Beginners’ Guide: How to invest in blockchain
I will explain ‘How to invest in blockchain’, however, let’s first take a look at why to invest in this technology. Here are three sets of interesting information:
- The cryptocurrency market is now over US $ 300 billion, with over 1,500 coins and new Initial Coin Offerings (ICOs) launched every month.
- Even outside the cryptocurrency space, tech giants like IBM, Cisco, and Intel are investing in it. Even banking and financial services giants are doing so. American Express, Bank of America, and Mastercard are filing patent applications around it.
- Businesses and governments are using this technology in diverse fields ranging from genetic sequencing to land records management.
It’s worth investing in blockchain due to the following:
- In a business world dominated by giant centralized corporations, blockchain brings the promise of decentralization;
- At a time when we hear disturbing news of data breach, blockchain brings unprecedented security;
- The promise of immutable records can bring an end to corporate and government scams.
Learn about the technology before learning how to invest in blockchain:
You need to learn the technology enough before appreciating good opportunities to invest in it. For e.g.:
- If a blockchain-cryptocurrency project is building just another centralized platform instead of using the decentralization blockchain offers, it may not be worth investing in.
- If a project is using too many first-of-a-kind (FOAK) technologies, it could be too risky.
I recommend that you learn the following:
- Consensus algorithms like ‘proof of work’ (POW) and ‘proof of stake’ (PoS) and how they secure blockchain;
- How modern cryptography protects crypto transactions and the blockchain networks;
- How smart contracts can automate contract management and improve efficiency.
- Why is the Ethereum platform valuable.
Read about the blockchain technology regularly, which will also keep you up-to-date about interesting projects and innovations.
Improve computer skills as a preparation for investing in blockchain:
You need a reasonable level of computer skills before you can invest in the blockchain technology. For e.g.:
- You must know how to back-up your computer;
- The importance of paid and reputed anti-virus software is clear to you;
- You need basic skills in using data encryption technology such as securing your private key;
- There are risks if you use your computer for crypto-trading for other casual internet-browsing activities, and you should know these;
- It’s important to regularly patch your software and upgrade your operating system, and you must know how to do these;
- Having too much cryptocurrency on a web or mobile wallet is risky and you should understand why.
Investing in blockchain will require you to hold cryptocurrencies and without reasonable computer skills, your hard-earned money will be at risk.
Prepare your blockchain investment strategy:
Investment involves risk, and to reap rewards you need to prepare your strategy. You need to focus on three key aspects, as follows:
- How much will you invest: While it largely depends on your financial situation, keep in mind you may lose everything. Do not invest an amount you are not wiling to lose.
- For how long will you invest: Blockchain is a new technology, and a lot of work will happen in the coming days before wide adoption. A technology requires time to mature. You need to stay invested for at least 3 years, preferably much longer.
- How will you invest: You need to determine whether you will trade in cryptocurrencies, or invest in ICOs, or invest in ‘contracts for differences’ (CFDs) with regulated cryptocurrency brokers.
Trade in crypto exchanges:
You will find cryptocurrency exchanges, which are websites where you can deposit fiat currencies and buy cryptocurrencies. You can decide to hold them or sell them in the crypto exchanges.
You need to do the following:
- Open an account with a crypto exchange;
- Set up your web and hardware wallets;
- Specify your trading pair, like Bitcoin(BTC)/USD;
- Deposit fiat currency and buy cryptocurrencies in exchange;
- Conduct transactions like selling on the exchange using your web wallet;
- Keep your cryptocurrencies safe in hardware wallet.
While there are many crypto exchanges like Coinbase, Bittrex, Binance, etc. You need to look at several factors before choosing an exchange, for e.g. reputation, ease-of-use, their fees, and coins they list.
I recommend Coinbase, it’s very easy for a new trader, lists many coins, and provides good liquidity. MyEtherWallet is a good web wallet, and I recommend Ledger Nano S as your hardware wallet.
Remember that all incidents of cryptocurrency hacks were attacks on the central servers of crypto exchanges, hence use web wallets for conducting transactions only. Mobile wallets are riskier and leave as little coin there as possible. When you are not using your coins, always secure them in your hardware wallet.
Invest in ICOs:
ICOs are unregulated crowdsale events that the blockchain-cryptocurrency start-ups increasingly use to raise funds. Their popularity is increasing, for e.g. in 2017, the blockchain start-ups have raised US $ 5.6 billion in ICOs.
You need to prepare well for investing in ICOs, by taking the following steps:
- Study the project team composition. The project team should be highly credible with a strong track record of implementing blockchain-cryptocurrency projects, particularly in that specific industry.
- Read the ICO whitepaper well, it should explain the project idea clearly, and give a clear description of the technology.
- Check the current status of the project. If the team has a functioning prototype or work-in-progress open-source code, then they have made progress. If they only have a whitepaper and no code, then the project could have execution trouble.
- Check the legal and regulatory preparedness of the project.
- Find out what the incredibly knowledgeable crypto community and blockchain experts have to say about the project. Follow news and discussions about the project in social media and chat apps like Telegram. Read the discussions about the project on Reddit, and check important forums like Bitcointalk.
I also recommend this guide for you to understand ICOs in detail.
How to invest in blockchain without holding cryptocurrencies:
If you don’t hold cryptocurrencies yourself, you can still invest in them. For this, you need to engage regulated cryptocurrency brokers who deal in ‘contracts for difference’ (CFDs).
CFDs are contracts between the trader and the regulated brokers. The difference between the price on entry and that on exit represents the profit or loss of the trader. Remember that there are less regulated cryptocurrency brokers who offer CFDs.
In summary, investing in ICO is similar to the traditional investment in many ways. You need to focus, and do the following:
- Study the market and technology well. Develop subject matter expertise.
- Strategize about your investment.
- Execute your investment strategy well, using the available tools and knowledge resources optimally. Stay in the game for long, this technology is here for the long-run.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Do your own research!