Blockchain technology has grown way beyond its roots as the foundation of most cryptocurrencies into an expansive tech sector that investors may want to consider. For those wondering how to invest in blockchain, there are multiple opportunities, from trading crypto to investing in companies that are developing new uses for blockchain.
The transparent, digital ledger known as blockchain is associated primarily with different types of crypto, but it has a rapidly growing number of use cases across many sectors: health care, law, real estate, finance, international trade, and more.
For investors willing to do their due diligence, and understand the risks involved, there are opportunities in the blockchain space.
A Look At Blockchain Technology
In order to understand what blockchain tech is, it helps to know the basics of how a blockchain works. While blockchain was the innovation in 2009 that made Bitcoin — and the entire cryptosphere — possible, numerous applications for blockchain technology have emerged since then.
Think of blockchain technology as a sort of next-level, digital infrastructure. It’s a transparent, append-only digital ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, decentralized apps (dApps), and more.
Blockchain technology relies on cryptography and a system of peer-to-peer (P2P) verification to secure transactions and, in the case of cryptocurrency, to mine coins and tokens. Because the security of blockchain is critical to how it functions, complex consensus algorithms are used on each network.
Although most people think crypto goes hand-in-hand with blockchain, in fact blockchain technology is increasingly common for a range of digital products and functions. Anything that requires an immutable ledger, contract agreement, or data transaction record can use blockchain — such as real estate transactions, legal agreements, voting records, supply-chain tracking, and much, much more.
What Does Investing in Blockchain Mean?
Can you invest in blockchain? While you cannot invest directly in a blockchain itself — a blockchain can’t be owned by investors — there are multiple ways to invest in blockchain technology, and a growing number of sectors that use it.
• By investing in crypto, you can think beyond the coin to what the entire crypto project is trying to create using its particular blockchain capabilities. The blockchain that supports the Ethereum network has different capabilities than the one that supports Bitcoin, Dogecoin, Litecoin, and so on.
• You can invest in blockchain stocks and other securities, like exchange-traded funds (more on that below), initial coin offerings (ICOs), and cryptocurrency trusts. While many of these investment products are new, and may come with risks, they may also present new opportunities.
Investing in blockchain technology is a way to participate in the evolution of a whole new part of the market, which includes DeFi (decentralized finance) companies, digital securities, crypto exchanges — as well as existing sectors like real estate and supply chain management that are increasingly embracing blockchain.
Investing in Blockchain vs. Investing in Cryptocurrencies
Because blockchain is a big part of how cryptocurrency works, buying crypto is one way to invest in blockchain. Investing in cryptocurrencies means buying individual tokens that can be used within the blockchain technology ecosystem. And because each coin or token is so different, reflecting the blockchain it’s based on, interested investors can explore different types of crypto as a way of investing in different blockchain capabilities.
For example, some blockchains are programmed to support the execution of smart contracts, the creation of non-fungible tokens (NFTs), the cross-border transfer of funds, and much more. By owning the crypto that’s part of that ecosystem, you’re essentially investing in that blockchain. But there are many other ways to invest in blockchain today.
5 Ways to Invest in Blockchain
Here are some of the other ways to invest in blockchain. Because this is an evolving space, it’s important to carefully weigh the potential risks, as well as the likely costs, of some of these investments:
1. Purchasing Crypto ETFs, Trusts, and Other Investments
While investing in crypto can give you access to blockchain as an investment, Wall Street has found a few ways to make crypto more accessible to institutional investors through the use of crypto exchange-traded funds (ETFs), crypto trusts, crypto index funds, and other securities.
Bear in mind that investing in funds that invest in crypto can be a risky proposition — and one that removes the investor another step from investing in actual blockchain technology.
And although these crypto investments may sound similar to traditional investments that can be bought and sold by main street investors, these funds are typically available only to institutional or accredited investors and they are traded on over-the-counter (OTC) markets. OTC markets are known to be less liquid and more risky.
There are some products available to retail investors, such as ETFs that track companies that have exposure to blockchain technology. These may be a more direct route to investing in blockchain.
2. Initial Coin Offerings (ICOs)
When a new cryptocurrency gets created, oftentimes the developers hold an initial coin offering, or ICO, which allows people to purchase the tokens early in order to support the project and get a good price before the project launches.
ICOs, similar to initial public offerings of stock (IPOs), can be accompanied by a fair amount of public discussion about the merits of the new coin, and the technology it’s built on. For investors interested in finding the next blockchain investment for their portfolios, an ICO could provide an interesting opportunity.
3. Purchasing Cryptocurrencies
While this point was addressed above, it’s important to underscore that there are thousands of different types of cryptocurrencies that investors can buy and sell, each one with its own dedicated blockchain.
Unlike traditional fiat currencies, which are used as a means of exchange and a store of value, crypto often serves multiple functions on its dedicated blockchain. This is another reason to invest in crypto as a way to invest in various blockchains.
4. Investing in Blockchain-Based Businesses
When it comes to investing in blockchain technology stocks, there are a lot of options. The blockchain ecosystem is complex, involving developers, exchanges, miners, data, security, and more. There are also companies that aren’t directly making blockchain technology, but are using it for their existing business to streamline systems and increase efficiency. These include large corporations such as Walmart, Starbucks, IBM, Meta, and Amazon.
Buying shares in blockchain companies can be a great long-term strategy, since this industry is just getting started. Here are some of the subcategories of blockchain that one could invest in:
Decentralized Finance
Decentralized Finance (DeFi) shifts the control of financial transactions away from centralized financial institutions, such as banks. The goal of DeFi is increased transparency and efficiency, lower fees, and putting people in charge of their own money. Examples of DeFi include crypto wallets, peer-to-peer lending, and cryptocurrency exchanges.
DeFi wouldn’t be possible without blockchain technology. By investing in different aspects of the DeFi space, investors are essentially investing in the relevant blockchains and blockchain technology that supports these financial innovations.
Financial Technology
Related to the above: Financial Technology (Fintech) is a type of technology that improves upon financial services.
Blockchain technology plays a big role in fintech, as it is being used to revolutionize all aspects of legacy finance, from banking to lending and transacting.
Metaverse
The metaverse is essentially where the digital world intersects the material world. It includes technologies such as virtual reality, augmented reality, and online interactive virtual worlds. Users engage in immersive and interactive experiences for education, work, entertainment, and socializing.
Not everything in the metaverse uses blockchain technology, but many companies, such as game developers and social media platforms, are using cryptocurrency tokens within their virtual worlds, or recording data and transactions from those worlds on the blockchain. In other words, investing in the metaverse is essentially investing in blockchain technology.
Exchanges
Another way to invest in blockchain by investing directly in cryptocurrencies is to invest in stocks of cryptocurrency exchange companies, such as Coinbase (COIN). Exchanges allow people to buy, sell, and exchange different cryptocurrencies. Coinbase is a popular cryptocurrency exchange that is publicly traded on the Nasdaq.
Blockchain and Health Care
Blockchain is revolutionizing the health care system, and this transition is only just beginning. Blockchain can help with secure and efficient sharing of sensitive patient data, allowing health information to be used both within organizations and across the broader medical system. It can also help with healthcare contracts and negotiations, including healthcare insurance.
5. NFTs
Non-fungible tokens (NFTs) are cryptographic digital assets. Their data is stored on the blockchain, ensuring that they can’t be replicated or forged.
Pretty much anything can be tokenized, from real estate to music to art. Currently, most of the NFT market is focused on collectibles like sports cards and digital art. But there are other highly priced NFTs on the market, such as a tokenized version of the first-ever tweet.
Individuals can purchase NFTs and resell them for a profit if their value increases.
The Takeaway
Blockchain technology has become a tech sector that many investors may want to consider. For those wondering how to invest in blockchain, there are multiple opportunities, from trading crypto itself (which gives investors exposure to that crypto’s underlying blockchain), to investing in companies that are developing new uses for blockchain in many areas: health care, law, real estate, finance, international trade, and more.
Buying shares in blockchain companies can be a great long-term strategy, since this industry is just getting started. While you can’t invest directly in a blockchain (blockchain is the digital infrastructure organizations use to run various operations), you can invest in companies that use blockchain for decentralized finance, to run crypto exchanges, to create smart contracts, NFTs, and more.
FAQ
Can you invest directly in a blockchain?
No. Blockchain is a technology that is used for many purposes. There is no way to invest directly in a blockchain, but there are many ways to invest in companies developing and using blockchain technology.
How can you make money from blockchain?
You can potentially make money from blockchain by investing in stocks or ETFs focused on blockchain companies, purchasing individual cryptocurrencies, or initial coin offerings (ICOs).
What are some applications of blockchain technology?
Blockchain technology can be used for anything that requires a digital, append-only, immutable ledger of transactions or data storage. This includes money transactions, real estate transactions, voting records, supply chain tracking, and more.
Photo credit: iStock/Poike
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