A Visual Guide to Investing in the Blockchain Ecosystem
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A Visual Guide to Investing in the Blockchain Ecosystem

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The following content is sponsored by Global X.

Visual Guide to Investing in the Blockchain Ecosystem

BKCH ETF BKCH ETF Holdings

A Visual Guide to Investing in the Blockchain Ecosystem

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

One such technology is blockchain, because it has the potential to permanently change our economic, legal, and political systems.

In this infographic from Global X, we provide an overview of the entire blockchain ecosystem, and look at some different ways investors can gain access to it.

Blockchain: A Decentralized Network

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

One of these is decentralization, which means no single party has control over the data. To see why this matters, consider a traditional database where users store their data on a central server. The server is ultimately controlled by a single entity with the authority to modify or delete data.

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

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

Blockchain Structure

A blockchain is made up of “blocks” which contain three items.

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

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

Input (the block’s data)Hash functionHash
Car-->AW94 42RZ 66TZ
The blue car was speeding-->85ZU I9Y2 RTH2
The red car was speeding-->5RT8 U1IY 148H

On any given blockchain, the hash values will share the same format. Modifying a block’s data will also result in an entirely different hash.

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

The Blockchain Ecosystem

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

1. Digital Asset Mining

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

From an operations perspective, cryptominers are relatively simple when compared to other businesses. The following table lists the components a cryptominer needs.

ComponentDetails
Network infrastructureEquipment that allows a miner to connect to various blockchain networks.
Mining computersThese computers run 24/7 to update and verify blockchain ledgers.
Internet connectionCryptominers require an internet connection because blockchains are network-based.
HVACMining computers must be kept cool for optimal performance. Some miners will locate in colder parts of the world to minimize costs.
ElectricityElectricity is one of the biggest costs for a cryptominer. Many companies locate in countries where electricity is cheap.

Digital asset mining requires a significant amount of electricity and has sparked debate in recent years over its environmental impact.

2. Blockchain Hardware

Blockchain hardware consists of companies that produce blockchain-related equipment.

This includes graphic processing units (GPUs), which are used in computing applications such as rendering and animation. GPUs were not originally intended for blockchain use (and have been around for much longer), but their high processing speeds makes them suitable for mining.

Today, cryptominers are transitioning to application-specific integrated circuit (ASIC) chips that are solely designed for cryptomining. Using these chips is critical for maximizing hash rate and profitability.

3. Blockchain Transactions

The blockchain transactions category includes companies that operate digital asset trading platforms. The segment is quickly evolving 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)PayPal’s widely-used platform began offering cryptocurrency trading in 2020.
Square (2009)Square added Bitcoin trading to its Cash App platform in 2018.
Coinbase (2012)Coinbase is America’s largest crypto exchange with over 43 million retail users.

4. Blockchain Applications & Integration

This segment is the broadest 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, such as creating a metaverse. While still largely conceptual, a metaverse is a digital world which would be accessed via virtual reality. In it, people would be able to work, play, socialize, and consume media.

These virtual worlds would also need their own economies—something blockchain could play a big role in. It’s reported that several companies, including the recently-named Meta, are investing billions each year in metaverse development.

Introducing: The Global X Blockchain ETF

The Global X Blockchain ETF (Ticker: BKCH) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Blockchain Index.

Segment of Solactive Blockchain IndexIndex Weight
Digital asset mining47.7%
Blockchain & digital asset transactions24.7%
Blockchain & digital asset hardware13.2%
Blockchain applications 10.1%
Blockchain & digital asset integrations4.3%

Figures rounded. Source: Solactive AG, as of September 30th, 2021.

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

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Ocean Economy: The Next Wave of Sustainable Innovation

This graphic explores how the $1.5 trillion ocean economy can help fight against some of the toughest challenges facing the world today.

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Ocean Economy: The Next Wave of Sustainable Innovation

Roughly 21–37% of total greenhouse gas (GHG) emissions are attributable to our current food system, which includes conventional agriculture and land use according to the latest IPCC report.

With the global population rising and more mouths to feed, now is the time to reconsider how we can tap into our global resources to build a more sustainable food system.

This infographic from Billy Goat Brands (CSE: GOAT) (“GOAT”) explores how the ocean economy—also referred to as the blue economy—plays a vital role in our fight against climate change and other environmental challenges facing the world today.

What is the Ocean Economy?

The ocean economy is described as the sustainable use of the ocean and its resources for economic development and ocean ecosystem health.

The global economic output of the ocean economy is $1.5 trillion each year. Here is an example of some of the activities and sectors that make up the ocean economy today:

ActivityRelated Sectors
Harvesting of living marine resourcesFisheries
Aquaculture
Harvesting of non-living marine resources 
Marine biology
Mining
Oil & Gas
Transport and trade
Tourism
Maritime transport
Shipping and shipbuilding
Coastal development
Renewable energy
Renewables (wind, wave, tidal energy)
Indirect economic activities
Carbon sequestration
Coastal protection
Waste disposal
Biodiversity

Financing ocean-related economic activities will ensure the future sustainability of this vital resource, and help combat threats that pose a risk to humanity, such as overfishing, pollution, and habitat destruction.

However, some experts say that there is insufficient private and public investment in sustainable ocean economy activities.

The Investment Opportunity

Investors have a unique opportunity to drive change through companies innovating in the ocean economy and be part of the solution.

  • The ocean could provide six times more food than it does today.
  • Seafood continues to be the fastest growing sector by 2030 with only 60% of fish available for consumption.
  • The ocean economy provides a smaller carbon footprint compared to conventional agriculture.

The potential for economic growth will only continue to grow, presenting investors and institutions with a chance to add value at this crucial stage of development while making a real and tangible impact.

In fact, investing $1 in key ocean activities can yield at least $5 in global benefits—a number that will continue to rise over the next 30 years according to a World Resources Institute report.

The report also states that investing between $2 trillion and $3.7 trillion globally across four crucial areas could generate between $8.2 trillion and $22.8 trillion in returns by 2050. These four areas are:

  1. Restoring mangrove habitats
  2. Scaling up offshore wind production
  3. Decarbonizing international shipping
  4. Increasing the production of sustainably sourced ocean-based proteins

An Ocean of Possibilities on the Horizon

Plant-based alternatives will play an important role in alleviating the pressure on ocean resources, and technological innovation has been pivotal in creating imitation products for the consumer market.

GOAT provides diversified exposure to expansion-stage companies that contribute to the ocean economy through innovative food technologies, functional foods and plant-based alternatives.

“We believe that plant-based seafood alternatives should be available for everyone, everywhere. That’s why we spent years creating a seamless experience that’s nearly indistinguishable from their animal-based counterparts.”
—Mike Woodruff, CEO Sophie’s Kitchen

Sophie’s Kitchen is one of GOAT’s investee companies and a leading California-based manufacturer and distributor of disruptive plant-based seafood alternatives.

Go to billygoatbrands.com to learn more about investing in the ocean economy today.

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Impact Investing: Building a Better World

While investors often focus solely on returns, impact investing introduces a way to also tackle global environmental and social problems.

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Typically, an investor’s main objective revolves around building wealth and then turning that wealth into an income generator. As a result, financial returns are accepted as the default performance metric.

But what if investing could also address the world’s most pressing social and environmental problems?

More Than Investing

This infographic from BlackRock introduces the concept of impact investing and explains why it can be a force for good.

impact

BlackRock Impact Investing

What Does Positive Impact Look Like?

Impact investing is a sustainable investing approach that combines the intention to generate positive returns with positive, measurable social and environmental outcomes.

To understand what these outcomes actually look like, here are some highlights from the companies that the BlackRock Impact Team invests in.

  • 102,000 GWh of renewable energy generated
  • 11 million metric tons of food waste mitigated
  • 114 million individuals empowered with access to financial services
  • 99 million people given access to clean drinking water
  • 600,000 families given access to affordable housing
  • 1.8 billion patients given access to affordable healthcare

These outcomes were generated in 2020, and help to make our world a better place.

The Three Pillars of Additionality

For impact investing to be an effective strategy, investors must be able to accurately measure the positive outcomes their capital is helping to create. A company may claim to be aligned with the UN Sustainable Development Goals (SDGs), but its actions may not be making a real world difference.

“Alignment to the SDGs is not enough to qualify as impact; we require that companies advance the SDGs by providing a solution that is additional, thereby creating genuine impact.”
-Quyen Tran, Director of Impact Investing at BlackRock

Below is an overview of the three pillars of additionality that BlackRock uses to measure impact. In this context, additionality means an outcome would not have occurred without the company’s contribution.

1. Additionality From the Investee (the company)

A company provides additionality if its products and services address a need that is unlikely to be fulfilled by others. The primary sources of company additionality are:

  • The application of leading technologies
  • The deployment of innovative business models
  • The delivery of products and services to underserved populations

Helping underserved populations is a powerful way to create impact. In 2017, for example, it was estimated that 1.7 billion adults did not have a bank account.

2. Additionality From the Investor

Investors can also provide additionality by empowering businesses to create positive impact. This can be done through five mechanisms:

  • Invest with a long-term ownership mindset
  • Engage with companies to help enhance their impact outcomes
  • Invest capital when an impact company needs to raise more capital
  • Bring much-needed visibility to undervalued impact companies
  • Create a better marketplace for impact companies looking to go public

The effects of these mechanisms are already being seen worldwide, especially as awareness of environmental, social, and governance (ESG) factors rises. According to a 2020 report by KPMG, 80% of companies now publish sustainability reports.

3. Additionality From the Asset Class

Even with the help of private investments, the world faces a multi-trillion-dollar shortfall in its quest to meet the UN SDGs by 2030. Public equities have the ability to shrink this gap by moving capital towards enterprises that are solving the world’s greatest challenges.

MarketValue
Private market impact investing$0.5T
Private markets$5.3T
Public equities$93.0T

Source: McKinsey & Co (2019), BlackRock (2020)

At $93 trillion in total value, public equities are roughly 20 times larger than private markets.

Building a Better World

Solving today’s greatest challenges often requires innovative solutions. Consider the fact that many regions suffer from a lack of doctors.

RegionDensity of Physicians
Europe1 for every 293 people
Americas1 for every 417 people
Southeast Asia1 for every 1,239 people
Africa1 for every 3,324 people

Source: World Health Organization (2021)

An impact investing strategy will seek out companies whose products or services can help to alleviate this shortage. For example, the BlackRock Impact Team has identified a medical software company whose platform lowers administrative costs and increases productivity.

Cybersecurity is another area where investors can help create positive change—according to McAfee, cybercrime has become a $1 trillion drag on the global economy.

This risk disproportionately affects small and mid-sized enterprises (SMEs) because they have limited resources to protect themselves. Cybersecurity companies that specialize in servicing SMEs can help protect this important part of the economy.

The Time is Now

Impact investing is not limited to a single theme. Around the world, various social and environmental issues are capturing the attention of governments and society. Ultimately, what’s needed are innovative solutions.

“If your savings can earn a strong return invested in companies that are doing good for the world, why would you invest any other way?”
—Eric Rice, Head of Active Equities Impact Investing at BlackRock

By directing capital to the right companies, investors have the potential to generate financial return while building a better world.

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