Investments 

Why blockchain should matter to advisers

  • To understand what bitcoin and blockchain is.
  • To ascertain the pros and cons to blockchain.
  • To learn how this can help fund transactions in the future
CPD
Approx.30min
Why blockchain should matter to advisers

The internet is awash with talk about blockchain and what it is able to do for us.

For advisers, blockchain has relevance due to its many potential functions in financial services and in its underpinning of digital currencies or cryptocurrencies.

As is customary for an emerging technology, there is a great deal of hype surrounding blockchain. It is important to understand its significance beyond the echo-chamber of tech speculation and appreciate the real-world applications of the technology, many of which can create real value for clients.

There are implications of Bitcoin for the financial world, especially as blockchain, the technology which lies behind Bitcoin, is becoming a force for change in itself.

Bitcoin

By far the most established and well-known use of blockchain is the digital currency Bitcoin.

Nowadays, anything 'digital' suggests an inherent vulnerability to hackers and malicious groups – however, Bitcoins are extremely difficult to compromise due to the security-by-design that the blockchain provides.

Blockchain enables transactions to be verified because each transfer of Bitcoin takes place on a globally distributed shared computer network and mathematical proof is created when a sender or recipient does something with their coins.

Some 51 per cent of the computers on the global distributed network need to agree that the contract rules of any given transaction have been followed before the transaction can be enacted and recorded (referred to as ‘consensus’ in techno-speak).

It's worth noting here that bitcoin uses 256 bit numbers key encryption for each transaction. It would take a high proportion of world GDP in just electricity costs alone to brute-force break a single 128-bit encrypted key – the security of the blockchain enjoys a very high level of confidence by cryptologists.

For this reason, some commentators compare the blockchain technology behind Bitcoin to the invention of the double-entry bookkeeping system – there is no way to duplicate the coins, and stealing from someone’s Bitcoin transaction within the blockchain is virtually impossible.

The stability of the Bitcoin’s fundamental technology is not mirrored by its price: although steadily rising, the currency has proved to be wildly volatile. It has soared from $0.06 (£0.04) per coin (July 2010) to a recent peak of over $3,018 (£2,342) (June 2017), with occasional fluctuations of $200-$500 (£155-£388) over several weeks. 

At present, the roller-coaster Bitcoin exchange rate is due in part to it being a private currency with no central bank control over the money supply.

Consequently, as demand increases or decreases, there will be large volatility swings driven by short-term speculators in conjunction with long-term investors betting on it being an appreciating store of value.

This is all while being driven by real commercial long-term demand for the currency as described further on.

Conservative investors should acknowledge however that the long-term demand usage growth is very real and that Bitcoins are increasingly being used to invest in real assets such as property.

CPD
Approx.30min
  1. What do some people compare the technology behind bitcoin to?

  2. How does Mr Abell describe the exchange rate of bitcoin?

  3. What is the example of a real asset that bitcoin can be used to buy, according to Mr Abell?

  4. What is the main issue currently with ICOs, according to Mr Abell?

  5. Mr Abell says home-owners will be able to trade parcels of their asset as a securitised commodity on blockchain-enabled property exchanges. True or False?

  6. According to Mr Abell, what could eventually be usurped?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand what bitcoin and blockchain is.
  • To ascertain the pros and cons to blockchain.
  • To learn how this can help fund transactions in the future

I completed this CPD in

To bank your CPD please complete the form below.

What did you learn from undertaking this CPD exercise?

Why did you undertake this piece of learning?

Banked!

Congratulations, you have successfully completed and banked this piece of CPD

Already Banked!

You have already banked for this article.

To bank your CPD you must or

Register

One or more questions have been incorrectly answered,
 please review your answers and try again.

Please enter what you have learnt and why you completed this CPD.

More Investments CPDSee my completed CPDSee all CPD

Comments