How you can profit from Blockchain
Don’t look now, but things are starting to look up for Bitcoin again!
(You can be forgiven if you didn’t realize that Bitcoin was NOT looking up just over a week ago.)
You see, midway through December, Bitcoin lost nearly half of its value, falling from a peak near $20,000 to below $11,000 in less than a week’s time.
Naturally, such a dramatic decline took a lot of the excitement out of the cryptocurrency market.
Incidentally, my little brother jokes that he’s one of the only people in the world who has actually LOST money in Bitcoin, as he waited to get into the market until the day before Bitcoin hit its all-time high.
More recently, Bitcoin started moving higher again, and has recouped about half of its fateful December loss.
Today, I wanted to cover some of the ways responsible investors can make money on cryptocurrencies — or more accurately, on the blockchain technology behind the cryptocurrency action.
Let’s take a look at what’s going on!
What’s the deal with blockchain?
Put it this way, I’m not a big fan of “investing” in Bitcoin. The currency is highly speculative and volatile, and at this point it’s unclear whether the currency will actually be worth anything in the long run.
(Yes, I know there are many of you who heartily disagree with me. And that’s certainly okay. Suffice it to say that I’m not opposed to people speculating on Bitcoin with extra cash that they don’t need immediately. But I wouldn’t bet money that you need on Bitcoin today.)
Blockchain technology, on the other hand is a very important tool that will change financial transactions forever.
Basically, blockchain is a technology that keeps a set of secure online records that is spread across many different computers. This is important because no single location is responsible for the set of records.
You could compare blockchain to a giant Google Doc that many different people can access all at once. So when one change is made to the blockchain, everyone has access to that change at the same time.
Since blockchain records are spread across many locations, it’s nearly impossible to hack into the database. That’s because you would have to simultaneously hack into all of the computers to change the database of records.
As a result, blockchain has developed a reputation for being very immune to hacking or false information.
So why would many different computers take part in this grand network?
Well, the creator of blockchain created an incentive, giving a “token” or “coin” to computers on the network that solved complex mathematical puzzles.
That’s what has become known as “Bitcoin mining”, where new Bitcoins are created.
Since there are a limited number of Bitcoins, investors and traders are willing to exchange them for dollars or other currencies based on limited supply and market demand.
So how do I make money from blockchain tech?
If you’re like me, you find blockchain interesting…
But until it helps me make money, it’s really just an intriguing novelty.
For serious investors (not just Bitcoin speculators), there are two primary ways that make sense for making money from Bitcoin.
First, I suggest looking at payment processing companies that are either already using Bitcoin, or are likely to start processing Bitcoin transactions in the future.
A couple of examples include PayPal Holdings Inc. (PYPL) and Square Inc. (SQ).
Payment processors that accept Bitcoin transactions will be able to collect fees from every transaction processed. And that means these companies will profit from Bitcoin regardless of which direction the price of Bitcoin trades.
That’s important because you want companies you invest in to generate reliable earnings, and not rely on price movements that are very hard to predict.
A second way of profiting from Bitcoin is to invest in semiconductor manufacturers.
Semiconductors are used by computers to process blockchain transactions and to mine new Bitcoin units. Demand for these processors has driven chip stocks sharply higher, and I expect this trend to continue in 2018.
Keep in mind, semiconductor stocks are also seeing strong demand from other technology areas such as artificial intelligence and self-driving cars. So semi stocks have a number of great reasons to keep moving higher this year!