When you want to invest, it can be simple to just go with the same assets people have been investing in for years — like a mutual fund. On the other hand, you might just consider investing in the new, hip, trendy blockchain tech.
The Significance of Blockchain Technology
If you’re not familiar with the blockchain, here is a quick description of why it’s a truly promising asset to invest in.
How it Works
Let’s say that you request a cryptocurrency transaction. Your request is broadcast to a peer-to-peer network of computers, which are referred to as “nodes.” The nodes validate your transaction and your user status with established algorithms. Once your transaction is verified, it’s combined with others, adding a new block to the ledger. What’s more, this new block is added to the existing blockchain in an unalterable, permanent way. Your transaction is now complete.
Why it’s a Game Changer
What makes this whole sequence of events so remarkable is that there is no centralized financial system acting as a middleman and draining your funds with transaction fees. We are talking about an alternative to the centralized banking system that has dominated financial markets for centuries. The blockchain is an incorruptible digital system that can be programmed to record all financial transactions (as well as any other transaction of value, like contracts or records).
Yet the best is still to come. To date, the blockchain has been limited to Internet-based transactions, but location-verifying beacons will make it possible to conduct offline transactions in a decentralized location-oriented $11 trillion trade market.
5 Reasons to Invest in Blockchain Technology
Here are 5 reasons why you might choose blockchain over traditional investments.
- Investments are resilient. Generally speaking, economic turmoil and political unrest is not a good thing for the citizens of a country. The stock market, in particular, is likely to plummet because its values are tied to established corporations, who, in turn, rely on government services and the traditional banking system. However, cryptocurrency is not tied to a government-backed currency, nor to a nation’s centralized banking system. So, if you’re uncertain about the future, anticipating a time when governments and banks will not have your best interests in mind, it’s a compelling reason to put your faith in a decentralized currency.
- Investments are easy. All you have to do to take advantage of an anticipated increase in a future price increase is to buy your tokens from an online exchange. Transactions are quick and hassle-free because you won’t be burdened by heavy regulatory oversights.
- Investments are affordable. In terms of fees, cryptocurrency exchange fees are low-cost. On average, it’s about 0.2% of a transaction’s value. By comparison, a bank would charge you about 3% in fees when you buy anything in foreign currency. If you want to speculate with currencies, cryptocurrencies are the most cost-effective way to do it.
- Investments are based on a transparent system. When it comes to financial transactions, transparency is rare. Consequently, a lack of transparency can easily lead to corruption, ranging from hidden fees to outright theft. Since the blockchain is a consensus-based network, one that automatically self-monitors every 10 minutes, all transactions in a block, that is, a group of transactions, are rapidly reconciled every 10 minutes. Since the network is public, the only way to corrupt a transaction would be to disrupt the entire network, which is well-nigh impossible because there are tens of thousands of interlinked computers.
- Investments can produce an unbelievable ROI. How does a cryptocurrency investment stack up against a traditional investment? Let’s compare Bitcoin with the S&P 500 stocks. If you invested $10,000 in stocks from 2016, you would now have a total investment value of $12,000. That same $10,000 invested in Bitcoin would have yielded a $60,000 return.
Some Closing Advice
Yes, it’s arguably well worth investing in cryptocurrencies.
Although these five reasons may make you want to start investing as soon as possible, you should exert the same level of caution that you would if you were getting into a traditional investment. Tune out the stories that you hear in the media about how people are making a fortune in a short time from a particular type of cryptocoin. Instead, focus on learning everything you can about the blockchain so that you understand what this technology is all about and why it’s being touted as revolutionary. Then make small bets, investing only a little bit at a time, developing a feel for how the investment works.
Additionally, don’t forget to diversify. Even if you’re investing in the blockchain, it’s still a good idea to invest in something like a Roth IRA to build your retirement nest egg.
Photo Credit: The Drum
5 Reasons NOT to “invest” in cripto-currencies:
1. “Investments are resilient”. Resilience implies risk to the downside, as well as up. IMO, The downside risk is huge, right now.
2. “Investments are easy”. Right. And it’s “easy” to be the “fool who is soon separated from his money”.
3. “Investments are affordable”. Many investments, good and bad, are
“affordable.” Not much of a reason to invest.
4.”Investments are based on a transparent system”. Trouble is, “transparency” has not prevented hackers from stealing the “investment” and, once stolen, there’s no way to trace the theft and find the thief.
5. “Investments can produce an unbelievable ROI”. Or, an “unbelievable” plunge in price. See point 1, supra.
I’m with you, Grandfather. I don’t invest in cripto-currencies for the exact reasons you mentioned. I prefer more traditional investment classes, such as stocks, precious metals, and, my favorite, real estate. It’s true, my investments are not worth 6 times more than they were in 2016, but they also didn’t lose half their value a couple months back like bitcoin did. Personally, I put cripto-currencies in the category of oddities. If a person wants to “play around” and put a small amount of fun money into them, go for it. But as an investment, cripto-currencies, in my opinion, are in the same category as fancy green slips of paper, not the place to be.
I’m with you Jason – especially the real estate, because it’s useful as the basis for my lifestyle, not just an investment.
My issue with the cryptos is that unlike precious metals, they must be valued in terms of something else (i.e., typically the US dollar or another fiat currency). If fiat currencies eventually lose their value, then cryptos must be valued in terms of something else — most likely ounces of gold. Only then will everyone really know for sure the actual value of these cryptocurrencies.
Frankly, I do not believe gold holders will trade an ethereal bitcoin — or any other crypto for that matter — for any significant amount of physical metal. As a physical metal holder myself, I know I wouldn’t.
But, hey … I could be wrong.