These days, almost any group of people can have a conversation about cryptocurrency. In most cases, the topics of conversation are as follows: Bitcoin price jumps, enrichment of “lucky” people, rate manipulation, and the prospects for this particular market. However, often even cryptocurrency traders have a vague idea of how things work inside and how this ecosystem works. And the term ‘blockchain’ is used as a magic spell and it is a kind of black box.
Blockchain technology promises to be one of the basic building blocks of the internet of the future. It has already had a significant impact on our lives and it’s not going to stop there.
What is blockchain?
Blockchain is a young technology that appeared in 2009. Today, blockchain is used in many areas of life, from logistics and sales to finance and medicine. And it is particularly common in banking. Blockchain is a digital database, or, a special way of storing data, in which an online log of transaction records is stored simultaneously on many computers, There could be hundreds, thousands, or hundreds of thousands of them. By storing information on many computers at once, blockchain technology has several advantages:
- There is complete transparency. Every user on the network has a copy of the database on his computer and can view the information at any time.
- The information cannot be deleted. Because to completely get rid of certain data, it must be erased from all computers at once. The information cannot be changed.
- The technology is designed in such a way that it does not allow for post-facto editing of data. Blockchain allows you to save money. The technology eliminates the need for all sorts of intermediaries to accompany and record transactions.
The introduction of blockchain technology in remittances would greatly increase the speed of transactions and reduce or even eliminate fees. Another example includes the sharing and use of data. Traditionally, banks have used their internal data warehouses, which can only interact with other banks’ warehouses in a very superficial way. And it costs a lot of money to develop and maintain that storage. Blockchain can be used to create a shared vault that saves significant costs, ensures data integrity, eliminates human error, and ensures complete security.
Blockchain can make life a lot easier, not just for banks, but also for their customers. No financial transactions today are possible without identity verification. As a result, bank customers have to use all kinds of codes and passwords all the time. Blockchain allows you to authenticate yourself only once, to create a special identification certificate. This will then be used to validate any transaction, with users able to choose who they agree to present the certificate to, and all personal data securely protected. Many of the possible blockchain scenarios are still only theoretical. It takes time to put them into practice, it can take a long time to develop, test, and patent systems, and it has only been 10 years since blockchain was conceived. Nevertheless, many cases have already been successfully implemented in practice.
How does a Blockchain stock work?
Blockchain stocks are securities in the form of security tokens. Tokens are backed by a real asset and are linked to its value. They cannot be counterfeited and are not highly volatile.
Digital stocks certify ownership. Holders of digital stocks are entitled to dividends. Transactions in blockchain stocks are enforceable under a smart contract.
Any asset can be tokenized (real estate, copyrights, etc.). Security tokens are subject to existing legislation on the securities. Companies issuing digital stocks are therefore liable for them.
Benefits of using a Blockchain Stock
Blockchain allows tokenized shares to be traded without intermediaries, making all interactions faster and cheaper. At the same time, transaction information is stored in a distributed registry and can be verified at any time.
Blockchain stocks allow you to buy fractional portions of securities. In traditional financial markets, investors don’t have the option of buying a fraction of that stock, while its tokenized version allows them to buy a fractional portion of the security for $10, $20, or any other amount.
Another positive benefit means security. When buying a crypto wallet stock, a trader does not just open a position but receives a secure blockchain-based token that cannot be stolen or altered. A blockchain stock can be withdrawn from the crypto exchange and stored in its blockchain wallet, as well as brought back in and sold.
In addition, blockchain stockholders are paid the equivalent of a dividend – compensation for the dividend gap. Suppose a company pays investors a dividend in June and the cut-off date is set for the 10th of June. The company’s shares rise for a few days before the close of the register and fall immediately afterward because traders have already received a dividend guarantee. The dividend gap is the difference between the price before and after the cut-off
Best blockchain stocks to invest in 2022
Novice investors consider blockchain investment as standard cryptocurrency trading. However, a popular and lucrative option for earning in this area could be investing in the stocks of companies that actively use digital technology. We have selected 5 the best blockchain stocks to invest in.
- DocuSign. The company, which is on the blockchain stock list, uses the Ethereum blockchain to sign client agreements. DocuSign is the market leader among developers of electronic signature technology and the top blockchain stocks. In 2015, the company was involved in one of the first public prototypes of a blockchain-based smart contract.
- International Business Machines. The leader in hardware and software is among the best blockchain stocks to buy and it has recently invested in blockchain technologies. One option for their use by IBM is to help businesses strengthen supply chain networks. Bank of America analysts predict International Business Machines has an opportunity to gain market share in cloud technology and artificial intelligence.
- Nvidia. The scale and ecosystem of the software and hardware vendor allow the company to take an active part in powering the meta-universe. The company offers the best blockchain technology stocks and focuses on blockchain technology that is used to develop the meta-universe and produces chips for mining cryptocurrencies.
- Square. Investors can trade Bitcoins directly through the Cash App. A division of Square Crypto develops open-source projects. The organization’s blockchain developments are aimed at making Bitcoin the world’s most popular currency. Square is known to hold 8,000 Bitcoins on its balance sheet. In addition, in 2020 the company bought out the installment payment service Afterpay. Therefore, Square’s stocks are considered one of the best stocks for blockchain and an attractive asset for investors who invest in the securities of fintech companies.
- Overstock.com. This well-known US online retailer was one of the first online marketplaces to accept Bitcoin as a means of payment. Overstock actively invests in blockchain-related projects through its subsidiary, i.e. Medici Ventures. The latter was previously converted into a fund managed by Pelion Venture Partners, which plans to develop blockchain start-ups shortly. Analysts call that as a prerequisite for a bullish trend in Overstock’s share price.
Brokers recommend including stocks of the companies in investment portfolios that not only work with blockchain technology but also have stable businesses in other areas, such as finance or information technology. This is because blockchain is at an early stage of development in the world today. Organizations that use such technologies will benefit from their diffusion and popularisation. However, if it fails, large financial and IT companies will be left behind.
Are blockchain stocks cyclical?
An understanding of what makes companies go through cycles is necessary. The companies that sell physical commodities are at one end of the spectrum. The revenues of such companies can be driven by consumers` demand (as in the case of smartphones) or be tied to innovations that drive the hardware upgrade cycle among customers (as in the case of GPU makers, i.e. NVIDIA (NASDAQ:NVDA) and AMD (NASDAQ: AMD)).
Some sectors and companies go through longer cycles based on the health of the economy as a whole. Three examples are airlines, car manufacturers, and oil and energy companies. When money flows through the economy at a healthy rate, demand for these basic goods and services is high. But during a recession, company revenues in these sectors can begin to decline. Retail sales are also cyclical, and a company like payment processor Square (NYSE: SQ) depends directly on its connection to retail.
Those technology companies that sell stable and predictable subscriptions under a software-as-a-service business model are at the opposite end of the spectrum. These companies have little or no correlation with market cycles, although the stocks of such companies can be very volatile and subject to rapid changes due to factors such as the number of subscribers and revenues generated. DocuSign (NASDAQ: DOCU) is one blockchain-based company that falls into this camp.
Is blockchain stock a good investment?
According to crypto experts, when trading such instruments, one should consider the rule of portfolio diversification, study information about the issuing company, development of the industry to which it belongs.
Blockchain investing by purchasing stocks of Google, Microsoft, Coca-Cola, McDonald’s, and other well-known companies, whose products and services we use, is quite difficult to formalize. You have to draw up a withdrawal limit, collect other documents, transfer money to a broker’s account, and pay a commission for each trade.
Is blockchain traded on the stock market?
The FTX exchange provides trading with blockchain stocks through the regulated financial services firm, i.e. CM-Equity AG, from Germany. Through it, FTX users can exchange blockchain stocks for securities. Holders of blockchain stocks receive dividends in the same way as ordinary shareholders. FTX accrues them to the trading accounts of token holders according to the issuing company’s timetable.
Mirror is not just an exchange, but a proprietary protocol called Mirror Protocol, which is designed to move global assets into Blockchain.
Bitpanda is a multi-asset exchange that offers to trade multiple assets, including blockchain stocks, and charges low fees.
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Disclaimer: Please keep in mind that the content of this article is not financial or investing advice. The information provided is the author’s opinion only and should not be considered as direct recommendations for trading or investment. Any article reader or website visitor should consider multiple viewpoints and become familiar with all local regulations before cryptocurrency investment. We do not make any warranties about reliability and accuracy of this information.