*3.2. Empirical Data Collection and Methodology*

Due to blockchain's relative novelty, its exponential development and secrecy by adoptive firms due to future profitability prospects, empirical data with regard to blockchain applications are difficult to obtain (Dapp 2014). Given this setting, for the empirical analysis, firstly, we hand-collected and compiled a unique quarterly database from 2012 to 2020 of blockchain and related start-up investments globally through historical reports from PwC, Token Data, CB Insights, ICO Insights, Statista and Hutt Capital. The future values are forecasted using a basic average linear extrapolation on past values due to the lack of a number of observations and additional data.

#### **4. Blockchain Technology**

Blockchain is just one form of the broader area of distributed ledger technology (Brainard 2016). Given the widespread use of the term "blockchain", we use that term instead of distributed ledger technology (DLT). There are two main types of blockchains: public and permissioned. On a public blockchain, such as Bitcoin, no permission is required to use or view the blockchain. The two highest-profile public blockchains are Bitcoin and Ethereum (Atzei et al. 2017). Bitcoin was the first blockchain (Nakamoto 2008). Most public blockchains are open-source, and no central authority or person runs a public blockchain. Rather, a network of peers agrees on the state of the blockchain. Newer platforms such as IOTA, Hashgraph, Holochain and Dfinity do not use a chain of blocks (Wright and De Filippi 2015). Verification on the Bitcoin blockchain is made via peers (miners). Bitcoin's blockchain is a ledger that records the number of bitcoins an entity owns in a particular wallet (Abadi and Brunnermeier 2018). It also contains a full transaction history of all transactions sent and received by that particular wallet. People or entities are not defined by their names, as they would be for a bank account; rather, public keys are used (Chen 2018). Public keys are a long string of numbers and letters. The Bitcoin blockchain records the bitcoins each public key owns. A public key, in turn, is controlled by the individual who has the private key (another long string of numbers and letters). Whoever has access to the private key is able to transfer bitcoins, highlighting the importance of the security of the private key (Atzei et al. 2017). Crucially, unlike with a password for a bank account, there is no ability to recover a lost or forgotten private key.

Miners are incentivized to perform the validation and block creation work by a block reward: a reward of bitcoin for successfully adding a block to the blockchain, plus the transaction fees from the transactions the miner includes in the block (Babich and Hilary 2019). The block reward further serves to distribute newly created bitcoin. Bitcoin is currently capped at 21 million bitcoins and it is expected that in approximately 2140, the last bitcoin will be created. Once the last bitcoin is created, miners will receive only transaction fees that are attached to transactions (Beck et al. 2018). Transactions cannot be altered after the fact, although it is possible in exceptional circumstances to make retrospective changes (DuPont 2017). Bitcoin and its proof-of-work consensus system have been criticized for their electricity use, although Vranken (2017) has questioned the estimates. Several blockchains, mindful of electricity usage, use proof-of-stake or delegated proof-of-stake, which do not expend large amounts of electricity, as nodes are chosen at random to validate transactions (Vranken 2017). For example, proof of importance consensus is used in the NEM blockchain. Permissioned blockchains, which are considered next, do not normally use proof-of-work and thus have minimal electricity requirements (Vranken 2017). Permissioned blockchains, as the name suggest, can limit who has permission to validate transactions, view the blockchain and create transactions. Permissioned blockchains are generally run by consortiums. Fewer participants translate to a permissioned blockchain that is not as decentralized as a public blockchain (Beck et al. 2017). Several public blockchains, such as Ethereum and NEM, offer permissioned versions.
