The term “blockchain” is popular in various spheres. Blockchain is the most popular trend in commerce, finance, and many other fields. Following the growth in popularity of cryptocurrencies, it entered the mainstream, giving rise to new investment options, sectors, and vehicles.
New business models that use these innovations are also starting to take shape, improving several processes, including government procedures, data security, and workflows.
Blockchain as a whole cannot be invested in directly. Instead, you might invest in blockchain-based cryptocurrency assets, hoping their value will rise. Bitcoin, Dogecoin and Ethereum are all powered by blockchain technology.
You might be interested in investing in blockchain and participating in it. You can invest in blockchain assets if you know how to safely acquire, sell, and store your digital assets.
But before doing, you should also have a fundamental understanding of blockchain, how to support it, and the benefits and potential risks of blockchain investment.
Let’s begin by giving a brief explanation of what blockchain is.
What is Blockchain?
A blockchain is a database often run by a distributed and open network of people. A blockchain is a system or database that records transactions chronologically. Transactions are immutably saved, which means they cannot be erased or changed, making them incredibly powerful.
Every “block” data is digitally validated, given a unique hash (or identity), and recorded in the public ledger. Once a transaction occurs, all the relevant information is analyzed, stored in a block and chained together in chronological order.
Blockchain is a network distributed worldwide. It is maintained by connecting many computers, or “nodes,” around the globe. The immutability of the ledger is ensured when more nodes join the blockchain network since no single person has access to modify the data.
Additionally, consensus-building is essential for maintaining the functionality of blockchain networks. A small minority or a single party cannot decide anything but instead employ a “consensus procedure” in which several individuals use cryptography to authenticate entrants.
Since it is protected by cryptography, there’s no need for a third party, like a bank or a regulator, to verify actions. This eliminates middlemen and establishes a framework that boosts efficiency, trust, and transparency between several distinct companies.
In a nutshell, security, immutability, scalability, automation, and minimal costs are some of the benefits of blockchain technology.
Why You Should Invest in Blockchain
The investment community is naturally becoming interested in blockchain as a new technology that has the potential to have a profound impact on the commercial sector. This hoped-for increase in reliability, openness, and effectiveness has made blockchain technology a desirable investment opportunity.
Numerous industries can benefit from using blockchain. By using blockchain, organizations can increase confidence and transparency in areas like the origin of drugs and food ingredients.
Furthermore, blockchain technology may improve company profitability by lowering expenses and raising profits. Larger revenues would undoubtedly increase their stock shares as well.
On the contrary, many blockchain investments, such as square, are cryptocurrency-focused. These businesses are more likely to increase in association with cryptocurrencies because their success depends on how well the prices of cryptocurrencies perform. They may appeal to stock investors who enjoy fast-growing companies.
Lastly, COVID-19 has caused a quick shift of the world to digital technology that has boosted blockchain technology since now big tech companies such as Amazon are paying attention to blockchain in a prominent way.
How to Invest in Blockchain?
Now that we know blockchain is the technology that powers the majority of cryptocurrencies, the next step is to learn how to invest in blockchain.
Purchasing cryptocurrencies, which employ blockchain technology, is the most direct way to invest in the blockchain. Start by investigating numerous blockchain investment possibilities first.
Although numerous cryptocurrencies and innumerable non-fungible tokens are available in the market, Bitcoin and Ethereum are now the two most popular (NFTs). Before investing, do thorough research about the cryptocurrency you’re thinking of investing in and choose the digital asset that you believe most closely matches your investment objectives and risk tolerance.
The next step is finding an appropriate, reliable platform from which to buy the digital asset after deciding on the one you want to invest in. By using well-known crypto exchanges like Coinbase, you can buy various cryptocurrencies. The cost structure and assets available vary for each trade and brokerage. Then add money to your cryptocurrency account by connecting your credit or debit card.
Once done setting up your account, you can buy your chosen cryptocurrency with a click. To make your cryptocurrency more secure, you can store your cryptocurrency in a wallet that is maintained by the cryptocurrency exchange. Your investment is safer in a wallet that is harder to access.
There are other alternative ways to participate in the market other than investing directly in cryptocurrencies.
Purchasing an Exchange-Traded Fund (ETF)
A pooled investment asset is similar to a mutual fund. In contrast to mutual funds, which only trade once daily after the market closes, the price of an ETF share varies throughout the day as the ETF is bought and sold.
Stocks, commodities, and bonds are just a few of the investment categories that may be found in ETFs. ETFs have lower expense ratios and broker commissions than purchasing the equities separately. Amplify Transformational Data Sharing ETF is an excellent example of it.
Investing in Crowdfunding
Investing in crowdfunding is using modest sums of money from many people to finance a new business endeavour. Crowdfunding utilizes online platforms and crowdfunding websites to connect investors and entrepreneurs.
Through crowdfunding, investors can choose from hundreds of projects and put as little as $10 into each. A portion of the money received is used to pay the bills for crowdfunding websites. One of the most well-known crowdfunding websites includes Kickstarter.
There’s also the possibility to buy stock in businesses using or developing blockchain technology, like Starbucks or Walmart. A corporation can become leaner and more profitable by implementing a digital ledger system; over time, higher earnings equate to higher share values.
Use Cases of Blockchain Technology
Many blockchain-related businesses are sprouting in both public and private markets, and you can invest in one of them. There are numerous markets from which to pick. Examples of some of these are listed below.
Decentralized finance (DeFi)
Decentralized finance (DeFi) refers to removing financial institutions from their function as transactional middlemen. Digital wallets, peer-to-peer lending, and other financial services are intended to give consumers control over their money.
Financial Technology (Fintech)
It is the creation and application of technology to enhance current financial services. Advancements in blockchain technology are revolutionizing traditional businesses like lending, money transfers, and banking. PayPal is one of the well-known examples.
The metaverse is a developing digital environment in which reality, augmented reality, and virtual reality collide. It works on blockchain technology. The idea is to create a fully immersive digital environment where people may learn, perform, enjoy, and interact.
What to Know Before Investing in Blockchain
Cryptocurrencies based on blockchain technology are a relatively new asset class. As a result, many individuals believe that purchasing blockchain-related assets is risky. It is crucial to understand that you need a mechanism to store your blockchain assets if you choose to hold or move them outside a significant exchange.
On the other hand, blockchain assets’ volatile nature makes them inherently dangerous. So do not invest more money than you can afford to lose due to these hazards. That entails staying away from investing with your life savings.
Advantages and Disadvantages of Investing in Blockchain
Everything in the world has advantages and disadvantages. Like other financial instruments, cryptocurrencies have benefits and drawbacks that should be considered before trading or investing. Let’s examine these two topics in greater detail.
Privacy of Personal Information
Blockchain provides a secure platform for a transaction where you don’t have to share your private key and payment information with anyone. Even the money you earn will be entirely encrypted. It is the best option for making anonymous payments as a result.
Secure and Quick Transfers
In case of a property transfer or bank account closure, you must complete a significant amount of documentation and pay a commission fee. It is easy to give it to anyone without their consent.
In a blockchain, you only require the recipient’s private key to complete a transfer. No cost is associated with changing ownership, no tense situation will arise, and no paperwork is required.
Gains from Investments
Cryptocurrencies can make potential profits for investors in the future. As per some, the value of various blockchain assets is expected to be more than quadruple.
Being essentially decentralized is one of bitcoin’s key advantages. Decentralization keeps the currency monopoly free and in check so that no one person or organization can determine the circulation and value of the coin, making it stable and secure.
Probability of Engaging in Illegal Activities
The high level of confidentiality and anonymity has made it challenging to identify the user and to keep track of their data. However, several illegal activities, including buying drugs, have been seen. Some people use cryptocurrencies to convert their illicitly acquired money through a reliable middleman, hiding the source.
High Risk of Loss
The self-risk is the lack of control and ownership over cryptocurrency. Suppose if something goes wrong due to a technical problem, there is nothing you can do. No company controls this money, so therefore you can’t blame anyone and cannot make a claim. Therefore, if you select a wallet, ensure it has positive reviews and can be trusted.
The crypto market is very unpredictable. It can be hard to estimate when values will increase or decrease. You must be an expert analyst and researcher up to date on market news and trends for bitcoin. When investing in cryptocurrency, you must be ready for everything.
In case you accidentally send money to the wrong crypto address, the sender will not be able to get their money back. It is a common practice used by criminals to steal from their victims.
The Threat of Cyberattack
Cryptocurrency exchanges are not secure at all. Most exchanges keep track of users’ wallet data to manage their user ID properly. These details are susceptible to theft by hackers, who can then access several accounts. Once they have access, these hackers can quickly shift money out of these accounts.
Important Things to Consider Before Investing in Blockchain
Many investors may find it quite appealing to invest in cryptocurrencies to acquire access to blockchain technology. However, it’s also crucial to consider your investment risk, potential security issues, and prospective tax consequences. Let’s look into each of them in detail.
The marketplaces for cryptocurrencies are dynamic. A 10% increase or decrease in the value is an everyday thing. If you’re investing in cryptocurrencies, pay close attention to the risk profile of any blockchain assets you possess and be ready for a wild ride.
Although decentralized and secure, blockchain is always susceptible to illicit behaviour. Scammers are constantly looking for an opportunity to access your account. So, no matter how hard it becomes to access it, it’s more crucial to keep it secure. One can do that by using a hardware wallet.
Watch out for Taxes
When you sell a blockchain investment, you must pay capital gains taxes. Like with other forms of income, failure to disclose cryptocurrency income and pay taxes on gains may result in fines, interest, and in some cases, jail time.
Despite its huge potential, blockchain technology is still a young industry that hasn’t established itself in terms of marketable products. Thus, if you have chosen to invest in blockchain technology, the following guidelines will enable you to further enhance your skills.
Make a Strategy
Before dipping your foot into the business, you must have complete knowledge of what you’re getting into. It makes research on a specific company’s fundamentals crucial because several sharks out there are eager to steal your money.
Start by evaluating the platform or project critically. What number of users does it have? What issue does it fix? Check for the potential for growth, the level of competition, or elements that set it apart from similar ventures.
Invest Only a Portion
Blockchain is a fast-growing industry with significant risk for investors. As they say, every glitter is not gold. Likewise, every investment might not have the best interest for you. It would be advisable to allocate only a tiny amount of your cash to blockchain startups. Set limitations on your investment and resist the urge to trade with more money than you can risk losing.
Since we know that the market is volatile and investing in one single cryptocurrency won’t be a great choice. Spread your funds among many digital currencies choosing the cryptocurrencies with the largest market capitalization, work on numerous projects across various sectors, such as DeFi and gaming, rebalance your portfolio in response to fluctuations and be ready to go.
Lookout for New Rules and Regulations
keeping up with regulators is just as crucial as researching specific businesses. Legislation passed by government officials and agencies might seriously harm companies that focus on blockchain technology.
Beware of Scam Artists
Watch out for signs from social media handles and bogus pump-and-dump scams, as scammers are constantly moving to steal portfolios from investors. You can do that by double-checking the exchange’s URL and downloading trading applications from reliable websites, such as the Google Play Store.
Considering that blockchain technology has so far been most successfully used with bitcoin, some analysts advise focusing on businesses that primarily use it to interact with the cryptocurrency. Concentrating on businesses having ties to bitcoin would be the most excellent strategy to invest in businesses using blockchain technology.
Protecting your investment is your responsibility. Not your bitcoin, not your keys. Never give your private keys, verification code, or cryptocurrency to anyone. Never use a public network to access your account. Keep several accounts open and divide your money. Regularly alter your passwords.
Blockchain investing should be considered speculative for individuals with at least some past investment expertise. But, the choice to invest in blockchain assets is someone’s own decision. Your decision should be according to your risk tolerance.
Blockchain is a fascinating area of investment that extends across many different industries. A factor that has stoked interest in blockchain technology is its price increase, especially since the Covid pandemic that garbed the attention of investors worldwide.
However, it also has a cost, which includes the market’s erratic character. You should be ready for a certain amount of danger while working with cryptocurrencies. Therefore, look at the advantages of cryptocurrencies to start understanding why you should invest in them. Remember the best strategies to invest your hard-earned money in cryptocurrencies after that. Success is possible if the right actions are taken and well-considered bitcoin investments are made.