The bitcoin cryptocurrency disappointed many investors before the end of 2017 when it lost nearly 70% of its value right after reaching a peak of US$20,000. A more promising story, though not as dramatic, seems to reside in blockchain, the underlying and much larger technology driving the bitcoin juggernaut.
Blockchain is destined to find its way into many more applications and businesses, from securities trading in finance and account processing in banking, to component-tracking inside industrial supply chains, and energy contracts between utility companies.
"It has a great potential to displace and disrupt; some announce it as the second coming of the Internet, offering similar opportunities," says Raj Lala, president and CEO of Evolve Funds Group Inc. in Toronto, which on March 6 will launch Evolve Blockchain, an exchange-traded fund listed on the Toronto Stock Exchange under the symbol LINK.
That potential could give rise to thousands of applications in countless areas, especially when you take into account the multiplication of interactions opened up by the Internet of Things.
Blockchain is characterized as a "distributed ledger technology," or DLT, explains Jerry Norton, a consultant with CGI in London, UK. Its kernel is a very prosaic application, somewhat of a sophisticated Excel spreadsheet, or an accounting ledger, in which you simply record titles or transactions. The interesting part is what happens around this ledger -- essentially its security components.
It is distributed, meaning that processing, data and security are not concentrated in one locus, but scattered in bits and pieces between many nodes that can number in the hundreds or thousands. Such scattering allows for heightened stability and security. If one or a few nodes fail, the network is not compromised.
As for security, blockchain is often presented as being impenetrable. Though this is an exaggeration, blockchain is extremely resilient. "For information to be compromised, an assailant would need to control at least 50% of all the servers in the network," says Theo Stratopoulos, associate professor of information systems at the school of accounting and finance at the University of Waterloo. This is not an impossible task, but extremely challenging.
This sturdy architecture forms what the Economist called a "trust machine." Transactions cannot be tampered with, as the bitcoin application shows. With blockchain, Norton points out, "I can prove that you've received a document, that you still have it and that you haven't presented it to anyone else."
All of the above give blockchain tremendous disruptive power, especially in industries built on trust like banks, clearinghouses, government bodies and intermediaries of all sorts. A 2016 PwC report predicted that by 2020 blockchain would pose a risk to 20% of financial-services industries.
Until this year, blockchain remained a work in progress. Despite more than US$2.1 billion in venture-capital backing since 2012, according to a CB Insight report, all announcements related to trials, making the technology's future still hypothetical.
But 2018 seems to be the year when the promises will come to fruition. R3, the most visible project, announced in the third quarter of 2017 that it would "release a production-ready version of its enterprise software, Corda, within the next few months," according to the aforementioned CB Insight report.
Stratopoulos, who has been tracking the evolution of blockchain for a number of years, sees many signs indicating that the technology will soon unfold in specific implementations. For example, the number of books dealing with the technical intricacies of blockchain, says Stratopoulos, has increased by 400% between 2016 and 2017. This is "a very good indicator of new technology adoption," he adds. "Software companies are reaching the point where they will deliver something."
Because of security concerns, blockchain isn't quite ready for prime time. "The security of blockchain is what a lot of potential users are still investigating," says Stephen Carlin, managing director and head of equities at CIBC Asset Management Inc. in Toronto and manager of CIBC Global Technology. "The key is safety," he adds. "The present framework is promising, but it is still an evolving technology. We feel that we are still in the early days of adoption. So I'm not comfortable to say that it's the best thing since sliced bread, but it is promising."
And let's not forget the regulatory hurdles. "Given that major cryptocurrencies (like bitcoin) have often been used for illicit black-market transactions, regulatory clarity could be an uphill battle," according to CB Insight.
That's why the CIBC technology fund doesn't invest directly in blockchain through startups, but rather indirectly by purchasing shares of companies that participate in the technology's growth, mostly at the level of computing power. The fund holds shares in companies like 
NVIDIA Corp. (NVDA), a graphics-processor maker, and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), a chip manufacturer, that have exposure to blockchain.
Evolve's ETF will be an actively managed global fund that will have broad exposure to the blockchain theme. It will invest directly in developers and enablers of the technology, but that's not all. Its holdings will also include shares of multinational companies "that have dedicated resources to develop blockchain for their own business needs or for external implementations," says Evolve's Lala.
The market capitalizations of blockchain companies are small, Lala adds. Most companies are in start-up mode, reinvesting their revenues to build their businesses. "The IBMs and Microsofts of this world have made more progress on blockchain than the startups, but it's not a massive part of their global business." Some startups in this space include Hive Blockchain Technologies Ltd. (HIVE), based in Vancouver; Change Financial Ltd. (CNGFF) of Los Angeles; and Toronto-based CryptoGlobal Corp. (CPTO).
The first blockchain ETF in Canada is Harvest Portfolios Group Inc.'s Blockchain Technologies (HBLK), which began trading on Feb. 7. It is designed to track a blockchain-technologies index that the Oakville, Ont.-based firm has developed. The constituents of the proprietary index are companies that are exposed to the development and implementation of blockchain.
Unlike the bitcoin network, which is public, most blockchain applications will be internal corporate private networks, Stratopoulos predicts. These will not be accessible to investors, unless a publicly traded operator of many networks emerges.
The blockchain sector at this point can best be described as speculative, as indicated by Evolve's "high risk" rating for its upcoming ETF. As an investment opportunity, blockchain promises to be far larger than cryptocurrencies, but it is still too early to know if it will take off. "My only hope," says Stratopoulos, "is that it will not be a bubble like bitcoin."
