Could Blockchain Be A Bigger Disrupter Than The Internet? (2024)

It is quite rare that a new technology transforms the world so significantly that people can't imagine life without it.

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The internet is one example. Apple's (AAPL) iPhone or Alphabet's (GOOGL) Google might be others.

Yet, for those watching closely, it's certainly not a coincidence that early this year, four blockchain ETFs made their entrance into the market. And this trend is not necessarily linked to the hype surrounding digital currencies such as Bitcoin or Ethereum. Experts predict blockchain technology is not only here to stay, but could be a major disrupter in the way companies do business— possibly even larger than the internet.

In descending order of asset size, the four ETFs are $178 million Amplify Transformational Data Sharing (BLOK), $124 million Reality Shares Nasdaq NexGen Economy (BLCN), $38 million First Trust Indxx Innovative Transaction & Process (LEGR) and $13 million Innovation Shares NextGen Protocol (KOIN).

Blockchain is a digital ledger of information stored chronologically in "blocks"to allow for the efficient and nearly instantaneous processing and transfer of data. Experts say it could result in huge cost savings and increased profits for companies using it.

"We really believe this could be one of the major innovations of the last 20 or 30 years, including the internet; it could be even possibly bigger than the internet was as far as disruption," said Eric Ervin, CEO of Reality Shares.

A Reality Shares' report states that usage of blockchain is projected to grow at a compound annual growth rate of 61%, and well-known companies including Amazon (AMZN), Microsoft (MSFT), Intel (INTC), Nvidia (NVDA), Texas Instruments (TXN) and Intuit (INTU) are committed to adopting and developing blockchain technologies. In addition, it notes that there are over 1,200 blockchain startups, with private investment in those reaching nearly $5 billion in 2017, according to various sources.

Blockchain Impact

So, how exactly are the companies involved with the technology, and how can investors tell the real players from the fake ones?

Ervin says thatReality Sharesuses an economic impact score to see what impact blockchain will have on a company's future earnings. For example, even though IBM (IBM) is ahuge company with many other projects going on such as artificial intelligence, "blockchain's one of IBM's biggest initiatives in the entire company," he said. "Their long-term strategic vision is really embracing blockchain and being the go-to provider of it."

Last year, IBM developed a food traceability blockchain platform for Walmart (WMT) to enhance food safety and transparency. It also partnered with Walmart and Chinese retailer JD.com (JD) in a Blockchain Food Safety Alliance collaboration to improve food safety in China. Ten other major food suppliers and retailers have expressed their interest as well.

Another large player is Intel, which has developed a chip that allows for transactions to be committed to a shared database. "If I'm a pharmacy and you get a prescription of Oxycodone, you can't forge it and create two copies of that anymore because it's all based on the blockchain," said Ervin. "They (Intel) think their revenue alone could go up almost 20% just from this new chip that they've built, which will be at the core of all of these blockchain-as-a-service solutions."

Amazon's cloud service AWS is investing in blockchain in health care and life sciences, financial services, supply-chain management, security and compliance. A wide variety of applications have been developed by its AWS partners, including T-Mobile (TMUS), consulting firm PwC, vision specialist VSP Global, Samsung and Deloitte.

Powered By Chips

Because blockchain needs a lot of processing power, chip producers such as Taiwan Semiconductor (TSM), Nvidia and Advanced Micro Devices (AMD) are poised to benefit from the development and sale of specialized chips. First Trust's LEGR invests in providers of products and services to enable other firms to employ blockchain technology. Chips and other such providers comprise about 50% of the portfolio.

The other 50% is comprised of firms that employ the technology to make their business more efficient, such as CME Group (CME), JPMorgan Chase (JPM) and Overstock.com (OSTK), said Ryan Issakainen, senior vice president at First Trust Portfolios.

The fund will not invest in names that have not shown an actual test case, he adds: "We don't want to have a company that says they're going to have a new cryptocurrency offering for a certain type of service, but they haven't made investments in it yet." An example would be EastmanKodak (KODK).

Active Play

Amplify's BLOK is the only actively managed fund among the four ETFs. Christian Magoon, CEO of Amplify ETFs, says that this allows the fund to quickly include new names or sell those that are involved in controversies.

Besides the big conglomerates involved in blockchain, Magoon says the fund also holds some more pure-play names, such as Japanese IT firm Digital Garage, Japanese financial conglomerate SBI Holdings, and Japanese internet and media firm GMO Internet. GMO operates several cryptocurrency exchanges, offers a wallet service for cryptocurrencies, and a blockchain service to store medical records.

"I think what's going to happen for investors is: You could wait (for more of a) pure play or some big announcement happens like 'Canada's government to use blockchain,' but for us, we're trying to be early in the game," he said.

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