Blockchain investments spread outside financial services

SAN FRANCISCO — The Russian government can’t decide whether to ban bitcoin and other so-called crypto-currrencies over fears they could be used by terrorists and criminals to hide illicit economic activity.

But in the U.S., a sizable amount of transparent, legal business activity is already developing around these new payment technologies.

These currencies are based on blockchain, a digital ledger for recording and confirming transactions made possible by a relatively new communication protocol.

Start-ups using the technology have so far focused mostly on financial services, such as the guarantee of property title, the verification of electronic signatures or the transfer of online, peer-to-peer payments.

Now, though, investments in so-called blockchain start-ups are starting to spread outside the financial services industry, as seen during a conference at the Kabuki Hotel here this week.

New companies are pursuing markets as diverse as the authentication of luxury goods and the buying and selling of gift cards.

The Future of Money and Technology Summit took place amid a rebound in bitcoin’s price, the rapid consolidation in the business of ‘mining’ digital currency and a surge in blockchain investing.

Venture capital investment in blockchain start-ups this year has reached $482 million, up more than five-fold from 2013, according to a research report out this week from Goldman Sachs.

Thanks to the burgeoning number of digital-currency apps coming from these start-ups, the technology looks primed to underpin a growing number of mobile, online consumer services.

“This decentralized, cryptography-based solution cuts out the middle man. It has the potential to redefine transactions…in a multitude of industries,” Goldman’s Robert Boroujerdi wrote in his report this week.

As bets on bitcoin and other digital currencies grow, so does the nascent economic activity based on them.

An executive with BitPay, based in Atlanta and among the largest crypto-currency payment processors, said Wednesday that the number of transactions the exchange cleared on Black Friday rose 112% from last year.

The surge was part of a record month for the company in November, says Sonny Singh, BitPay’s chief commercial officer.

More than half the transaction activity came from overseas, Singh said during a panel discussion at the Future of Money confab.

BitPay raised $30 million in a Series A round in May 2014.

Veteran investor Bill Tai, during that same panel, revealed that mining start-up BitFury now accounts for about one-sixth of new bitcoin mining activity.

That’s up by more than a third from last year, when I spoke at this same show with Tai, who has a stake in BitFury.

Mining requires massive computing resources to break into encrypted codes and create new units of digital currency.

Like its rivals in China, Amsterdam-based BitFury has produced its own line of computer chips customized for mining. It’s also raised a total of $60 million.

In a far different market, San Mateo, Calif.-based ZapChain is a seed-stage company enabling peer-to-peer ‘tipping’ on social news and recommendations sites.

Meanwhile, Chronicled, a San Francisco-based start-up, wants to get luxury goods makers to use the blockchain to stop fakes and forgeries.

The company is backed by Pantera Capital, which has made about 40% of its blockchain investments overseas, according to partner Daniel Morehead.

While regulation was a big risk two years ago, “most countries have been reasonable” about allowing use of the technology, Morehead says.

Back in April, Goldman Sachs, along with venture firms General Catalyst Partners, Accel Partners and Breyer Capital, took a stake in Boston-based, bitcoin start-up Circle Internet Financial as part of a $50 million funding round.

As more deep-pocketed U.S. investors make bigger blockchain bets, look for the pace of innovation based on the technology to accelerate.

Follow USA TODAY technology columnist John Shinal @johnshinal