Whether you love or hate cryptocurrencies, you cannot deny the spectacular performance. Since Donald Trump’s White House race victory (5 November) Bitcoin has surged 35% to an all-time $94,795 high. Since the start of 2024 it has more than doubled. Ethereum and Elon Musk pet crypto Dogecoin, are up 33% and 300% respectively this year.

If you own crypto assets, or are considering doing so, it’s valuable to have at least a basic understanding of blockchain, the technology protocol that powers most cryptocurrencies.

WHAT IS BLOCKCHAIN?

Blockchain is a type of distributed ledger technology that uses computer code to create, maintain and update information shared by blockchain participants. Each ‘block is a chunk of encrypted data, which is secured, or verified, by cryptography (the Greek word kryptos means hidden).

A block might be one or more crypto transactions, or a loan payment, for instance. When one block of data is verified, it’s then ‘chained’ to the previous block, creating a blockchain.

Blockchain technology is an alternative to records maintained on a central database. With blockchain, risk and management are shared among numerous participants, each of whom has a ‘node’ on the network and works collectively to maintain a permanent list of transactions. All parties on the network have access to a shared, identical, irreversible ledger of transactions.

In other words, each node participates in the administration of the blockchain, including the verification of new additions to the blockchain. Each node is able to add new data into the database as long as the addition to the blockchain is agreed by a majority consensus among existing nodes, which enforces the network’s security.

This creates a permanent, transparent record of transactions on the blockchain and prevents users from duplicating transactions.

ATTRACTIVE TECHNOLOGY

Blockchain technology excels in moving data securely and transparently. It also offers data safeguards: Records on a blockchain are nearly impossible to alter, making it difficult for a central authority, or bad actor, to falsify or change information. Blockchain technology is also well-suited to tasks associated with identity verification and data tracking.

Because of these strengths, use of blockchain technology extends beyond the financial sphere. For example, hospitals use blockchain technology to safeguard patient data, global vaccines are tracked and distributed with the help of blockchain technology, and individuals can employ blockchain solutions to verify home or land ownership and create a lifetime portable identity that doesn’t depend on a centralised authority, a government say.

Blockchain has captured the attention of many people who view it as a potentially transformative technology with far wider applications than currently used. That could make it interesting as an investment opportunity, and retail investors have multiple blockchain ETF options to choose from.

ETFS OFFERING BLOCKCHAIN EXPOSURE

The Financial Conduct Authority continues to prevent cryptocurrency ETFs being sold to retail investors in the UK but there are around half a dozen blockchain themed ETFs available. They provide regulated access to a wide range of stocks exposed to this new technology, including the obvious, like bitcoin investor MicroStrategy (MSTR:NASDAQ), crypto exchange Coinbase Global (COIN:NASDAQ) and crypto mining operation Marathon Digital (MARA:NASDAQ), to the more tangential – such Taiwanese chip manufacturer TSMC (2330:TPE) and Chinese retail platforms Alibaba (BABA:NYSE) and JD.com (9618:HKG).

Investors should be aware that charges are higher than for more mainstream products, such as those which track indices like the FTSE 100 and S&P 500. There has been significant variance in terms of performance so it’s worth looking closely at products to get a sense of what’s in them and how they are constructed.

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