If investing in cryptocurrencies is too volatile for your tastes, consider the technology behind cryptocurrencies- blockchain technology.
Many major companies are already investing in blockchain technology, and many industries stand to gain from its growing use. Technology companies like Intel, Amazon and Microsoft have the servers, microchips and technology that host blockchains, while companies like Daimler, IBM and Mastercard either use blockchain technology in their financing mechanisms or in their supply chains.
With some imagination, one could hypothesize that blockchain could become the enabling technology of the next 10 or 20 years.
What is a blockchain?
Under a traditional explanation, a blockchain is a type of digital ledger that is distributed and maintained over a peer-to-peer network, without the use of a central authority. In other words, a blockchain establishes ‘who owns what’ among individuals who may have different objectives. Blockchains can facilitate the transfer of assets and verify an immutable record of data more quickly, reliably and with more transparency than existing mechanisms, without needing a trusted central authority or administrator. This is why blockchain is described as ‘decentralized’ or a ‘distributed ledger.’
How do companies use blockchain technology?
While blockchain technology was originally developed for cryptocurrency applications like Bitcoin, cryptocurrencies are just one of many applications of blockchain technology. It can and is being used in health care, manufacturing, banks, stock exchanges and any other business or organization that manages large quantities of data.
For example, German automaker Daimler launched a multi-million-dollar corporate loan instrument last year using blockchain technology, and IBM has progressively been linking the entire company to blockchain and its uses.
Governments and regulators have largely taken a wait-and-see approach to the application of distributed ledger technology. Regulators understandably want to see whether and how banks and others will be using the technology before they develop new regulations.
Investing in blockchain technology
There are several ways to invest in the development and use of blockchain technology. One is to invest directly in a company whose business is centered around blockchain technology. Examples include Digital Garage and HIVE Blockchain Technologies. Of course, some may instead prefer to track indices and invest in a portfolio of domestic or global companies either utilizing blockchain technology, facilitating blockchains or researching and developing the technology. Some of the companies mentioned earlier in this article are examples.
In any case, it’s important to note that investments in technologies or companies is not like investing in cryptocurrencies, and historically not nearly as volatile. Blockchain focused indices are designed to track the technology, and as such they may grow as the blockchain technology grows in acceptance, adoption and application. But by linking the investments to the companies themselves, you have the potential to see growth from non-blockchain profits and sales as well.
Also, some blockchain technology-focused indexes, such as the Reality Shares Nasdaq Blockchain Economy Index, are designed to measure the returns of companies that are committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their use or for use by others. Furthermore, the companies that blockchain technology-focused indices are in some sense hedged away from a pure cryptocurrency or blockchain play themselves, as these companies are invested in other product lines, services lines, and even operations across the globe.
Tapping into long-term and retirement investors
To date, cryptocurrencies have seen cautious participation relative to other traditional assets from long-term investors and from retirement accounts. Blockchain technology investments are different, and are more likely to attract investors who are looking to diversify their traditional equity exposures with established companies — those who want to invest in technologies for the future.
For more active investors, blockchain technologies could potentially follow the growth path of Internet stocks in the 1990s. Indeed, some industry experts are already drawing the comparison that blockchain technologies could be the next killer technology. Blockchain and distributed ledger technology are forcing us to rethink how data, information, assets, and even governance can be organized and reimagined. Whether this will happen however, is as always, up to each individual investor.