Investing in cryptocurrency can seem very risky right now. After all, many coins have crashed. It’s hard to tell which cryptocurrencies will prevail. But what if you could invest in blockchain technology?
When you invest in blockchain technology, you might be able to make money — even if cryptocurrencies never become widely adopted. As always, you need to be careful, though. Blockchain technology is new. Companies developing it might be a little risky.
Make sure you review your portfolio goals and risk tolerance. Additionally, be especially careful as you vet companies. Once you’re ready, here’s how to invest in blockchain technology.
Invest in Blockchain Technology: Private vs. Public Blockchain
There are two main types of blockchains: private and public. Even though blockchain technology allows for decentralization, not every blockchain has decentralized ownership.
- Companies own private blockchains. They can invite you to join the network. These are centralized. For example, a company might store its records on a private blockchain. Supply chain management is one application for blockchain technology, and a company would likely want its network kept private.
- Public blockchains are generally accessible. Anyone can join the network. A public ledger records transactions. These blockchains are permissionless and trustless. They allow people to engage directly in transactions without a third party managing them.
When deciding how to invest in blockchain technology, pay attention to the company and how it uses the technology. When investing in public blockchains, you can pretty much only buy the associated cryptocurrency. However, if you see a company developing private blockchain technology and you think it will enhance your portfolio, that’s where you have the potential to see gains beyond cryptocurrencies.
Because corporations or nonprofits run most private blockchains, cryptocurrencies and the incentives that come with them aren’t necessary to “power” the blockchain.
How to Invest in Blockchain Technology
You can’t invest directly in a blockchain (unless you join a decentralized autonomous organization or DAO). However, getting exposure to blockchain technology in your portfolio is possible.
Several startups plan to develop and use blockchain technology. Some of these shares trade in the OTC markets. Other companies require private investment. These are a bit riskier since they don’t have a track record. However, if you can get in early, you can potentially make significant gains.
Some established companies offer blockchain technology services. For example, blockchain as a service (BaaS) is a way for companies like Microsoft (MSFT) to help other companies perform tasks using blockchain technology.
Other established companies are using blockchain technology as well. Companies that are developing metaverse applications often use blockchain technology. You could invest in blockchain technology using Meta (FB) or other companies.
Even some banks are looking into blockchain technology to speed up transactions. One such bank is JPMorgan (JPM). They’ve been experimenting with blockchain technology for years. In addition, the payment processor Visa (V) is also looking at the technology.
Don’t want to pick stocks? Exchange-traded funds (ETFs) do the heavy lifting on your behalf. For example, some ETFs focus on blockchain technology. So when you invest in these ETFs, you invest in blockchain technology. Many of these ETFs also include a mix of other technology companies, so you get exposure to different aspects of the market.
Finally, you can buy cryptocurrencies. Choosing a cryptocurrency associated with a blockchain network shows confidence. Some people view buying cryptocurrencies as investing in that network.
However, investing in crypto assets is considered riskier than in companies developing blockchain technology. When choosing a cryptocurrency, consider the blockchain network and whether it’s solving a problem. For example, Ethereum (ETH) is valuable because of its smart contract capability. On the other hand, Bitcoin (BTC) derives value from its market share, even though other chains can process transactions faster.
There are altcoins with interesting use cases, including connecting blockchains and doing more than just processing transactions.
Turn to the Internet of Things
Finally, you might be able to invest in companies using blockchain technology to power the internet of things. These are smart devices connected to the internet. One company, Helium, produces hotspots designed to connect devices to the internet, even in areas where wifi isn’t generally available.
However, investing can be a little more complicated. For example, you can buy a hotspot, and providing the coverage with the hotspot results in rewards with tokens (HNT). However, the only way to benefit is to sell HNT on an exchange that accepts it. However, using Helium is not an appropriate approach for most beginners.
There are different ways to invest in blockchain technology — even if you avoid cryptocurrencies. So while cryptocurrencies can be one way to benefit from blockchain technology, you do have other choices that can be profitable.