Blockchain technology has become more popular as individuals recognize its benefits in building wealth. This tech has become one of the most burning developments in recent years, with its ability to provide transparent, secure, and decentralized solutions. However, like any emerging trend, investing in blockchains can be risky.
As such, deepening your understanding of this tech before investing your hard-earned money is essential. So, what does blockchain have to offer its users and investors?
What is Blockchain?
Blockchain technology is a digital ledger that records transactions and tracks assets transparently. It’s a publicly available record book that contains information no one can modify after it’s added. Since changing the logged data is near impossible, it reduces security and accuracy risks for individuals, businesses, and entities requiring transparent ledgers.
The world generally runs on information. So, faster and more accurate data transfer is always better—something blockchain enables. This system isn’t only beneficial for business transactions. Thanks to its inherent accuracy, many people use blockchain networks to track orders, payments, accounts, and more.
You may ask, why is it called blockchain? It’s essentially a set of blocks connected like chains in a specific order. Each block stores a group of transactions, after which it connects with the previous ones to prevent alterations.
One of its selling points is that it’s entirely decentralized and unregulated—no entity “owns” it. That said, moderators may require special permissions or private keys to view sensitive information, which means blockchain is transparent and safe.
Key Facts about Blockchain Investments
Business investments in this technology are witnessing an all-time high. Statista forecasts blockchain technology’s global market size to grow more than 100 times its current market size—up to $163 billion by 2027. This number shows how blockchain is one of the fastest-growing tech trends today.
Blockchain technology is also popular among cryptocurrency users. As virtual currencies become widespread, the top ten crypto wallets (including Coinbase and Binance) saw a usage spike during January 2021 with 5.6 million downloads—a staggering increase from the previous month’s 2.2 million. Businesses should expect more crypto transactions as blockchain becomes more accessible.
Moreover, the banking sector is the quickest to invest in blockchains. According to Statista, the industry holds roughly 30% of blockchain’s entire market value. As such, other financial institutions must keep up and do the same to remain competitive. On the same note, 45% of companies working with secure information exchange leverage this tech, making info exchange its top use case.
5 Pro Tips for Blockchain Investments
Since investing in new trends usually entails considerable risks, take measures to ensure you’re doing the right thing. Here are a few blockchain investment tips to help you out.
1. Leverage blockchain stocks
Consider trading stocks of companies involved in developing and implementing blockchain technology. As mentioned, blockchains are becoming one of the biggest markets in tech. And you can ride this wave by leveraging these securities. In turn, you can tap into companies at the forefront of blockchain adoption and reap from their growth.
An advantage of blockchain stock investments is their exposure to various industries. This technology impacts multiple sectors and is on the way to influencing more, allowing investors to diversify their portfolios across different sectors. However, remember that blockchain tech is still in its early stages. So, there’s no guarantee that more businesses and consumers will immediately catch on to the trend.
2. Trade cryptocurrency
Trading cryptocurrency is arguably the most common way to invest in blockchain technology. Given their high volatility, cryptos offer substantial returns quickly. As such, they are the most attractive to investors with high-risk appetites and short-time horizons.
However, extreme price fluctuations also mean you can suffer back-to-back losses that are difficult to recover from. There’s also no underlying asset justifying crypto’s value because it primarily reflects market supply and demand. You can avoid these losses by diversifying your portfolio to minimize the impacts of the market’s volatility and security risks
3. Diversify your portfolio
As a newly emerging technology, blockchain and crypto are highly volatile. These new technologies may entail enormous risks. Even if your investment does good today, it may take a turn for the worst tomorrow without warning—so managing these risks is essential. A practical approach is diversifying your portfolio, where you invest in multiple blockchain and crypto entities instead of one.
Consider investing in multiple currencies. If the value of one plummet, you’ll have other ones to recuperate losses. Also, look for well-performing companies involved in different sectors of the blockchain industry to reduce exposure to any single area. However, while diversification is good, avoid spreading your investments too thin. Otherwise, you may fail to maximize returns.
4. Hedge crypto trades
Hedging is an investment risk-management strategy under diversification. The goal is to reduce overall risk by offsetting potential losses in one investment with gains in another. Hedging in cryptocurrency involves trading in two or more cryptos with inverse relationships to minimize the impacts of market volatility.
For instance, if crypto A gains value whenever crypto B plummets and vice versa, consider investing in both. In turn, if you lose in one, you gain returns in the other. However, remember that hedging limits potential gains if market conditions are highly favorable in one of your investments. As such, always account for your risk tolerance before incorporating hedging into your investment strategy.
5. Look out for fraudsters
As mentioned, one of blockchain’s (and crypto’s) selling points is that the system is decentralized and largely unregularized. No one has to know or trust anyone. In turn, anyone can participate in trades and investments.
However, it also means blockchain technology is an attractive target for scammers and fraudsters. Take cryptojacking, for example. The average number of incidents in 2022 is 15.02 million per month, roughly double the previous year. While cryptojacking isn’t necessarily damaging to victims, revenues from these malware attacks may be instrumental to other cyber and real-world crimes.
Moreover, scammers often impersonate well-established businesses. They claim to give out legitimate crypto tokens in exchange for traditional currency. However, these tokens are fake, and victims lose money instead—demonstrating the importance of thoroughly researching investment opportunities.
Look through the company or individual’s track record thoroughly and ensure you use reliable sources. Check for red flags to avoid falling victim to scams and fraud.
Building Wealth with Blockchain
Blockchain offers a promising opportunity for investors to diversify and achieve substantial returns. While it’s still in its early stages and entails considerable risks, no one can ignore the potential rewards. That said, you must approach this technology cautiously.
Consider and practice the above tips to manage risks, maximize returns, and make informed investment decisions. Moreover, conduct thorough research before investing in blockchain-related projects. Doing so avoids missteps and falling victim to cybercrime. In turn, you’ll be able to leverage this emerging technology to build wealth and reap the benefits of this exciting innovation.