Blockchain is a buzzword you’ve probably run into a lot in recent years. This technology powers Bitcoin – which is now worth nearly $350 billion – as well as the entire universe of thousands of cryptocurrencies. As digital currencies gain traction, blockchain technology is only going to become more prevalent and more important for investors.
So, what is blockchain and how do you invest in it? In this guide we’ll take a thorough look at this technology. We’ll explain everything you need to know so you can learn exactly how to invest in blockchain.
What Is Blockchain?
Blockchain is a type of digital technology used to securely store information. It’s effectively a digital history of transactions that is copied across every computer on a network and made public in the process. Every time a new transaction is added to the blockchain, that transaction is also copied to every computer on the network.
The exciting thing about blockchain technology is that it’s not just secure – it’s also decentralized. That means that no one “owns” a blockchain. The ledger it represents is public and cannot be controlled by any individual or group. Once a transaction is added to a blockchain, it can never be changed or removed. In addition, since a blockchain is decentralized, users don’t have to give up any personally identifying information to make transactions, like you would at a traditional bank.
Blockchain technology was first introduced in 2009, with the arrival of Bitcoin. Bitcoin is secured by a blockchain, and it nicely demonstrates how blockchain technology works. Individuals can send and receive Bitcoin completely anonymously from anywhere in the world, without oversight or transaction fees from governments or banks. Once these transactions are recorded to the Bitcoin blockchain, they are permanent and unchangeable.
Why Are Investors Excited About Blockchain?
Blockchain has generated enormous excitement among investors in recent years. The rise in the price of Bitcoin is just one sign of this enthusiasm. At the same time, investment into other cryptocurrencies built on blockchain technology and companies that are involved in blockchain technology has expanded dramatically.
So, why are investors so excited? Applications built using blockchain are completely decentralized, completely transparent, and completely secure. This technology has potentially groundbreaking applications in several key areas:
Financial Transactions
Bitcoin proved that it’s possible for a currency to exist without government support, without banks, and without physical currency. It’s also made transferring money to anyone, anywhere in the globe instant and free. All that’s needed is an internet connection. That has huge implications for the global financial system and the flow of money between countries. Blockchain technology is also enabling things like lending and investment without a bank.
Security
One of the biggest issues facing digital applications today is that it’s almost impossible to secure systems against dedicated hackers. Blockchain, on the other hand, is completely secure. The technology could potentially be used to move all sorts of sensitive information online, including social security information, car titles, voter records, and corporate trade secrets. Once online and secured with blockchain, all of this information could be shared securely or transferred as needed.
Management
Blockchain also offers applications for various forms of management, including inventory and supply chain management. With blockchain, it’s possible to automatically and securely track the movement of goods and services, for example. Anyone on the blockchain network has access to the information and can see the entire record of past movements.
How To Invest In Blockchain
There are a couple different ways that you can invest in blockchain technology. The most common is to invest in cryptocurrencies like Bitcoin, which are based on blockchains. An increasing number of brokerages now offer investors access to Bitcoin as well as other popular cryptocurrencies. Alternatively, you can invest in Bitcoin through a Bitcoin investment trust, which operates like a stock for Bitcoin (an example is the Grayscale Bitcoin Trust, ticker symbol GBTC).
In addition, there are now more than 3,000 cryptocurrencies on the market. If you want to invest in a lesser-known cryptocurrency, you can turn to a cryptocurrency exchange like Coinbase or Binance. These allow you to easily convert dollars into any of thousands of blockchain-based cryptocurrencies.
However, as we noted, blockchain technology is bigger than just enabling cryptocurrencies. If you want to invest in the entire blockchain space, look for companies that are developing broad-based blockchain technology applications for businesses. Intel and IBM are two well-known companies working hard at bringing blockchain applications to traditional businesses. There are also plenty of small companies, many of them penny stocks, working to develop blockchain for mainstream use.
If you want broader exposure to blockchain-related stocks and technology, consider a blockchain ETF (exchange-traded fund). Options include the Reality Shares NASDAQ NexGen Economy ETF (ticker symbol BLCN) and the Amplify Transformational Data Sharing ETF (ticker symbol BLOK).
Caveats For Blockchain Investing
Any new technology is risky, and blockchain is especially so. Although this technology has a lot of promise, there has also been a lot of hype around it. Many blockchain applications are still theoretical and there are no guarantees that they will work or that they will displace existing systems.
In addition, while well-known cryptocurrencies like Bitcoin are “safe” in that they’re not outright scams, there have been plenty of examples of lesser-known cryptocurrencies turning out to be scams. Always do your research before investing directly in any cryptocurrency. It’s also important to keep in mind that cryptocurrencies don’t have any physical assets, banks, or government backing them. The value of a cryptocurrency at any given time is only what people are willing to pay for it.
You should be equally cautious about investing in penny stocks related to blockchain technology. Penny stocks are risky on their own, and adding in an unproven technology that’s difficult for many investors to understand is a recipe for disaster if you’re not careful.
Perhaps most important, be ready for volatility if you invest in blockchain technology. While investors are excited about blockchain now, any drop in enthusiasm could send prices for cryptocurrencies or penny stocks spiraling. If you want to invest in blockchain, you’ll need to have a strong stomach for short-term price fluctuations.
Conclusion: Investing In Blockchain
Blockchain is a technological breakthrough with enormous implications for how the world works in the years ahead. Already, the introduction of cryptocurrencies based on blockchains have upended traditional financial markets and investors are very excited about the other potential applications of this technology.
Individual investors have several options for investing in blockchain, including buying cryptocurrencies or blockchain-related stocks. If you do want to invest in blockchain, it’s important to be aware of the risks involved and to thoroughly research the asset you’re investing in.
