Distributed ledger technology (DLT) and blockchain are infiltrating business, finance, and many other industries. The growing popularity and mainstream adoption of cryptocurrencies has opened up new investment avenues, opportunities, and new verticals. Additionally, new business models have emerged that leverage these advancements to improve workflows, data security, e-commerce, government processes, and more.
A distributed ledger is a network of stored files where all transactions are recorded. Blockchain was developed from the distributed ledger concept but enhanced for public use and security. Information can be programmatically verified, verified, archived, and accessed by all participants in near real-time.
Generally speaking, there are four main areas to consider investing in: cryptocurrencies themselves, investment vehicles that are linked to or hold cryptocurrencies, non-fungible tokens, and companies developing and implementing new products that use blockchain or distributed ledger technology.
Key Takeaways
- Many major technology companies are investing heavily in blockchain and distributed ledger technology applications.
- Cryptocurrencies are part of blockchain technology designed to transfer value, and investors use them to store value, hedge other investments, and hold for growth.
- Non-fungible tokens are part of the metaverse design that will emerge as ownership of digital assets becomes more widespread.
- Digital securities use the blockchain to create traditional investments such as stocks and bonds.
- Web 3 is an internet privacy and ownership concept that is being developed using blockchain technology.
Understanding Blockchain
Blockchain technology is similar to distributed ledger technology (DLT), but is specific to cryptocurrencies and the ecosystem that has developed from them: it uses encryption and validation methods to restrict access to append-only, meaning new data can be entered but existing data cannot be changed.
Blockchain use cases are exploding, with the technology seeping into everything from tokenizing pixel art to fantasy football leagues to digital worlds where you can buy virtual real estate.
Understanding Distributed Ledger Technology
DLT is used between businesses to synchronize and share data in a ledger while verifying the accuracy of inputs and outputs. The range of industries using DLT continues to expand, encompassing supply chain, accounting, financial services, warehousing, shipping, and more.
The biggest advantage of DLT is that it reduces the costs of maintaining, securing and validating databases on a global scale.
Fortunately, there are plenty of investment opportunities in blockchain and DLT that give you the chance to capitalize on their potential. How you invest in blockchain technology depends largely on how much risk you are willing to take and what interests you.
Companies developing blockchain applications
You can invest in multiple companies researching and developing blockchain and DLT products and services. Many well-known companies are developing blockchain for business, and even more are creating blockchain for internal use. There are several markets to choose from.
- Decentralized Finance
- Financial Technology
- Metaverse
- Web 3
- exchange
Decentralized Finance
Decentralized finance (DeFi) is the concept of removing financial institutions from their role as third parties in transactions, instead giving people control over their own finances through digital wallets, peer-to-peer lending and other financial services.
Cryptocurrencies are part of DeFi, but they're only the tip of the iceberg. DeFi is an umbrella term for anything financially related that doesn't fall under traditional centralized methods of money management. Cryptocurrencies, crypto exchanges, lenders, borrowers, and even insurance are all part of this growing sector.
Financial Technology
Financial technology (Fintech) is the development and use of technology to improve existing financial services. Developments in blockchain technology are revolutionizing traditional services such as lending, money transfers, and banking. Paypal is one of the best-known examples of Fintech companies, but there are many others you can choose from to diversify your portfolio.
New uses for blockchain are constantly emerging as more companies explore how it can be incorporated into their industries and internal procedures.
Metaverse
The metaverse is one of the more difficult concepts to grasp that blockchain is expected to use. The metaverse is an emerging digital, ever-present world where virtual reality, augmented reality and reality meet. The idea is to develop immersive digital experiences where people can learn, work, play and interact.
Social media platforms, game developers, and technology companies are developing the hardware and software necessary for this digital life experience. Meta (formerly Facebook), Advanced Microdevices (AMD), Nvidia, Amazon, and Epic Games are some examples of companies that have expressed interest in metaverse products and services. Blockchain will play a major role as the metaverse develops.
3 Web companies
Web 3 companies are developing solutions that purportedly will change the way the internet works in the background. Blockchain technology is being used to create an infrastructure designed to restore privacy, ownership and control to the masses.
Here are some new theories on how Web 3 will benefit everyone who uses blockchain technology.
- Blockchain protects your personal information so it will not be made public to anyone.
- Because the blockchain is immutable, censorship will become a thing of the past; you will no longer be censored based on the beliefs or practices of others.
- Because payments are made through cryptocurrency, finances become anonymous, cross borders and much cheaper for everyone.
- It is ownership-centric, meaning your digital content cannot be taken away, changed or modified by others.
exchange
You can trade and invest in cryptocurrencies by setting up an account with a cryptocurrency exchange. Price fluctuations create opportunities to make profits through day trading, buying and selling cryptocurrencies.
These exchanges are also businesses. Coinbase (COIN) is a public company with shares listed on the Nasdaq exchange, and it gives you exposure to the blockchain without investing directly in cryptocurrency.
Digital Securities
Blockchain has enabled the decentralization and tokenization of almost anything of value. For example, companies looking to raise capital can use blockchain to create digital investment vehicles, similar to creating non-fungible tokens. In this respect, tokenization is the transfer of ownership or interests into tokens, which are digital representations of ownership linked to the blockchain.
Digital securities trading may not be regulated or available in your location, so always check with your local authorities before attempting it.
Digital securities use smart contracts – programs that execute exchanges or transactions as soon as both parties agree to it – creating a safety net for traders and investors who want to buy and sell securities directly with another party without going through a transaction intermediary such as a broker.
As the digital securities market continues to evolve, we are seeing digital securities emerge in the following areas:
- venture capital
- real estate
- Unlisted stocks
- Hedge fund
The main advantage of digital securities is that they can be divided at much higher levels than traditional securities, providing exposure to markets that were previously inaccessible due to the amount of capital required to enter.
Non-fungible tokens
Non-fungible tokens (NFTs) are tokenized digital assets. They existed before 2021, but gained media attention and went mainstream that year when digital artist Beeple sold a collage of non-fungible tokens for $69 million. An NFT is any digital asset that can be tokenized, including clothing, art, music, movies, video games, and more.
New and future developments
After the release of Bitcoin, products that have emerged using the blockchain have become the focus of most people's attention. There is very little left of tokenization that has not been attempted before, and new cryptocurrencies do not receive much attention, as they merely add to what is already available. Decentralized applications and decentralized financial services are more prevalent.
New blockchains are appearing all the time as blockchain developers continue to grapple with issues of scaling, transaction throughput, and centralization concerns. But just like the cryptocurrencies created using blockchains, more blockchains only mean more of the same.
The development of Web 3 is underway, but its widespread adoption remains to be seen. There is still a long way to go and developers face many challenges, primarily convincing those who monetize the infrastructure of the web to give up their profits in favor of realizing the dream of decentralization.
Blockchain development as understood by the general public – the underlying technology behind cryptocurrencies, decentralized applications, and Web 3 – is expected to continue to grow, but it may also be superseded by newer technologies.
Once the blockchain boom stalls, what happens next?
Blockchain brought the realization that data and information is immutable and accurate. Then, just as quickly as blockchain advanced after the popularity of Bitcoin, artificial intelligence developed.
Emerging trends point to the convergence of three technologies: immutable and accurate data, smart contracts, and artificial intelligence. In theory, this convergence will ultimately lead to greater trust in data, empowering businesses with vast amounts of internal and external data, automating many costly processes, and reducing the time needed to make decisions by providing accurate, data-backed recommendations.
For businesses, this translates into reduced costs and streamlined operations. For investors, it means businesses that invest in adopting blockchain and AI solutions are more likely to see more accurate, profitable and trustworthy reporting.
To stay competitive, businesses will need the help of blockchain, which can build trust and automate many processes. Artificial intelligence can analyze vast amounts of data and drive decisions or trigger the execution of smart contracts, making processes much faster.
Small businesses can’t keep up and will need to determine whether they can benefit from another emerging service: blockchain + AI service solutions.
Perhaps the next iteration of blockchain development will be an industry that combines blockchain and AI developments all together, an industry that is expected to grow exponentially in the near future.
Is the blockchain market growing?
The blockchain market has continued to grow since it went mainstream. While it is expected to continue to grow in the future, there are a number of exciting developments that could slow or overshadow the growth rate.
Is blockchain the future or just a fad?
Known since 2009, blockchain, like any new technology, was the starting point for future developments. As it gets older, it is unlikely to be forgotten, because more and more uses for blockchain are being discovered and developed.
Does blockchain have a future?
Blockchain has revolutionized the way data is stored, accessed, verified, and secured, and if its development combined with AI and other technologies is any indication, blockchain will change but not go away, just as computers changed from room-sized calculators to the small, multitasking, versatile, connected, and fast devices we use today.
Conclusion
Blockchain is the technology behind cryptocurrency and is the area where most of the development and research is focused. It is becoming more and more popular as more use cases are devised and people learn more about it.
In the future, cryptocurrencies may still be around, but blockchain is most likely to be the most transformative and enduring invention.
Comments, opinions and analyses expressed on Investopedia are for informational purposes only. For more information, please read our warranties and disclaimers. At the time of writing, the author does not own any cryptocurrency.
