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:
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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