Blockchain technology is one of the hottest trends in the financial markets, with the potential to transform traditional business models in a number of sectors.
The concept is not simple. A blockchain works like a massive digital spreadsheet or ledger in which every transaction is recorded. It confirms, validates, and archives information, and it can be accessed, virtually in real-time, by all participants.
While blockchain technology was crucial in the development of Bitcoin its potential for adaptation to other uses has opened a number of possibilities for investors, both related and distinct from cryptocurrency.
Blockchain technology is becoming known by another moniker, distributed ledger technology (DLT).
Established companies like Intel and IBM are investing heavily in applications for blockchain technology.
Cryptocurrencies are so entwined with blockchain technology that they might be considered a pure-play in the space.
Penny stocks abound for those who revel in risk.
So, for investors, there are now two broad areas of blockchain technology to consider: the pure Bitcoin plays and the businesses that are developing and implementing new products that exploit the potential of DLT for uses ranging from financial technology and healthcare to global shipping.
How to Invest in Blockchain
Along with its rapidly expanding user base, Bitcoin is now being considered for use by a number of financial services companies.
Paramount among the benefits offered by cryptocurrency is its ability to reduce the cost of transferring funds, particularly on a global scale. The impact of Bitcoin and the technology behind it on the finance industry has been likened to the disruption that the Internet caused in the music and publishing industries.
The good news is that opportunities for investing in blockchain technology abound, giving investors the chance to leverage the potential offered by this revolutionary technology. How the investor chooses to invest in blockchain technology will largely depend on the amount of risk that they are willing to incur.
1. Stockpiling Bitcoin
Just as many investors have opted to stockpile gold in anticipation of its value rising, other investors are stockpiling Bitcoins. The difference, of course, is that gold is a tangible item and Bitcoins are not.
Still, the basic investment principles remain the same. Both assets are considered rare and finite. While the rate at which Bitcoins were generated in the early days of the technology was relatively fast, that rate has slowed over the last few years as the number in existence reached its built-in limit of 21 million coins.1
That makes both subject to the law of supply and demand. When the supply of a product is limited and demand for it increases, its value rises.
Luckily for technophobes, there are ways to invest in Bitcoin and blockchain technology that do not involve a deep-dive into the murky world of direct Bitcoin trading.
2. Blockchain Penny Stocks
Yes, there are penny stocks for cryptocurrency. While Bitcoin is definitely the best-known digital currency, it is not the only one. Other types of digital currency include Litecoin and Altcoin.
Over the last few years, a number of alternative digital currencies have been developed in an attempt to compete with Bitcoin, and others were designed specifically to fill needs not met by Bitcoin.
The phrases “penny stock” and “bitcoin technology,” when seen together, indicate an astronomical level of risk. Don’t bet more pennies than you can afford to lose.
For instance, cryptocurrencies have been developed to enable digital asset registry, provide increased privacy, and drive escrow services, among other applications.
Penny stocks representing cryptocurrencies or blockchain technology, or both, offer opportunities. Some current names include Weidai Ltd. (WEI) and GreenSky Inc. (GSKY).
It must be said that combining the phrase “bitcoin technology” and the phrase “penny stock” in the same sentence guarantees an astronomical level of risk. Don’t bet more pennies than you can afford to lose.
Crowdfunding has evolved into a mainstream method for raising seed capital for all types of investments. If you’re seeking to get involved in blockchain technology, one option to consider is a crowdfunding method that uses alternative coins.
In this case, the total supply of coins is pre-mined and then sold in an initial coin offering, or ICO, prior to the network being publicly launched. Bitshares is just one of the coin networks that used this method to get started.
Services and apps using blockchain technology have used this pre-sale method to raise funding. Investors are given the opportunity to purchase coins with the expectation that prices will increase if the service becomes popular.
4. Angel Funding and Startups
Angel funding is not a new concept but investing in startups built on blockchain technology is a relatively new variation.
As Bitcoin has become increasingly accepted by mainstream businesses, the number of entrepreneurs interested in experimenting with the technology behind the cryptocurrency has skyrocketed.
Providing startup and angel funding allows you to get in on the ground floor of what could turn out to be the next Google, Apple, or blockchain frontier.
Or not. Carefully weigh the pros and cons of any venture seeking funding.
5. Pure Blockchain Technology Play
Pure blockchain technology plays are available.
A number of established companies including Intel Corp. (INTC) and IBM Corp. (IBM) are making significant investments in blockchain technologies for broad use by various industries. These can give investors a foothold in the space without betting the farm on it.
Others, like Galaxy Digital Holdings (GLXY) and Silvergate Capital Corp.
(SI) are all-in on cryptocurrency and blockchain technology.
If you want to keep your level of risk relatively low, the best option is to invest in one of the stocks issued by a major financial services company experimenting with the potential of blockchain technology for improving services, or a technology company investing in broader applications for blockchain services.
For investors who are able to tolerate a higher degree of risk, investing in one of the pure blockchain technology investment opportunities could deliver the right combination of risk versus potential return