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The world's economy has grown increasingly digitized over the past 30 years, and the trending convenience of sending information online has brought about new issues, like the rise of cybercrime, data security, and online fraud.
That's why blockchain technology is so revolutionary, as it's given birth to decentralized, distributed, and immutable ledgers that store sensitive information without an outsized threat of hacks or manipulation.
As blockchain grows into adulthood, more applications of this technology will increase and, along with it, various new investment opportunities. Investing in blockchain has the potential to be the investment class of our lifetimes, but why?
Blockchain is a technology that's still in its nascent stages, yet it has already proven to be one of the most disruptive technologies in modern history. It's an encrypted and fully distributed database that functions globally. Computers worldwide house the database as decentralized records, meaning there's no single point of failure for most blockchains.
Think of a blockchain as a record book that updates, duplicates, and shares information on an ongoing basis in real time.
To edit this record book, every editor must review and agree to the changes before they apply them. The record book (blockchain) rewards book editors and disincentivizes dishonest editing to ensure all entries are honest. Most importantly, they can't alter this information once they add to it.
If you're more the Google Sheets type, you can also think of a blockchain as a big, open, encrypted spreadsheet that everyone worldwide can see.
Whenever someone wants to enter data in any cell, it's automatically copied and shared with everyone else online. Every time someone wants to enter information into the cell, they must convince at least 51 percent of people that the data is legitimate before they can alter the record.
This is called "consensus," and it's how blockchain technology works. The people who make the changes are called miners and receive rewards for honest work.
Everyone participating wants those rewards, so the vast majority of participants will act honestly. It's a beautiful application of game theory to incentivize honest behavior by a population of intelligent, primarily rational people.
While the above analogies are oversimplifications, it's easy to see how this technology has the potential to completely overhaul how businesses, companies, non-profits, governments, and individuals conduct business.
For example, imagine a world where you know everything about the food you consume or how the products you buy are produced and sourced. This supply chain information can live on the blockchain at every step and is available worldwide.
Furthermore, you can trust that this information is accurate and secure because it's hard to manipulate or tamper with data distributed across millions of computers.
The same goes for voting records, stock market ownership, digital payments, and any other type of information that involves sensitive personal identifying details.
As a result, blockchain may push the world away from the centralized models we're so used to and usher in an era of decentralization, where power is more evenly distributed among individuals, where information is open and transparent, and where trust is no longer an issue.
This is the dream of many proponents of blockchain technology. And it's not that far-fetched. We're already seeing some early applications of blockchain in the world today.
The most famous one is, of course, the digital currency Bitcoin (BTC). But there are other examples, such as Ethereum, a blockchain platform that allows developers to build and run decentralized applications, NFTs, exchanges, peer-to-peer marketplaces, the metaverse, and more.
Blockchains are poised to revolutionize how we interact with the digital world.
Here are some of the benefits they offer:
Security: Blockchain technology is generally very secure because it uses cryptographic hashing and distributed ledger technology, making it very difficult for hackers to tamper with data or take control of the system.
Decentralization: Decentralized systems are generally more secure and efficient than centralized systems because they don't have a single point of failure. With blockchain technology, there's no need for a central authority to manage and secure the network.
Permissionless: Anyone can join a blockchain network and participate in the consensus process. Anyone can build, run, and use decentralized applications on a blockchain platform without getting permission from a central authority.
Programmability: Blockchains are very versatile and can be programmed to support a wide range of applications only limited by our imaginations. Think of everything the internet has provided us — we didn't know what it would look like when the internet was born. The same goes for blockchain technology. The sky's the limit.
While blockchains promise the world, they're not perfect. Blockchains still have work to do to reach enterprise-ready and globally-scaled solutions.
Some of the main problems with blockchains are as follows:
They're slow compared to centralized databases. While most prominent blockchains plan to scale and reach the same transaction speeds, they're not there yet.
They may not always be as secure as they purport While the underlying technology is sound, there have been (and will be) hacks and vulnerabilities in blockchain applications.
They're not energy-efficient. The Proof-of-Work (PoW) consensus mechanism that Bitcoin uses, for example, is an energy hog, using as much energy as the entire country of Denmark per year. Allegedly, Ethereum plans to move to a Proof-of-Stake (PoS) consensus mechanism in September of 2022, which will be more energy-efficient.
They're not easy to use. For the average person, using a blockchain application is still too complicated. This needs to change if blockchain is to reach widespread adoption. Better user interfaces, more intuitive design, and simplification of workflows are all crucial for adoption.
They are not cheap. Blockchain fees can be high, depending on the application. For example, Ethereum's gas fees have been known to skyrocket during periods of high network usage, making it impractical for small transactions. But as blockchains scale and succeed in innovating their protocols, many expect that transactions will begin to cost fractions of one penny, particularly for the Lightning Network, which costs less than one cent to send a Bitcoin transaction.
Although the industry is still in its infancy, over the past few years, there's been a massive increase in investment opportunities, legitimized by an influx of institutional investors and the rise of billion-dollar cryptocurrency exchanges.
For retail investors who want to get in on the action, there are a few ways to get into blockchain investing:
Buy cryptocurrency. The most direct way to invest in blockchain is to buy Bitcoin or another crypto asset. You can buy or sell cryptocurrencies on exchanges like Coinbase, Binance, or Kraken.
Buy crypto index funds. There are over 20,000 cryptocurrencies to choose from, most of which have no actual use-case, adoption, or long-term value, so it can be overwhelming for beginners.
Ember Fund allows you to invest in a basket of the top cryptocurrencies, hand-selected by a team of experienced cryptocurrency investors. Ember Fund puts in the research so you don't have to, allowing you to gain exposure to the space without picking individual winners.
Additionally, Ember Fund regularly rebalances portfolios to ensure that it continues tracking the underlying index's optimal performance.
Buy shares of public companies. While there are still relatively few public companies that have direct exposure to the blockchain industry, as the space matures, we expect this to change. For now, companies like Square, Goldman Sachs, IBM, Intel, Oracle, and JPMorgan Chase have invested in blockchain and allow investors to buy stock shares.
Those who made money in the gold rush didn't strike it rich by finding gold nuggets; they became wealthy by selling picks, shovels, and other supplies to miners. Similarly, investing in companies with blockchain exposure and posits a great way to profit off the blockchain projects boom. Investing in the underlying infrastructure and companies driving adoption is a traditional way to see returns.
Here's a list of blockchain-exposed companies:
MARA (Marathon Digital) — A digital asset technology company mines cryptocurrencies like Bitcoin and generates revenues from transaction fees. MARA mines directly on the Bitcoin network, amassing 1,966 bitcoin since 2022 began, representing a 132 percent increase in the same time frame in the prior year.
RIOT (Riot Blockchain) — Focused on Proof-of-Work mining on the Bitcoin blockchain, Riot is an innovative mining company that's made a splash in the industry. As one of the first publicly traded companies to invest in immersion-cooled Bitcoin mining, Riot intends to become the most significant player in North America.
CLSK (Cleanspark Inc) — A Bitcoin mining company focused on sustainability, Cleanspark is ESG-focused and committed to achieving 100 percent net carbon neutrality, leading the way for more sustainable practices in the industry.
MSTR (Microstrategy) — A publicly traded business intelligence company that has purchased almost 130,000 bitcoins (acquired for $4 billion in total) in the past couple of years. Known for being the first publicly-traded company to put bitcoin on its balance sheet, Microstrategy sees the digital asset as a reserve currency for companies.
SI (Silvergate Capital) — A digital-asset-focused bank, Silvergate has provided banking services to several notable clients in the space while also developing new products and services to support the industry. Launched in 1988, Silvergate has been profitable for the past 20 years, making it a strong and stable investment.
AMD (Advanced Micro Devices) — A semiconductor company that manufactures GPUs, one of the most popular types of processors used for mining. One of the most innovative companies in the space, AMD consistently ranks as one of the top-performing chipmakers worldwide.
NVDA (NVIDIA Corporation) — Another leading chipmaker, NVIDIA Corporation has also been a significant beneficiary of the cryptocurrency mining boom. With GPUs often used for mining Ethereum and other altcoins, NVIDIA has seen a surge in demand for its products.
These are just a few examples of companies with exposure to the blockchain industry that investors can buy shares in. But, of course, as with any investment, it's essential to do your due diligence before putting your money into anything.
If you're looking for a more hands-off approach, there are several blockchain futures funds that you can invest in. Below are some of the best options:
Bitwise Crypto Industry Innovators ETF (BITQ): This fund invests in a mix of crypto companies with exposure to different aspects of the space, including mining equipment suppliers, financial service companies, and exchanges.
Global X Blockchain ETF (BKCH): This fund covers companies across various industries focused on developing or using blockchain technology.
Amplify Transformational Data Sharing ETF(BLOK): This fund focuses on companies actively developing and using blockchain technology to transform how data is shared.
VanEck Digital Transformation ETF (DAPP): This fund focuses on companies driving digital transformation across several industries, including blockchain infrastructure, mining, and companies with exposure to digital assets.
Index funds and exchange-traded funds are a great way to get exposure to a broad range of blockchain companies without picking individual winners. While this may not be as fruitful as investing in a portfolio of cryptocurrencies (like Ember does), it's an alternative way to gain exposure to the blockchain industry.
It's still too early to provide a definitive verdict on the opportunity of blockchain technology and cryptocurrencies in the long term. However, it's feasible to predict that the blockchain industry will likely grow for many years and will continue to disrupt traditional sectors.
Numerous companies have invested significantly in emerging technologies like bitcoin mining equipment suppliers, brokers, banking services, and exchanges.
While most publicly-traded companies and index funds offer exposure to traditional blockchain-related companies, there are few ways to intelligently invest in baskets of the most promising cryptocurrencies poised to impact the industry for years to come.
Ember Fund does just that, offering rewards, portfolio rebalancing, and expert-selected cryptocurrencies, all while giving users complete control of their asset allocations.
Download the Ember Fund App today and learn more about how you can invest in the smartest basket of cryptocurrencies in the industry.
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