What Is Blockchain Technology?
To understand why blockchain stocks could be major moneymakers in the future, you need to understand the very basics of the technology. At its most fundamental level, blockchain technology is a type of system for keeping records or information.
A block on the blockchain is a set of digital information or records that are stored together. It can be information of any kind. For a basic example, let’s imagine it is a record of several Apple (Nasdaq: AAPL) stock transactions.
In this example, every time some Apple stock is sold, a new transaction is added to the block. And each transaction contains information about who bought and sold the stock, the date, time, and at what price the shares were sold.
After a number of transactions, the block is finished and is given what is known as a “hash” code. The hash is a unique identifier that tags the block. Think of it as the block’s digital fingerprint.
Once completed, this block gets connected to a new block, forming a “chain” of blocks. Hence the name blockchain. The blockchain is the complete chain of blocks of information in the system.
The information in the blocks is stored in cryptographic code. And here’s a key point – the blockchain is not stored on one centralized computer or database, nor is it in the possession of any one owner.
The blockchain is often called a “distributed ledger” because it replicates itself on each and every computer, or node, in the network.
Now in contrast, think of a spreadsheet or perhaps a database. Or even a paper ledger of transactions. These are all tools you can you use to keep track of information (like transactions).
There are several significant problems with such systems. For starters, let’s say I am the owner of the ledger or the database. What is to stop me from falsifying my own data or “cooking the books”?
If I’m the one with sole control over the ledger, it becomes easy for me to commit fraud. And speaking of fraud, here’s another problem: What’s to prevent an external hacker from coming in and changing or deleting data in my database?
In order to falsify the data on the blockchain, an owner or a hacker would need to simultaneously hack information in every single block on every single computer where the information is replicated. In the case of bitcoin’s blockchain system, that would be millions of computers.
The sheer amount of computing power you would need to hack such a system makes such a possibility prohibitive. That’s the safety and security of the blockchain network. It’s as “unhackable” as you can get right now.
What Can Blockchain Technology Be Used For?
The transparency, immutability and security of blockchain technology makes it attractive for use in a variety of different cases far beyond cryptocurrencies. It can be used in everything from stock trading to food safety to healthcare data security.
In fact, the World Economic Forum projects blockchain will store 10% of global GDP within the next decade. It could save the finance industry billions of dollars by cutting out middlemen. And it can be used to better manage supply chains and trace contaminated foods back to their sources.
The improvements in speed and security could be revolutionary as transaction times and trade costs decrease. You could even use blockchain to track property ownership in less developed nations and prevent concert or sports ticket counterfeiting right here in the United States.
Virtually any situation where transactional information needs to be securely stored is a prime candidate to benefit from blockchain technology. And with so much opportunity out there for growth, there is immeasurable opportunity for you to profit from the coming revolution.
So how do you play blockchain as an investor on the markets?
How to Invest in Blockchain Technology
Whether you have been looking for an alternative to direct investment in cryptocurrency or seeking an opportunity in blockchain itself, there are a variety of ways to play it…
Picks and Shovels – These are the companies that make chips and hardware for crypto mining. Think of the American gold rush: The people that made the most money from the gold rush were the people selling picks and shovels to the miners. The companies making chips and hardware for crypto mining stand to gain in a similar fashion.
Crypto Miners – There are publicly traded companies that engage in actual cryptocurrency mining. Miners are rewarded with crypto for performing this service and can then sell it on the open market for profit. The gains are then passed on to shareholders. The business model is similar to energy pipelines.
Cloud-based Infrastructure – Blockchain is based on a decentralized network. As a result, cloud-based technology companies are in an ideal position to take advantage of the growth of blockchain. Cloud-based companies that provide blockchain services – also known as blockchain-as-a-service (BaaS) – could be a strong bet for growth down the road.
Payment Processors and Lenders – Blockchain is poised to disrupt the payment processing industry. It could cut out middlemen – companies like Visa and Mastercard – by processing transactions more efficiently. Look for the older players to either take advantage of blockchain and adapt – or find themselves in big trouble.
Three Blockchain Stocks to Watch
Bank of America (NYSE: BAC)
Along with IBM, Bank of America has the largest blockchain patent portfolio of any company on the market. Why do patents matter?
For one, it shows a commitment to growth in the industry. Perhaps more importantly, the products Bank of America develops with this intellectual property can be licensed to other companies for a pretty penny.
In addition to filing its 78 patents, Bank of America began hiring for blockchain positions. Looking for employees specific to this business is another indication that the finance company is a strong blockchain bet.
Mastercard (NYSE: MA)
There is downside risk here: Blockchain has the potential to make Mastercard’s current business model obsolete. The upside: The company is recognizing this and taking steps to prepare.
For example, Mastercard has created certain application program interfaces (APIs) so developers can create blockchain-related apps. They are also using blockchain to optimize food supply chains. And in terms of the lending and credit processing industry, blockchain technology has the potential to eliminate billions of dollars in fraud and improve transaction efficiency.
Fujitsu (OTC: FJTSY)
The No. 1 Japanese information technology services provider – and the 7th largest in the world – recently opened the Blockchain Innovation Center in Brussels, Belgium. It provides services such as a Proof of Business Assessment – completed in one week! – as well as an Architecture Deep Dive.
In addition to its Innovation Center services, Fujitsu was selected by the Japanese Banker’s Association to develop a transfer settlement system. Of course, investing in Fujitsu is also a convenient way to get some international stock exposure in Japan. This helps to further diversify your stock portfolio.
Final Thoughts on Blockchain Stocks
If you’ve been interested in investing in bitcoin but feel nervous about direct investment, investing in blockchain technology is an attractive alternative. But blockchain technology is promising in its own right.
The technology’s cost and speed efficiencies, along with its transparency and security, will likely lead many companies to adopt the technology. Getting in on blockchain stocks now is a great way to be in on the ground floor when the technology really takes off.