Only 40% of Israeli blockchain companies survive

Bitcoin mining server farm  photo: Reuters
Bitcoin mining server farm photo: Reuters

The number of blockchain companies founded in 2019 was the lowest in seven years.

The slump in the global cryptocurrency market in late 2018, which has been referred to as crypto-winter, has greatly reduced trading activity and investment in the sector, and has dealt a hard blow to most of the companies dealing in the blockchain technologies on which the cryptocurrency sector is based. A survey, initial finding from which were published in "Globes" in late 2019, and which is now being fully revealed for the first time, show that not only have blockchain companies founded in Israel in recent years been severely affected, but that the founding of new companies in the sector has come to a nearly complete halt.

The survey, which was conducted by the Israel Bitcoin Association in cooperation with the Sphinx research company, was designed to provide a status report on the activity of blockchain companies in Israel. The survey shows that only four of the 134 local companies active in the sector, 3% of the total, were founded in 2019, the fewest since 2012 and 90% fewer than the number of companies founded in 2018. 59% of the Israeli companies in the blockchain sector were founded in 2017-2018, the two most prosperous years in the sector in the past decade.

The survey found than most of the Israeli blockchain companies were young. Only eight of them, 6% of the total, were founded in or before 2012. 38 companies, 28%, were founded in 2017 and 41 (30%) were founded in 2018.

In the light of the recovery in the global digital currencies market in 2019, led by Bitcoin, the price of which rose 87% during the year, the sharp decrease in the number of blockchain companies founded in Israel in 2019 came as a surprise to Israel Bitcoin Association chairman Meni Rosenfeld, who told "Globes," "The correlation between the global market and the founding of companies in the sector sometimes comes after a lag." He believes that the effect of crypto-winter, which reached a peak in the second half of 2018, had an effect only in 2019. "The market began to recover last year, and the recovery is continuing this year, so I predict that more companies will be founded in 2020," Rosenfeld explained. "It appears that the market has learned from its mistakes, so the new companies to be founded are likely to survive for a longer time."

Three companies founded before the invention of bitcoin

Figures obtained by "Globes" from the IVC research company show that the total number of blockchain companies founded in Israel is 274, only 10 of which were founded in 2019. IVC says that the figure for 2019 is not final, because its survey, which examined all of the companies, found that only some of them were still active. The Israel Bitcoin Association's figure of 134 currently active blockchain companies indicates that over 50% of the companies founded according to IVC's figures have shut down.

The number of blockchain companies founded in Israel last year is a very small proportion of all of the technology companies founded. IVC says that 445 Israeli technology companies were founded in 2019, 25 of which are fintech companies (the figures are not final). According to IVC, 676 fintech companies currently operate in Israel (some of them are also blockchain companies).

Only seven of the Israeli blockchain companies are developing a digital currency, compared with 24 private blockchain companies not developing a currency (development of non-public blockchain for another company or group of companies for uses such as smart contracts, control of the supply chain, etc.). The Israel Bitcoin Association says, "This is a result of last year's dramatic downturn in the digital currencies market."

Among the longest-standing companies in the field are three founded before 2009, before bitcoin was invented. These companies began operating in blockchain only later. One of the most prominent is eToro, which operates a social network for investors and trading platforms for securities and digital currencies. eToro, founded in 2007 by brothers Yoni and Ronen Assia, has its main offices in Bnei Brak. The company has a staff of 800 employees worldwide, 500 of whom are in Israel.

Another veteran company is Control's Force, founded in 2007 by Dr. Boris Shapira. Control's Force developed information security solutions for computer systems, including blockchain systems. Although it has offices in Rehovot, its main offices are Detroit in the US. According to the survey, the oldest established Israeli company in blockchain is Surecomp, founded in 1987 by Israeli-Canadian CEO Joel Koschitzky, a co-owner of Yael Software. Surecomp's blockchain product is only one of the company's fintech products. Although Surecomp manages its activity in Israel from its offices in Kfar Saba, its main offices are in Toronto in Canada.

Most Israeli blockchain companies have a small staff: 85 active companies, 63% of the total, have up to 10 employees. Only five of them (4% of the total) have over 50 employees, and the remaining 33% have 11-50 employees. According to the Israel Bitcoin Association, a total of 1,780 employees work at these companies. 36% of the companies reported that their product had been released to the market, 19% were in the R&D stage, 19% had an alpha version, and 17% a beta version.

The Israel Bitcoin Association says in its survey, "Despite the global slump in the market and the decline in the number of companies begun last year, the general trend since the technology entered Israel is upwards in the number of companies and ventures being founded… We assume that this decline will be followed by a rise, as happens in many rapidly developing technology industries."

Published by Globes, Israel business news - en.globes.co.il - on March 3, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Bitcoin mining server farm  photo: Reuters
Bitcoin mining server farm photo: Reuters
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