Blockchain The Biggest Disrupter to the Markets: FinTech

There are two schools of thought when it comes to cryptocurrencies.

There are those that see it as a saviour to our manipulated monetary system.

Then there’s the government and invested parties that see it as a threat to the system they’ve worked so hard to protect.

Whether cryptocurrencies will ever work alongside — or even replace — our fiat currency system remains to be seen.

However, the very idea that made Bitcoin a manipulation free monetary system could possibly be the biggest encryption breakthrough this decade.

A couple of months ago, Jim Rickards, strategist of Strategic Intelligence explained to subscribers:

A blossoming area in FinTech is cryptocurrencies such as bitcoin. I have never been a fan of bitcoin as a place to store wealth, but I have always been impressed with its blockchain-encrypted technology.

While most people were debating whether to ‘invest’ in bitcoins or not, the real investment action was in building platforms using blockchain technology to provide secure private transfer networks. These transfers are not limited to crypto-currencies, but can be used for anything of value including stocks, bonds, real estate deeds, etc.

As Jim points out, it’s not the cryptocurrency that’s important, it’s the technology behind it — the ‘blockchain’.

Since Jim wrote that, Goldman Sachs, JP Morgan and 22 other international banks are investing in applying blockchain functions to their private ledgers.

In fact, the Nasdaq will launch its own blockchain for its private market shortly.

Understanding how the blockchain works is important. It’s only when you get it, that you see how it is truly disruptive technology.

Bitcoins were developed sometime around 2007 and — for lack of a better word — launched at the start of 2009. Less than two years into Bitcoin trading, the mainstream caught on.

Since then, there’s been hot debate on whether Bitcoin — or any other cryptocurrency for that matter — could replace our current fiat currency system. Until now, most people have overlooked the remarkable blockchain technology behind Bitcoin.

This is where the real investment opportunity is. The blockchain is a series of data, or ‘blocks’ — roughly 40 bits in size. These blocks record and store information.

Take Bitcoins as an example.

Each block contains information about a Bitcoin transaction. The block has all the Bitcoin details. Such as price, when, where and who it was transferred too. And once that data is stored in a block, it can’t be changed.

Think of one block as a complete copy of a financial transaction. Each new transaction is linked to the previous one. Forming a digital chain of information.

In other words, each new block is linked to the one before it. Because you can’t alter the blockchain you end up with a permanent, indisputable and verifiable record of the truth that everyone can see.

The next thing you need to understand is why blockchain types are important. And that there are two blockchain types: unpermissioned and permissioned. Permissioned is also known as the distributed ledgers or a replicated shared ledger.

In other words, most of the data is centralised. The information is stored in one location. The unpermissioned is the model Bitcoin uses.

Now, an unpermissioned blockchain is an open, decentralised ledger. That is, this is a distributed system. It’s not stored in one location.

Instead, it takes advantage of a vast and established digital network.

Think about it like this: every single Bitcoin — including the entire transaction history — is distributed across millions of computers around the world. Every single transaction is spread across the globe, at little or no cost.

There are a couple of reasons this technology appeals to the finance sector.

All finance transactions are simply moving something from one ledger to the other. Transferring data from one set of books to another.

But, the finance sector must build and provide their own infrastructure for all of these transactions. Whereas blockchain technology takes advantage of the existing digital setup.

Equally important is how the blockchain encryption secures the transaction.

As I said earlier, because blockchain can’t be undone, it’s a permanent, undisputable record of events. The blockchain programming involves a lot of ‘if X occurs’ type of orders. So if one programmable event occurs, the code automatically authorises the event to proceed.

And it happens every time the blockchain encounters another ‘if’ request.

This ability means there’s the potential to code legal clauses inside each block. Essentially, the blockchain has the potential to authenticate digital transactions. It offers people irrevocable proof of ownership, with a traceable history.

Given this sort of security, it’s possible that in the not so distant future the blockchain could be the digital equivalent of a notary’s stamp.

You can see why the blockchain is attractive to the finance sector. Not only is every transaction secure, but there’s also the ability to take advantage of existing digital assets that would significantly reduce a company’s costs.

It’s extremely exciting nascent technology. However, it’s not really an investable one yet.

The first problem I encountered was the lack of publicly traded blockchain companies available.

At the time of writing, the only publicly available blockchain company is in America. And it trades on the over the counter (OTC) market.

The OTC market adds another layer of complexity for investors.

There’s a company in the UK that has delayed its listing on London’s AIM twice now. As an investor this makes me a little nervous. They might not have been able to raise the capital they’re looking for.

Australia’s first Bitcoin miner — Bitcoin Group Limited — is scheduled to debut in the next few days. While this company does present a way to invest in blockchain technology, the company’s main focus is Bitcoin mining.

There are plenty of privately held companies working on just blockchain technology for the FinTech sector. Those are the companies to watch out for.

The point is, blockchain technology could be the most exciting tech since the internet came along and disrupted our lives.

Blockchain technology is in its infancy. At this point, we still don’t know how big the disruption will be. But it certainly looks like it could be huge.


Shae Russell

For Markets and Money

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Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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