Contrary to its name, Blockchain isn’t a type of blocky gold jewelry, but rather a method of data storage. It’s a highly cutting-edge technology full of opportunities for investors to make money.
How to Invest in Blockchain
- Blockchain Stocks
- Blockchain ETFs
- Blockchain Startup Funding
- Buying Bitcoin
From banks to hospitals to trucking companies, organizations need to store data. You may not be old enough to remember the days when company data was compiled on paper records and stored in filing cabinets, but with the rapid expansion of data around the globe, paper record keeping is not only tiresome, but insufficient.
Digital solutions are needed for recording transactions and exchanges, whether they take place in the context of a financial institution or a food delivery app that leverages user data to recommend restaurants. Everywhere you look, blockchain solutions are the future.
What is Blockchain Technology?
Blockchain is a digital ledger of transaction. It is not stored in one central location, but instead, replicated across many different nodes. Transactions are compiled into blocks, and these blocks are linked together to form a data chain that cannot be altered. Because information stored in blockchain is decentralized, if there is an error in the record, it will be corrected by referring to other identical nodal points within the blockchain. Because of this, blockchain is pretty much incorruptible and extremely secure.
This is in contrast to the old method of storing information on a database. A traditional database tends to be located in one central location, like a server. If the server is compromised in a cyber attack or physical disaster (flood, earthquake, etc.), then the data is at risk—whatever that data might be; banking information, medical records, or supply chain logistics.
Additionally, in a traditional database, the data itself can be changed. This is not true in blockchain solutions, as finished blocks cannot be altered.
As you can imagine, blockchain technology presents an attractively more secure option for organizations that need to store information. And in today’s world, that pretty much means every organization. Data has become a critical element in a world where businesses offer tailored solutions to their customers—from a retailer recommending store items they might like to an investment firm giving advice to a banking customer.
One downside to the ubiquitous amount of accumulated data is the security risk it presents, but blockchain’s secure paradigm can secure every single transaction in the ledger and eliminate the vulnerability of a centralized data location and its susceptibility to cyberattack.
What’s the Relationship Between Bitcoin and Blockchain?
Bitcoin is a type of digital currency, and the record of all transactions made with Bitcoin are stored on a blockchain. The decentralized nature of its blockchain means that this P2P (peer to peer currency) does not need a central agent, like a central bank or government, to monitor transactions and keep a record of them.
The Bitcoin blockchain is secured by Bitcoin mining, which not only verifies the ledger of transactions, but also creates new Bitcoins in the process. Bitcoin mining is done using computers that can crack complex mathematical problems. Over time, as the blockchain grows, the computations involved in Bitcoin mining become more complex, and more powerful machines are needed to solve the problems they present.
As these computers need massive amounts of energy, Bitcoin mining has, in recent years, begun to present an environmental concern for some lawmakers. It will be interesting to see how this pans out in the future, but either way blockchain as a principle beyond cryptocurrency transactions is here to stay.
How to Invest in Blockchain
Now that we’ve explained what blockchain technology is and how it is used in cryptocurrency, let’s talk about the various ways you can invest in it:
1. Blockchain Stocks
Blockchain stocks include any company that manufactures the hardware needed for the blockchain, the software that services it, or any connected services. That could include companies like Nvidia (hardware) or Mastercard (facilitating credit card payments).
As you are likely aware, everyone from institutional investors (like a hedge fund) to retail investors (most people reading this article) can participate in the stock market, but stocks do have a higher degree of volatility than other investments. Investors who do not understand how to analyze indicators, like market capitalization, are better off avoiding newer companies in the blockchain investment space and sticking to established companies that are already involved or will be involved in blockchain, such as IBM and Texas Instruments.
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2. Blockchain ETFs
It can be difficult to select the right stocks to buy among the many choices on the stock market, which is why mutual funds present an attractive option for retail investors, as does an exchange traded fund (ETF).
An ETF is a sort of mutual fund that can be purchased in shares bought and sold on the market, just like a stock. Similarly, it’s value is a diversified portfolio along one type of index.
A mutual fund is a large pool of money contributed by different investors who receive a return according to the amount of money they’ve invested in the mutual fund. An ETF is similar, but you don’t put money into an ETF—you buy shares, which can grow or shrink in value.
A Blockchain ETF is a diversified assortment of companies involved in the creating, servicing, or selling Blockchain technology. Three of the most popular Blockchain ETFs are (fittingly) named BLOK, BLCN, and LEGR. The top holdings in these ETFs are MicroStrategy, Galaxy Digital Holdings, and Oracle.
3. Blockchain Startup Funding
Is there anyone in your personal or professional network who is in the tech industry? If so, the chances are high that you can connect with someone who is looking for private investors for their blockchain company.
This type of equity investment will often allow you to retain a share in the company, and if the business works out, it could be a very lucrative source of passive income. Business ownership is an asset class that most investors do not get to experience, but these days, with so many startups on the map, it could be easier than ever to get a share of business ownership into your investment portfolio.
If you are going to invest in a Blockchain startup (or any startup), it’s always a good idea to get a thorough business plan—one that highlights the market, need, competition, potential hurdles, and projects future earnings—and give it to someone trustworthy to review and provide their informed opinion. If everything checks out, getting a slice of the pie in a blockchain project could be a lucrative and exciting opportunity.
These days, even everyday retail investors can join startups through crowdfunding sites like Kickstarter and Microventures. Many startup companies will also advertise on social media platforms that they are looking for investors.
While some blockchain startups will have minimum investment amounts that are beyond the disposable cash thresholds for many people, some platforms facilitate crowdfunding from a larger assortment of individuals by lowering the minimum investment amount to a fairly nominal number, such as a few hundred dollars.
If this idea intrigues you, all you really need to do is click on one social media ad from a company looking to crowdfund investments or a platform that provides a crowdfunding marketplace. The algorithm in your social media feed will start showing more ads for similar opportunities, and you can keep on looking through them until you find one that seems right.
5. Buying Bitcoin
Purchasing cryptocurrency is another way to invest in blockchain technology. Many investors like to buy and sell Bitcoin, much like they would buying and selling stocks. Unfortunately, trading cryptocurrency doesn’t include the benefits unique to Wall Street, such as special treatment from the IRS in terms of day trading taxes.
Cryptocurrency can also be bought and held for the long term by storing it in a secure digital wallet, either in a cloud, or in a physical location, like a hardware wallet. Bitcoin is not the only kind of digital currency—there are many others, though Bitcoin is the most popular.
Virtual currency began as a way to replace fiat currency (that is, paper currency backed by a central bank). though, the crypto market has surpassed that now, with many retail investors using it as an alternative investment vehicle.
A crypto exchange, like Coinbase, is a great venue for acquiring digital currency, and sometimes getting in on a new type of digital currency with an initial coin offering.
What Industries will Benefit from Blockchain?
Nearly every industry will benefit from Blockchain because it’s a more efficient and more secure way of storing data. The vast majority of businesses need some sort of data storage solution, and blockchain technology can fulfill that need.
However, if you’re looking to invest in blockchain now and wondering which industries will adapt first, it will likely be banking, healthcare, logistics, supply chain, and data storage. Any companies that manufacture hardware will also be a boon to investors.
Also keep a lookout in the news for developments around the digital dollar and the already-extant digital yuan because once governments and their central banks create their own forms of digital currency, you can bet that they will outsource most of the work to contractors from the private sector, such as Accenture and Taiwan Semiconductor.
Blockchain Technology Offers Many Investing Opportunities
Whether you are looking for short term investments that capitalize on market movement or long term investments capitalizing on growth, blockchain is an exciting space in the world of investing.
Blockchain technology is so essential, it is likely to be a pervasive force in every industry. And while blockchain was invented as a way to facilitate the use of digital currency, it has become a paradigm for data storage that is more secure and efficient than storing data in one centralized location. This means that just about every industry will be using some form of blockchain technology in the near future.
It’s important to keep up on market news in order to know which companies are developing, building, servicing, or selling blockchain tech, allowing you to focus your investments on blockchain-related spaces that have the highest rate of return. Whether that means blockchain stocks and ETFs, blockchain startup funding and crowdfunding, or just buying a regular old digital currency—the opportunities for capitalizing on this new tech are only just beginning.
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