How to Invest in Blockchain
You might have heard much about bitcoin in financial news and investing discussions. But it is the database technology, known as blockchain, on which the cryptocurrency itself is based that usually gets far less attention. Most people find the concept of it, baffling and it sure can be. But when the concept is broken down to its basics, it is actually pretty simple.
Think of a blockchain like an electronic ledger in which you can enter data but cannot alter or erase it. This decentralized nature of this is what accounts for its much-hailed permanency and security. Thus, it is used for the secure transfer of data that could be money, assets, contracts, etc. Moreover, this transfer eliminates the need of a third-party intermediary like a bank or government. Once a specific amount of data is stored in a block and it has become part of the blockchain, it is almost impossible to alter it.
Investing in blockchain stocks and technology has gained a lot of hype in the last few years. And while there are several ways to invest in it, broadly it can be categorized into the following two ways:
Investing in the stocks of companies that offer cryptocurrency-related services.
Investing in companies that are building their own blockchains to improve efficiency and profitability.
Read here everything you need to know about what is blockchain and how to invest in it!
We strongly recommend Interactive Brokers for purchasing stocks in an easy and reliable fashion.
What is Blockchain?
It can be defined as a chain of blocks that store data publicly and in chronological order. It is a type of decentralized database where the information is encrypted using cryptography. The encryption ensures that the user information and the data inside a block is not compromised or altered.
Unlike financial institutions, any data on a blockchain network is not controlled by a centralized authority. In fact, the users of the same maintain the data and have the mutual authority to approve any transaction that takes place on its network. In that sense, a typical blockchain network is a public blockchain.
So only if you have access to the network, you can access the data within the blockchain. Every participant in the network has the same copy of the ledger of data that all other participants have. Thus, if data on one participant’s computer gets corrupted, other participants will be alerted instantly, who can then tally and rectify it as soon as possible.
For instance, suppose you are using Microsoft Excel spreadsheet program. If you make changes to the data on your own spreadsheet, it will definitely differ from the versions of the spreadsheet that you shared earlier with others. In contrast, if you make changes to a Google Sheets document, those changes can be viewed in every other shared copy.
How Blockchain Works?
A blockchain is an excrypted networks that enables anyone to send value to nodes or a place where the its file can be accessed. The users must have a private, cryptographically created key to edit only the blocks of data that they own. Let’s understand how it works in 5 simple steps:
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Step 1 – In the first step, someone requests a transaction. The transaction could be information, cryptocurrency, contracts, or some asset of monetary value.
Step 2 – A block is created to record the transaction. Note that at this point the block does not become a part of the blockchain.
Step 3 – The requested transaction is then sent to the network nodes. Each block in the in now consists of data from previous block hash and the current block hash.
Step 4 – Using the consensus method, the network of nodes validate the transaction and the user’s status.
Step 5 – Once the request has been validated by all nodes, the new block is added to the existing blockchain in a way that is permanent and unalterable.
The above steps shows that purpose of blockchains is to create digital records of transactions or some other type of data. However, the new block containing can only be added to, rather than altered or erased. This method is much different from the method used by financial institutions where transactions rely on a single entity to enter new information. Thus, the consensus mechanism in a blockchain allows participants to use cryptography (the science of encrypting, or coding data) to validate a new block in it.
In this way, it will eliminates the need for a third-party, like a bank to verify actions as it is a shared and encrypted process. Not only does it removes intermediaries from the process but also creates an environment of transparency and efficiency across different organizations.
Why Invest in Blockchain?
A new technology with promising game-changing impact on the business landscape, blockchain is quickly gathering investors’ interest and for good reason. It is the efficiency, transparency, and technological advantage it offers that is making it an appealing investment prospect. Here are the three reasons why you should invest in blockchain!
What every investor out there is looking for is greater returns on their investments. And it can help businesses become more efficient profitable over time. In the “Time for Trust” report, economists estimated that blockchain technology is likely to boost global gross domestic product (GDP) by $1.76 trillion over the next decade.
Therefore, by reducing costs through streamlining processes and increasing profits as a result, it only a matter of time in which blockchain tech will be making businesses more profitable. Bigger revenues means more stock shares and a boost to investors’ portfolios.
What most people think about blockchain is that it is basically a Bitcoin’s blockchain that stores data about monetary transactions. But the truth is that it allows users to store data about other types of transactions as well. Some of the high-profile companies that have already started to make use of its technology include Unilever,Walmart, Siemens, Pfizer, and more. For instance, IBM has a Food Trust blockchain to keep track of the food products that reach its locations.
Using blockchain has allowed IBM to trace a food product’s route right from its origin. The company can know about each stop it makes until it is finally delivered. So, if a food item turns out to be contaminated, it can be traced all the way back to its origin. This transparency allows IBM to see everything that the food has come in contact with.
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Huge Growth Potential
Although the blockchain technology was initially devised to power Bitcoin, it has continued to grow in potential. It allows you to make cryptocurrency transactions as well as receive and transfer payments anywhere in the world almost instantaneously. You can also create and set up self-executing contracts, store data, and keep track of your supply throughout.
And that’s not where the extent of its applications end. In fact, any business process can be effectively streamlined and improved with blockchain. With its technology, myriad new possibilities are opening up for businesses and investors that couldn’t even imagined before. So with so much to offer, it is a question of when, not if, it will become a part of every business and social process.
How to Invest in Blockchain?
The best thing about blockchain investing is that opportunities are endless. From Mastercard (blockchain score: 69) to IBM (Blockchain score: 92) , there are so many options to kickstart your blockchain investing. It gives investors the chance to make the most of this revolutionary technology. That said, the question of how to invest in it largely depends on the amount of risk that an investor is willing to incur.
Below are three incredible ways to invest in blockchain technology:
Stockpiling Bitcoins works much like stockpiling gold. Both has similar objectives, that is, to invest in anticipation of its value rising. The only difference is obvious that gold is a tangible item white Bitcoins are purely digital. But even then the basic investment principle remains the same.
Much like gold, Bitcoins are also considered to be rare and finite. And while initially, the rate at which it was generated was pretty fast, over the years that rate has slowed down. This is mainly because the number in existence has now reached its built-in limit of 21 million coins. Therefore, now bitcoin follows the same old law of supply and demand. Since the supply of bitcoins is limited, the demand is increasing and so is its value.
Much to an investor’s advantage, there are many ways to invest in Bitcoin and blockchain technology without having to get involved in direct Bitcoin trading.
Invest in Blockchain Penny Stocks
Bitcoin is probably the most known digital currency but it is not the only one. There are other types of currencies like Altcoin, Litecoin, etc.
Following the invention of bitcoin, numerous alternative digital currencies have emerged in competition against bitcoin. Many of the other digital currencies were developed specifically to fill needs that were not met by Bitcoin. For example, cryptocurrencies were developed to offer improved security, enable digital asset registry, and drive escrow services, etc.
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Another great example of an alternative digital currency is penny stocks. A few common blockchain stocks include Weidai Ltd. (WEI) and GreenSky Inc. (GSKY). That said, it is also important to mention that penny stock carries an astronomical level of risk with it. So make sure do not invest more into penny stocks than you can afford to lose.
Buy Stocks of Companies Investing in Blockchain Technology
Various high-profile and established companies like Intel Corp. (INTC) and IBM Corp. (IBM) are investing in pure blockchain technologies for broad use by various industries. Buying stocks of such companies is a great opportunity for investors to invest in blockchain without risking too much. Others options are companies like Silvergate Capital Corp. (SI) that are investing big in cryptocurrency and blockchain technology.
Similarly, if you prefer to steer clear of high risk investments, it is a good idea to invest in stocks issued by a major financial services company. These companies are usually experimenting with the potential of blockchain technology for improving services, which gives you a chance to test your luck in blockchain investing.
If, however, you can invest in a stock with a higher degree of risk, investing in pure blockchain technology investment opportunities can give you a chance to make potential return.
Blockchain technology is one of the most ingenious and promising inventions of the decade. Especially, after the drop in the prices of cryptocurrency in 2018, there has been a spike in the interest in digital currency. Not only does it promise above-average growth but also a future where everything will be tokenized.
So if you are interested in investing in blockchain stocks, it is a sound idea to focus on companies offering crypto services, rather than on those that are using blockchain. That said, blockchain is still in the early days of its full-scale implementation. So there is a possibility that blockchain might become an integral part of all kinds of industries in the coming years or it could take much longer. A safe approach to investing in blockchain is therefore, to invest in companies that will benefit from the growth of blockchain technology yet they will do just fine even without it.
Now that you have the knowledge to get started in blockchain investing, you must also have a smart tool, like the Doctor Money app to keep track of your incomes and expenses, to enable you to invest in blockchain.
Download the app right now and keep track of your investing patterns from day one of your investing journey.
We strongly recommend Interactive Brokers for purchasing stocks in an easy and reliable fashion, however, other reputable brokers will also be able to offer you stocks, options and ETF’s that are blockchain related.