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 is a network of stored files in which every transaction is recorded. Blockchain was developed from the distributed ledger concept, but it enhances public use and security. Programs are used to confirm, validate, and archive information, and they can be accessed in near real-time by all participants.

In general, there are four broad areas for you to consider investing in: cryptocurrency itself, investment instruments linked to or holding cryptocurrency, non-fungible tokens, and businesses 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 is 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.

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 interests you.

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.

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 in the background. Blockchain technology is being used to create an infrastructure designed to restore privacy, ownership, and control to the masses.

Here are some of the emerging theories on how Web 3 will benefit everyone using blockchain technology:

• Your personal information will not be available to anyone you want 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.

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.

Emerging and Future Developments

Following Bitcoin’s release, the products that have emerged using blockchains have been at the center of most people’s interest. There isn’t much left to tokenize that hasn’t already been attempted, and new cryptocurrencies do not gain much attention because they are just more of what is already available. Decentralized applications and decentralized financial services are more common.

Blockchain developers continue to work on scaling issues, transaction throughput, centralization concerns, and more—with new blockchains emerging all the time. But similar to the cryptocurrencies created using blockchains, more blockchains are just more of the same.

Web 3 development is underway, but whether it will gain traction is unclear. There is still a long road ahead and developers face many challenges—primarily convincing those who have monetized the web’s infrastructure to release their interests in favor of allowing the dream of decentralization to be realized.

Blockchain development, as the average person understands it (the underlying technology behind cryptocurrencies, decentralized applications, technology behind Web 3) is expected to continue growing, but it’s possible that it will slow in favor of newer technology.

If the Blockchain Boom Stalls, What’s Next?

Blockchain brought about the realization that data and information can be immutable and accurate. Next came developments in artificial intelligence, which progressed as rapidly as blockchain did after Bitcoin was popularized.

Latest developments point to a merger of three technologies—immutable and accurate data, smart contracts, and artificial intelligence. The theory is that, eventually, this merger will bring authenticity to data, augment businesses with vast amounts of internal and external data, automate many costly processes, and reduce the time needed in decision-making by providing accurate and data-backed recommendations.

For businesses, this translates into reduced costs and streamlined operations. For investors, it means companies that invest in incorporating blockchain and AI solutions are likely to be more accurate in reporting, more profitable, and more trustworthy.

To remain competitive, businesses are going to need blockchains backing them because they create trust and can automate many processes. Artificial intelligence can analyze vast amounts of data and facilitate decision-making or even initiate smart contract execution, speeding up processes tremendously.

Small businesses won’t be able to keep up, so they will need to determine if they could benefit from blockchain+AI-as-a-service solutions, another emerging service.

Quite possibly, the next iteration of blockchain development will be an industry that combines all blockchain and AI developments. This industry is expected by some to grow exponentially in the near future.

Is the Blockchain Market Growing?

The blockchain market has continued to grow since it first became mainstream. It is expected to continue growing, but there are many exciting developments that could diminish or overshadow its rate of growth.

Is Blockchain the Future or Just a Fad?

Blockchain, as it has been known since 2009, was a starting point for future developments, much like any new technology. As it ages, more blockchain uses are being discovered and developed, so it is unlikely that it will fade into oblivion.

Does Blockchain Have Any Future?

Blockchain started a revolution in the way data was stored, accessed, verified, and secured. If developments to combine it with AI and other technologies are an indicator, blockchain will change but not disappear, much like computers changed from room-sized calculators to the small, multi-tasking, multi-use, connected, and fast devices we use now.

The Bottom Line

Blockchain is the technology behind cryptocurrency and is where most development and research are 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 induces the most change and stays 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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