Explore the digital asset ecosystem

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A visual guide to investing in the Blockchain ecosystem

Many technologies are qualified as “disruptive”, but only a few can be considered transformational.

One of these technologies is blockchain because it has the potential to permanently change our economic, legal and political systems.

In this infographic from Global X, we give an overview of the entire blockchain ecosystem and take a look at different ways that investors can access it.

Blockchain: a decentralized network

In its most basic sense, a blockchain is a type of database with several unique properties.

One of them is decentralization, which means that neither party has control over the data. To understand why this is important, consider a traditional database where users store their data on a central server. The server is ultimately controlled by a single entity with the power to modify or delete data.

In the event that this authority is compromised, database users can be exposed to great risk. A blockchain, on the other hand, is distributed among many participants in a peer-to-peer network. This means that all users play a role in checking the integrity of the database, as well as checking for new additions.

Additionally, blockchains are designed with an add-only structure. This means that users can only A) search and retrieve data from the blockchain; and B) add more data to the blockchain.

Blockchain structure

A blockchain is made up of “blocks” that contain three elements.

First, there is the data itself. In the case of Bitcoin, this includes all relevant information for a given transaction, such as date and quantity. The second is the block hash, a unique value that identifies the block and its contents.

For Bitcoin, a hash takes the form of a 64-digit hexadecimal number, although it may be different for other blockchains. The following table provides a simple example of how hashes are generated.

Input (block data) Hash function Hash Car -> AW94 42RZ 66TZ Blue car accelerates -> 85ZU I9Y2 RTH2 Red car accelerates -> 5RT8 U1IY 148H

On a given blockchain, hash values ​​will share the same format. Changing the data in a block will also result in an entirely different hash.

The third and final element is the hash of the previous block, and this is what contributes to the “chain” part of the blockchain. This feature makes it nearly impossible for someone to tamper with blockchain data, as their copy of the chain would then conflict with all other users.

The blockchain ecosystem

Owning cryptocurrency is one way to gain exposure to blockchain, but as companies continue to study it, new use cases are emerging. Here is an explanation of the four segments of the blockchain ecosystem.

1. Extraction of digital assets

Digital asset mining consists of companies that process transactions on blockchain ledgers, including Bitcoin. Transaction processing is known as “mining” because participants can receive cryptocurrency as compensation.

From an operations perspective, cryptominers are relatively straightforward compared to other companies. The following table lists the components that a cryptominer needs.

Component Details Network infrastructure Equipment allowing a miner to connect to various blockchain networks. Mining Computers – These computers operate 24/7 to update and verify blockchain records. Internet connection Cryptominers require an Internet connection because blockchains are network based. HVACMining computers should be kept cool for optimal performance. Some miners will move to colder parts of the world to keep costs down. Electricity Electricity is one of the biggest costs for a cryptominer. Many companies are moving to countries where electricity is cheap.

The mining of digital assets requires a significant amount of electricity and has sparked debate in recent years about its environmental impact.

2. Blockchain hardware

Blockchain hardware consists of companies that produce blockchain related equipment.

This includes graphics processing units (GPUs), which are used in computer applications such as rendering and animation. GPUs weren’t originally intended for blockchain use (and have been around much longer), but their high processing speeds make them suitable for mining.

Today, cryptominers are moving to application specific integrated circuit (ASIC) chips that are uniquely designed for cryptomining. Using these chips is essential to maximize hash rate and profitability.

3. Blockchain transactions

The blockchain transactions category includes companies that operate digital asset trading platforms. The segment is changing rapidly as new and existing businesses enter the space.

Company (year founded) Blockchain Involvement Visa (1958) Visa aims to make cryptocurrency more usable through its crypto-linked credit cards. PayPal (1998) The widely used PayPal platform started offering cryptocurrency trading in 2020. Square (2009) Square added Bitcoin trading to its Cash App platform in 2018. Coinbase (2012) Coinbase is the largest crypto exchange in the United States with over 43 million retail users. 4. Blockchain applications and integration

This segment is the largest of the four and includes any software or service that uses blockchain.

In many cases, blockchain can be used to improve our existing industries. Consider IBM Food Trust, a blockchain designed to create a more efficient and sustainable food supply chain.

Blockchain can also be used for more ambitious projects, like creating a metaverse. Although still largely conceptual, a metaverse is a digital world accessed through virtual reality. In it, people could work, play, socialize and consume media.

These virtual worlds would also need their own savings – something in which blockchain could play a big part. Several companies, including the recently named Meta, have been reported to invest billions each year in the development of the Metaverse.

Presentation of the Global X Blockchain ETF

The Global X Blockchain ETF (ticker: BKCH) seeks to deliver investment results that generally match the price and return performance, before fees and expenses, of the Solactive Blockchain Index.

Solactive Blockchain Index Segment Index Weight Digital Asset Mining 47.7% Blockchain Transactions and Digital Assets 24.7% Blockchain and Digital Asset Hardware 13.2% Blockchain Applications 10.1% Blockchain and Digital Asset Integrations 4.3%

Rounded figures. Source: Solactive AG, as of September 30, 2021.

Investors can use this passively managed solution to gain diversified exposure to the blockchain ecosystem.

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