First Trust has launched the First Trust Indxx Innovative Transaction & Process ETF (LEGR US) on Nasdaq, tracking the performance of a basket of companies globally that are associated with blockchain technology.

Blockchain is essentially a network of computers that keep transactions secure in a decentralized database.

Blockchain is essentially a network of computers that keep transactions secure in a decentralized database, or digital ledger, similar to a shared spreadsheet, that the network can see and must approve before it can be verified and recorded. Once recorded, no one person can change it without the agreement of others and it is nearly impossible to tamper with.

Blockchain is the technology that underpins so-called cryptocurrencies, like bitcoin, but it has many more possible uses with the potential to move data of any kind swiftly and securely. A growing number of industries and institutions are looking to embed blockchain technology into their day-to-day processes.

“Although blockchain is still in its early stages, it promises to disrupt a variety of industries, potentially improving efficiency and security, while also reducing or removing the need for intermediaries,” said Ryan Issakainen, senior vice president, ETF strategist at First Trust. “This ETF enables investors to gain exposure to a diversified portfolio of companies that are involved in this cutting edge innovation.”

The ETF is linked to the Indxx Blockchain Index, created and administered by New York-based Indxx. The index construction process sorts the companies into categories based on their exposure to blockchain technology and selects only those companies which have devoted material resources to the use of blockchain technologies or are actively investing resources into products or services that use blockchain technology.

Eligible securities are classified into the following three categories:

Tier One: Active Enablers – Companies actively developing blockchain technology products or systems for their own internal use and for the sale and support of other companies; companies that are direct service providers for blockchain technology; or, companies that have business models that rely on delivering products or services that use blockchain technology. Companies in this category are assigned a score of 1.

Tier Two: Active Users – Companies that are using blockchain technology that is generally supported by an Active Enabler or have at least one use or test case of using blockchain technology. Companies in this category are assigned a score of 2.

Tier Three: Active Explorers – Companies that have publicly disclosed that they are active in exploring the incorporation of blockchain technology into their business or have a press release on their website or a news article stating that they have started working on the blockchain technology space. These companies do not have at least one use case or test case on blockchain technology and are not currently directly incorporating blockchain technology into their business. Companies in this category are assigned a score of 3.

Companies with a score of 1 or 2 are selected for the index and weighted with Active Enablers receiving 50% and Active Users receiving 50%. The selected companies are weighted equally within each category, and the index is capped at 100 constituents. Reflecting the early stages of the blockchain technology theme, there are currently only 67 constituents in the index.

A maximum weighting of 0.5% is applied to constituents in the Active Enabler category with a market cap of less than $500 million, as well as a 20-day and three-month average daily turnover volume of less than $3 million. The index is rebalanced and reconstituted semi-annually.

“Indxx is excited to have developed one of the world’s first indices to provide diversified exposure to the global blockchain space,” said Rahul Sen Sharma, partner at Indxx. “We believe that blockchain is an exciting new technological innovation and our index research and development team is proud to have built an index that effectively targets it via a disciplined and transparent approach.”

LEGR has an expense ratio of 0.65%.