Tales from the Crypt-ocurrency

E*TRADE Securities2

10/27/17

You’ve probably heard the chatter. It’s growing louder. And that figures: Any asset surging past the $6,000 mark after trading at less than $1,000 not even a year ago is going to get some attention.1 Interestingly, some of Wall Street’s heavyweights are now chiming in on bitcoin. But that doesn’t mean they’re all in on the developing, and often volatile, cryptocurrency market—not by a long shot.

In fact, JPMorgan Chase & Co. CEO Jamie Dimon has gone so far as to say that bitcoin is a “fraud,” has “no actual value,” and that “governments are going to crush it.”2

But it’s not all about the cryptocurrency. What has many market observers excited is the underlying blockchain technology on which it is based. (On this, Dimon’s on board—“God bless the blockchain,” he says.) For investors looking for exposure to what some believe could prove to be a foundational technology, here’s a quick primer.   

What is it?

A blockchain is essentially a digitized record of transactions. The record, often referred to as the ledger, grows continuously in the form of information blocks. Each transaction is recorded and added chronologically to the end of the chain. Users connected to the ledger can track and verify each transaction, from money transfers or the movement of supplies, without having to go through a middleman.

Developed originally as bitcoin’s accounting method, blockchain’s power lies in its versatility, in that it can incorporate just about any document and transform it into a smart record. Once the transaction is linked to the chain, users have a permanent, encrypted record. 

Putting blockchain technology to use

Who's using it?

Opportunities for indirect exposure to blockchain seem to be bubbling to the surface as companies explore how they can leverage it in their business models. At this point, it seems companies could put blockchain to use in a number of different ways, such as:

  • Settling the tab. Financials are at the forefront of testing it. Among other uses, blockchain platforms could help streamline cumbersome verification processes when looking to complete global payments. One recent example is a partnership between Nasdaq (NYSE: NDAQ) and Citi (NYSE: C) that allows investors in private company securities on Nasdaq to use Citi’s cross-border payments platform and blockchain to buy, sell, and settle transactions.3
  • Locking the door. Of course technology players have their hands in blockchain. Notably, the potential to help address security issues that the current internet structure cannot has many tech firms interested. Among others, Microsoft (NYSE: MSFT) is invested in the technology, including its exploration into Blockchain-as-a-Service tools for app developers.4 And IBM (NYSE: IBM) has a blockchain platform that gives customers the ability to build secure applications in its cloud.4
  • Avoiding the hazards. Blockchain technology seems like a useful tool for managing supply chains and the risks that come with moving goods, especially on a global scale. One company that has taken to blockchain is Walmart (NYSE: WMT), which is testing IBM’s Hyperledger Fabric platform to track food shipments and ensure product safety during the delivery process.5  

Where's this going?

Many consider blockchain a game-changing proposition. Investors looking to understand the big picture here may want to consider IBM CEO Ginny Rometti’s take on the subject.

Rometti likens it to the dawn of the internet, in that “If you had understood in 1995 the opportunities and threats it would ultimately present to your company or industry, what would you have done differently—to become the disrupter rather than the disrupted? That is where we are with blockchain today.”6

Translation: It’s early days for blockchain. But those companies that can harness what appears to be its transformative potential could reap the benefits. And investors may want to stay tuned to the chatter. 

 

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1. Kharpal, Arjun. “Bitcoin smashes through $6,100 to hit a new record high,” CNBC, 21 Oct. 2017. https://www.cnbc.com/2017/10/21/bitcoin-price-6100-new-record-high.html

2. Glazer, Emily. “J.P. Morgan’s Jamie Dimon May Hate Bitcoin, but He Loves Blockchain,” The Wall Street Journal, 16 Oct. 2017. https://www.wsj.com/articles/j-p-morgans-james-dimon-may-hate-bitcoin-but-he-loves-blockchain-1508146203

3. Demos, Telis. “Citigroup to Tap Nasdaq for Blockchain Payment Technology,” The Wall Street Journal, 22 May 2017. https://www.wsj.com/articles/citigroup-to-tap-nasdaq-for-blockchain-payment-technology-1495455969

4. Joshi, Divya. “IBM, Amazon & Microsoft are offering their blockchain technology as a service,” Business Insider, 24 Oct. 2017. http://www.businessinsider.com/ibm-azure-aws-blockchain-service-2017-10

5. Hackett, Robert. “Walmart and 9 Food Giants Team Up on IBM Blockchain Plans,” Fortune, 22 Aug. 2017. http://fortune.com/2017/08/22/walmart-blockchain-ibm-food-nestle-unilever-tyson-dole/

6. Rometty, Ginni. “How Blockchain Will Change Your Life,” The Wall Street Journal, 7 Nov. 2016. https://www.wsj.com/articles/how-blockchain-will-change-your-life-1478564751