In this first in a series of articles looking at technology shares to watch on the FTSE AIM Market, we examine why blockchain technology is thought to be so revolutionary, as well as the current blockchain investment opportunities that exist on AIM.
What exactly is a blockchain?
At its most basic level, a blockchain is a method of digitally recording data. To go a bit deeper, it is a digitally, decentralised ledger for recording anything from transactions, agreements and contracts, and put together into blocks using cryptography to create a chain, with each block having to refer to the preceding block to determine validity.
By permanently time-stamping and storing these exchanges of value, the blockchain offers a way to securely and efficiently create a tamper-proof log of activity − thus manufacturing trust within its code. In essence, it is a shared, trusted, public ledger that everyone can inspect, but which no single user controls, as this ledger isn’t stored in one place, but distributed across hundreds or even thousands of computers − or nodes − around the world.
What impact might the technology have?
Although best known for its application in Bitcoin along with other such emerging cryptocurrencies, blockchain technology has the potential to revolutionise a whole raft of different industries and institutions. Such is its potential that banks, governments, accounting firms, tech companies, and all manner of global institutions are scrambling to put together top-level teams to investigate the opportunities for its application.
But why is it thought to be so revolutionary? This is due to the fact that with this new technology, every process, task, and payment would have a digital record and signature that could be identified, validated, stored, and shared. As such, intermediaries like lawyers, brokers, and bankers may no longer be needed. Although this might seem far-fetched, it would be the result of the trust inherent within the code, allowing individuals, companies, machines, and algorithms to freely transact and interact with one another with little to no friction.
To depict the variety of use cases, at the same as institutions determining how to use this new technology to verify that diamonds are not being used to fund armed groups, there are others establishing a trusted private ledger that will remove the need for reconciling each transaction with a counter-party, thus saving millions, minimising errors and vastly improving the speed of financial settlements.
What blockchain AIM investment opportunities are there?
Looking specifically at the FTSE AIM All-Share, there are currently eight blockchain-related investment opportunities investors can choose from:
Blue Star Capital (BLU): BLU currently have a 31.4% stake in a company called SatoshiPay. SatoshiPay is a unique proposition in that it enables online content providers to monetise their digital content through the acceptance of nanopayments, orchestrated via blockchain technology. Using their platform, online media companies are able to process nanopayments with minimal transaction fees. The appeal of this is that it provides a direct alternative to paywalls and subscriptions, currently adopted by a lot of publishers, and should instead enable users to pay for consumption on a per article, per song or per download basis − or even for content to be consumed and paid for on an incremental basis (payment per paragraph or minute of audio or video content).
Catenae Innovation PLC (CTEA): CTEA is a digital media and technology company providing a number of different solutions, several of which through distributed ledger technology (blockchain). Sequestrum, for example, is a simple to use digital asset storage and tracking utility, which provides a secure repository for storing assets within the blockchain, then providing the ability to monitor and report on activity relating to those assets.
Clear Leisure PLC (CLP): CLP is an investment company with a portfolio of companies primarily encompassing the leisure and real estate sectors mainly in Italy. The future for the company is technology, though. As well as recently acquiring a 4.73% stake in a 3D mapping business called GeoSim Systems, they have also entered into a joint venture to establish a Bitcoin mining blockchain data centre called Miner One Ltd. For those unaware, Bitcoin mining is the process of using computer hardware to do mathematical calculations for the bitcoin network in order to confirm transactions. By doing this, miners are awarded bitcoins for each block that they verify.
Fastforward Innovations PLC (FFWD): FFWD have a number of interesting investments in emerging technologies, but it is their stakes in Factom and Vogogo that are blockchain-related. With a number of different products available, Factom have positioned themselves as able to provide solutions for almost any organisation requiring technology to simplify records management, record business processes, and address security and compliance issues. For instance, using the latest in blockchain technology, its Harmony product is able to provide a single permanent document catalogue that significantly reduces the costs for audits, file reviews, lost documents, post-closing and litigation. Vogogo, meanwhile, is a Canadian cryptocurrency miner and blockchain application development company.
Minds + Machines Group Ltd (MMX): MMX have only recently entered this space after releasing an RNS announcing that it had entered into an exclusive agreement enabling Ethereum’s Ethereum Name Service (“ENS”) to be integrated into the services marketed by registrars to consumers in MMX’s, soon to be launched top-level domain, .luxe. Under the agreement, any name of a registrant’s choice in the .luxe registry (an abbreviation for “Lets U Xchange Easily”) can be associated through the Ethereum blockchain with the 40 character hash identifier that currently denotes any Ethereum asset, item or service supporting Ethereum. As a result, a memorable .luxe name can act as the public identifier for an individual’s Ethereum asset instead of the complex and long 40 character hash identifier. Hopefully making things clearer, in the crypto wallet market, there are already over 26 million wallets in use. Currently, for two holders of Ethereum supporting wallets to transfer Ethereum or Ethereum-based tokens between themselves, the recipient has to provide the sender their unique 40 character wallet hash (eg. 0x314159265dd8dbb310642f98f50c066173c1259b) for the sender to then re-enter the hash to effect the transfer. Under the .luxe service, though, the recipient will be simply able to share the blockchain enabled .luxe word that they have associated to their wallet (eg. helen.luxe instead of 0x31415926dd…….).
Online Blockchain PLC (OBC): Formerly just On-line PLC, OBC have positioned themselves as developers, administrators, and custodians of blockchains and cryptocurrencies. Already holding an investment in the financial markets website, ADFVN, OBC recently launched and tested a PlusOneCoin wallet for ADVFN customers and members, allowing users to purchase social media items and functionality and products on the site. Not only this, OBC are also working with ADFVN to target the Brazilian market with another cryptocurrency called Brazio. Finally, another project of OBC is Happy Pool, which is a cryptomining pool where cryptocoin miners are able to club together to use their combined computing power to earn cyptocurrency coins.
TechFinancials INC (TECH): TECH is a software developer supplying trading solutions to online brokers and merchants. Moving into the blockchain-based digitization of assets, TECH have recently brought to market the diamond exchange CEDEX, which allows diamonds to be traded like any other financial asset. Alongside this, they have also developed the Centimize Crypto Payment Gateway, which enables brokers and merchants to integrate Bitcoin and other cryptocurrencies into their platforms as an additional source of funding.
Vela Technologies PLC (VELA): Another technology investment company, VELA include a company called BTL within their portfolio. With offices in Vancouver, Calgary, and in Canary Wharf, BTL is the creator of Interbit, a next generation blockchain platform, which through its unique chain joining capability between thousands of Interbit blockchains helps secure scalable security, data integrity and privacy. As well as BTL, VELA have more recently invested in Argo Blockchain, a company that lets people mine cryptocurrencies through a subscription service. The idea behind this being that mining cryptocurrencies is inherently difficult to setup, so it would democratise the gains to be made. Notably, Argo have recently listed on the Main Market.
Verseon CORP (VSN): By way of its wholly-owned subsidiary BlockRules Ltd, VSN are challenging traditional drug development funding models through creating new technology that supports the sale, launch, and trading of securities on a public blockchain. Such technology intends to democratise investment access, thus changing the way new medicines and other life-science innovations are funded and how the resulting proceeds are shared.
Wandisco PLC (WAND): Also new to the space, WAND recently announced the filing of a new blockchain patent in order to protect the use of its Distributed Coordination Engine (DConE), which is a patented Paxos-based consensus technology designed to resolve issues associated with public blockchain technology through its algorithmic mechanism. The company believes its blockchain application opens up the potential of blockchain technology to a broad set of commercial applications including but not limited to supply chain, banking, healthcare, retail, pharmaceutical, insurance, and government.
How have these AIM shares performed so far?
Thus far, the value of these shares have been on some sort of a roller coaster ride, reflecting sentiment more generally towards the cryptocurrency market − as seen by the large spikes in November and December of 2017 when Bitcoin hit an all-time high, only to see it drop across the first half of this year. As a result, the size of these companies remain towards the lower ends of the market, when taking into consideration the average AIM market cap.
Looking to the future, though, as the technology behind the cryptocurrency craze becomes increasingly mainstream, and its true impact on institutions and industries becomes increasingly apparent − establishing itself beyond the value of Bitcoin − it will be interesting to see how the value of such companies is determined by the market.
*To explore all other AIM-listed technology and software companies, please proceed to the Sectors section of the website and check out the full list of AIM Software Companies and AIM Technology Companies.