Blockchain Technology: A Guide to Investing in this Disruptive Technology
The Blockchain Technology predominantly famous for its cryptographic functions and the feature of ‘no middleman needed’ has gained significance in the recent years. Active discussions and considerations to deploy blockchain voting system, blockchain based government data management, blockchain payments and currencies (cryptocurrencies) have fascinated investors to invest in the area. The boom of Bitcoin and listing of Coinbase are classic examples that have interested investors to explore other cryptocurrencies and blockchain-based businesses to invest early and expect a supernormal / high return on their investment. However, with return comes underlying risk.
For those who are not quite clear on what the Blockchain Technology is, here is a small picture to explain the tech in a nutshell to you:
Because the Blockchain Technology is relatively new, it is difficult to integrate the technology into the traditional business. One of the major issues is hiring the right, talented and trustworthy personnel to develop a blockchain system for the business / develop a cryptocurrency. Even with the right personnel, certain risks pop up and must be addressed in the beta stage if possible else they may pose a serious threat to the data used. Some of those include:
- Under-standardization leading to ambiguity and hence, lack of active adoption by businesses
- Regulations or lack of regulations leading to inconsistency
- High energy consumption and transaction speed problems
- Threat of criminal activity
- Risks associated to the ‘key‘ of the chain which, if not dealt with caution, can compromise almost all the data of the users
- Since the blockchain is a decentralised network, if the user loses his / her key, he / she loses access to his / her data. This is a serious problem to consider in case of crypto wallets, government data (which the citizen has to produce to the authorities often), etc.
- Threat of no proper testing of the code where the possible mistakes and risks are not recognised before onboarding the end-users.
Regardless of these and many other risks, it is unarguable that the technology is disruptive especially with its applications in multiple sectors such as Logistics and Supply Chain Management, Healthcare and Government data management and accessibility, etc.
It is advisable for investors to invest in such businesses early on to get a high return but the investors have to definitely beware of the true value of the business. And the best way to make the right investment in the space is to do the following:
- Understand the technology’s application – For example, in my article on Blockchain Voting System, I have explained the working of the chain and critically evaluated it with logical reasoning. I am not from a tech background, still I was able to evaluate the system through research, watching videos on YouTube and analysing and reasoning the system. An investor must always do this to evaluate a company / stock before investing. In case of lack of sufficient information, try investing a small portion and if the company performs for a considerable time (say 6 months to 1 year), you may invest more later.
- NOT RELY ON TIPS – Understanding your investments forms a foundation of active and thoughtful investment strategy. It has psychological benefits to encourage objective thinking. And when you study and invest you are by default accountable and learn better (since there is nobody else to blame).
- If you do not understand the functioning of the technology in a particular business then LEAVE IT OUT for a while. It is alright to not take the risk than to dive in and lose a fortune.
- When you have lots of options – either diversify or simply pick the best ones based on your study. The second option works only if information if adequate and reliable + you understand the core business and technology. For option one of diversification, you may also want to diversify for around 6 months to 1 year, evaluate the performance (by considering the reason behind the performance whether it was a rumour that appreciated the stock or the business performance. This information can be evaluated easily through the company’s financial statements.).
To conclude, I would say that blockchain is a disruption and investing in it would be profitable but you should not disregard its risks. The risks are real and can ruin you. The best way to deal with it is to go slow – one small investment at a time followed by a critical evaluation. Only when you are convinced and can back your decision with concrete facts, invest a considerable portion of your funds into blockchain.
Hope this article helps you get some clarity on investing in the blockchain technology. Happy Investing!
Disclaimer: These articles are intended towards novice audience trying to understand the market with little to no knowledge about the same. The purpose is educational and must not be considered as a tip of any sort. Always make your financial decisions based on expert's personal advice to you. Also, do not forget to do your background research and not fall prey to any kind of fraud or manipulation.
February 18, 2024
February 10, 2024
February 9, 2024