In recent years, the explosion of cryptocurrencies has invaded the media due to the speed with which they have increased in value, and the consequent enrichment of a lucky few. In fact, when they were launched in 2009, we could buy them with just a few dollars. Now, after various peaks and troughs, some have come to be worth more than $40,000. The key and strength of these financial products is the blockchain technology that we’ve been hearing so much about lately.
Blockchain technologies are so crucial because they can determine the future of many sectors. That’s why, when it comes to online trading today, we cannot fail to look at this within that context, going deeper to see far beyond the famous cryptocurrencies. To have a profitable future, with strong and stable investments, we must understand how they work and how to invest in them.
Blockchain and cryptocurrencies
The stories of these two are mutually intertwined; each helped lead to the explosion of the other. Initially, blockchain technology had not found anyone who needed it enough to want to develop its potential, just as the idea of electronic money, while fascinating, was apparently fallacious in many respects. Cryptocurrency was solved and enhanced in every aspect in its merger with blockchain technology. In fact, every single coin is “soldered” in a block in a completely non-modifiable way, and every future transaction will be fixed and unassailable in the same way.
Furthermore, the process is completely decentralized, not needing to pass under a central authority (such as the ECB or the FED). This allows you to avoid intermediaries, thus saving the commissions that are usually charged with each money transfer. Another advantage is that total confidentiality is ensured, as all transactions are not linked to a name, but every single transaction can be tracked at any time. Finally, the transfer times of the currency are much faster than traditional methods—in fact it goes from a few days traditionally, to a few hours in the case of cryptocurrency.
Other blockchain applications
Features such as traceability, transparency, non-modifiability, confidentiality and transmission speed are applicable in many other fields in addition to cryptocurrencies. Healthcare is a very interesting example where fast, confidential and widespread transmission of data could have many positive implications. In fact, sharing medical records quickly and securely would result in better collaboration between various doctors and specialists, with the development of better diagnosis and treatment paths for each patient. Furthermore, the amount of freely accessible but anonymous data offers a huge database for medical research, with consequent ramifications for the treatment of diseases and medical innovation.
Another field is that of personal security, with the potential for a database that allows us to keep our personal history safe and quickly accessible. Think of a secure postbox where you can keep documents such as your passport and identity card, education transcripts, driver’s license and any other necessary information. We will no longer have the burden of having to keep paper copies, or the problem of losing the documents we need; we could simply access our block and have everything available at any time. Politics and governments could also benefit from this technology. Bureaucracy would be greatly streamlined and transparency improved, aiding the fight against corruption in a world where everything is traceable in a safe and discreet way. We could create a virtuous model of governance on critical points and make everything public by acting on the trust of the people. For all the aforementioned reasons, even fields such as insurance, the real estate market and associated industries could develop this technology over time.
Furthermore, when talking about financial resources, banks could develop their own blockchain technology to reduce security problems and international transaction costs. Micropayments would be boosted following a reduction in commission, meaning transactions such as private publishing or even a simple coffee at a bar would undergo a revolution.
Blockchain and investments
When it comes to investments and blockchain technology, Bitcoin and all the other cryptocurrencies that have been formed over the years are the first thing that springs to mind. In fact, they really contributed to the fortunes of some people who found themselves millionaires from one month to the next, and electronic money seems to be the future of our society and economy. It’s clear to see that even today many giants are betting strongly on this field. The big problem is its high volatility, which leads to swings so strong that even the most experienced investors get dizzy. Going from a value of $35,000 to $3,000 and vice versa can take just a few weeks. Above all, what is frightening is the near impossibility of predicting the medium- and long-term trends, making the investment a lottery.
For this reason, the most experienced investors have begun to diversify their portfolios by reducing the percentage of cryptocurrencies and sniffing out the companies that are implementing the use of the incredible blockchain technology. A famous saying circulates among experts, which explains the concept well: “When we are in the midst of the gold rush, it is not very wise to invest in gold diggers, but rather in shovels.” To do this, there are various options, depending on your abilities and needs. For example, there are dedicated mutual funds, which seek to invest in those companies that are developing and implementing the use of blockchain technology. Then there are companies that take advantage of both cryptocurrency and blockchain technology markets such as Nvidia, Galaxy Digital Holdings or the CME Group. And some of the giants are opening up to the use of these technologies, which promises to expand their value further in the future, such as Intel, Mastercard, Amazon and IBM.
Bitcoin is not an investment. An investment is an opportunity that has a greater chance of success. Investing in a company or in bonds is an investment, because it gives us an expected return via dividends or interest (unless bankruptcy happens). Bitcoin is not a bet but a speculation, because it has potential, yet the return is not certain—there is no cash flow.
What we have is a notion that is gradually being validated over time (or at least there are pieces of the puzzle that seem to make more sense to an investor). For now, we can stand aside and see how things go. Or we can put a portion of our money into this asset and participate in the most important bet of our generation. I say: take a risk on Bitcoin!