“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” – Don & Alex Tapscott, authors Blockchain Revolution (2016).
The blockchain network has no central authority — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
Even though blockchain technology is very much appreciated for the last couple of years, while major companies and tech giants like Microsoft and IBM, and even the social media magnum like Facebook, have started working on different projects related to the foundational and perhaps disruptive technology that blockchain represents.
Perhaps blockchain wouldn’t even come as interesting to numerous start-ups and companies if it wasn’t for Bitcoin (BTC), the first application of blockchain that soon went to make its peak of 20k USD per one unit, and even sooner went down to the value of around 3,800$ with the November dip in 2018.
While investors seem to prefer to play safe with investing in blockchain through cryptocurrency and tokens, there are safer ways of investing in blockchain other than exchanging fiat for crypto.
How to Invest in Blockchain?
Cryptocurrency investments are still being made within the market of digital assets, while Bitcoin alone is worth above 70 billion dollars in total market capitalization concluded with March 2019, however, investors are looking for secure and safer investments where 10,000% of return won’t quickly turn into major losses of above -90%.
That is how investors are turning to ETFs as a much safer option for placing their investments, as here is where the risk factor appears to be reduced to the greatest extent possible.
ETFs are where investors can play with placing bets on development and evolution of blockchain instead placing their investments based on the hype.
Still, investing in blockchain by investing in blockchain-based start-ups is another one among favorite safer options as many of these start-ups have grown to become major players even outside the industry of blockchain by making partnerships with prominent companies that have a proven history of progress, growth potential and profit.
Cryptocurrency start-ups like Stellar (XLM), Ethereum (ETH), IOTA (MIOTA), Verge (XVG) and their top-rated crypto peers are already “borrowing” their technology to major companies or have managed to create a value for their platforms even outside the price in the market.
What is blockchain?
Before exploring how to invest in blockchain, it’s important to know its origins. The story more or less starts in 2008, when Satoshi Nakamoto published a paper on bitcoin and the idea for two people or companies to transfer payments without the need for a third-party financial institution.
The first bitcoin was mined in January 2009, and it didn’t take long before cryptocurrency hype began.
Today blockchain technology is being used in various industries, though it is still mainly used to verify transactions. The appeal is that this technology creates an unalterable record whose authenticity can be verified by anyone using the blockchain — not just a third-party financial institution like a bank.
A blockchain begins with a genesis block that births other blocks, or bundles of transactions. The parent block is always the previous block. The “tip” or “top” is the most recently added. The chain then becomes fossilized under layers of children and subsequent generations of grandchildren.
As mentioned, there are many different uses for blockchain. Unsurprisingly banking is one one of them, with other places it has been implemented including the cybersecurity, networking, internet of things and online music industries. More applications are seen emerging in the future.
How to invest in blockchain?
As blockchain technology continues to grow there will be many opportunities for investors. Blockchain is not a physical asset that can be purchased, so many are turning to other ways of getting exposure — here we run through two main options for how to invest in blockchain.
Stocks — Investing in stocks is the obvious place to start when thinking of how to invest in blockchain. Below are just a few for investors to choose from. For a more exhaustive list, click here.
360 Blockchain (CSE:CODE) — A company that invests exclusively in blockchain-based technology.
Atlas Cloud Enterprises (CSE:AKE) — This firm has a cryptocurrency-mining operation in Washington. It is focused on cheap electricity via industrial power, which it says will allow it to grow at a lower cost than its competitors.
BTCS (OTCQB:BTCS) — This company was the first publicly traded blockchain company in the US.
BTL Group (TSXV:BTL) — BTL Group’s blockchain services are used in a variety of industries, including banking and fantasy sports.
BLOK Technologies (CSE:BLK) — A company focused on investing in emerging blockchain technologies to support other niche markets such as supply chain management for the legal cannabis industry.
HIVE Blockchain (TSXV:HIVE) — A firm that looks to create a bridge between the blockchain market and traditional capital markets. It is strategically partnered with Genesis Mining, a cryptocurrency-mining hashrate provider.
Crowdfunding — While it might not be an immediate choice on how to invest in blockchain, crowdfunding platforms are an attractive way for investors to jump into blockchain investing. As Ameer Rosic, CEO of Blockgeeks, has said, crowdfunding is an easy way for innovative projects to obtain money.
This is where blockchain steps in. Rosic says blockchain crowdfunding allows startup companies to come up with their own digital currencies to sell. Examples of blockchain crowdfunding platforms include:
BnkToTheFuture — whose platform allows investors to invest in fintech companies and funds.
QTUM — which permits the execution of “smart contracts and decentralized applications.” It also provides easy ways for standardizing workflow for business and smart contract development.
Waves — a crypto platform for token assurance, transfer and blockchain trading.
How Bitcoin Blockchain Works?
As stated in our guide “What is Blockchain Technology?”, there are three principal technologies that combine to create a blockchain. None of them are new. Rather, it is their orchestration and application that is new.
These technologies are: 1) private key cryptography, 2) a distributed network with a shared ledger and 3) an incentive to service the network’s transactions, record-keeping and security.
The following is an explanation of how these technologies work together to secure digital relationships.
Two people wish to transact over the internet.
Each of them holds a private key and a public key.
The main purpose of this component of blockchain technology is to create a secure digital identity reference. Identity is based on possession of a combination of private and public cryptographic keys.
The combination of these keys can be seen as a dexterous form of consent, creating an extremely useful digital signature.
In turn, this digital signature provides strong control of ownership.
But strong control of ownership is not enough to secure digital relationships. While authentication is solved, it must be combined with a means of approving transactions and permissions (authorisation).
For blockchains, this begins with a distributed network.
A Distributed Network
The benefit and need for a distributed network can be understood by the ‘if a tree falls in the forest’ thought experiment.
If a tree falls in a forest, with cameras to record its fall, we can be pretty certain that the tree fell. We have visual evidence, even if the particulars (why or how) may be unclear.
Much of the value of the bitcoin blockchain is that it is a large network where validators, like the cameras in the analogy, reach a consensus that they witnessed the same thing at the same time. Instead of cameras, they use mathematical verification.
In short, the size of the network is important to secure the network.
That is one of the bitcoin blockchain’s most attractive qualities — it is so large and has amassed so much computing power. At time of writing, bitcoin is secured by 3,500,000 TH/s, more than the 10,000 largest banks in the world combined. Ethereum, which is still more immature, is secured by about 12.5 TH/s, more than Google and it is only two years old and still basically in test mode.
System of record
When cryptographic keys are combined with this network, a super useful form of digital interactions emerges. The process begins with A taking their private key, making an announcement of some sort — in the case of bitcoin, that you are sending a sum of the cryptocurrency — and attach it to B’s public key.
A block – containing a digital signature, timestamp and relevant information – is then broadcast to all nodes in the network.
Network servicing protocol
A realist might challenge the tree falling in the forest thought experiment with the following question: Why would there be a million computers with cameras waiting to record whether a tree fell? In other words, how do you attract computing power to service the network to make it secure?
For open, public blockchains, this involves mining. Mining is built off a unique approach to an ancient question of economics — the tragedy of the commons.
With blockchains, by offering your computer processing power to service the network, there is a reward available for one of the computers. A person’s self-interest is being used to help service the public need.
With bitcoin, the goal of the protocol is to eliminate the possibility that the same bitcoin is used in separate transactions at the same time, in such a way that this would be difficult to detect.
This is how bitcoin seeks to act as gold, as property. Bitcoins and their base units (satoshis) must be unique to be owned and have value. To achieve this, the nodes serving the network create and maintain a history of transactions for each bitcoin by working to solve proof-of-work mathematical problems.
They basically vote with their CPU power, expressing their agreement about new blocks or rejecting invalid blocks. When a majority of the miners arrive at the same solution, they add a new block to the chain. This block is timestamped, and can also contain data or messages.
The type, amount and verification can be different for each blockchain. It is a matter of the blockchain’s protocol – or rules for what is and is not a valid transaction, or a valid creation of a new block. The process of verification can be tailored for each blockchain. Any needed rules and incentives can be created when enough nodes arrive at a consensus on how transactions ought to be verified.
It’s a taster’s choice situation, and people are only starting to experiment.
We are currently in a period of blockchain development where many such experiments are being run. The only conclusions drawn so far are that we are yet to fully understand the dexterity of blockchain protocols.
More on this point in our guides “What are Applications and Use Cases for Blockchain Technology?” and “What is the Difference Between Open and Permissioned Blockchains?”
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