Investing and Blockchain: How Are They Connected?
| ByMasamitsu Hirai
Investing and Blockchain: How Are They Connected?
Over the last year, the concept of blockchain has been consistently present in the media. Blockchain is mentioned in financial news just as frequently as in tech news. So why did distributed ledger technology spread from occupying the thoughts of tech geeks to engaging bankers and then everyone who has any interest in profit?
In the broadest sense, blockchain is a decentralized data encryption system. Today it is the newest and most cutting-edge method for storing and transferring data. It allows for direct communication between the two participants in the process, and all of their actions are recorded in separate data blocks following specific rules. The sequence of actions is encrypted and remains recorded forever.
The creation of new data blocks results in the expansion and updating of the entire data register. But since information on the changes is stored directly on the usersí machines, you can't change the entire register. The result is a form of data storage that is unprecedented in its reliability and security, making it possible to remove various middlemen from the interactions.
In other words, the role of banks may significantly change in the future, and the exchange and storage of documents and personal data, of any information that requires speed, reliability, and confidentiality in processing, will no longer involve any outside parties. In fact, that is blockchain's strength: decentralization (i.e. no outside party) coupled with absolute reliability. That was what the financial industry valued most, and it was the first sector to apply blockchain.
Today, blockchain is being used to create lots of projects, including medical databases and stores of legal content, and the technology continues to be developed. This is a revolution on a societal scale, and a revolution in the creation of large data stores, such as for geneticists or government agencies storing huge volumes of citizensí confidential information. But for now, the primary drivers for developing blockchain are still all kinds of financial products.
Blockchain achieved worldwide fame through the first currency founded on it: Bitcoin. We all remember Bitcoin's miraculous growth. Without having to look too far, let's recall its price movements last spring.
Someone who bought Bitcoin on a cryptocurrency exchange at $6,900 in early March and sold at $8,900 in early April would have made almost 30% in profit. So the first way to invest in blockchain is to buy cryptocurrency and speculate on its price.
In addition to Bitcoin, several other cryptocurrencies have gained international fame, including Ethereum, Litecoin, and other altcoins. Cryptocurrencies can be purchased directly on cryptocurrency exchanges, of which there are over 300 in the world as of early 2018.
For now they reside in legally gray area: they are outside the jurisdiction of any country and have no regulation beyond their internal rules. This is why you have to understand the associated risks when using these platforms.
However, some official exchanges have already begun trading Bitcoin futures, including the major international derivative exchanges CBOE and CME. There, trading takes place in a legal framework, overseen by the US SEC, and is accessible to investors from around the world.
Another option for investing in blockchain is investing in developing projects. Today, any startup that uses blockchain in its project can attract investment from individuals interested in that kind of project, rather than seeking out angel investors or getting bogged down in securing business loans, as they would have before.
Usually it goes like this: the project emits its own cryptocurrency (token) and announces its sale. This process is called an initial coin offering. Any investor who believes in the concept and performance of the given project and plans to earn a profit from its future growth can purchase these tokens. As a general rule, token holders can use the tokens within the project to pay for certain services. This option requires rational and engaged investing, meaning that it demands the investor's participation. After the project is developed and the tokens increase in value, you can also sell them for a profit.
Finally, the third, most traditional method for investing in blockchain technology is to purchase shares in high-tech companies on the stock market. As they develop on the basis of blockchain, they launch IPOs and issue securities on official and long-standing trading platforms. In this case, you would be completely protected by laws and regulations. There are not many blockchain-related companies who have issued stock, but they exist.
Thus, while blockchain is taking over the world, you can certainly profit from it, whether through traditional means or through quite innovative ones. There already exists a variety of options, and we're sure that new interesting methods will appear in the near future.