- Investing in blockchain technology has become hot due to its role as the database for cryptocurrencies and digital transactions.
- You can invest in blockchain technology via stocks of companies that offer cryptocurrency-related services or are developing other industrial applications for it.
- Despite its growth potential, blockchain technology should be seen as a high-risk investment. ETFs are the safest way to play.
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Bitcoin often dominates the financial news, riveting investors with its volatile price swings and appreciation potential. Getting far less attention, though, is blockchain, the database technology on which the cryptocurrency rests.
A blockchain is like an electronic ledger. Data can be entered into it, but cannot be altered or erased, giving it its much-celebrated property of permanency (and implied integrity).
Many blockchains have emerged since the first one that made bitcoin’s debut possible in January 2009. Some of these blockchains support cryptocurrencies like bitcoin, while others support multipurpose digital platforms — such as Ethereum — that work like decentralized versions of more traditional (i.e. centralized) platforms and networks.
Investing in blockchain technology has become a hot topic over the past few years. There are numerous ways to do it too, since blockchain technology doesn’t relate only to cryptocurrencies. It also encompasses:
- Companies that offer cryptocurrency-related services (such as crypto-exchanges, where you trade currencies)
- Companies that are building their own blockchains for other industrial/ business purposes
Let’s look at how to invest in such companies, along with the pros and potential pitfalls of blockchain investment.
What is blockchain technology?
A blockchain is a database that is usually operated by a distributed and public network of participants, although a growing number of companies have begun using or building private blockchains (also known as “permissioned” blockchains).
The purpose of such blockchains is to create digital records — of transactions, certificates, or contracts —that can only be added to, rather than changed or deleted. Rather than relying on a single entity to enter new information, they use a “consensus mechanism” that sees multiple participants use cryptography (the science of encrypting, or coding, data) to validate new entries.
“There’s no need for a third-party, such as a bank or a regulator, to verify actions because it’s a shared process, secured by cryptography. This removes intermediaries and creates a framework that improves trust, transparency, and efficiency across different, and very separate, organizations,” says Hadyn Jones, senior blockchain market specialist at PwC.
Why invest in blockchain technology?
It’s this promised improvement of trust, transparency, and efficiency that has transformed blockchain tech into an attractive investment…