In the past two years, blockchain has quickly established itself as an alternative technology with the potential to transform the way businesses are run. Some have compared its disruption capacity to the effects created by the introduction of artificial intelligence (AI), robotics or big data.
As a key center of a shared economy and distributed trust, blockchain, which has in its early days been mostly associated with cryptocurrencies, could replace intermediaries and the costly bureaucracy tied to millions of daily contracts across the globe. Because of this, the technology has rapidly received the attention of the financial services, banking and legal industries.
Blockchain is essentially a shared database of transactions that are verified by the network’s participating members. This so-called distributed ledger provides highly secure and transparent solutions: from payment systems to voting and smart contracts.
Growth of blockchain
While blockchain adoption is in its infancy, investments in the technology may reach $9.7 billion by 2021, up from $2.1 billion this year, according to some forecasts.1
Right now, we are seeing an exponential increase in the drive to build scalable enterprise blockchain solutions. In a recent Deloitte survey of over 1,000 senior executives, almost half of respondents said they expect their organizations to bring blockchain into production within the next year.2 Over 30% stated that they are already operating on blockchain.
By 2027, 10% of global gross domestic product could be stored on blockchain technology, a World Economic Forum survey has estimated.3
Defining the technology’s leading actors
Still, as with many incipient technologies, it can be difficult for equity investors to know which companies have a real investment and exposure to blockchain; as it is to differentiate between media hype and real opportunity.
To gain accurate exposure to this rapidly evolving and dynamic market, STOXX is launching the iSTOXX® Yewno Developed Markets Blockchain Index. The index stands out for its unique AI-driven focus to select with precision those companies with the most exposure to blockchain.
One way to determine today’s pioneers and tomorrow’s leaders in blockchain is to detect who’s investing most resources in the technology. STOXX has teamed up with Yewno, whose proprietary AI algorithms will be used to detect granted patents related to blockchain intellectual property (IP).
Both innovators – the technology’s designers and developers – and adopters – those harnessing the technology to design blockchain systems for any conceivable use case – file patents.
Discovering concepts and their potential inferences
The index uses a so-called knowledge graph technology that searches for ideas that lead to common connections, thus highlighting information points that might otherwise go unnoticed. This is a more intelligent way to scout across the universe than simply conducting a narrow search led by precise words – such as, for example, ‘blockchain.’
Constructing the Index
Each company in the benchmark STOXX® Developed Markets Total Market Index is assigned a blockchain exposure metric – or how many blockchain-related patents the company has obtained relative to all patents granted to them; and secondly, a blockchain contribution metric – or how many blockchain-related patents a company has successfully registered relative to all blockchain patents granted across developed markets. A combined single blockchain score is then multiplied by the company’s market capitalization to determine its weighting within the index.
At time of launch, companies in the financial-services and telecommunications industries, including Mastercard, Nasdaq and BT Group, were among the top 10 stocks in the index, which will serve as underlying for an exchange-traded fund to be listed on the Canadian market in coming weeks.
This is the second STOXX index based on Yewno’s unique algorithm, following the introduction last January of the STOXX® AI Global Artificial Intelligence Index.
Evolving digital transformation
The newly launched index is part of our growing Thematic Indices family, which has seen strong demand for single-theme indices launched so far: ageing population, automation & robotics, breakthrough healthcare, and digitalization.
The advent of blockchain is shaping up to be yet another chapter in the powerful digital transformation. At STOXX we embrace disruption and constantly explore ways to both enable and exploit new technologies, upholding the transparent and rules-based approach that characterizes all of our indices.
The Blockchain Index is another example of how our clients can use innovative indexing techniques, as well as participate in the upside of the pioneers behind the systems transforming the corporate world and our daily lives.
