Investing in the Blockchain Boom

Distributed ledger technology (DLT) and blockchain have made their way into business, finance, and many other industries. Their introduction to the mainstream following the rise in popularity of cryptocurrencies has created new investment vehicles, opportunities, and new sectors. Additionally, new business models using these advancements are emerging that improve workflows, data security, e-commerce, government processes, and much more.

A distributed ledger works like a massive digital spreadsheet or ledger in which every transaction is recorded. It confirms, validates, and archives information and can be accessed virtually in real time by all participants. Blockchain was developed from the distributed ledger concept, but it enhances public use and security.

In general, there are two broad areas for you to consider investing in: cryptocurrency itself and businesses that are developing and implementing new products that use blockchain or distributed ledger technology.

Key Takeaways

• Many established tech companies are investing heavily in blockchain and distributed ledger technology applications.
• Cryptocurrencies are part of blockchain technology designed for transferring value; investors are also using them to store value, hedge other investments, and hold them for growth.
• Non-fungible tokens are part of the emerging metaverse design as ownership of digital assets becomes popular.
• Digital securities use blockchain to create traditional investments such as stocks and bonds.
• Web 3 is a concept of internet privacy and ownership being developed using blockchain technology.

Understanding Blockchain

Blockchain technology is similar to distributed ledger technology (DLT) but specific to cryptocurrency and the ecosystems that have evolved from it. It uses encryption and verification methods to restrict access to append-only, where new data can be entered, but existing data can not be changed.

Blockchain use cases have exploded, with the technology making its way into everything from tokenizing pixel art to fantasy football leagues to digital worlds where you can buy virtual real estate.

Understanding Distributed Ledger Technology

DLT is used across enterprises to synchronize and share data in a ledger while verifying the accuracy of inputs and outputs. The span of industries using DLT continues to grow, encompassing supply chains, accounting, financial services, warehousing, shipping, and more.

Note

Paramount among the benefits of DLT is its ability to reduce the costs of maintaining, securing, and verifying databases on a global scale.

The good news is that opportunities for investing in blockchain and DLT are abundant, giving you a chance to leverage the potential offered. How you choose to invest in blockchain technology will largely depend on the amount of risk you’re willing to incur and what grabs your interest.

Companies Developing Blockchain Uses

You can invest in several companies that are researching and developing blockchain and DLT products and services. Many well-known companies are developing blockchains for business, and many more are creating them for in-house use. There are several markets you can choose from:

• Decentralized Finance
• Financial Technology
• Metaverse
• Web3
• Exchanges

Decentralized Finance

Decentralized finance (DeFi) is the concept of removing financial institutions from their role as third parties in transactions. The idea is to allow people to take control of their finances with digital wallets, peer-to-peer lending, and other financial services.

While cryptocurrency is part of DeFi, it is only the tip of the iceberg. DeFi is the all-inclusive term for all things financial that are not part of any traditional, centralized method of controlling money. Cryptocurrency, cryptocurrency exchanges, lenders, borrowers, and even insurance are part of this growing sector.

Financial Technology

Financial technology (Fintech) is the development and use of technology to improve existing financial services. The developments in blockchain technology are revolutionizing traditional services like lending, money transfers, and banking. Paypal is one of the most well-known examples of a fintech company—there are many more you can choose from to diversify your portfolio.

Note

New blockchain uses are constantly emerging as more companies research ways to incorporate it into their industries and internal procedures.

Metaverse

The metaverse is one of the more difficult concepts to grasp that is expected to use blockchain. The metaverse is an emerging digital and ever-present world where virtual reality, augmented reality, and reality meet. The concept is to develop an immersive digital experience where a person can learn, work, play, and socialize.

Social media platforms, game developers, and technology companies are developing the hardware and software needed for this digital life experience. Meta (formerly Facebook), Advanced Microdevices (AMD), Nvidia, Amazon, and Epic Games are examples of companies that have expressed interest in metaverse products and services. Blockchain will play a large part in the metaverse as it develops.

Web 3 Companies

Web 3 companies are developing solutions that are reportedly set to change how the Internet works. Blockchain technology is being used to create a digital environment supposedly designed to restore privacy, ownership, and control to the masses.

Here are some of the emerging theories on how Web 3 will benefit everyone because it will be based on blockchain technology:

• Your personal information will not be available to anyone you don’t wish it to be because a blockchain will secure it.
• Censorship will become a thing of the past because blockchains are immutable—you won’t be able to be censored based on someone else’s beliefs or practices.
• Payments will be through cryptocurrencies, making finances anonymous, cross-border, and much cheaper for everyone.
• It is ownership-centric, meaning your digital content cannot be taken away, changed, or modified by others.

Exchanges

You can trade or invest in cryptocurrencies by setting up an account on a cryptocurrency exchange. Price movements create opportunities for profits through day trading or buying and selling cryptocurrencies.

These exchanges are also businesses—Coinbase (COIN) is a publicly traded company with stocks listed on the Nasdaq exchange that can expose you to blockchain without requiring you to invest directly in cryptocurrency.

Digital Securities

Blockchain has enabled the decentralization and tokenization of nearly anything that has value. For example, a company that wants to raise money can create digital investment instruments using a blockchain, similar to how non-fungible tokens are created. Tokenization, in this respect, is the transfer of ownership or interest to a token, which is the digital representation of that ownership linked to the blockchain.

Important

Digital securities trading may not be regulated or available where you live, so ensure you check with your country’s authorities before attempting it.

Digital securities use smart contracts—programs that execute exchanges or trades as soon as both parties agree to it. This creates a safety net for traders and investors who want to buy or sell securities directly with another party rather than through a transaction facilitator like a broker.

The digital securities market continues to evolve, but you can find them emerging in sectors such as:

• Venture capital
• Real estate
• Private equity
• Hedge funds

The main benefit of digital securities is that they can be fractionalized to a much greater degree than is practical with traditional securities. In addition, this fractionalization offers exposure to markets that you may not have previously been able to access due to the amount of capital needed to gain entry.

Non-Fungible Tokens

Non-fungible tokens (NFTs) are digital assets that are tokenized. They existed before 2021, but media attention that year popularized them in the mainstream after the digital artist Beeple sold a collage of non-fungible tokens for $69 million. An NFT can be any digital asset—clothing, art, music, movies, video games, or anything else that can be tokenized.

How to Safely Invest in Blockchain?

The safest way to invest in blockchain is to purchase the stock of a reputable company developing blockchain solutions.

What Is the Best Blockchain Stock to Buy Now?

There are several to choose from, so it depends on your preferences and risk tolerance.

How Do You Buy on Blockchain?

You use your cryptocurrency wallet to make purchases, which transfers cryptocurrency from you to the seller.

The Bottom Line

Blockchain is the technology behind cryptocurrency and is where most of the development and research is focused. It is becoming more popular as more use cases are conceived and people learn more about it.

In the future, cryptocurrencies might still exist, but blockchain is most likely to be the invention that will induce the most change and stick around.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own cryptocurrency.

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