Blockchain might be the most boring exciting technology since data storage and data centre based computing services went online and changed the world. What we now know and refer to as ‘the cloud’ was probably accelerated in many ways by the reframing and marketing of that simple phrase.
Blockchain faces a similar challenge to the cloud of 10 or 15 years ago. While it is a transformative technology it is still waiting for its mainstream marketing message breakthrough that catapults it into the everyday understanding of business and consumers.
So, what is the blockchain?
To say it is “a distributed database that is shared among the nodes of a computer network” tells most of us nothing. In simple terms, I think of blockchain as ‘the cloud’ for records and transactions. It doesn’t sound particularly significant but like many aspects of revolutionary technology, once it becomes mainstream it will change the world in previously unimaginable ways.
The technology is basically blocks of data that form a secure chain of records detailing transactions as they occur. The ledger that contains these transaction details is public, allowing complete transparency as anyone can view it at any time. The technology is also decentralised as no one entity has authority over the blockchain and its decision making it great for trustworthy digitally record keeping.
So, what are the practical use cases?
Imagine lodging your insurance claim and having it paid within the hour. No more claims departments for insurance companies. No more hassle or waiting for customers.
Or making an offer on a house and not only is it accepted within the hour it is also settled within the hour too. No more settlement agents. Move in the next day.
Even simple transactions such as registration of births, marriages, and deaths. Instantaneously recorded to the blockchain. Passports and travel records automated. No more unnecessary bureaucracy.
Today, cryptocurrencies allow for transactions between anyone without the need for a third party or bank. Effectively it cuts out the bank completely. We have previously seen the appearance of that evolving in finance, but, in many cases, it’s really just been lower cost crowd sourced third parties or tech platforms cutting out the banks. Eventually, there won’t be any third parties needed and the transactions will all be directly between the two parties via blockchain.
This is a really big deal because so many transactions and businesses are built on being a third party or intermediary. Many of these, if not all of them, will be eliminated.
Smart contracts, which are essentially code-based rules for defining a transaction, will allow every type of transaction that is currently recorded manually to be digitised. Think about all the different transactions in life that are completed and recorded in quite manual ways. Even those that are digital, it involves intermediaries and brings with it a whole range of extra costs and issues around trust and counter party.
Smart contracts will end up recording ownership of everything. Homes. Shares. All products bought and sold. All agreements made.
The emergence of the virtual world and metaverse will see increasing amounts of commerce go online. With that, we are already seeing the evolution of digital assets and NFTs. These digital assets while in the virtual world are still valuable assets and ownership of those assets is no less important than ownership of any real asset. In the years ahead, expect this to be an increasing mainstream aspect of life as people spend more and more time online.
There are the obvious emerging companies that will grow on the back of developing this technology and customising it for specific areas. But more importantly for all investors, just as with the emergence of the internet years ago, there are going to be efficiencies created for a range of existing businesses too.
It wasn’t that long ago we all lined up at the teller in the bank to deposit pay cheques or make withdrawals. Banks are a great example of how the internet revolutionised a traditional powerhouse industry. Now we bank on our phones. A lot has happened over the years.
Blockchain technology will have a similar impact as it becomes ubiquitous for financial records, medical records, supply chain and inventory, insurance, property sector, legal sector and obviously finance. There is an entirely new wave of technological disruption coming based on this technology alone.
There are some very interesting stocks with direct exposure to this technology, while many large blue-chip companies will benefit from incorporating it into their business operations, other will be disintermediated out of business. While the technology is still some time away from being mainstream, now is the time to become familiar with the implications of how it will start to playout.
General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.