This up-and-coming technology often confuses most of us. So, let’s get started with a simple explanation. At its core, it involves chains of blocks (surprise, surprise). Each block contains information regarding a certain transaction and these transactions often involve cryptocurrency. These billions of blocks of transactional data, stored within blocks, form chains. So, what’s the main benefit of this technology? In a word: Security. Once a block joins a chain, it becomes nearly impossible for hackers or other third parties to manipulate the transactional data. Additionally, blockchain technology allows for data to be decentralized, which means servers and hard drives all over the world hold bits and pieces of blocks of data. In contrast, the traditional banking system relies on a very centralized structure in order to function.
Investing in Blockchain
There are several different companies that specialize in blockchain technology. Thus, anyone can invest not only in cryptocurrency itself but also in the companies that are working hard to capitalize on the growing popularity of blockchain technology. However, one must emphasize the clear differences between the two types of investments. Investing in cryptocurrency itself involves a great deal of volatility. Below shows a graph of Bitcoin’s greatest crashes. Those who invest in blockchain have the ability to invest in the rapidly expanding technology that facilitates cryptocurrency investments. While investing in blockchain entails some volatility, this option appears to avoid the extreme fluctuations inherent in cryptocurrency markets, thus far.
Relationship between Bitcoin and Blockchain
Investing in cryptocurrencies and blockchain itself involves very large differences between the two types of investments. Largely it appears that pure speculation drives the value of Bitcoin, making it a delicate source of value. However, blockchain will exist with or without cryptocurrency. It certainly facilitates the trade of cryptocurrencies, but that is only one use of it. Blockchain’s structure makes it nearly impossible to hack; making it one of the most secure ways to store and move information. Financial institutions will continue to expand their use of blockchain since it allows them to conduct transactions without third-party intermediaries. Blockchain has even more potential applications. Governments can use it to establish secure online voting and lawyers can use blockchain to transfer sensitive documents.
Due to the complex and intricate nature of cryptocurrency and blockchain investing, it is important to get personalized advice from a financial advisor. As the popularity of blockchain and cryptocurrency expands, the IRS devotes more attention to it as well. Some elements of the industry are taxable, and others are not. The rules are subject to change, and it can be hard to keep up. Finally, as with any investment, it’s important to ensure that your portfolio is invested across many areas of the market, not just blockchain or cryptocurrency alone. If you’re interested in a way to invest in the worlds of blockchain and crypto within a globally diversified portfolio, check out the ‘Demand Blockchain‘ portfolio today.
This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.