), JPY, or Korean Won (KRW).
The growing regulatory clarity may have helped this increase in support for national fiat currencies, asservice providers may have previously avoided fiat currencies to avoid financial regulations. With many
regulations now updated to include cryptoasset service providers even if they do not incorporate fiat
currency, the gains from not listing a sovereign fiat currency is diminished.

OFF-CHAIN ACTIVITY PROVIDERSEXCHANGES
A key component in the off-chain story are exchanges. Exchanges’ internal flows reveal that theseplatforms are primarily used as fiat on-off-ramps, i.e. when a user seeks to enter the cryptoasset market
by converting its fiat currencies into cryptoassets, or leave and convert cryptoassets into fiat. Fiatcryptoasset transactions make up most of exchanges’ trades, both in terms of trading volumes andtransaction numbers, while fiat-fiat trades are a small share of trades.47
Once on-boarded onto an exchange platform, users may choose to settle their transactions off-chain (forexample, engage in an open market buy/sell order on the exchange’s order book, or an internal transfer
on the exchange’s recordkeeping system to another user account within the exchange). The user may
also direct their on-boarded exchange balance to a wallet external to the exchange, a transaction that
normally necessitates an on-chain transaction.
Figure 28: APAC, and to a lower extent European exchanges appear to be primarily used for trading purposes

Transaction Type Breakdown
Share of transaction
Exchange location

Transaction destination

47 So-called stablecoins are classified as “cryptoassets” for the purpose of this section.

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3rd Global Cryptoasset Benchmarking Study

Large exchanges have a higher average of transactions on their open market than small exchanges (70%compared to 42%), with users of smaller exchanges almost twice as likely to send transactions to an
external wallet (14% on large exchanges and 33% on small exchanges).48 This is consistent with small
exchanges being used more intensively as on-off-ramps, while larger exchanges are used for trading.
The unequal distribution of small and large exchanges also leads to regional patterns in exchanges(Figure 28). The presence of large exchanges in APAC means that very little of APAC exchanges’ volumes
leave their exchange platform, consistent with the observation that half of APAC exchanges are large
exchanges.49 The opposite is true for the predominantly small exchanges in MEA, where up to 47% oftransacted volumes is directed to external wallets.
In 2019, over 70% of transaction volume for exchanges headquartered in Europe, LAC, and North
America were fiat-cryptoasset transactions (Figure 29) compared to 54% of APAC transaction volume.
41% of APAC volume stemmed from cryptoasset-cryptoasset transactions, although the APAC crossexchange variation for cryptoasset-cryptoasset trades ranges from almost 0% to almost 100%. The LAC
region has a similarly large variation in cryptoasset-cryptoasset trade shares across exchanges. MEA
platforms stand out for the popularity of fiat-fiat transactions, which account for 25% of trade volumes,
considerably higher than other regions. The fiat-fiat transaction population in MEA exchange could
reflect the larger geographic distribution, presented in Section 4.
Figure 29: In APAC and LAC, cryptoasset-cryptoasset trades take up more than one third of total transaction
volumes

Exchanges Internal Currency Mix (2019)
Share of internal transactions
41%

Asia-Pacific
Europe

54%

19%

74%
35%

Latin America and the Caribbean
Middle East and Africa

13%

North America

14%

5%
7%

65%
62%

25%
83%

Cryptoasset <-> Cryptoasset   Fiat <-> Cryptoasset   3%Fiat <-> Fiat

A possible contributing factor for the regional differences in cryptoasset-cryptoasset trade volume isthat many exchanges are used to onboard users into the cryptoasset ecosystem before they migrate
to APAC exchanges for trading purposes. We can provide three pieces of supporting evidence for thisassertion:•

the majority of APAC exchange transactions are directed to the open market within the exchange(i.e. exchange’s internal order-book) consistent with trading behaviour. Additionally, our survey
sample reveals 83% of APAC platforms have an internal order book, compared to only 40% for
MEA exchanges,•

APAC platforms usually support a wider range of coins. The average APAC exchange supports
40+ coins, compared to 13 in Europe or 10 in North America, and

48 We define a large exchange to be one with more than 40 full-time equivalent employees. In most regions small exchanges are 70%
or more of all exchanges, though small exchanges represent 95% of all exchanges in MEA. APAC breaks with the 70% rule of thumband has approximately the same number of large and small exchanges.
49 The data however does not provide further detail about genuine public trading and proprietary trading.

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3rd Global Cryptoasset Benchmarking Study•

APAC exchanges offer considerably greater leverage to users allowing for the chance of greater
gain (or loss) for speculative investors. 50 In our survey, 55% of surveyed exchanges offering
leverage to users are headquartered in APAC, followed by 30% out of Europe. These APAC
exchanges are well known in the industry for their high leverage multiples, with a median at 15x
and some outliers offering up to 110x leverage (Figure 30).

Figure 30: Margin trading is more widely available on APAC exchanges

Exchanges’ Highest Leverage Multiple per Region
100
90Highest leverage multiple

80
70
60
50
40
30
20
10
0
Asia-PacificMiddle East
and Africa

EuropeNorth America

PAYMENT PLATFORMS
The payment service provider landscape continues to be dominated, both in transaction volume andtransaction number, by fiat-cryptoasset transactions, which make up nearly two-thirds of all volumes(65%) and transactions (63%). This dominance of fiat-cryptoasset features in both large and small
payment service providers, though large providers have over twice the transaction share of cryptoassetcryptoasset transactions as small providers (35% to 16%) as shown in Figure 31.
Further geographic breakdown reveals patterns similar to exchanges, with payment service providersin APAC reporting a greater share of cryptoasset-cryptoasset volumes compared to European, North
American, or MEA actors.
Figure 31: Cryptoasset-fiat trades are more frequent on small payments service providers

Payments Internal Currency Mix (2019)
Share of internal transaction volume
35%

Large
Small

54%

16%

11%

68%
Cryptoasset <-> Cryptoasset   Fiat <-> Cryptoasset   

16%
Fiat <-> Fiat

There is a difference in the payment values for domestic and cross-border transactions . Low-value
50 Under a leverage model, the exchange offers a loan to users to use for buying or selling cryptoassets. There are various different
models for leverage, for example margin trading.

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domestic transactions (below USD 100) account for 44% of all domestic transactions, while high-value
domestic transactions (over USD 1,000) are less than one third (31%) of domestic transactions. In
contrast, low-value transactions account for only 30% of the total cross-border transactions, whereas
higher-value transactions account for 45%. This contradicts anecdotes of individuals using cryptoasset
payment service providers to facilitate personal international payments that would otherwise be too
small to be economically feasible to transmit internationally via established entities.
There are also notable differences between large and small payment providers regarding the payment
value mix in cross-border transactions but relative uniformity in the value mix for domestic transactions.
Large payment providers predominantly offer 65% high-value cross border transactions against 8% lowvalue cross border transactions, whereas small payment providers offer 41% high-value cross bordertransactions against 35% low-value cross border transactions. This indicates that these different service
providers are respectively serving disparate market niches. An examination of the transaction types
confirms this inference: small payment providers’ transactions are twice as likely to be peer-to-peer incomparison to large payment providers’ transactions (33% to 17%), with both consumer-business (36%to 45%) and business-to-business (31% to 38%) transactions more common across large providers thansmall providers (Figure 32).
Figure 32: Transactions are divided relatively equally across the three payment groups for small payments service
providersType of Payments Transfers
Share of internal transaction volume
Large
Small

38%
31%
Business-to-business payments   

45%
36%
Consumer-to-business payments   

17%
33%
Consumer-to-consumer transfers

For lower and upper middle-income countries, payment service providers mostly facilitate small
payments, whether domestic or international, while in high income countries most payments are large.
This income-based pattern is repeated at the regional level, with Europe and North America engaging
in mostly large payments domestically and internationally, LAC and MEA engaging in mostly small
payments domestically and internationally, and APAC mixing, with a higher share of smaller payments
domestically and larger payments internationally (Figure 33).

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3rd Global Cryptoasset Benchmarking Study

Figure 33: Low-value payments account for the largest proportion of transaction volumes in LAC and MEA regions

Domestic and Cross-border Payment Size per Region
Share of internal transaction volume
Domestic
14%

Cross-border
13%

20%

31%
43%

22%

30%

53%

60%

26%

53%
23%
25%

71%

27%
25%
20%
64%

57%

28%

16%

57%
49%

42%

22%

32%
24%

27%

North
America

Asia-Pacific19%7%Asia-Pacific

EuropeLatin America
and theCaribbean

Middle East
and Africa

USD 0 - USD 100   

EuropeUSD 100 - USD 1,000   

43

Latin America
and theCaribbean> USD 1,000

Middle East
and Africa

North
America

3rd Global Cryptoasset Benchmarking Study

SECTION 4: PROFILING
CRYPTOASSET USERS
Descriptive data on cryptoasset holders are crucial for industry participants and regulators alike.
Individual service providers often conduct consumer surveys to better tailor their services to theiruser profile. Meanwhile, in some jurisdictions, regulatory authorities have undertaken similar studies
to grasp the size of the cryptoasset market in their jurisdiction and understand consumer attitudes
toward cryptoassets to better assess what part of the population is most at risk. This section offers
complementary insights into the composition of cryptoasset holders.

USER NUMBER AND ACTIVITY
In 2018, the 2nd Global Cryptoasset Benchmarking Study estimated the number of identity-verified
cryptoasset users at about 35 million globally. 51 Applying the same methodology, an update of thisestimate indicates a total of up to 101 million unique cryptoasset users across 191 million accounts
opened at service providers in Q3 2020 (Figure 34). 52 This 189% increase in users may be explained byboth a rise in the number of accounts (which increased by 37%), as well as a greater share of accounts
being systematically linked to an individual’s identity, allowing us to increase our estimate of minimum
user numbers associated with accounts on each service provider.

Figure 34: The total number of cryptoasset accounts held at service providers has experienced a fourfold increaseover four years

Lower Bound Estimate of Total Cryptoasset Users and Accounts
200

191

180
160

139

140

Millions

120

101

100
80
60
40

45

35

20

5
0
2016

2018

Total number of accounts   

2020 Q3
Total number of users

Despite clear limitations
to this methodology(see Section 2 p.33 of the
2nd Global Cryptoasset
Benchmarking Study for amore thorough discussion),
there are reasons
to believe that thisestimate offers a reliableapproximate figure of
the total number ofcryptoasset holders
globally. Other recent
consumer research also
highlights an increase incryptoasset ownership.
A study commissionedby the UK financial
regulator estimatedan increase of 78%
compared to 2019

51 The methodology is detailed p.33 in Rauchs et al. (2018) 2nd Global Cryptoasset Benchmarking Study. Cambridge Centre for
Alternative Finance. Available from: https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-globalcryptoasset-benchmarking.pdf [Last accessed: 24 August 2020].
52 It should be noted that this figure does not include self-hosted wallets.

44

3rd Global Cryptoasset Benchmarking Study

estimates. 53 Finally, large service providers have concomitantly publicly reported a rise in the entrance of
new users, especially in the first quarter of 2020. 54
However, consumers vary widely in how they engage with cryptoassets. User activity as reported byservice providers is one useful metric to monitor users’ interaction with the cryptoasset ecosystem.
Service providers operating from North America and Europe generally report higher user activity, withthe median firm indicating that 40% of total users are considered active. However, as the spread of the
distribution shows, reported figures on user activity vary significantly between actors from the same
region. This heterogeneity is particularly pronounced for North American, European, MEA companies.
On average, small service providers experience higher level of user activity

Disparity in user activity may also be explained by inconsistent definitions used by service providers tomonitor activity levels. While 54% of service providers define as “active” a user that logs in or interacts
with the service at least once a month, 33% do so using a weekly timeframe. Perhaps unsurprisingly,
exchanges that voluntarily define user activity using a shorter timeframe (e.g. weekly) also report greateruser activity, on average, than those using a monthly-based definition.

USER GEOGRAPHY
Figure 35: Firms continue to majorly serve users from their region of operations

Geographic Distribution of Customer Base
Firm location

Share of total users

User location

53 English, R., Tomova, G. and Levene, J. (2020) Research Note: Cryptoasset consumer research. Financial Conduct Authority (UK).
Available from:https://www.fca.org.uk/publications/research/research-note-cryptoasset-consumer-research [Last accessed: 24
August 2020].
54 See for instance, Partz, H. (2019) Coinbase Added 8 Million New Users in the Past Year. Cointelegraph. Available from: https://
cointelegraph.com/news/coinbase-added-8-million-new-users-in-the-past-year [Last accessed: 24 August 2020], Binance (2020)
Binance 2019: Year in Review. Binance. Available from: https://www.binance.com/en/blog/418708327988203520/Binance2019-Year-in-Review [Last accessed: 24 August 2020], and Krekotin, V. (2020) Sharing Thoughts on Security, OKEx’s Jay Hao Says
Customers Come First. Cointelegraph. Available from: https://cointelegraph.com/news/sharing-thoughts-on-security-okexs-jay-haosays-customers-come-first [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

Cryptoasset users span the globe, but firms continue to primarily serve customers based in their regionof operation (Figure 35), in line with our 2018 findings. This is particularly the case for companies
headquartered in LAC, but less so for those in MEA and North America. North American firms’ presencein other regions seems to confirm the success of the internationalisation strategy adopted by thesecompanies. Finally, the slightly more geographically distributed customer base of MEA companies APAC, Europe, and North America each take 10% on average of MEA companies’ customer base - may
reflect the presence of diaspora from MEA into those three regions.

USER TYPES
Several studies have reported a growing interest from institutional investors in cryptoasset markets. For
instance, a blind survey of American and European institutional investors conducted by Fidelity Digital
Assets reveals that 36% of respondents have invested in cryptoassets and that three in five believe thatcryptoassets should form part of their portfolios. 55 Interestingly, a growing share of US institutional
investors have exposure to cryptoassets via the derivatives market.
The past four years have indeed seen a rapid increase in the number of financial instruments available
to market investors. These instruments, such as perpetual swaps, options and futures, were initiallylaunched by unregulated offshore entities, slowly followed by regulated incumbents. Since 2016,
unregulated products have been dominating the market in terms of volume and aggregated open
interest, though the share of regulated products has progressively increased. Due to counterparty risk
and fiduciary responsibility, institutional engagement is expected to grow in tandem with the expansionof regulated financial products and regulatory clarity. 56
Despite the considerable development of institutional-grade financial instruments and infrastructure,
our data suggests that cryptoasset service providers’ customer base is still primarily retail-driven,showing that despite growing institutional interest, the conversion rate (from expression of interest toinvestment) remains limited. As further explored in Section 7, there are several hurdles that the industry
needs to overcome to bolster engagement of traditional institutional investors (e.g. asset managers,
family offices), such as concerns on market manipulation and price volatility.
Figure 36: Retails take the lion’s share of service providers’ customer base

Customer Base Breakdown by Type
Share of total users
75%

Asia-Pacific
Europe

63%

30%
82%

Latin America and the Caribbean

75%

Middle East and Africa
North America

16%

70%
Retail clients   

9%
7%

10%
20%

8%
5%

30%
Business and institutional clients   

Unknown

55 Bhutoria, R. (2020) Institutional Digital Asset Survey Report - 2020 Review. Fidelity Digital Assets. Available from: https://www.
fidelitydigitalassets.com/bin-public/060_www_fidelity_com/documents/FDAS/institutional-investors-digital-asset-survey.pdf [Lastaccessed: 24 August 2020]. Note: The survey included cryptoasset hedge funds, which may skew the results since their investment
portfolios naturally comprise a greater share of cryptoassets.
56 For a comprehensive overview of the cryptoasset derivatives market, please refer to, Todd, R. (2020) Institutional Digital Asset
Derivatives Markets. The Block. Available from: https://www.theblockcrypto.com/genesis/65421/institutional-digital-assetderivative-markets [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

There are noticeable differences between companies from different regions (Figure 36). While themajority of firms’ customer base is composed of individual clients, North American and European firms
report that an average of 30% of their customers are business and institutional clients. In contrast, thisfigure for APAC, LAC, and MEA is 16%, 10%, and 20% respectively.
There is also significant disparity among service providers within North America and Europe, suggestingthat these regions have a mix of retail-focused and institutional-focused companies, whereas companies
in regions like LAC are primarily targeting retail cryptoasset users.
A deeper analysis of the type of business and institutional clients reveals that, globally, cryptoasset
service providers primarily serve cryptoasset hedge funds (37%), online merchants (30%), and miners(27%). Interestingly, company size mix is fairly stable across institutional and businesses clients (60% to
40% respectively for small and large service providers) except for traditional hedge funds, which equallydeal with large- and small-scale firms.
Figure 37 reveals noticeable regional differences in the type of business and institutional clients served:
beyond cryptoasset hedge funds, North American, APAC, and European companies appear to engage
more with traditional investors (hedge funds, venture capitalists, and other institutional investors),
whereas LAC and MEA companies primarily focus on online merchants and cryptoasset companies(other than miners).
Figure 37: The composition of business and institutional clientele differ from region to region

Business and Institutional Clients per Region
Share of service providers
Asia-Pacific

36%

46%

Crypto hedge funds

Latin America and the
Caribbean

EuropeMiners41%

27%

Online merchants

39%

25%

35%
31%

24%

19%

Brick and mortar merchants

22%

18%

Other cryptoasset companies

20%

25%

8%

Other institutional investors

20%

25%

12%

Traditional hedge funds

17%

Family Offices
Banks
Asset Managers

10%
5%

12%

50%

5%

25%
50%

20%

5%
27%

19%

North America

15%

23%

Venture Captial (VC) firms

Other

Middle East
and Africa

30%
20%

20%

30%

20%

5%

15%

15%

12%

4%

9%

30%
15%

15%
5%

9%

4%

5%

4%

A considerable share of APAC companies serves miners (41%), in part explained by the high level ofmining activities in the region, especially in China. Miners use their services to liquidate their coininventory for national fiat currencies and cover fiat-based expenditures. Evidence from the study ofminers’ hedging strategies (see Figure 24 in Section 2) also reveal that a growing number of miners relyon service providers to collateralise their coins (i.e. through loans) and unlock additional funds.

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3rd Global Cryptoasset Benchmarking Study

Alternative sources using on-chain data analysis confirm that mining actors, in particular mining pools,
are active users of Asian exchange platforms. 57 For instance, in 2019, 28% of bitcoins flowing into
exchanges originated from mining pools, though this distribution is not even, with the vast majority of
bitcoins (77%) sent to one of the top 10 exchanges. 58

57 Chainalysis (2020) Mining Pool Market Power. Chainalysis. Available from: https://go.chainalysis.com/2020-markets-case-studymining-pools.html [Last accessed: 24 August 2020].
58 This analysis excludes bitcoins that were transferred from exchanges.

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3rd Global Cryptoasset Benchmarking Study

SECTION 5: REGULATORY ANDCOMPLIANCECOMPLIANCE BENCHMARKSThe cryptoasset industry has been on the radar of regulators from as early as 2011. The industry has,
however, experienced a steady appreciation in the levels of regulatory scrutiny since 2013 when popular
darknet market Silk Road was shut down and the market witnessed its largest bubble since the inceptionof Bitcoin. Since then, authorities have issued guidance, retrofitted their existing regulation, or evendeveloped bespoke regulatory frameworks to bring cryptoasset-related activities within their scope. 59
These changes in the regulatory environment often translate into internal adjustments in how firms go
about meeting mandated requirements. Increasing regulatory burden is ranked as the second highest
operational risk by firms, regardless of their size and location (see Appendix).

RESOURCES ALLOCATED TO COMPLIANCE
Across all surveyed geographic regions, 75% of the respondents reported having an in-house complianceteam. The median share of a company’s total headcount and costs allocated to compliance is relatively
consistent across regions, with the exception of Europe (Figure 38). Half of European service providers
report compliance headcount and costs equal or greater than 13% (compared to 8% in 2018). The top
25% of European respondents report compliance headcount and cost greater than 18% and up to 40%.
Figure 38: European service providers allocate most resources to compliance

Compliance Headcount and Cost Allocation
Median share
Europe13%

North America
8%Asia-Pacific8%Middle East
and Africa
8%Latin America andthe Caribbean
8%59 For a more detailed analysis of the cryptoasset regulatory landscape, please refer to, Blandin et al. (2019) The Global Cryptoasset
Regulatory Landscape Study. Cambridge Centre for Alternative Finance. Available from: https://www.jbs.cam.ac.uk/fileadmin/user_
upload/research/centres/alternative-finance/downloads/2019-04-ccaf-global-cryptoasset-regulatory-landscape-study.pdf [Lastaccessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

In 2019, EU member states were expected to transpose the 5th AML Directive, whose scope wasbroadened to include cryptoasset exchanges and custodial service providers, into their national
regulatory frameworks. This has increased the compliance requirements for companies andconsequently some European firms have already announced their closure in the face of increased
regulatory burden. 60
While the median firm in the four other regions allocate roughly the same share of human and financial
resources to compliance, an analysis of North American firms’ distribution shows significant variability
amongst firms from the region. This may be a reflection of diversity in regulatory approaches amongst
different US states because entities operating in the USA have to navigate a patchwork of state-level
regulations, in addition to federal ones. Consequently, companies operating in all US states would havemore resources dedicated to compliance to cope with the heterogenous state-level regulations. US
companies drawn to crypto-friendly states (e.g. Wyoming) and avoiding states with tighter regulations(e.g. New York City) are likely to have relatively lower compliance cost and headcount overall.
From a regulatory perspective, 2019 was a particularly active year for the US cryptoasset industry,
with both federal and state regulators, releasing new statements and guidance. At the federal level, forinstance, FinCEN issued a guidance in May 2019 regarding the applicability of the Bank Secrecy Act(BSA) to cryptoasset businesses. According to the guidance, with the exemption of non-custodial wallets,decentralised exchanges that do not settle trades, and certain infrastructure providers (e.g. DAppdevelopers, cloud miners), most cryptoasset businesses qualify as money transmitters and must comply
with AML/KYC regulations. 61
One common element of these new regulatory developments worldwide is the absence of distinction
between entities exclusively supporting cryptoassets and those supporting both fiat currencies andcryptoassets. This equal treatment of cryptoasset-only and cryptoasset-and-fiat entities seems to have
led to an increase in fiat support among cryptoasset service providers. When comparing 2018 and 2020
samples, we noticed that more than one in three companies that exclusively offered cryptoasset in 2018
now support fiat currencies.
Over 30% of companies that exclusively supported cryptoassets in 2018 have added fiat support since then.

From a data analysis perspective, this development matters because the extension of regulatory
authorities’ supervisory mandate to the cryptoasset realm had the effect to erase minimal discrepancies
in compliance headcount and costs observed in 2018 between cryptoasset-only and cryptoasset-andfiat companies. While these discrepancies were already limited in 2018, greater homogeneity is observed
across both types of firm groups in 2020. For instance, the median compliance headcount is similar for
cryptoasset-and-fiat and cryptoasset-only entities, while the median for compliance cost is slightly lower
for the latter. We observe greater dispersion in the compliance cost of cryptoasset-and-fiat companies,
which may account for regional variability.

AUDIT OF CRYPTOASSET RESERVES
Regulatory frameworks governing traditional financial institutions mandate banks to hold minimum
reserve requirements and to perform independent audits. Similarly, cryptoasset reserve audits aregood industry practices to provide assurance that a firm maintains equivalent reserves of its customers’
funds, and play a pivotal role in upholding stakeholders’ confidence. They ensure firms are operatingtransparently and adhering to set performance, security, and compliance standards. The audits could
either be on-chain proof-of-reserves or more traditional audits performed by independent third parties.

60 See for instance, BitKassa Team (2020) BitKassa closing down. BitKassa. Available form: https://www.bitkassa.nl/en/bitkassa-closingdown [Last accessed: 24 August 2020].
61 Similarly, in 2020, Canadian regulators issued a notice indicating that any entity dealing in “virtual currency” will be considered as amoney service business (MSB) and must register with the regulators.

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3rd Global Cryptoasset Benchmarking Study

Proof-of-reserves and proof-of-solvency
Cryptographic features of public blockchains enable new forms of public accountability,
sometimes referred to as “proof-of-reserves”. 62 There are several techniques to perform
proof-of-reserves audits available to custodial service providers, but in its simplest form,
proof-of-reserves audit entail signing a transaction with the entirety of their on-chain
customer funds and publishing a signed message emanating from the associated address
where funds are held.
Combined with the disclosure of the total customer liabilities of a service provider (i.e.
how much a service provider owes to its users), proof-of-reserves would help prove that acustodial service provider has sufficient cryptoassets in reserve to meet (at a minimum) its
liabilities.
Although this approach has its own limitations (e.g. unaccounted or omitted liabilities,
impracticality), regular on-chain audits combined with more traditional externally-led
audits might play a pivotal role in enhancing trust and transparency in the conduct ofoperations by custodial service providers.

The need to perform independent cryptoasset reserves audits is more imperative in the absence of awidespread practice of public proof-of-reserves programmes. 59% of firms indicate that they had theircryptoasset reserves audited by an independent comptroller over the past 12 months, primarily basedout of Europe (35%) and APAC (31%).
Two out of five service providers did not conduct an independent audit of their cryptoasset reserves in the past 12
months

Surprisingly, a 2018-2020 comparison of custodial service providers performing externally-led
cryptoasset reserve audits indicates that only 54% of custodial service providers had their reserves
audited in the past 12 months. This is a 24 percentage points decline from 2018, which may suggest thatfirms feel a decrease in scrutiny relative to 2018 when it was revealed that the stablecoin Tether did
not have 100% reserves as previously thought. Additionally, large firms are nearly twice likely to haveundergone independent audit relative to small firms. Similarly, 22% more of companies incorporated ina FATF country conduct externally-led audits than those incorporated in a jurisdiction that is not part ofthe inter-governmental body.
Figure 39: Independent cryptoasset reserves audits are more prevalent among APAC and North America
companies

Externally-led Audit of Cryptoasset Reserves
Share of service providers
80%

Asia -Pacific75%

North America
58%

EuropeLatin America and the Caribbean

40%

Middle East and Africa

38%

62 Bitcoin Improvement Proposal 127 “Simple Proof-of-Reserves Transactions” (2019). Available from: https://github.com/bitcoin/bips/blob/master/bip-0127.mediawiki [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

User’s legal compliance
As the industry matures, individual cryptoasset holders also come under scrutiny byregulatory and government bodies, in particular tax authorities. A significant majorityof surveyed service providers (67%) indicate that they provide users with compliancedocumentation, such as tax receipts. However, this might not be sufficient to ensure users
accurately report liabilities to authorities. Inconsistencies in transaction reporting, absenceof uniformity in tax forms issued by various service providers, or lack thereof, may render
cryptoasset holders’ compliance processes more difficult.

AUTHORISATION OF SERVICE PROVIDERS
Relevant authorisation regimes, involving either a licensing or registration process, for cryptoasset
service providers are jurisdiction-specific and depend on the type of services provided, as well as thetype of assets supported. 37% of the surveyed service providers are licensed or regulated, whereas
11% have an outstanding application (3% are both license holders and prospective applicants) as shownin Figure 40. 63 The research team has been unable to identify any license or registration (granted oroutstanding) for 55% of survey respondents. It should, however, be noted that some service providers
are engaged in activities that may not warrant or exempt licensing/registration processes (e.g. hardware
wallet manufacturing, non-custodial wallet software provision).
Figure 40: Just over two out of five firms are licensed or in the process of obtaining a license

License and Registration Status
Share of service providers

No identifiable
license or registration

55%

11%

34%

License and/or registered

Outstanding

The median number of licenses/registrations held by a single firm is one, but some companies holdas many as five. As shown in Figure 41, license holders primarily hold a crypto-specific license (42%),
followed by payment or e-money licenses (29%), and money business licenses (28%). The existence of acrypto-specific licensing regime arises either from the introduction of a bespoke regulatory framework,
which specifically regulates cryptoasset-related activities as a standalone activity (e.g. Gibraltar’s DLTProvider licensing regime), or from the retrofitting of an existing law or regulation to include activities
dealing with cryptoassets (e.g. Japan’s amendment of its Payment Service Act). Several other types oflicense exist, including, inter alia, qualified custodian (5%) and banking (3%).
63 The figures presented in this section only consider national and federal licenses and registrations.

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3rd Global Cryptoasset Benchmarking Study

Figure 41: Firms may seek alternative licenses when no crypto-specific licensing regime exists

Geographic Distribution of Licensed Firms and Type of License Held
Share of licensed and registered service providers

Europe48%
North America
20%

Asia-Pacific14%

Middle East
and Africa
9%Latin America andthe Caribbean
9%42%
Crypto-specific

29%

28%

Payment ore-money institution

Money services
business13%

13%

Trading facility

Broker-dealer

Note: This chart is based on public data collected by CCAF in combination of data provided by CryptoCompare

Registration or license seekers typically have one outstanding application and primarily pursue a cryptospecific (58%) or payment institution (21%) license.
Of the licensed and registered entities, licenses and registration were primarily issued by British (23%)
and American (23%) regulatory authorities. Switzerland and Estonia rank both at the third place (17%)
of most cited jurisdictions for license and registration. Interestingly, only a small share of licenses held
were issued by jurisdictions with a bespoke regulatory regime, such as Gibraltar (4%). Entities with an
outstanding application were primarily seeking approval from the US (26%) and Singaporean (26%)
authorities. The other main jurisdictions for outstanding applications were Hong Kong, the UK, South
Korea, Japan, Switzerland, and Thailand.
72% of license holders or prospective applicants obtained or are seeking alicense/registration from their home country (i.e. operational HQ)With 48% and 58% of firms being registered/licensed, European and North American firms are roughly
twice more likely to be regulated than companies from LAC or APAC, which both report that 23% offirms are registered or license holders. Meanwhile, slightly less than one in three companies operationally
headquartered in the MEA region holds a license or a registration.
Of all identified licenses and registrations, 36% were granted in 2019 after the rise of regulatory scrutiny
following the boom of 2017-2018 (Figure 42). As the cryptoasset regulatory landscape continues to
evolve and the number of pending applications continues to grow, more firms are expected to be licensed
and registered in the coming years.

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3rd Global Cryptoasset Benchmarking Study

Figure 42: The number of issued licenses almost doubled between 2018 and 2019

Granted Licenses per Year
License count
32

17

11
9

4
1
2010

2
2013

1
2014

2
2015

2016

2017

2018

2019

Unidentified

Note: This chart is based on public data collected by CCAF in combination of data provided by CryptoCompare

AML AND KYC PROCEDURES
The cryptoasset industry is progressively integrating with the global financial system and, by the same
token, required to abide by the same standards. Around the world, AML/KYC standards are being
harmonised to regulate an industry that is global by its very nature. The charge has first been led by the
FATF to ensure consistency in AML/KYC requirements across its member states.
These updated requirements seem to have spurred industry actors to enhance their due diligencemeasures: in 2020, the vast majority (77%) of surveyed service providers perform AML/KYC checks forevery single account, with only 20% using specific criteria (e.g. withdrawal/deposit thresholds, frequencyof activity, location of account’s owner). This figure is lower for platforms with an exclusive focus on
cryptoassets (Figure 43): while 82% of entities supporting both fiat and cryptoassets verify user’s
identity for every account, only 48% of cryptoasset-only platforms do so, and 39% use other criteria.
Only a small minority of service providers (3%) do not perform KYC checks at all

However, it should be noted that user identity verification is usually a multi-tier process. Often, thestringency of the verification process increases with the amount a user is willing to deposit, withdraw,
or trade, but also based on the type of assets for platforms supporting both fiat and cryptoassets. By
registering and undergoing an identity check of all surveyed respondents, the CCAF research teamfound that 72% of them performed KYC checks when dealing with fiat, but only 46% did so whencustomers exclusively used cryptoassets.
It is also relevant to note that, regardless of their size, location, or assets they support, nearly 90% ofsurveyed service providers have a policy in place about which parties can access sensitive customer
information, such as identification documents and bank account information.

54

3rd Global Cryptoasset Benchmarking StudyFATF Recommendation 16: Travel Rule
The FATF is an inter-governmental body that coordinates member countries’ efforts on
AML and counter-terrorism financing (CFT). It issues non-binding recommendations to its
members, which it monitors and reviews on a regular basis.
In June 2019, FATF released an interpretive guidance (revised FATF standards) including
virtual assets and virtual asset service providers (VASPs), which sets out several
requirements and recommendations that apply to VASPs, such as licensing, registration,
and Customer Due Diligence (CDD) requirements. Recommendation 16, also referred
to as the “travel rule”, has proven to be particularly challenging for VASPs to implement
technically. The travel rule requires VASPs to obtain, hold and transmit accurate (verified)originator information, information about intended beneficiary, and securely transmit
required customer information. From a technical standpoint, the travel rule necessitates
the establishment of common technical standards (e.g. messaging) to streamline andstandardise information transmission from the originator to its beneficiaries, as well as thedevelopment of technological solutions for VASPs to comply with the travel rule globally.

Figure 43: The share of cryptoasset-only companies that do not conduct any KYC checks dropped from 48% to 13%
between 2018 and 2020

Know-Your-Customer Checks Criteria
Share of service providers
82%

Fiat and Cryptoasset
Cryptoasset-only

17%

48%

39%
All accounts   

Other criteria   

1%

13%

No KYC checks

The share of accounts’ owners whose identity was verified differs from region to region: it is consistently
high across European and North American firms, approaching 100%, whilst service providers in otherregions report lower and more disparate numbers. The median figure is particularly low in MEA-based
companies, with approximately 50% of account owners having their identity verified.
The median firm in Europe, North America, or Middle East and Africa
reported that 8% of its KYC checks led to account closure

Companies incorporated in a FATF member country more frequently conduct KYC checks on allaccounts, than entities legally headquartered in non-FATF countries (Figure 44). Furthermore, atthe median only 3% of KYC checks lead to the closure or refusal to open an account for companies
incorporated in non-FATF countries, against 8% for FATF-incorporated entities. These trends might beread as a testament to the importance and influence of commonly established global standards.

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3rd Global Cryptoasset Benchmarking Study

Figure 44: At the median, the identity of all account holders has been checked for companies incorporated in FATF
countries

Identity Verification of Account Users
Share of total accounts
100
90% of KYC’ed accounts

80
70
60
50
40
30
20
10
0
Non-FATF incorporated

FATF incorporated

REGULATION IMPACT: REDEFINING GEOGRAPHIESAs the previous subsection has extensively shown, regulatory changes have had a direct impact oncompanies’ internal compliance standards. The impact of regulation may also be observed from ageographical standpoint by reshaping the geographic boundaries of the cryptoasset ecosystem.

REGULATORY ARBITRAGE
In the context of cryptoassets, regulatory arbitrage often occurs when companies choose to settle
in jurisdiction(s) offering greater regulatory certainty due to the existence of a bespoke regulatory
framework to supervise cryptoasset activities. 64 In this context, the concept of “regulatory arbitrage”
slightly departs from its traditional meaning. It is understood as seeking maximum regulatory certainty andthe most benign environment, rather than to exploit legal and regulatory loopholes (i.e. absence of regulation) as
is often discussed in other industries. Another form of regulatory arbitrage is the exploitation of different
tax rules; a practice which is not specific to cryptoasset businesses but also observed in traditional
finance and other industries.
Nearly one in three companies sought regulatory approval from outside its main jurisdiction ofoperations. Another approach to investigate geographic relocation of entities to amenable jurisdictions
is to compare respondents’ operational headquarters with their country of incorporation. On this front,of surveyed entities, 22% have been incorporated in a country different from where their operational
headquarters are based, and up to 15% in a different region. For these companies, top countries forincorporation include Switzerland, British Virgin Islands, the UK, and the Republic of Seychelles.

64 It is also worth noting that jurisdictions that adopted a bespoke regulatory framework are often those known for their relatively
flexible business regulations, see Blandin et al. (2019) The Global Cryptoasset Regulatory Landscape Study. Cambridge Centre for
Alternative Finance. Available from: https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/
downloads/2019-04-ccaf-global-cryptoasset-regulatory-landscape-study.pdf [Last accessed: 24 August 2020].

56

3rd Global Cryptoasset Benchmarking Study

Supervisory duty: whose responsibility?
While numerous regulators take varied approaches to govern service providers in theindustry, several jurisdictional issues arise when attributing organisation’s liabilities.
Recently, the organisational structure of large cryptoasset companies have come toresemble those of large corporations from other industries. The growing complexity ofcorporate structures combined with the inherent global nature of the cryptoasset industry
have rendered the supervisory duty of regulators ever more challenging to execute. It is
often unclear which authorities should oversee an organisation with no physical presence
operating in a given jurisdiction and domiciled overseas. Some authorities and international
bodies, such as FATF, have suggested that cryptoasset service providers should be licensed
and regulated in the jurisdiction where they are ‘created’, obliging regulatory authorities
from the jurisdiction of incorporation to supervise and regulate the entity.
This approach may, however, prove to be insufficient in the event of a company
incorporated in one jurisdiction and domiciled in another through its subsidiaries, or incases where the service provider is decentralised and has no home jurisdiction. While acoordinated risk based response to use of cryptoassets in criminal activities is desirable,
consensus across nations on this front is still a work in process. A possible alternative
approach could also be to implement the Place of Effective Management (POEM) or
Permanent Establishment (PE) model prevalent in few jurisdictions to determine residency
for taxation purposes, where individual jurisdictions define a threshold/nexus above which
economic activity in that jurisdiction may be subjected to regulatory supervision. However,while the use of POEM may solve many concerns around round tripping, it may not always
result in a clear determination of domicile or reflect outcomes which accord with policy
intentions, given the highly decentralised nature of operations of the industry. Jurisdictions
globally should, therefore, give due regard to substance over form in determining liabilities
and preventing abuse.

CLOSURE AND OPENING OF A LOCATION
The introduction of a new regulation, enforcement actions, or any other regulatory developments are
believed to considerably influence a firms’ decision to open or close an office in a jurisdiction. However, as
Figure 45 shows, changes in the regulatory environment affect location closure and opening to differing
degrees: 35% of survey respondents indicate that regulatory changes have led them to open a newlocation, compared to 18% for location closure. 65
Though the data does not show in which jurisdictions facility opening and/or closure takes place, thistrend might be a direct consequence of the so-called “chilling effect of regulation”. This concept refers to
the vagueness of existing applicable rules, creating more confusion and uncertainty than the complete
absence of regulations. Lack of explicit regulatory requirements for cryptoasset businesses in certain
jurisdictions may have led some to seek greater regulatory certainty by relocating part of their activities
in jurisdictions with bespoke regulatory framework, or at least unambiguous applicability of existing
regulations.

65 The kind of changes inducing these decisions was not specified in the data. As such, regulatory change may refer to increased
regulation, as well as relaxation in a regulatory regime.

57

3rd Global Cryptoasset Benchmarking Study

Figure 45: Changes in regulation are more likely to drive location opening than closure

Impact of Regulatory Change on Location Opening and Closure
Share of service providers
8%

6%
18%

18%

35%

Of respondents
closed a location
due to regulatorychangeOf respondents
opened a location
due to regulatorychange

35%

59%
74%

Yes   

No   

Prefer not to answer

USER BANS
Another well-documented impact of regulation is the geographic restrictions imposed by service
providers to deny users from certain geographies access to their services. Unsurprisingly, thesegeographic restrictions replicate those that exist in other industries, namely countries subject tointernational sanctions, such as Iran, North Korea, etc (Figure 46). It has also been widely reported that
US customers, mostly from New York City, were banned from these platforms due to the high cost ofcompliance to serve users in these locations.
Figure 46: Users from the USA are as often banned from exchanges than Iraqi users

Top 8 Restricted Locations
Share of exchanges
Iran

40%

North Korea

40%

Sudan

37

Syria

36%

Yemen

36%

USA

35%

Iraq
Cuba

35%
34%

Source: 21shares database66

66 21shares (2020) Crypto Exchanges Database by 21Shares-apr21,20. Available from: https://docs.google.com/spreadsheets/d/1vhMIYVzWx1xytLxbL9FVeZdnceNJKVuvwrNdtQ7qmo/edit#gid=0 [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

SECTION 6: IT SECURITY
THE DEVELOPMENT OF BEST MARKET PRACTICESGreater retail adoption post-2017 turned cryptoasset service providers into prime targets for hackers.
Blockchain analytics firm Chainalysis reports that the number of attacks on service providers has beenon the rise with the total value of stolen funds peaking at nearly USD 900 million in 2018 (Figure 47). 67
Companies have consequently ramped up their security measures, e.g. increased use of cold storage,
additional verification layers for withdrawal, and a more stringent monitoring of transactions to detectsuspicious activities.
Figure 47: Improved security measures by service providers have helped shrink down the amount of lost value
between 2018 and 2019

Number of Hacks and Total Value Stolen per Year
$1,00011

Cryptocurrency stolen in millions of USD$875.50$750

6$483.10

$500

5

$250

$0

1

$0.04

2011

3

3

$0.70

$3.20

2012

2013

4

4

$75.50$86.0020162017$282.60

3

$8.10
2014

2015

2018

2019

Number of hacks

Currencies included: ADA, BCH, BTC, ETH, EOS, LTC, NANQ, NEM, USDT, XRP and others
Source: Chainalysis, The 2020 State of Crypto Crime

Attackers on the other hand have adapted to these enhanced security measures by designing moresophisticated phishing attacks, or using enhancing-privacy methods (e.g. CoinJoin, mixers). The
adherence to best market practices for IT security might be a signal that companies across the spectrum
are keeping up with more advanced attacks.

67 Chainalysis (2020) The 2020 State of Crypto Crime. Chainalysis. Available from: https://go.chainalysis.com/rs/503-FAP-074/
images/2020-Crypto-Crime-Report.pdf [Last accessed: 24 August 2020]59

3rd Global Cryptoasset Benchmarking Study

Figure 48: The use of cold storage and multisig is close to becoming an industry standard

Storage System
Share of service providers

90%
Use cold
storage81%

70%

Use multisig forcold storage

Use multisig for
hot storage“Hot” and “cold” storage: misnomers for cryptoasset custody
The notions of “hot” and “cold” have been borrowed from the data storage world todescribe the level of security in the system used to safekeep users’ private keys. Often, inthe cryptoasset space, the low latency of ‘hot’ storage is associated with lower security
level compared to ‘cold’ storage systems that are composed of several security layers to
unlock funds, hence necessarily more time-consuming. However, these adjectives, which
originally relate to the latency of different tiered storage plans, should not be conflatedwith the degree of security of a storage system. In fact several companies have started
designing key storage systems that combine the security level of so-called ‘cold’ storage
with the low latency of ‘hot’ storage.

At the median, custodial platforms usually keep a slightly lower share of cryptoasset funds in cold storage(85%) compared to non-custodial ones (90%). This should not come as a surprise; platforms offering
services generally associated with high user activity (e.g. trading platforms) often happen to be custodial
ones. For instance, 79% of exchanges that have their own order-book have control over user funds (i.e.
hold users’ private keys). Therefore, to allow users to swiftly access their funds when trading, the service
provider must hold a limited amount of customer funds in cold storage. This trend is also a reflection ofusers’ perpetual trade-off between convenience and security.

RESOURCES ALLOCATION TO IT SECURITY
Non-custodial service providers generally spend a greater share of their resources, both financial andhuman, on IT security at between 11-20% compared to 6-10% for custodians (Figure 49). Development
costs and timeline are believed to be generally higher for non-custodial systems, requiring greater
allocation of resources over a longer period.
It is worth noting that service providers that allow both the user and the service provider to each holda private key are classified as “non-custodians” for the purpose of this report. This form of co-managed
custody is often complex and associated with several layers of security and iterative processes to unlock
customers’ funds, which would require additional staffing.

60

3rd Global Cryptoasset Benchmarking Study

Figure 49: The median non-custodial service providers allocate a greater share of its resources to IT security thanthe median custodian

IT Security Cost and HeadcountHeadcount

Cost

Share of service providers
Custodian 3%18%

Non-custodian 3%

17%

Custodian5%

Non-custodian

7%

31%

25%

16%

25%

25%

15%

35%

18%
0%   

10%

18%
1-5%   

6-10%   16%11-20%   

17%

17%
19%
21-40%   

9%

8%

7%

9%

16%
41-60%   

4%

1%
6%

60+%

Small service providers are more likely to report higher figures for IT security headcount with at least
50% of small service providers indicating that 11-20% of their workforce is orientated towards IT
security against 6-10% for large ones. However, both groups report a median IT security cost between
11-20% of total costs.
From a regional perspective, apart from LAC service providers, respondents from all regions reported
the same median share of IT security headcount (6-10%). However, the median company in APAC
and LAC reports a higher share of costs associated with IT security than the median companies
headquartered elsewhere. This does not, however, mean that companies from other regions spend lessoverall on IT security. As discussed in Section 5, European and North American companies are more
likely to spend a higher share of their financial resources on compliance; this variable cost in turn takes up
some of the share of IT security resources. Similarly, costs associated with other activities, such as humanresources, marketing, R&D, may also result in a lower share of resources being allocated to IT security
overall. As such, IT security may be considered a large fixed cost component.

SECURITY AUDITS
The 2nd edition of the Global Cryptoasset Benchmarking Study found that a significant number of survey
respondents were reluctant or unable to disclose information about both internal and external security
auditing processes. It was speculated that this could be interpreted as either a general lack of awarenessaround formal security standards, or that entities do not follow security auditing best practices, or insome cases both. The results of this year’s survey confirm the hypothesis from the previous study thatthe adoption of best practice standards and formal security processes varies considerably across regions
and jurisdictions.
Unsurprisingly, internal audits were undertaken more frequently than external audits across all five
regions; internal audits are generally easier to carry out and do not require the disclosure of sensitive
information to third parties, or additional external cost. For example, in APAC, North America andMEA (31%), a significant proportion of internal audits were carried out monthly. In Europe and LAC,
the highest proportion of internal audits were carried out on a weekly basis. Whereas, in all regions, thehighest proportion of respondents, carried out external audits on an annual basis.
Up to 12% of respondents from all regions stated that they never engaged in internal audits. As forexternal audit, this figure is particularly high for respondents from MEA: 31% indicated they had neverengaged in external audits. This figure is 20% for LAC, 18% for North America, 14% for Europe, and at a
noticeably low 3% for APAC respondents.

61

3rd Global Cryptoasset Benchmarking Study

Figure 50: On average, non-custodians conduct external and internal security audits more frequently

Frequency of Internal and External Security Audits

External

Internal

Share of service providers
45%

Custodian

15%

38%

Non-custodian

17%

Custodian8%

13%

Non-custodian
Annually  

16%

10%

Bi-annually  

21%

8%
9%

3%

18%

19%

4%

30%

Quarterly  Monthly  

22%

7%

13%

13%

7%

12%

18%

17%

Weekly or more often  

Never  

8%8%Decline to respond

INSURANCEThe safety of cryptoasset storage should not be left to well-designed IT security systems alone. The
insurance of funds is a key component of a sound service offering. Nevertheless, 46% of surveyed
service providers indicated not being insured against any risk. Companies with insurance plans areprimarily insured against cybercrime, professional errors (including directors and officers liability
insurance), loss or theft of private keys, and hazards. These observations hold true for both custodial andnon-custodial service providers, although a slightly largest proportion of custodians is insured against theloss or theft of private keys (Figure 51).
Nearly half of service providers are left fully uninsured

The insurance sector for cryptoasset services is undeniably underdeveloped. Other studies have shownthat less than 0.5% of the insurance market goes to cryptoasset coverage. 68 The relatively small size ofthe cryptoasset industry and the reluctance of insurance carriers to enter this volatile market are themost probable explanatory factors for this finding.
Figure 51: Little difference appear between the insurance plans of custodian and non-custodians

Insurance Plan Coverage
Share of service providers
CustodianNon-custodian
42%

None
31%

Cybercrime
Professional services error

29%

Loss or theft of private keys

27%

31%
30%
20%

24%

Hazard (e.g. fire)

23%

12%

Kidnap and ransom
Other

40%

11%

4%

7%

68 Evertas (2020) Huge lack of capacity in insurance sector for cryptoassets. Evertas. Available from: https://www.evertas.com/in-thenews/huge-lack-of-capacity [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

Although service providers often do not have formal insurance policies in place - nor access to such certain service providers have earmarked funds allocated to cover specific insurable events for the users.
Regional breakdown unearthed some interesting disparities (Figure 52). For instance, a great proportionof European companies are not insured at all (43%), so are companies in Latin America (46%) or MEA(52%). In comparison, 24% and 37% of North American and APAC entities respectively indicate nothaving any insurance coverage. For insured companies, the proportion of the types of insurance
coverage are somewhat similar across regions.
Figure 52: Companies in APAC tend to be insured against a wider range of risks

Insurance Plan Coverage per Region
Share of service providers
Asia-Pacific
37%

None

Latin America and the
Caribbean

Europe43%

46%

Cybercrime (e.g. hacking)

29%

31%

35%

Professional services error

29%

28%

31%

Loss or theft of private keys

27%

22%

Hazard (e.g. fire)

24%

24%

Kidnap and ransom

22%

Other

10%

23%
12%

10%

8%

4%

Middle East
and Africa

North America

52%

24%

24%

33%

19%

38%

14%

33%

24%

24%
10%
5%

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3rd Global Cryptoasset Benchmarking Study

SECTION 7: BALANCING BETWEENINTEGRATION AND INNOVATIONAs the industry enters a new decade, it faces several challenges to further expansion, including
integrating with traditional market infrastructures and maintaining a sustained pace of innovation. To
fulfil both objectives, industry participants may have to invest more time and resources into complianceand industry restructuring, while bringing continuous improvements to innovative solutions, such as
decentralised finance.

ENHANCED TRANSPARENCY AND COMPLIANCE
The 12-month review report released by FATF in June 2020 reveals that a growing number ofjurisdictions have implemented the revised FATF standards on cryptoasset service providers. 69 As
discussed in Section 5, wider implementation of AML/KYC rules would help bolster legitimacy and trustin the industry. Previous investor surveys often quote the lack of transparency and regulatory certainty
around cryptoassets as a concern for institutional investors, along with other concerns, such as volatility
and absence of reliable valuation models.
Survey data suggests that compliance and institutional investor adoption are indeed closely related. For
instance, Figure 53 indicates that service providers incorporated in a member jurisdiction of FATF tend
to serve investors from the traditional financial system more often that firms from non-FATF countries:
the share of business and institutional clients for the median service provider legally headquartered in a
FATF country is two times higher than that of enterprises incorporated in a jurisdiction that is not partof the inter-governmental body. Although both groups equally deal with traditional hedge funds (17%),
companies incorporated in a FATF member state are nearly twice as likely to also serve other types of
institutional investors, such as family offices and asset managers.
Figure 53: Cryptoasset service providers incorporated in a jurisdiction member of FATF are more likely to serve
traditional institutional investors

Business and Institutional Clients for FATF and Non-FATF Incorporation
Share of service providers
Non-FATF incorporated

FATF incorporated
33%

Crypto hedge funds

39%

26%

Miners29%
33%

Online merchants

29%

Other cryptoasset companies

17%

23%

Brick and mortar merchants

17%

22%

Venture Captial (VC) firms
Other institutional investors

13%
11%

21%
17%

Traditional hedge funds
Other

21%

17%

11%

11%

69 FATF (2020) 12-month Review of the Revised FATF Standards on Virtual Assets and Virtual Asset Service Providers. Available from:https://www.fatf-gafi.org/publications/fatfrecommendations/documents/12-month-review-virtual-assets-vasps.html [Lastaccessed: 30 August 2020].

64

3rd Global Cryptoasset Benchmarking StudyA DECOUPLING OF FUNCTIONS ACROSS THE VALUE CHAIN
Figure 54: More than one in three service providers outsource
Another possible driver of institutionalits custody responsibility to a cryptoasset native custodian
adoption is the evolution of cryptoasset
market structure towards a more
Usage of Third-party Custody
traditional setup. As the cryptoasset
Share of service providers
industry configures to resemble traditional
financial market infrastructure, institutional
investors might be in a better position to
engage with the industry. An emerging
trend in this evolving configuration is thedecoupling of activities amongst different
Crypto-native
custodians
firms, as well as within firms (via the29%
setup of subsidiaries). To a certain extent,
the segregation of functions across the
45% No 3rd party
value chain similar to traditional market
3rd party
55%
Make use of thirdinfrastructure is already happening. For
party custody
instance, 45% of respondents indicate
using a third-party as part of their cold
storage system (Figure 54). CryptoassetBanks
10%
native custodians have dominated themarket (64%) and been the go-to for
Otherservice providers willing when outsourcing
6%
custodial duty to a third-party. The
relatively limited custodial role playedby banks and other more traditionalcustodians may be simply explained by the persisting reluctance of these actors to enter the cryptoasset
space due to regulatory barriers. This figure is likely to grow as the regulatory landscape evolves for
traditional banking actors.70

THE GROWTH OF ‘DECENTRALISED FINANCE’
DeFi is an umbrella term that refers to an emerging financial software stack that consists of several
protocols, platforms and applications built on top of public blockchains.
DeFi development and usage has gained most traction on the Ethereum blockchain, but decentralised
finance applications may also emerge on other smart contract blockchains that offer different trade-offs
around scalability, transaction speed and degree of decentralisation.
The DeFi space is still largely experimental and, in general, most DeFi applications cannot be consideredmeaningfully decentralised by any measure. The majority of these applications are still dependent on killswitches, centralised oracles, or some other centralised support or maintenance. A stated core objective
for many developer teams is to focus on increasing decentralisation over time. The emergence ofgovernance tokens and new incentive mechanisms are examples of experimental approaches designed tomake DeFi protocols less dependent on centralised control. Depending on the region, DeFi is in fact thesecond or third most cited future development that may be a game changer for service providers(Table 4).

70 For instance, in July 2020, the US Office of the Comptroller of the Currency issued an interpretative letter allowing US nationalbanks and savings associations to offer services for the custody of cryptoassets. See, Gould, J. (2020). Interpretive Letter #1170.
Office of the Comptroller of the Currency. Available from: https://www.occ.gov/topics/charters-and-licensing/interpretations-andactions/2020/int1170.pdf [Last accessed: 24 August 2020].

65

3rd Global Cryptoasset Benchmarking Study

Notably, decentralised finance protocols are subject to several risks such as:•

smart contract risk: as the amount of money locked into decentralised financial systems grows,
they inevitably become targets for hackers who look to exploit vulnerabilities in smart-contract
code security. Stacking and composability of smart-contracts also pose a risk. Should anunderlying smart-contract break then the stack may fall like a house of cards,•

oracle risk: some decentralised protocols rely on so-called oracles to access off-chain data (e.g.
cryptoasset exchange rate against fiat currencies). Oracles, either hardware or software, funnel
real world data to the smart contract. As several attacks targeted at decentralised protocols
have shown, oracles are a possible source of systemic risk and their data feeding role is prone tomanipulation,71•

financial risk: many DeFi protocols are dependent upon underlying cryptoasset collateral that is
subject to volatility. Hence, a large and sudden drop in cryptoasset price presents a liquidation risk
to users of the protocol,•

regulatory risk: regulation regarding the DeFi space is unclear and untested in many jurisdictions.
As the space grows, the response of regulators to decentralised financial applications is aregulatory risk that needs greater study and understanding.

Table 4: Service providers’ sentiment over future developments per respondent’s region of operations
Service providers assess impact of future developments (per region)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Asia-Pacific

EuropeLatin America
and the Caribbean

Middle East
and Africa

North America

Stablecoins

4.0

3.7

3.5

4.1

4.3

Staking

3.8

3.3

2.8

3.3

3.1

Decentralised finance (DeFi)

3.6

3.2

3.4

3.4

3.2

Layer-2 solutions (e.g. Lightning network)

3.0

3.1

2.9

3.3

3.0

Central Bank Digital Currencies (CBDCs)

3.3

2.9

2.7

3.5

3.1

Security tokens issued on a public blockchain

3.2

2.9

3.1

3.4

2.7

Sidechain

2.9

2.8

2.5

3.3

2.9

Privacy enhancing overlays

3.1

2.7

2.8

3.5

3.1

Non-fungible Tokens (e.g. ERC-721)

2.8

2.5

2.9

2.3

2.5

Other developments

1.8

3.1

4.0

3.5

N/A

“Other” includes “tokenised rights”, “FATF guidance”, “lending”

71	See for instance the double attack on the bZx ethereum-based ending project in February 2020. Available from: https://etherscan.
io/address/0x360f85f0b74326cddff33a812b05353bc537747b#internaltx [Last accessed: 24 August 2020].

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3rd Global Cryptoasset Benchmarking Study

APPENDIXMINERS’ INFLUENCE
Figure 55: Large miners are less likely to think that they have very high influence on protocol governance than small
and individual miners

Miner Influence on Protocol Governance
Share of mining actors
7%

12%

16%

23%

27%
24%

40%

27%
35%

23%

25%
41%

30%

37%

31%

27%
41%

20%

15%

24%

10%

8%

4%

2017

2018

2020

5%
3%

3%

7%

2017

2018

2020

Small miners(incl. individuals)

Large miners

Very low   

17%

18%

Low   

Medium   High   

Very high

OPERATIONAL RISKS FOR MINERS
Table 5: Miners rank their concerns over operational risks (per region)

Miners ranks concerns over operational risks (per region)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Asia-Pacific

EuropeLatin America andthe Caribbean

Middle East
and Africa

North America

Government Seizure or shutdown ofyour mining-supporting facilities

3.3

2.4

3.1

2.5

1.8

Halving

3.3

2.9

3.0

3.5

2.9

Regulations creating barriers to mining

3.3

2.8

3.7

2.5

3.2

Sudden increases in energy prices

3.2

3.0

3.5

3.0

2.6

Increased taxation of mining profits

3.0

2.6

3.4

1.5

2.8

Unplanned protocol change

2.9

2.5

2.6

3.5

2.0

Intensive competition among minersof the same cryptoasset

2.9

2.7

3.0

3.0

3.0

Cyber attacks (e.g. DDoS)

2.8

2.4

3.7

3.0

2.1

Declining popularity of the cryptoasset
you mine

2.7

2.2

3.3

3.0

2.2

Lack of immediate availability ofstate-of-the art hardware

2.7

2.5

3.7

2.5

2.9

Planned protocol change

2.5

2.7

2.6

3.5

1.7

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3rd Global Cryptoasset Benchmarking Study

Table 6: Miners rank their concerns over operational risks (per size)

Miners ranks concerns over operational risks (per size)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Small Miners (incl. individuals)
2017

2018

Halving

N/A

N/A

Regulations creating barriers to mining

N/A

3.3

Large Miners

2020

2017

2018

2020

3.0

N/A

N/A

3.2

3.1

N/A

2.9

3.2

Sudden increase in energy prices

N/A

3.1

3.0

N/A

3.5

3.1

Government seizure or shutdown of your mining facilities

N/A

3.6

2.4

N/A

2.4

3.0

Intensive competition among miners of the same cryptoasset

3.2

3.3

2.9

3.3

3.2

2.9

Increased taxation of mining profits

N/A

3.2

2.8

N/A

2.9

2.9

Cyber attacks (e.g. DDoS)

2.8

3.1

2.5

3.0

3.3

2.7

Lack of immediate availability of state-of-the art hardware

2.9

3.4

2.9

2.4

2.5

2.6

Unplanned protocol change

2.5

3.0

2.5

1.6

3.4

2.6

Declining popularity of the cryptoasset you mine

N/A

3.0

2.5

N/A

3.0

2.5

Planned protocol change

N/A

N/A

2.4

N/A

N/A

2.4

ADDITIONAL RISKS FOR MINERS
Table 7: Miners rank their concerns over additional risks (per region)

Miners ranks concerns over additional risks (per region)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Asia-Pacific

EuropeLatin America andthe Caribbean

Middle East
and Africa

North
America

Unfavourable global regulation related to cryptoasset mining

4.0

3.4

3.6

4.5

3.4

Unfavourable global regulation related to cryptoassets

3.9

3.1

3.4

2.0

3.2

Centralisation of hashing power in the hands of a few

3.5

4.3

3.7

2.0

4.4

Criminal use of cryptoassets

3.1

2.7

3.5

4.5

2.3

Underdeveloped fee market

3.1

3.6

3.4

3.0

2.9

Risk of state-sponsored attack on a cryptoasset system

3.0

3.3

2.8

3.0

2.6

Lack of open-source mining software

2.9

3.5

2.6

2.0

2.5

Centralisation of hashing power in a particular geographic area

2.8

3.5

3.3

1.5

3.8

Centralisation of mining equipment production in a particulargeographic area

2.7

3.7

3.4

3.5

3.7

Popularity of pre-mined/'mining-less' cryptoassets

2.7

3.0

3.0

4.0

2.4

Too many cryptoassets in the market

2.6

2.5

2.9

5.0

2.2

Emergence of Central Bank Digital Currencies (CBDCs)

2.3

2.7

3.1

5.0

2.6

68

3rd Global Cryptoasset Benchmarking Study

Table 8: Miners rank their concerns over additional risks (per size)

Miners ranks concerns over additional risks (per size)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Small Miners (incl. individuals)

Large Miners

2017

2018

2020

2017

2018

Unfavourable global regulation related to cryptoasset mining

N/A

3.3

3.5

N/A

3.0

2020
4.0

Unfavourable global regulation related to cryptoassets

N/A

3.3

3.2

N/A

3.2

3.8

Centralisation of hashing power in the hands of a few

3.9

4.4

4.2

3.3

4.0

3.4

Criminal use of cryptoassets

N/A

3.2

2.7

N/A

2.8

3.1

Underdeveloped fee market

N/A

N/A

3.2

N/A

N/A

3.1

Risk of state-sponsored attack on a cryptoasset system

N/A

3.4

3.1

N/A

2.9

2.8

Centralisation of hashing power in a particular geographic area

3.7

3.9

3.5

3.1

3.7

2.7

Centralisation of mining equipment production in a particulargeographic area

3.4

3.7

3.7

2.1

3.5

2.7

Lack of open-source mining software

N/A

N/A

3.0

N/A

N/A

2.7

Popularity of pre-mined/'mining-less' cryptoassets

N/A

3.1

2.8

N/A

2.8

2.6

Emergence of Central Bank Digital Currencies (CBDCs)

N/A

N/A

2.7

N/A

N/A

2.4

Too many cryptoassets in the market

N/A

3.1

2.6

N/A

2.1

2.4

Other risks

N/A

N/A

3.1

N/A

N/A

4.0

OPERATIONAL RISKS FOR SERVICE PROVIDERS
Table 9: Service providers rank their concerns over operational risks (per size)

Service providers ranks concerns over operational risks (per size)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Small Service Providers

IT security/hacking

Large Service Providers

2017

2018

2020

2017

2018

2020

3.9

3.8

3.5

3.2

4.2

3.5

Increasing regulatory burden

2.9

3.8

3.3

3.5

3.8

3.5

AML/KYC enforcement

2.6

3.2

3.0

2.8

3.4

3.1

Competitors / business model risk

3.0

3.2

3.1

2.6

3.3

3.1

Fraud

3.5

3.5

3.2

2.1

3.8

2.9

Tax treatment of cryptoassets

N/A

N/A

2.8

N/A

N/A

2.9

Difficulty of entering into banking relationships

3.8

3.7

2.9

2.7

3.6

2.8

Lack of talent

2.5

3.5

2.7

2.3

3.8

2.8

Negative industry publicity

2.9

3.3

2.9

2.8

3.5

2.7

Deteriorating banking relationships

3.8

3.5

2.8

2.7

3.5

2.6

69

3rd Global Cryptoasset Benchmarking Study

Table 10: Service providers rank their concerns over operational risks (per region)

Service providers rank concerns over operational risks (per region)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Asia-Pacific

EuropeLatin America andthe Caribbean

Middle East
and Africa

North
AmericaIT security/hacking

3.7

3.6

3.2

3.3

3.5

Increasing regulatory burden

3.4

3.4

3.5

3.6

3.1

Fraud

3.2

3.2

3.0

3.2

3.1

Competitors/business model risk

3.4

3.1

2.8

2.9

3.1

Difficulty of entering into banking relationships

2.4

3.1

3.1

3.2

2.5

AML/KYC enforcement (e.g. FATF Travel Rule)

3.4

3.0

2.6

3.4

2.8

Deteriorating banking relationships

2.3

2.9

2.8

3.1

2.7

Negative industry publicity

2.9

2.8

3.1

2.7

2.8

Tax treatment of cryptoassets

3.1

2.7

3.1

3.1

2.5

Lack of talent

3.1

2.7

2.9

2.5

2.3

FUTURE DEVELOPMENTS
Table 11: Service providers assess the likelihood of future developments (per size)

Service providers assess impact of future developments (per size)
Respondents scored these categories on a 1-5 scale:
1: Not important at all   2: Not important   3: Neutral   4: Somewhat important   5: Very important
Lowest average score

Highest average score
Small Service Providers

Large Service Providers

Stablecoins

4.1

3.8

Staking

3.8

3.1
3.3

Decentralised finance (DeFi)

3.5

Layer-2 solutions (e.g. Lightning network)

3.2

3.1

Other developments

3.2

2.9

Central Bank Digital Currencies (CBDCs)

3.1

3.0

Security tokens issued on a public blockchain

2.9

2.8

Sidechain

2.8

3.0

Privacy enhancing overlays

2.8

2.6

Non-fungible Tokens (e.g. ERC-721)

1.4

3.5

70

Cambridge Centre for Alternative Finance
10 Trumpington Street
Cambridge CB2 1QA
United Kingdom
E: ccaf@jbs.cam.ac.uk
T: +44 (0)1223 339111