There’s a lot of confusion out there about blockchain. Most people want to invest in blockchain and get confused when they get cryptocurrency recommendations. The fact is, they’re very closely related. Crypto is often the best way to get blockchain exposure in your portfolio. But it’s not the only way. To invest in blockchain, you need to understand what it is and why it’s such an important technology. When you do, you’ll be able to make an informed decision about how to add a blockchain investment to your portfolio.
Without getting into the finer details of how it works, here’s a look at blockchain from an investment standpoint. Get familiar with blockchain as a concept, outside of crypto. Once you do, you’ll have no trouble seeing its potential as a revenue driver for your portfolio.
What is Blockchain?
Blockchain is a database system used to keep records. It works via a decentralized ledger system, which records transactions in a way that makes them infallible. Every new transaction validates the one before it, so no one can change or alter the record—if they did, it would invalidate all other records after it. Validating transactions is as easy as comparing distributed versions of the ledger. If they match up, it’s valid; if not, there’s an error.
This is, of course, an extreme simplification. Blockchain is incredibly complex. It’s a system many are still struggling to understand, and we’re still learning how to utilize it for different scenarios and settings. The biggest and best example is one you’re likely already familiar with: cryptocurrency.
Why Are Blockchain and Crypto so Closely Related?
Blockchain and crypto go hand-in-hand because crypto is the first authentic application of blockchain technology. Bitcoin, the original cryptocurrency, was born from blockchain. Today, every bitcoin transaction gets registered on the ledger, which is what makes it a secure currency investment option. Blockchain is self-governing, which allows Bitcoin and other cryptocurrencies to remain decentralized. Today, we have dozens of cryptocurrencies and tokens, each operating on its own blockchain.
Ways to Invest in Blockchain
If you’re mesmerized by the complexity of blockchain and want to invest in it, there are a few ways to do so. Unfortunately, most of them are through secondary exposure. Why? Because no one owns blockchain technology and it’s not a tangible asset. You can’t own blockchain—only the product of blockchain-enabled technologies.
- Cryptocurrencies: This is as close as you’ll come to investing in blockchain. Whether it’s Bitcoin, Dogecoin or Ethereum, each of these crypto assets is a product of blockchain in action.
- Crypto brokers: With the recent direct listing of Coinbase, it’s now possible to invest in a cryptocurrency brokerage. This gives you peripheral exposure to blockchain in its biggest market.
- Blockchain innovators: There are dozens of companies experimenting with blockchain right now. Big names like IBM (NYSE: IBM), Amazon (Nasdaq: AZMN), Intel (Nasdaq: INTC) and others are working hard to bring new blockchain innovations to market.
It’s likely more blockchain investment opportunities are just around the corner. As blockchain (and cryptocurrencies) gain steam, investors will find new and creative ways to get exposure to this major technological advancement.
Which Industries Will Benefit From Blockchain?
If you’re looking for sectors poised to boom big from blockchain, there are a few worth looking at. Namely, healthcare, finance, energy and defense. The security and complexity of blockchain lends itself to everything from fintech to contract security. Savvy investors should look to these sectors for companies experimenting with blockchain opportunities.
The truth is, almost every industry will benefit from blockchain in some way eventually. This is a once-in-a-generation, world-changing technology. In the same way cloud computing transformed the world we live in, blockchain has the power to do the same. Picture a world where you pay your phone bill with a crypto token or your doctor accesses your medical records through a secure digital ledger that’s shared across all your care providers. Blockchain’s innovations will transcend sectors.
The Benefits of a Blockchain Investment
We have yet to know what the biggest benefits of blockchain investing will amount to! This technology hasn’t even begun to reach its potential yet. Safe to say, investing today is likely to pay huge dividends far into the future.
Blockchain is also an exciting investment opportunity because its value is still unknown. The decentralized nature of blockchain means no single person can put a price on it. As a result, it’s as valuable as investors believe it is—just take a look at what’s happened to Bitcoin in the last year. Without hyperbole, there’s exponential opportunity for an investment in blockchain.
The Risks Associated With Blockchain Investments
To say blockchain and crypto are risky investments is an understatement. They’re extremely volatile and impossible to predict, for the same reasons that the upside is so high. The decentralized nature of blockchain makes it a totally unique asset.
The other chief issue with blockchain is that you can’t invest directly in it. Instead, you’re investing in the companies developing it or the cryptocurrencies powered by it. This leaves you open to some of the risks inherent to those investment vehicles. There is no blockchain “pure-play” option.
From a crypto-specific standpoint, there’s also regulation to worry about. Right now, Bitcoin and other cryptocurrencies aren’t heavily regulated as investments. That could change in the future. If it does, it might affect the trajectory of crypto’s valuation or growth potential.
Blockchain is a Bet on The Future
If you invest in blockchain today, expect to wait a few years before it moves the needle on your investments. This technology is still ahead of its time. Companies and industries are still trying to figure out how, exactly, to use blockchain effectively. And while some are on the cusp of major breakthroughs, it could be a few years before they make it downstream, into the world.
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The good news is that blockchain and cryptocurrencies are widely available as investment vehicles today. If you believe in blockchain, now’s your opportunity to get in on the ground floor. Just make sure you have the risk tolerance to bear with the bumps along the way to a future that’s rife with blockchain innovations.