What is blockchain technology?
- A blockchain is essentially a digital database or ledger that stores information.
- A ‘traditional’ database or ledger records its information in standalone tables or spreadsheets, and is essentially stored and owned by a centralized source. This traditional way may have inherent flaws, as it depends entirely on the centralized owner to properly maintain validity, history, security and all types of integrity and trust risks.
- A blockchain improves upon ‘traditional’ databases or ledgers in a way that makes it extremely challenging, regardless of honest or nefarious intent, to incorrectly change, hack, or cheat the system.
- A blockchain decentralizes ownership of the database or ledger, whereby the entire network of computer systems supporting that blockchain contributes to the verification and safe-keeping of records. Blockchain Technology is also referred to as Distributed Ledger Technology.
- With a blockchain, data is stored in chunks or blocks. When each block is filled, it is connected to the previous, forming an easy-to-follow chain, and this historical record is added to every participant’s ledger.
- Each block that is filled, is verified by the network and set with a specific timestamp making it very difficult to alter. And as the blocks are part of a linked chain, no single block can be removed.
Characteristics of blockchain technology
Consensus Verification
All blockchain participants share the same documentation, which can only be updated with everyone’s agreement.
Decentralised
Control and decision-making in a blockchain promotes aspects such as transparency and efficient data reconciliation. It also lowers the risk of a “single point of failure.”
Unchangeable
Blockchain provides a lifetime ledger for an asset, including where it is, where it’s been, and all the transactions in between.
Secure
Network members would notice any alterations to the ledger and split off to a new, unaffected version of the chain.
Blockchain has multiple uses
Blockchain technology is already being utilised in multiple industries, including financial services, healthcare, supply-chain management, and food safety. Its use is also being trialled across an even wider variety of industries. Anything that requires records to be kept can, in theory, be supported or assisted by blockchain technology.
For example, the global financial system relies heavily on third parties to help with asset exchange, settlement and servicing. Blockchain can disrupt this established system by offering a unique way of avoiding the inefficiencies and potential fraud opportunities posed by using a third party.
Case study: Leading retail coffee chain
The company put into place a bean-to-cup traceability initiative using blockchain technology to enable end-to-end transparency from the time a coffee bean leaves the farm, through transit, and finally to the point where it is brewed and put into a customer’s cup. Blockchain creates a new data stream that Starbucks can use for its own inventory management systems and pricing. What’s more, this is precisely the type of information today’s ethically conscious consumers want.
Applications of blockchain technology
There is already a diverse range of uses that have emerged in both the private and public sectors:
Identification – Voter registration is being facilitated via a blockchain project in Switzerland
Healthcare - A number of healthcare systems that store data on the blockchain have been pioneered
Journalism - Decentralised, blockchain-enabled journalism has the potential to limit censorship and increase transparency
Mobile Payments – One company’s blockchain ledger has been latched onto by a group of Japanese banks that will use it to enable quicker mobile payments
Energy – A test project is being developed that will help energy suppliers track the distribution of their resources in real time while maintaining data confidentiality
Advertising – A New York company has been trialling blockchain as a means of providing an advertising marketplace for publishers
Insurance – An insurer is using a smart-contract based blockchain to help save costs and increase transparency
Land Registry –Land registry titles in Georgia are now being stored on the blockchain in a project developed by the country’s National Agency of Public Registry
Music – Musicians are leading a blockchain-based initiative to ensure artists are fairly rewarded for their creative efforts
Real Estate – Blockchain is now being used to complete real-estate deals, the first of which was conducted in Kiev, Ukraine
National Security – For the past two years, the US Department of Homeland Security has been using blockchain to record and safely store data captured from its security cameras
Enterprise –A leading search-engine provider is developing a bespoke blockchain that will be integrated into its cloud-based services. This should enable businesses to store data directly with the business
Border Control – A border-control system has been devised in the Netherlands that uses blockchain to store passenger data
Fine Arts – As one project is currently proving, it’s possible to dramatically reduce art forgeries by storing certificates of authenticity on a blockchain
Railways – In Russia, a rail operator is maintaining repair requests and rolling stock inventory data on a blockchain料
Supply Chain –Two leading companies have partnered in China to create a blockchain project that will monitor food safety
Diamonds – Blockchain is being used to track the import and sale of diamonds
Shipping – Shipping is a natural fit for blockchain. One company is already testing a project within the maritime logistics sector
Why invest in blockchain technology?
Characteristics of blockchain technology
Why invest in the Blockchain innovation theme?
- The pandemic has helped accelerate the development of many useful blockchain solutions
- Amid high levels of trust in this technology, blockchain has the potential to disrupt nearly every industry.
- As it is utilised by a broader range of companies, the blockchain theme should provide an attractive, long-term investment opportunity
- There is an opportunity to invest in businesses that are the early adopters of blockchain technology. These companies will ultimately set the standard within their respective industries.
- Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.
- Market Capitalisation Risk: Investments in the securities of small to medium-sized companies (by market capitalisation) may be riskier and less liquid (i.e. harder to sell) than large companies. This means that their share prices may have greater fluctuations.
- Blockchain Innovation Companies Risk: The value of securities of Blockchain Innovation Companies may be negatively impacted by changes in regulation and are dependent upon consumer and business acceptance of the distributed ledger technology. Distributed ledger technology is a new and relatively untested technology which could be vulnerable to fraud, particularly if a significant minority of participants colluded to defraud the rest. The investment’s value may be more subject to risks of developing technologies, competitive pressures and intellectual property rights challenges.
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MC275-30-01-2024 (6M)