Blockchain technology is starting to play a significant role in our financial futures. There’s a lot of skepticism surrounding the idea of investing in blockchain. But the crypto industry as a whole is being met with a lot of doubt with people questioning NFTs and cryptocurrency in the same ways.
Today, we are going to walk you through the basics of blockchain technology and give you some ideas on how to invest in blockchain.
What is blockchain technology?
Blockchain is a type of database most commonly associated with cryptocurrency, although you are likely going to start seeing it align with many other industries in the future. The most basic purpose of blockchain is to act as an alternative ledger to traditional banks.
It helps if you view blockchain technology as a literal chain. Data is stored in blocks on various servers, and this data is chained together. New data is added to the database over time, and each new block is added to the chain in chronological order.
This chronological nature of blockchain technology makes it nearly impossible to change the blockchain database and break the chain. Let’s explore what that means!
How does blockchain technology work?
One of the most prominent features of blockchain is that it is decentralized. That means the database is not stored in one area, but rather, it is located within many different servers and computers worldwide.
These computers run a blockchain peer-to-peer program, and each location of these blockchains is called a node. So, anytime the blockchain is altered, the majority of nodes have to unanimously agree on the change. The blocks in the blockchain maintain accuracy by being connected and agreeing on changes as a team.
Is blockchain safe?
Yes. Despite the collective doubt surrounding this new form of technology, blockchain is safe, just like cryptocurrency. The decentralization of blockchain makes it difficult to hack because the hacker would have to hack into all of the nodes rather than just one primary computer.
That doesn’t mean that blockchain is 100% safe. However, it’s as safe as possible, as it would be nearly impossible for someone to hack into a blockchain.
Important blockchain features
Now that you know some of the basics of blockchain, let’s weigh the pros and cons. Understanding the positive and negative sides of blockchain technology can help you better understand the process of investing in blockchain.
Advantages of blockchain
Blockchain is decentralized, which is at the core of blockchain’s advantages. Since blockchains exist all over the world, they are inherently global.
Blockchain is also secure. It is nearly impossible to hack or alter blockchain technology without the majority of decentralized nodes validating the process. This keeps blockchain accurate and easy to repair when something goes awry.
Blockchain is also one of the most transparent ways to keep records due to its decentralization. There are so many ways to access blockchains.
Disadvantages of blockchain
There are a lot of disadvantages to blockchain investing, the most glaring of which is the tremendous costs associated with maintaining blockchain technology. It takes a lot of energy and money to power blockchains. For example, mining cryptocurrency, like Bitcoin, can become costly very quickly. We already know that energy costs will have grave consequences on our future if we do not find more widespread sustainable options, so that is a major downside to blockchain technology and its growing popularity.
Example of blockchain technology
Where else do we see blockchain technology used in the world besides as a cryptocurrency ledger? Well, the applications are endless. Industries that need a secure and accurate reason to keep records will be attracted to blockchain technology.
For example, blockchains are implemented within the real estate industry to record the buying and selling of property. The process has become very complicated and expensive, but blockchain technology makes it easier. Many of the reasons this process has become so expensive are the amount of effort it takes to verify ownership of property and the documentation of changing ownership, while blockchain technology can simplify this process.
Blockchain vs Coinbase
Before we get into the blockchain investment strategies that we promised you, we need to clear up some confusion about Coinbase, which Coinbase is the lead cryptocurrency exchange in the U.S.
So if you liken cryptocurrency to the stock market, the NYSE is comparable to the blockchain ledger. With that line of thinking, Coinbase would be the intermediary that allows you to buy crypto.
4 blockchain investment strategies
So, you’re interested in investing in blockchain technology? Great! Here are some places to get started.
1. Crypto ETFs
Just like traditional exchange-traded funds, crypto ETFs bring more diversification and stability to your investments. Crypto ETFs are a mix of cryptocurrencies and ETFs. However, crypto ETFs are listed and tracked in more conventional places like the NYSE. This makes them a little more mainstream, less volatile, and more regulated than traditional crypto.
2. Blockchain penny fund
Blockchain penny funds do exist, and they are similar to penny stocks. Bitcoin is not the only cryptocurrency out there. People can trade cryptocurrencies at low rates, but it’s important to note that this is a very volatile and high-risk approach.
3. Blockchain crowdfunding
Crowdfunding has become commonplace in today’s world, and it is especially prevalent in the tech world. This means that many people invest capital as a way of getting started. The idea behind blockchain crowdfunding is that people are granted early access to purchasing coins. The hope is that when the cryptocurrency becomes publicly available, it will go up in value.
4. Stockpile cryptocurrency
This one is the most basic blockchain investment strategies, but the principles date all the way back to the era of gold and silver trading. Cryptocurrency stockpiling is no different from accumulating gold. It is just a matter of supply and demand. Investors forecast the rise of crypto, and many people feel compelled to get in on the ground floor with cryptocurrency.
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