Should you invest in blockchain? Some important tips to bear in mind
A comprehensive guide to investing in blockchain, from what this technology does to things to look out for
Governments and companies around the world have announced plans to invest in blockchain – that is, if they aren’t already. Xi Jinping has said China should “seize opportunity” by backing blockchain start-ups, while South Korea is ploughing about $380m into research and development.
According to Deloitte’s most recent annual survey of senior executives, investing in blockchain technology is a priority. In 2019, 53 per cent of those polled described it as critical and in their top-five strategic priorities – 10 percentage points higher than the year before. Meanwhile, 86 per cent said they believe blockchain will eventually achieve mainstream adoption – and 77 per cent agreed with the statement that they will lose a competitive advantage if they are slow to embrace it.
The biggest challenge for key decision-makers has been how to invest in blockchain. Many are mindful that blockchain technology stocks could deliver a repeat of the dotcom bust, where many companies collapse and only a few survive. Indeed, research from CBInsights shows enthusiasm from investors suffered a decline in 2019. Its figures suggest equity funding for top blockchain start-ups – and the industry more generally – fell by 30 per cent last year. A big concern for corporations has been how to invest in blockchain technology that fits in with their current products and improves them.
Here, we’re going to look at some top tips for those who want to invest in blockchain – offering top intelligence on how to find promising blockchain start-ups. We’re also going to explore how established, more traditional companies have been folding this technology into their daily operations. Remember: you don’t necessarily have to buy blockchain stock in order to enjoy an upside as an investor.
Despite the mixed messages over the technology’s long-term potential, many of those who want to invest in blockchain are looking towards how the market may grow in the coming years. Figures from Statista, released in December 2018, indicate this market will be worth $3.9bn worldwide this year – accelerating to $7bn in 2021, $12.7bn in 2022, and $23.3bn in 2023.
How to invest in blockchain
When it comes to investing in blockchain technology, there are a few tips to bear in mind. You should treat blockchain stock like any other sector – do a deep dive to understand the industry, and the company you’re buying shares in, before making a commitment.
Here’s a reminder of why people have wanted to invest in blockchain companies. This technology has been touted as a way of delivering greater transparency, with applications that provide a thorough digital log of activity that is both easy to audit and tamperproof. Advocates say there are endless use cases and opportunities for blockchain start-ups to get disruptive. These platforms have the potential to verify a person’s credentials (such as their education), dramatically cut levels of paperwork in insurance and financial services, broaden access to credit and reduce fraud.
Some have also been motivated to invest in blockchain because of how it could make the world a better place and protect the hard-earned cash of consumers. The mining of minerals such as cobalt is increasingly being tracked on blockchain during every step along the supply chain, helping companies ensure that it is done so responsibly and without a reliance on child labour. These days, you can invest in blockchain to support projects promoting food safety by tracking the provenance of fresh produce from field to fork – something that can prove the value of higher-end items and protect the public in the event of a recall. Top luxury brands are also investing in blockchain technology for verifying the authenticity of expensive vintage clothes.
If you want to know how to invest in blockchain, remember these golden rules. First, make sure that you’re investing in blockchain start-ups with an actual need for this technology. In the past, there have been many companies that have been all too willing to jump on the bandwagon – regularly mentioning “blockchain” or “crypto” in the hope of attracting capital. Unfortunately, this led to a flood of solutions being offered for problems that simply didn’t exist. Ask yourself whether a firm’s vision can be achieved without blockchain – and if it can’t, whether the benefits are worth it. Saving time, establishing trust and reducing complexity are all good incentives for investing in blockchain technology, especially if it makes things cheaper for the end consumer.
Although you can invest in blockchain start-ups, there are loads of major companies already exploring what this technology can deliver. Amazon is offering blockchain support to businesses around the world – including Nestle, which recently used its platform to develop a coffee brand where consumers can discover where their beans came from. BMW has turned to blockchain to track car parts and components across its supply chain. JPMorgan has set up an Interbank Information Network that’s designed to speed up payments across borders between banks, and companies such as Mastercard and Walmart are aggressively filing blockchain patents too.
You could argue that it is best to invest in blockchain solutions where the end consumer wouldn’t notice a difference. As we’ve seen with cryptocurrency start-ups in general, really complicated and technical products often struggle to gain traction with the public. Keep an eye out for crypto start-ups exploring old-fashioned initial public offerings too – there have been rumours that Ripple, the company behind the third-biggest cryptocurrency in existence, might be considering a flotation soon. Whether or not the stock market slump caused by the coronavirus has torpedoed that idea remains to be seen.
Overall, opinion on whether to invest in blockchain remains divided. Although there are legitimate use cases, debate rages on as to whether this technology is the future or a fad.