Many investors might recognize blockchain as the technology behind many popular cryptocurrencies like Bitcoin and Ethereum. But its application extends across a variety of industries and services too.
Blockchain is essentially a string of information or “blocks” recorded on independent computers and shared across a shared network. Each block of data is frozen in time on an open ledger for all participants to access. This feature makes blockchain technology especially useful in industries where security is paramount, such as banking.
As a retail investor, here’s how you can access blockchain as a diversification tool for your portfolio using exchange-traded funds (ETFs). But first, let’s review the basics of this emerging innovation.
What is blockchain technology?
To understand blockchain, you first need to review the purpose of the technology.
Blockchain was created to reduce the risk of fraud, corruption, or the tarnishing of data by a central authority. In essence, it makes it nearly impossible for any participating parties to manipulate information by decentralizing how data is stored. Maintaining records on an open ledger solves this issue.
In the blockchain model, a network of independent computers is linked by a shared database and operates on the same software system. Once new information becomes available, it is recorded in the open ledger as a block of data. Everyone has access to an identical record.
Before updating, the system ensures any new data is correct by checking the validity of incoming information across its chain of blocks. By linking data and making