Despite what you may have heard recently about Bitcoin, Ethereum, and other cryptocurrencies, many financial experts believe that it is the technology behind crypto that you should be paying attention to.
According to Lule Demmissie, president of Ally Invest, “the underlying technology that most cryptocurrencies rely on – blockchain — is a disruptive technology.” “And cryptocurrency just happens to be one of those transformations.”
Some people feel that blockchain technology has the potential to transform practically every aspect of our lives, far beyond the influence of cryptocurrency on our financial portfolios. It’s a “revolution,” according to Dr. Richard Smith, executive director of the Foundation for the Study of Cycles, a nonprofit organization dedicated to investigating recurring patterns across economies and civilizations.
Even doubters of cryptocurrency recognize the value of blockchain technology. According to Chris Chen, CFP CFP of Insight Financial Strategists in Newton, Massachusetts, blockchain is the real gem. He believes blockchain will last much longer than popular cryptocurrencies such as Bitcoin, which he describes as a “flash in the pan.” “Blockchain will continue to alter the way we conduct business.”
How it Works
Here’s an example of how blockchain is used to verify and record Bitcoin transactions.
- A consumer buys Bitcoin
- The transaction data is sent across Bitcoin’s decentralized network of nodes.
- Nodes validate the transaction.
- After approval, the transaction is grouped with other transactions to form a block, which is added to an ever-growing chain of transactions.
- The completed block is encrypted, and the transaction record is permanent; it cannot be removed or altered on the blockchain.
The blockchain of Bitcoin is open to the public, which means that everyone who holds Bitcoin may see the transaction history. While tracing the identity of an account can be challenging, the record displays which accounts are transacting on the blockchain. Any user with the necessary computing capacity can also participate as a node in authorizing and recording transactions onto the blockchain.
However, not all blockchains are open to the public. Blockchains can be structured as private ledgers, allowing the blockchain’s owner to control who can make changes or additions. A private blockchain’s pool of participants may be smaller, but it is still decentralized among those that participate. Using the same encryption, private blockchains ensure the security of any data kept within the database.
Putting Money Into the Future
Businesses and governments all across the world are testing and using blockchain technology, but nothing will happen overnight. It will be a long time before we reach a position where government currency is based on a blockchain or medical data are converted to a blockchain.
In the meanwhile, you may bet on blockchain’s strength by investing in a blockchain-based cryptocurrency like Bitcoin, albeit that’s not the only option to put your money behind the technology.
You may also make standard investments blockchain-ready by modifying them. Check to see whether any of your ETFs or mutual funds invest in companies that are developing blockchain technologies or implementing them in their business processes.