How to Invest in Blockchain The Real Way
A few decades ago, most people couldn’t wrap their heads around the Internet or define what it was. In fact, most people probably still can’t do that today. Sure, you might be able to say that you need the Internet to read this article, stay connected with your friends on social media, order things online, and read online reviews of businesses, but could you really explain how it works?
Yet, the select few who were able to understand the Internet - or at least realize its potential - and invest in it by buying Internet stocks as one example, multiplied their wealth substantially.
Right now, at this moment, the blockchain is in a similar position. It’s the early days of blockchain, not many people understand what it is, but a few do or at least see the potential. And who knows? They, like the early Internet pioneers, might be rewarded with tremendous profits for their vision and belief.
With that being said, here’s how to invest in blockchain.
Note: if you’re reading this, we’re assuming that you already have a basic understanding of blockchain. If not, Investopedia’s blockchain guide is a good overview.
How to Invest in Blockchain Stocks
If you want to know how to invest in blockchain without buying Bitcoin and other cryptocurrencies, which might be a little speculative for your tastes - though the “How to Invest in Blockchain via Cryptocurrency” section might change your mind - buying blockchain-related stocks is a good way to get exposure to blockchain technology.
If you don’t already have an investment account, open an online brokerage account with stock brokers like TD Ameritrade, E*TRADE, Charles Schwab, or Fidelity Investments.
After you’re up and running, these stocks might be worth taking a look at:
It’s hard to mention blockchain without mentioning IBM. Although IBM largely missed out on cloud computing, which saw competitors like Amazon Web Services turn IBM’s service-based business model upside down, IBM has seen the error of its ways and has been investing heavily into the development of blockchain technology.
IBM has the 2nd most blockchain patents in the world. Moreover, in conjunction with Maersk, the largest container ship and supply vessel operator in the world, it’s created TradeLens, a global shipping supply chain platform that uses blockchain technology to improve global shipping networks, which are often slow, costly, and use manual or paper-based systems.
Food Trust is another big project IBM is working on with the likes of Walmart and Nestle that will use blockchain to track food supply chains from farm to supermarket in real time in an age where consumers are increasingly conscious about how their food gets sourced.
These kinds of projects are only scratching the tip of the iceberg, as IBM has hundreds of blockchain-based clients and partnerships.
While IBM’s stock price might not be taking off like the other stocks listed below, it’s clear that the technology titan is betting big on blockchain. Given its deep pockets, talent pool, and aforementioned clients and partnerships, IBM stands firmly at the center of blockchain growth and expansion and likely will not miss out on blockchain like it did earlier technology trends.
Mastercard is a huge payments processor that processes payments between banks of merchants and banks or credit unions of customers who use Mastercard debit, credit, and prepaid cards.
Since that means Mastercard is a middleman, it might sound counterintuitive to invest in blockchain by buying $MA given that one of the main reasons blockchain technology is significant is its potential to cut out middlemen in many industries.
However, Mastercard has been very active in researching the potential of blockchain for its business, as it has the 3rd most blockchain patents in the world, behind IBM and Alibaba.
Mastercard is investing heavily in blockchain for a number of reasons. One is international money transfers. Normally, international payments take forever and have high fees since they usually have to go through various intermediary banks before they reach their destination.
Mastercard is trying to eliminate this need for intermediaries by using blockchain to directly connect banks for faster payments processing.
Another reason Mastercard is betting big on blockchain is for its potential to improve supply chain processes. The transparency of blockchain can help both businesses and customers track things like food all the way from the source to a consumer’s table. Indeed, this is exactly what Mastercard is working on with Provenance, to help supermarkets highlight and track the origin of seafood, among other use cases.
Mastercard isn’t going to be left behind by blockchain and is trying to adapt and see where it can use blockchain in its vast business operations.
Nvidia is a technology company that’s mainly known for designing graphics processing units (GPUs), which can be used to mine cryptocurrencies. Mining is a process by which users with hardware, such as GPUs, central processing units (CPUs), and application-specific integrated circuits (ASICs), validate cryptocurrency transactions and receive cryptocurrency rewards for doing so.
Needless to say, with the beginning of the 2017 cryptocurrency bull run, which had its beginnings in 2015 and thrusted both blockchain and cryptocurrency into the mainstream consciousness, demand for mining equipment skyrocketed. As did the stock prices of mining equipment manufacturers like Nvidia:
The cryptocurrency craze of 2017 in particular drove up GPU prices, with prices of popular GPUs nearly doubling or more. Yours truly saw this in action, as I was able to sell a used gaming PC for basically the price I bought it at (PC parts usually depreciate in value very quickly).
While there are forms of transaction validation less computationally-intensive than mining in the works, they are largely unproven, and it’s likely that demand for GPUs will grow even larger, as cryptocurrency becomes more and more popular.
Advanced Micro Devices (AMD)
AMD, like Nvidia, produces computing equipment that can be used to mine cryptocurrencies. Like Nvidia, AMD’s stock has taken off considerably:
Considering that AMD and Nvidia have a duopoly in the GPU market, it’s not unreasonable to expect that their stocks grow increasingly valuable with the continued popularity of crypto mining. AMD also manufactures CPUs, which are used to mine some cryptocurrencies like the popular privacy crypto Monero.
Taiwan Semiconductor Manufacturing Company, Limited (TSMC)
TSMC is the world’s largest semiconductor factory. Similar to AMD and Nvidia, it, too, has benefitted from the cryptocurrency boom, by being a major supplier of ASIC chips to crypto mining ASIC manufacturers, such as the mining juggernaut Bitmain (which is currently a privately owned company).
How to Invest in Blockchain ETFs
Don’t want to deal with investing in individual stocks? If so, there are already multiple, low-fee exchange-traded funds that invest in a basket of companies using blockchain. Moreover, these ETFs don’t just deal with dubious companies you’ve never heard of; they hold many blue-chip companies you’ve heard of, such as IBM, which we mentioned, as well as others like Microsoft and Goldman Sachs.
Reality Shares NexGen Economy ETF (BLCN)
A product of a partnership between Reality Shares and NASDAQ, the NexGen Economy ETF invests in large-cap technology stocks in developed markets around the world. Major holdings include AMD, Fujitsu Ltd., and Microsoft. The ETF charges 0.68% in expenses, which would come out to $68 annually on a $10,000 investment.
Innovation Shares NextGen Protocol (KOIN)
KOIN is another large-cap ETF similar to BCN with major holdings that include Intel, Microsoft, and Salesforce. The expense ratio for this ETF is a bit higher than that of BLCN at 0.95%.
Amplify’s Transformational Data Sharing ETF (BLOK)
The BLOK ETF features holdings like Taiwan Semiconductor, Square (CEO Jack Dorsey is a huge Bitcoin fan and is also the Co-Founder and CEO of Twitter), and Overstock (another company betting big on blockchain).
Although Amplify’s ETFs are known for being index funds with positions that usually don’t change, BLOK is actively managed to adapt to the rapidly changing blockchain space. That being said, annual fees aren’t too bad at 0.7%.
How to Invest in Blockchain Startups
While you can gain exposure to blockchain by investing in stocks and ETFs, the truth is, most of the most innovative companies in blockchain aren’t big enough to be publicly traded yet.
Investing in blockchain startups via platforms like BnkToTheFuture could be a good idea if you meet investing requirements (usually involve high net worth and/or income).
If you don’t meet startup investing requirements, you could look at crowdfunding campaigns on sites like SeedInvest as an alternative.
How to Invest in Blockchain via Cryptocurrency
Of course, no mention of blockchain is complete without cryptocurrency.
While crypto might seem a bit risky or volatile for most, the fact remains that Bitcoin is the best investment of the last decade, garnering 12 million percent returns (not a typo) for those who bought in early 2010. Crypto as a whole has done well, too, with crypto assets being the world’s best performing asset class of 2019, even beating the stock market, which had been on a tear until the coronavirus market crash of March 2020.
But what about the volatility you ask? Indeed, in 2018, the price of Bitcoin crashed by over 80% (with other crypto assets losing even more of their value). However, this has happened multiple times. In fact, Bitcoin has even crashed more than 80% within the span of a few days before, as detailed in our Bitcoin crash history article.
If you take a look at the below chart, which shows the Bitcoin price since around 2010 (Bitcoin launched in 2009), you’ll see that the 2018 cryptocurrency crash is but a small blip on a trajectory that is without a doubt trending upwards over the long term:
If you remain focused on the long term, you might just be one of those “lucky” crypto investors. But is it really luck when any Bitcoin investor since 2010 who’s held Bitcoin for 3.25 years has seen a positive return?
...Now that we’ve got your attention 😉, here’s what you’ll need to get started:
- For most, the easiest way to buy some cryptocurrency is through a centralized exchange service like Coinbase, Kraken, Gemini, or Bitstamp.
- Afterwards, you should store your crypto in a wallet that you control since exchanges regularly get hacked - in 2019 alone, 11 major exchanges got hacked and lost $117 million+. The exception to controlling your own money is if you don’t trust yourself to keep your money safe.
Bitcoin by itself should be good enough for most, as it’s the “least risky” investment in a space known for volatility. While you might see higher returns from altcoins (crypto assets that aren’t Bitcoin) and ICOs, these are hard to catch unless you’re actively involved in the fast-moving crypto space.
Regardless of what people think, it’s clear that blockchain is becoming a larger and larger part of our everyday discourse. It’s natural that you, as an investor, are trying to learn how to invest in blockchain, like those who invested early in technologies, such as cars and the Internet.
While there’s more than one way to invest in blockchain, the methods we’ve detailed in this article should get you started.
Last time I checked, no one spends billions of dollars on anything unless they expect a return. Therefore, it’s very likely that blockchain is here to stay, despite what detractors might say.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.