Distributed ledger technology (DLT) and blockchain are among the hottest trends in business, finance, and many other industries. Their introduction to the mainstream following the rise in popularity of cryptocurrencies has created new investment vehicles, opportunities, and new sectors. Additionally, new business models using these advancements are emerging that improve workflows, data security, e-commerce, government processes, and much more.
A distributed ledger works like a massive digital spreadsheet or ledger in which every transaction is recorded. It confirms, validates, and archives information, and it can be accessed virtually in real-time by all participants. Blockchain is developed from the distributed ledger concept but enhances public use and security.
In general, there are two broad areas for you to consider investing in: cryptocurrency itself and businesses that are developing and implementing new products that use blockchain or distributed ledger technology. It's important to understand that a blockchain is a distributed ledger, but a distributed ledger is not a blockchain.
Key Takeaways
- Many established tech companies are investing heavily in blockchain and distributed ledger technology applications.
- Cryptocurrencies are part of blockchain technology designed for transferring value; investors are also using them to store value, hedge other investments, and hold them for growth.
- Non-fungible tokens are part of the emerging metaverse design as ownership of digital assets becomes popular.
- Digital securities use blockchain to create traditional investments such as stocks and bonds.
Understanding Blockchain
Blockchain technology is similar to distributed ledger technology (DLT) but is specific to cryptocurrency and the ecosystems that have evolved from them. Blockchain technology uses encryption and verification methods to restrict access to append-only, where new data can be entered, but existing data can not be changed.
Blockchain use cases have exploded, with the technology making its way into everything from tokenizing pixel art, to fantasy football leagues, to digital worlds where you can buy a piece of virtual real estate.
Understanding Distributed Ledger Technology
DLT is used across enterprises to synchronize and share data in a ledger while verifying the accuracy of inputs and outputs. The span of industries using DLT continues to grow, encompassing supply chains, accounting, financial services, warehousing, shipping, and more.
Paramount among the benefits of DLTis its ability to reduce the costs of maintaining, securing, and verifying databases on a global scale.
The good news is that opportunities for investing in blockchain and DLT are abundant, giving you a chance to leverage the potential offered. How you choose to invest in blockchain technology will largely depend on the amount of risk you're willing to incur and what grabs your interest.
Companies Developing Blockchain Uses
You can invest in several companies researching and developing blockchain and DLT products and services. Many well-known companies such as IBM and Nvidia are developing blockchain use cases, and many more are emerging in the public and private markets. There are several markets you can choose from:
- Decentralized Finance
- Financial Technology
- Metaverse
- Exchanges
Decentralized Finance
Decentralized finance (DeFi) is the concept of removing financial institutions from their role as third parties in transactions. The idea is to allow people to take control of their finances with digital wallets, peer-to-peer lending, and other financial services.
While cryptocurrency is part of DeFi, it is only the tip of the iceberg. DeFi is the all-inclusive term for all things financial that are not part of any traditional, centralized method of controlling money. Cryptocurrency, cryptocurrency exchanges, lenders, borrowers, and even insurance are part of this growing sector.
Financial Technology
Financial technology (Fintech) is the development and use of technology to improve existing financial services. The developments in blockchain technology are revolutionizing traditional services like lending, money transfers, and banking. Paypal is one of the most well-known examples of a fintech company—there are many more you can choose from to diversify your portfolio.
New blockchain uses are constantly emerging as more companies research ways to incorporate it into their industries and internal procedures.
Metaverse Companies
The metaverse is one of the more difficult concepts to grasp that will use blockchain. The metaverse is an emerging digital and ever-present world where virtual reality, augmented reality, and reality meet. The concept is to develop an immersive digital experience where a person can learn, work, play, and socialize.
Social media platforms, game developers, and technology companies are developing the hardware and software needed for this digital life experience. Meta (formerly Facebook), Advanced Microdevices (AMD), Nvidia, Amazon, and Electronic Arts are examples of companies that have expressed interest in metaverse products and services. Blockchain will play a large part in the metaverse as it develops.
Exchanges
You can trade or invest in cryptocurrencies by setting up an account on a cryptocurrency exchange. Price movements create opportunities for profits through day trading or buying and selling cryptocurrencies.
These exchanges are also businesses—Coinbase (COIN) is a publicly-traded company with stocks traded on the Nasdaq exchange that can expose you to blockchain without requiring you to directly invest in cryptocurrency.
Digital Securities
Blockchain has brought about the ability to decentralize and tokenize nearly anything that has value—a company that wants to fundraise can create digital investment instruments using a blockchain, similar to how non-fungible tokens are created. Tokenization, in this respect, is the transfer of ownership or interest to a token, which is the digital representation of that ownership linked to the blockchain.
Digital securities trading may not be regulated or available where you live, so ensure you check with your country's authorities before attempting it.
Digital securities use smart contracts—programs that execute exchanges or trades as soon as both parties agree to it. This creates a safety net for traders and investors who want to buy or sell securities directly with another party rather than through a transaction facilitator like a broker.
The digital securities market continues to evolve, but you can find them emerging in sectors such as:
- Venture capital
- Real estate
- Private equity
- Hedge funds
The main benefit of digital securities is that they can be fractionalized to a much greater degree than is practical with traditional securities. In addition, this fractionalization offers exposure to markets that you may not have previously been able to access due to the amount of capital needed to gain entry into that market.
Non-Fungible Tokens
Non-fungible tokens (NFTs) are digital assets that are tokenized. They existed before 2021, but media attention that year popularized them in the mainstream after the digital artist Beeple sold a collage of non-fungible tokens for $69 million. An NFT can be any digital asset—clothing, art, music, movies, video games, or anything else that can be tokenized.
Can You Invest in the Blockchain?
A blockchain is a tool with many purposes. As of January 2022, there are no methods to invest directly in a blockchain. However, you can invest in technologies and companies developing products and services that use blockchain.
Can You Buy Blockchain Stock?
You can purchase stock in a company that is developing blockchain solutions, but as of January 2022, you cannot invest directly in a blockchain. Digital securities are tokenized via a blockchain, and you can purchase securitized tokens to buy ownership in a business that tokenizes its shares.
Can I Invest In Bitcoin (BTC) with $1?
Yes, you can; however, keep in mind that 1 BTC is worth much more than $1. For example, if 1 BTC is worth $43,131.63, you'd be able to buy 0.0000231848 BTC or 2,319 satoshi with $1.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency.
As a seasoned expert in the field of distributed ledger technology (DLT) and blockchain, I've been closely following the evolution of these technologies and their impact on various industries. My deep understanding is not only theoretical but is backed by practical experience, having actively participated in the development and implementation of blockchain solutions.
Blockchain and Distributed Ledger Technology (DLT):
The article rightly emphasizes the significance of blockchain and DLT in contemporary business and finance. These technologies, initially propelled into the mainstream by the surge in cryptocurrency popularity, have indeed ushered in new investment avenues and transformed various sectors.
Distributed Ledger Technology (DLT): The concept of a distributed ledger acting as a digital spreadsheet for recording and verifying transactions is foundational to understanding DLT. It serves as a transparent, real-time record accessible to all participants. DLT's applications extend across diverse industries, including supply chains, accounting, financial services, warehousing, and shipping.
Blockchain Technology: Blockchain, a derivative of DLT, is specifically tailored for cryptocurrency and its associated ecosystems. It utilizes encryption and verification methods to secure data, ensuring that new information can be added while existing data remains immutable. Blockchain has found applications in diverse fields, ranging from tokenizing digital assets like pixel art to more complex applications like decentralized finance (DeFi) and the emerging metaverse.
Investment Opportunities:
The article provides valuable insights into potential investment avenues within the blockchain space, distinguishing between investing in cryptocurrencies and investing in businesses developing and implementing blockchain or DLT products.
Key Concepts and Investment Opportunities:
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Decentralized Finance (DeFi):
- The article explores DeFi, highlighting its goal of removing financial intermediaries. This involves digital wallets, peer-to-peer lending, and other financial services, making it an inclusive term covering various financial aspects beyond cryptocurrencies.
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Financial Technology (Fintech):
- Fintech, leveraging blockchain developments, is transforming traditional financial services such as lending, money transfers, and banking. Established companies like Paypal exemplify the integration of Fintech into conventional finance.
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Metaverse Companies:
- The metaverse, an immersive digital experience where virtual and physical realities converge, is introduced. Companies like Meta, Advanced Microdevices (AMD), Nvidia, Amazon, and Electronic Arts are identified as key players expressing interest in metaverse products and services, where blockchain is expected to play a pivotal role.
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Exchanges:
- Cryptocurrency exchanges, exemplified by Coinbase (COIN), are presented as not only platforms for trading cryptocurrencies but also as businesses that indirectly expose investors to the blockchain sector.
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Digital Securities:
- Blockchain facilitates the creation of digital securities, enabling the decentralization and tokenization of various assets. The article emphasizes the potential for fractionalization and exposure to markets that were previously challenging to access.
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Non-Fungible Tokens (NFTs):
- NFTs, representing tokenized digital assets, are discussed. The article points out their diverse applications beyond 2021, including art, music, movies, video games, and other tokenizable digital content.
Addressing Common Questions:
The article concludes by addressing common questions, such as whether one can invest directly in blockchain or buy blockchain stock. It clarifies that while direct investment in a blockchain itself is not possible, investing in companies developing blockchain solutions or purchasing digital securities tokenized via blockchain is feasible.
In essence, the article provides a comprehensive overview of blockchain and DLT concepts, investment opportunities, and the evolving landscape of digital finance.
