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Investing in the Blockchain

There are numerous ways to invest in blockchain since it does not relate solely to cryptocurrencies. It also covers businesses that provide cryptocurrency-related services and developing blockchains for other business purposes.

Cryptocurrency has captured the finance industry's interest, especially after businessman Elon Musk affixed his stamp of approval. Since then, crypto, specifically bitcoins, have completely fascinated investors with its appreciation potential and volatile price swings.

Behind every cryptocurrency is a unique technology called blockchain, which is a specific type of database. A blockchain is akin to an electronic ledger. Users can enter data into it, though they cannot erase nor alter it to give it the property or permanency and integrity it is known for. 

Various blockchains have surfaced since the initial one that made bitcoin's appearance possible in 2009. Some of these blockchains support cryptocurrencies like bitcoin. Others reinforce multipurpose digital platforms like Ethereum that act like decentralized forms of more traditional programs and networks.

We will look at how to invest in blockchain, but first, let’s define what it is.

What is blockchain?

A blockchain is a unique type of database that stores information in blocks chained together, hence the name.

If you are wondering what a database is, it is a set of data that is stored electronically on a computer network. Information in databases is usually structured in table format to permit easier searching and filtering for a particular data.

A database is created to store large amounts of information that several users can easily access, filter, and manipulate. It is in contrast to using a spreadsheet. Spreadsheets are created for a single person or a smaller group of people to record and access a limited amount of data.

The reason behind such blockchains is to generate digital files of transactions, documents, or contracts that can only be added to, rather than altered or omitted. Instead of relying on a particular entity to introduce new information, they use a consensus mechanism that recognizes different participants and use cryptography to verify new entries.

What makes blockchain a unique database?

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  1. Storage structure

A significant difference between a blockchain and a typical database is the way data is structured. Blockchains collect data in groups that store sets of information called blocks. When these blocks are filled, they are linked to a previously filled block to form a chain.

All new data that follows the newly added block is collected into a freshly formed block that will then be included in the chain after it is filled. A database, on the other hand, structures its data into tables.

This system naturally causes a permanent timeline of data when carried out in a decentralized way. When a block is filled, it can never be changed and becomes a part of this timetable. Each block is given a specific timestamp when it is included in the chain.

  1. Decentralization

To further understand blockchain, let us take bitcoin as an example. Bitcoins need a group of computers to store their blockchain. A database works the same way. 

Bitcoin is just a particular type of database that keeps every Bitcoin transaction ever made. In this blockchain situation, and unlike most databases, the computers operating them are not all in one place. Each group of computers is administered by a particular individual or group of individuals. These are known as nodes.

In this model, Bitcoin is utilized in a decentralized manner. Every node in the network has a complete record of the stored data. If a single node reports an error in its data, it can call on all the other nodes as a reference to correct itself. There is no specific node that can change the information stored within it. That makes the history of transactions in each block irreversible.

  1. Transparency

Due to its decentralized nature, all blockchain transactions are transparent. You can view them by using an individual node or blockchain explorers to allow you to see transactions as they happen.

Each node has its individual copy of the string that gets updated as new blocks are established and added, meaning you can track Bitcoin wherever it goes.

Is blockchain secure?

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Blockchain accounts for security in many ways. New blocks are stored linearly and chronologically. A block is always added at the end of the chain, making it hard to change previous blocks' contents. 

Each block contains a unique hash code. A hash is designed by a math function that turns digital data into a string of letters and numbers. Changing this data also changes the hash code.

If a cybercriminal wanted to change the blockchain and steal Bitcoins, it would no longer align with everyone else's copy. When other people in this chain discover that one copy had been altered, they can report that as illegitimate. 

For a hacker to succeed, he needs to alter and control 51% of the copies of the blockchain so that his copy becomes the majority. Therefore, it would take a large amount of money for a hacker to pull this stunt off. Moreover, it would not go unnoticed by other network members.  

Investing in blockchain

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There are many ways to get involved in this sector other than simply purchasing and trading cryptocurrency. One way to invest in the blockchain is to purchase shares in a publicly-traded company that uses or builds blockchain technology or works with cryptocurrency.

Here are some of the more popular publicly traded companies.

  • Amazon
  • Intel
  • IBM
  • Mastercard
  • DocuSign
  • Honeywell
  • JPMorgan
  • Canaan
  • Silvergate

Here are some additional cryptocurrency-related companies you can consider.

  • Paypal
  • Grayscale
  • Square
  • MicroStrategy
  • Intercontinental Exchange
  • CME Group
  • Overstock

Buying blockchain funds

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Another way is to invest in blockchain funds. Many investors include MFs and ETFs as part of their portfolio assets as they offer automatic diversification.

There are many blockchain ETFs available now that invest in corporations with blockchain technology. These include the following. 

  • Reality Shares Nasdaq NexGen Economy ETF
  • Amplify Transformational Data Sharing ETF
  • Goldman Sachs Finance Reimagined ETF
  • Innovation Shared NextGen Protocol ETF

Tips on investing in blockchain

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  1. Research

With the popularity of blockchain skyrocketing, there are now plenty of companies claiming to be involved in blockchain. Some companies use the technology more than others. Doing your due diligence weeds out the pretenders.

  1. Look at blockchain as a high-risk, high-growth sector.

Blockchain stocks are a high-growth sector, but they can expose you to plenty of uncertainties. It would be better for you to invest only a small percentage in this industry and diversify in other areas.

  1. Be up to date with new laws and regulations

Watching out for new regulations is also essential. New legislation may significantly affect blockchain-focused businesses. 

Conclusion

Blockchain presents an exciting field that may impact various sectors in the economy moving forward. Its potential has caught the imagination of investors worldwide. These investors are focussing on businesses that offer cryptocurrency services or investing in cryptocurrency rather than just concentrating on companies that use blockchain technology.

Blockchain ETF investing is also a great strategy because it covers a wider range of companies, something investors should also consider.  The technology, regulations, and tax legislation in this sector are evolving at a rapid pace, so be sure to stay up to date in order to protect your position.