A blockchain is a time-stamped record of data managed by decentralized computers and is not controlled by any single entity. Since the blockchain does not have a single source of control, the records kept in a shared ledger are managed by different nodes ensuring the highest level of immutability. New blocks of data are added to the system through a consensus system ensuring that no single node has the full control over the kind of records added to the blockchain ledger.
This technology has found applications in different areas and industries. Some of the key areas where this technology has been extensively used are in the development of cryptocurrencies, operation of smart contracts, and in supply chains. Additionally, this technology has been used to securely process payments, integrate and manage organization data, and immutably store data records. The potential of this technology is unlimited and new solutions build around blockchain technology are being developed daily.
Like the early days of the internet, the blockchain technology promises a wide array of applications. It’s, therefore, crucial for investors and those who would like to reap benefits from this technology to have an in-depth understanding of the ins and outs of this technology. It’s through this that one will be able to identify blockchain investment opportunities, evaluate the risks involved, and distinguish between worthy investment avenues from non-promising projects.
This article will equip you with basic information on blockchain investment and furnish you with the necessary pointers to use when investing in the blockchain technology.
Blockchain Investing: Understanding the Risks & Opportunities
Compared with other technologies, the blockchain technology is relatively new. However, recent breakthroughs and applications of the blockchain technology have shown that this technology has unprecedented potential in revolutionizing how businesses and individuals perform different functions and processes. To investors, this is a new investment haven. Like any other new investment opening, a thorough understanding of the nature of such a venture is key in successful investment.
Different Methods of Blockchain Investment
1. Blockchain Stocks
Stocks could be the right starting point for you if you are not fully versed with the blockchain technology. There are different companies in the blockchain technology who offer stocks for the public to buy. A thorough analysis is needed to ensure that you buy the right blockchain stocks. You may need to work with your financial advisor to help you choose the best stocks.
The good news is that there are myriad companies which have been built around the blockchain technology. Thus you will not struggle much identifying a company to invest with. There are also other companies which are changing their business models to embrace blockchain technology in their operations. You need to take a key note of these companies and monitor their stock performance in the market. You can as well consider trading in blockchain based ETFs (Exchange Traded Fund).
One area which the blockchain technology has been extensively used is in the development of cryptocurrencies. Bitcoin, Ethereum, Ripple and other cryptocurrencies owe their operation on blockchain technology. While it’s true that the cryptocurrency market is quite volatile, the past successes of those who invested in early crypto coins such as Bitcoin should offer a sufficient reason for you to think more on cryptocurrency investment.
You can either choose to buy cryptocurrencies as a long-term investment or go for the short-term investment. If you go for a long-term investment choice, you will need to find ways through which you can safely store your crypto coins, safeguard them from loss, and be able to identify the most promising coins. Some of the long-term storage wallet options include the use of hardware wallets and the paper wallet.
Short-term investments will involve weekly or even daily trading of your crypto coins. There are multiple trading platforms which you can use to trade your crypto coins. Choose an exchange which is reputable, transparent, and regulated by the necessary government authorities.
3. Blockchain Startups
There are different startups building their business models around the blockchain concept. Most of these startups are not fully funded and are always seeking further funding from blockchain investors and enthusiasts. Do proper analysis and choose those startups which have transparent operations, are headed by industry leaders, and have the right accountability structure in place. You can as well consider hiring the services of a financial advisor to guide you in this.
4. ICO Investment
New tokens and crypto coins are being developed continuously. Most of these companies raise the needed funds through crowdfunding. You can cease these initial coin offering opportunities and direct your blockchain investment funds here. But you need to be quite cautious and do a background check on the company. Be sure to check such key areas including the directors, the company structure, the business model, and the monetization techniques which you can use to profit from your investments.
Understanding the Opportunities
Blockchain investing poses unparalleled opportunities to investors and blockchain enthusiasts. However, understanding the opportunities presented by this technology is key in successful blockchain investing. Below are four pointers which will help you better understand and appreciate blockchain investing.
1. High Return Rate
The blockchain technology has consistently been shown to have multiple applications across different sectors and industries. Big and renowned companies have been reported to shift their focus on the blockchain technology and extensive research is being done on this area. If you make the right choice of blockchain investment, you stand a greater chance of making a big kill out of this investment.
This said, there are always risks involved in any investment and greater risks are involved in newer technologies and those investment opportunities which have not been fully tested by time. But such high risks are usually compensated by higher return rates whenever such investments start bearing fruits.
2. Wide Array of Investment Openings
If your key focus is in blockchain investing, then you will realize that there are multiple investment opportunities opening daily. Most of these opportunities are reported by the media and generate much interest. However, such high interest from the public should not be the key pointer on the validity of investment. You need to check the market potential, the current trends, and see whether the big investors and institutional investors are throwing their weight behind these investments. Use such indicators to make an informed investment decision.
3. Multiple Blockchain Related Exchanges
Since the advent of cryptocurrencies, the number of cryptocurrency related exchanges has continually increased. Coupled by this, most traditional exchanges which offered fiat currency exchange services have integrated cryptocurrency trading on their platforms.
If your key interest in blockchain investing is on cryptocurrencies, then you need to identify reliable exchanges where you can buy and trade cryptocurrencies. Some of these exchanges are on the lookout for financial partnerships with interested investors. Do your research and go for those exchanges which pass your financial analysis and meet your investment goals.
4. Regulations to Ensure Best Practices
Regulations are crucial to ensure that investor funds are safeguarded. These regulations are also important in ensuring that these companies adhere to high standards of transparency and operation. It’s crucial when you are directing your investment funds to a given entity to confirm whether such an entity is regulated.
Apart from this, you also need to check the country where such a company is based. Due to the relaxed regulatory environment in some countries, rogue companies which are after investor funds have relocated to these countries since such countries offer a safe haven with little to no financial conduct regulations in place. Thus a background check is necessary. Go for those companies which are based in countries with strict financial conduct regulation environment as this will increase the safety of your funds.
Understanding the Risks
Besides the attractive opportunities in blockchain investing, there are certain risks which are linked with this technology. Below are highlights of some of these risks.
1. The Technology is Still New
Compared to other technologies, the blockchain technology is quite new. However, the wide applications which are stemming from this technology are strong indicators that this technology is here to stay.
2. Governance Risks
The blockchain technology is decentralized in nature. This implies that there is no central authority in charge of controlling its operations. Though such decentralized processing is crucial in ensuring the immutability of records, there could be risks associated with the inability to control such data from one node.
3. Scalability and Time Needed to Complete Transactions
As the data in the blockchain network increases, there will reach a time when adding new blocks to such a blockchain takes much time. This could be disadvantageous especially for systems which require quick processing of transactions. However, this challenge can be solved by increasing the processing power of the computers connected to this blockchain network.
Blockchain technology has unparalleled potential. Investing in this technology is a worthwhile decision. However, like any other investment, evaluating the opportunities against the risks is crucial in ensuring the safety of the investment and increasing the return on investment rate. The above pointers provide the basic information on blockchain investing and should complement your blockchain investment analysis.