LOGIN
REQUEST WALKTHROUGH
search
times
New call-to-action

Tags

See all

Articles

What’s All The Fuss About Blockchain?

Tim Montague-Jones

Tim Montague-Jones has over 20 year investment management experience working in the financial markets. Previous experience includes a ten year stint at Morningstar as a Senior Equity Analyst/Portfolio Manager, founding the Morningstar Growth Portfolio and a founding member of their Investment Committee. Tim was also a Senior Equity Analyst for Macquarie Group and a member of the winning team to obtain the 2016 LONSEC Fund Manager of the Year award.

It’s easy to get bogged down in jargon and technical complexity when looking at the fascinating world of blockchain, so we will try to keep to the basic concepts as we review this exciting technology and its vast range of potential applications and benefits

Blockchain is a system onto which we can securely record data, digital assets, transactions and the like – essentially anything that we don't want hacked, accessed, copied, modified or tampered with. Once something is put on blockchain, it can’t be changed and a transaction will only be verified if it follows the rules governing the blockchain. 

Essentially, blockchain is all about establishing trust, transparency and traceability in the online world. [1]

The founder of Bitcoin  (and, effectively, blockchain), Satoshi Nakamoto (a presumed pseudonym of an unidentified person or group of people) published a white paper in 2008 that explained the basics of "mining" data into a block. 

Think about a blockchain as a widely distributed database that maintains a shared list of records (of whatever data or digital asset or transaction that you want to record). These records are called blocks. Essentially, each encrypted block of code includes the history of every block that came before it. 

Blockchain 2

Source:  Blockchain: The Invisible Technology That’s Changing the World, Rob Marvin, 30 August 2017, PCMag Australia

 

Then, a hash (a time-stamped link that verifies the timing of transactions down to the second) is used to chain those blocks together across a decentralized network of "nodes" that verify each and every transaction – hence “blockchain”.

 

Creating a Blockchain

Blockchain 1
Source:  Blockchain: The Invisible Technology That’s Changing the World, Rob Marvin, 30 August 2017, PCMag Australia

The other key innovation in the Nakamoto white paper is the use of what's known as the proof-of-work (PoW) model to create distributed "trustless" consensus and solve the double-spend problem (that is, to ensure that cryptocurrency isn't spent more than once, or individual transactions or assets transfers are executed only once).

A "trustless” system means that because the blockchain verifies each transaction through PoW, no trust is required between participants in a transaction. The proof-of-work comes from the data miners. A P2P decentralised network of data "miners" generates PoW as they hash blocks together, facilitating and verifying transactions that then go into what is known as the immutable ledger.

Everyone in the network can see this shared transaction ledger, but there is no single point of failure from which records or digital assets can be hacked or corrupted. Because of the decentralised trust, there's also no one organisation controlling that data, be it a big bank or a tech giants like Facebook or Google.

Blockchain's potential is so vast because when it comes to digital assets and transactions, absolutely anything can be applied to a blockchain.  Institutions such as banks, governments, and large corporations have traditionally played the role of risk manager to facilitate trade and commerce. Now, for the first time, smaller organisations can use technology to manage risk themselves to lower uncertainty and reduce the cost of doing business.

While some only see blockchain in speculative terms (think Bitcoin) and accordingly dismiss it because it lacks mainstream acceptance, the foundation of the underlying technology is actually a serious innovation that has the potential to transform economies and people’s lives.  

Large and established businesses and institutions worldwide are rolling out permissioned systems using Distributed Ledger Technology (DLT): 

  • Australia’s own ASX is working on a blockchain based replacement for its CHESS system with a ‘go-live’ date of April 2021, while other large Australian companies are looking at how blockchain might apply to their businesses
  • Global companies currently implementing blockchain solutions for their service delivery include British Airways, FEDEX, and Maersk
  • Major technology players like Microsoft, IBM and Cisco are investing resources to develop proprietary business solutions and using their cloud infrastructure to build customised blockchains for customers as well as experimenting with their own use cases
  • On the academic side, researchers are exploring blockchain applications for projects ranging from digital identity to medical and insurance records
  • International governments are developing legal and regulatory frameworks to support the technology growth.

It’s unsurprising that the big banks, tech giants and large global corporates are some of the first movers in blockchain technology because big business is attracted to innovation that simplifies business, increases speed of transaction and reduces cost. The rise of blockchain-based smart contracts turns blockchain into a vehicle to execute all manner of complex business deals, legal agreements, and automated exchanges of data.

At the same time, many startups and disruptors are using blockchain to keep them at the cutting edge of technology change so that they remain nimble, customer-driven, low cost and disruptive to traditional business.

Industries that could easily benefit from blockchain technology include finance, real estate, healthcare, supply chain, insurance, food and food safety.

While there are regulatory and legal hurdles to overcome (that’s nothing new in this age of rapid technology change), first movers are making huge strides in developing the technology, which is arguably the biggest tech innovation since the internet itself. Within the next ten years, large components of our digital lives may begin to be built on the foundations of blockchain.

 

By Matthew Roberts

Matthew is the Managing Director diversified financial services group aaig, and of fintech investment business HALO Technologies and Macrovue. aaig is the largest shareholder of ASX listed Domacom, an innovative fractional property investment platform built on blockchain technology. Matthew is also an advisor to the Australian Digital Commerce Association (ADCA).

 

[1] Hristo Georgiev as published in Hack, medium.com – 29 August 2019

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

 

New call-to-action
New call-to-action

Company Articles

Looking for more Stock Recommendations?

Fill in your details to receive our special report: Top 3 Income Stock Recommendations for 2020.