In today’s Exponential Investor:
- The definition of blockchain
- The disruption by blockchain
- The beneficiaries of blockchain
Blockchain is the technology which underpins the new, revolutionary asset class known as crypto or cryptocurrency. In simple terms, blockchain is a digital, decentralised public ledger that records transactions.
You could think of it like a big digital textbook, where an invisible actuary infinitely records every single transaction that ever takes place.
When fresh transaction data is validated by network participants, called nodes, and added to the network, a new “block” is created and attached to the existing “chain” of blocks, hence the name.
One of the original principles on which blockchain is based is security.
All validated transactions on a blockchain are immutable and irreversible. Attempts by hackers to disrupt the chain can be easily spotted if there is a discrepancy between chains across different nodes. What’s more, all records are encrypted and the identity of participants is anonymous to the network.
This means that anonymity of transactions is also a feature. However, it’s important to know that anonymity does not equal privacy.
Due to the nature of the transparent blockchain, you can make a transaction and no one will know it’s you… however, that transaction will still be seen by anyone who can access the public blockchain.
If someone could link you to a transaction, theoretically they’d be able to trace all your transactions across the blockchain.
Another benefit of blockchain is the speed and efficiency at which it operates. Transactions can be validated and settled almost instantly, from anywhere in the world, 24/7. This of course depends on which kind of blockchain you use, but for some it’s a particularly exciting feature with the potential to disrupt a lot of industry.
Industries that blockchain technology will disrupt
Some people believe that blockchain is only suitable to the realms of cryptocurrency…
… and they’d be wrong.
Aside from crypto, blockchain is set to disrupt several industries as it becomes more accepted by the global financial system – starting with banking..
Here at Exponential Investor, we see huge potential to unlock efficiencies and eliminate intermediaries and middlemen in an industry full of friction. For example, blockchain can be used for instant, cross-border payment settlement and remittance, whilst also improving verification and security of transactions.
Secondly, blockchain will have a big impact on supply chain-tracking industries, such as logistics. As mentioned above, blockchain allows transactions to be recorded and monitored on a digital ledger. This concept can be adapted to blockchain-based “tags” which can be used to track the provenance of goods in a supply chain.
Finally, another use case for blockchain will be cybersecurity. Cybersecurity is a huge problem for the global economy, and is expected to cost the world $10.5 trillion annually by 2025. Blockchain could help alleviate this issue, by decentralising assets, data and security infrastructure, thereby putting it all out of reach of hackers.
In the grand scheme of things… blockchain isn’t that big compared to other areas of the technology world, for now.
However, what really matters is the direction in which it is heading.
As cryptocurrency continues to be adopted at a retail, institutional and sovereign level, blockchain will become more valuable to the global economy. What’s more, the technology is bleeding into other areas of industry other than just crypto.
In terms of the hard numbers, Statista estimates the blockchain technology market size was $6.92 billion in 2021. By 2027, the industry is estimated to be worth $162.8 billion, a near 24-fold increase.
In addition, as of February 2021, 612,000,000 blockchain-based transactions had been made. And by 2024, corporations are predicted to spend $20 billion per year on blockchain services.
The scary thing is, is that blockchain is still at an early stage of its development. However, its intertwining with the global financial system looks to be both inevitable and unstoppable.
Are blockchain stocks good investments?
There are several factors to consider as to whether blockchain stocks are a good investment.
For now, many blockchain stocks are crypto-focused. This has meant with crypto prices coming off all-time highs, we’ve seen a corresponding fall in blockchain stocks too.
The sell-off in stock markets and crypto markets showing little sign of abating. That means that taking positions in blockchain stocks right now is certainly risky.
However, consider the long-term perspective.
If use of blockchain technology expands as we think it will, then a lot of blockchain stocks could be at a heavy discount to their fundamental values right now.
It is also possible that blockchain stocks that are not tied to crypto markets could also provide viable long-term opportunities, simply as hedge against volatility in crypto markets.
Whether they’re involved in banking, supply chain management or cybersecurity, they may reduce the overall risk of a portfolio in which they’re included.
And, for those who are struggling to get their heads around how big and impactful blockchain may be, one question to consider is this…
Is blockchain bigger than the internet?
A question that we hear in the world of blockchain is whether it’s bigger than the internet. A variant of this question: will blockchain be bigger than the internet at some point?
The internet’s early development started in the 1960s. But it wasn’t really until the late 1990s and the turn of the century that it really exploded.
Today, the internet is a foundational technology. That means it’s a core part of the fabric of society.
It has become a staple part of our lives, providing a portal into the digital world. We have digital lives, and organisations now are all online. This is a radical shift from, say, 25 years ago. This transformation has led to the market for internet service providers being worth around $1.1 trillion in 2021.
So, for blockchain to get close to the internet there’s a long way to go.
Of course, blockchain is not yet a staple part of society, yet.
It is still not widely accepted or understood by society.
However, its potential is obvious. And it could become bigger than the internet, especially if crypto really starts to be embedded within the global financial system.
Of course, and as noted, the internet has a few decades’ head start on blockchain.
So, no, blockchain isn’t bigger than the internet now.
However, suppose that you asked us where it might be in comparison to the internet. We’d say that blockchain right now is roughly where the internet was in the early 1990s.
For us that makes it one of the most exciting investment opportunities of our lifetime.
How do you invest in blockchain?
When investing in blockchain, there are several options to consider.
You could invest in blockchain stocks, which we’ve discussed above, which have a crypto-centric focus, or those that have large exposure to cryptocurrencies. For example, MicroStrategy (NASDAQ:MSTR) has approximately 129,699 bitcoins on its balance sheet.
At current prices at the time of writing, that’s worth around $2.5 billion in bitcoin (which is more than MicroStrategy’s current market cap of around $2.2 billion).
Alternatively, you could invest in blockchain stocks which don’t have any relation to the crypto world, and are leveraging blockchain’s use for other purposes.
Logistics company UPS (NYSE: UPS) has dipped its hands into the blockchain world. In 2019, the company invested in and launched a blockchain platform aimed at improving merchant supply chains.
Finally, technology giant IBM (NYSE: IBM) has incorporated blockchain into its business. IBM has created its own blockchain-based system which the company describes as the “leading open-source blockchain for business platform.” In other words, it allows businesses to digitise transactions through a secured ledger system.
Then you can always buy cryptos that are directly tied to a blockchain. Bitcoin exists on its own individual blockchain. Ethereum is another separate blockchain where you can own the crypto based on that blockchain.
The key point is this: investing in blockchain is a varied, risky but exciting opportunity.
In our view, it’s one of the biggest wealth-creation opportunities in history…
… and you have a chance to invest in it today.
To help understand more about blockchain and the ways in which you can invest directly, our special report, “Three cryptos to watch in 2022” is ideal if you’re looking to get started and want to know more.
Until next time,
Editor, Exponential Investor
Anaylst, Exponential Investor