Investors, business owners and entrepreneurs are increasingly involved in blockchain transformative technology. It is not only used in the financial sector; it has wide application in different kinds of industries. Therefore, everyone is looking for a way to invest in this future technology.
However, are virtual currencies an investment like any other?
Is Investing in Blockchain Technologies Still a Viable Idea?
The answer is of course yes. However, the year 2017 saw a Cambrian like explosion of blockchain assets. The market is now saturated with un-substantiated projects, or pale copies of existing projects.
If you’re just getting started in this niche as an investor, you must bear in mind that finding the latest technological nugget requires extensive research. It is important to understand the existing technologies and their limitations.
Likewise, the brightest minds in computing and distributed systems have all started their own projects. While they are experts in their field, entrusting your hard-earned dollars to an unknown development team is a risky bet.
In addition to the technical prerequisites, it is also necessary to have a good vision of the crypto-asset market. You should look for a project that has the potential to build a strong community.
Financial liquidity is also a crucial factor. Owning an asset that has achieved good growth, but without being able to take profits because of an illiquid market is a very frustrating experience.
Different Ways to Invest in the Blockchain Sector
Depending on your investor profile and your financial resources, there are different ways to buy into this sector.
1. Invest directly into the coin
One of the easiest ways is to invest is by purchasing the coins directly. To do this you would locate a trusted exchange platform, then just buy the token of the project that you find promising.
As you probably already know, a token is a financial, digital, and decentralized asset, conferring rights on its holder. These may be voting rights, or even act like or possess similar characteristics as traditional shares in the issuing company.
2. Invest directly in an exchange platform
Let’s say you want to invest in a blockchain project dedicated to decentralized exchanges (DEX). Some of the more well-known projects are Coinbase, FTX, KuCoin, or Kraken. Some of these are public listed companies that issue stock while others offer only tokens as equity vehicles.
Other smaller up and coming exchanges are Voyager Digital, or Big Digital Assets.
Exchanges are often considered a “picks and shovel” play on the crypto space. If you choose to invest it would be advised you research what steps they are taking to become compliant to the new tax reporting, Anti Money Laundering (AML), and Know Your Customers (KYC) regulations that are being actively developed with in government systems. These regulations and the ability to be fully compliant will separate the winners from the losers in the DEX marketplace.
3. Investing in Blockchain Development Companies
If you want to invest in blockchain technology directly, you can invest in companies that develop blockchain software and applications. This is going to be a very crowded space as everyone is looking to create the next solution for mass adoption.
Generally speaking, you have two options, companies that are commissioned to developing Decentralized Apps (Dapps), such as BlockchainFoundery, or projects that are handling development in-house to address niche market needs.
You will find projects that range from payment processors, tax-reporting, logistics of food delivery chains, decentralized peer-to-peer lending programs, solutions that streamline government operations, or even solutions that are empowering the music or art industry through various NFT applications.
The list goes on and it is recommended to perform extensive research and invest based on your individual risk tolerance.
4. Invest In Funds Dedicated to the Blockchain Sector
One way to invest in blockchain without the hassle is to go through a specialized investment fund. Most of the time, of course, you will need to have enough money: entrance tickets are often expensive.
But there are independent crypto funds allowing even small holders to invest in a range of projects selected by the managers.
Another way though not yet approved will be coin specific ETFs. These are expected to be available in the coming year as the government sorts out regulations.
Lastly are FinTech focused ETFs. These will often have companies that stand to benefit from the crypto sector as well.
5. Crypto staking to earn regular income
Some crypto currencies also make it possible to generate income by simply holding them. This is for example the case of Decred (DCR), Cosmos (ATOM), Tezos (XTZ) or even Algorandi (ALGO). This is called staking, a term derived from “proof of stake”, i.e. proof of possession. In exchange for holding locked tokens, used to validate transactions, the individual investor who holds them receives rewards (most often interest, or even token compensation).
The easiest way to get started in crypto investing is probably to start by buying bitcoin, the first blockchain in history. Once you are familiar with how it works, you can now try out Ether and discover the immense possibilities that Ethereum offers.
With a bit of experience, and with good theoretical knowledge and research on distributed protocols, you will be able to identify innovative and potentially profitable projects.