Should I consider a blockchain/bitcoin investment for a portfolio

Should I consider a blockchain/bitcoin investment for a portfolio

Should I consider a "blockchain/bitcoin-type" investment for my portfolio?

1

Why consider a "blockchain/bitcoin-type" investment?

Not so long ago when the Internet was first getting established, major business leaders believed that it was just a passing trend and that people would not buy things on-line -- they would depend on large media and traditional retail companies andothers who would control the marketplace.  How wrong they were! 


Similarly whereas it remains "somewhat early days" with blockchain and bitcoin, many credible companies like banks and consulting companies are strongly advocating getting a footprint and understanding of this new business model and technology -- to be able to understand its capability and ability to change business for the better.


Companies that are heavily investing in blockchain include: Wells Fargo Bank, Commonwealth Bank of Australia, Goldman Sachs, Bank of America, Mastercard -- among many others!  Governments have also developed roadmaps in terms of their support and interest in blockchain. 


bitcoin


Of course, the risks remain (as described below) but one can strongly argue that getting familar and making an investment as part of larger portfolio is valuable for positioning your organisation strategically for the near-, medium- and distant future.


Below are descriptions of key terms such as "blockchain" and "bitcoin" and some descriptions of sample application areas -- and even investments -- that are worth further understanding and investigating.  Some are truly exciting -- and revolutionary!

blockchain

If you are interested in further investigating and understanding the relevance of blockchain and bitcoin-type investments for your business or personal investment portfolio, feel fee to arrange a time for a strategy phone call with Ken via the following link:  kenbusinessdoctor.youcanbook.me 

2

What is a "blockchain/bitcoin-type" investment?

"Blockchain" was "invented" via a white paper by "Satoshi Nakamoto" in 2008.   As noted in Wikipedia, "Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin's original reference implementation. As part of the implementation, Nakamoto also devised the first blockchain database."


Blockchain is  "a system in which a record of transactions made in bitcoin or another cryptocurrency are maintained across several computers that are linked in a peer-to-peer network."


According to hackernoon.com,  "In the simplest termsBlockchain can be described as a data structure that holds transactional records and while ensuring security, transparency, and decentralization. You can also think of it as a chain or records stored in the forms of blocks which are controlled by no single authority."  


At this point in its development, this technology has a variety of benefits and risks. (FYI, there are some good LinkedIn Learning courses/videos on both Blockchain and Bitcoin/cryptocurrencies).


blockchain

The benefits of blockchain comparied to standard databases and technology include:


  1. Greater transparency
  2. Enhanced security
  3. Improved traceability
  4. Increased efficiency and speed (at times)
  5. Reduced costs (at times)

The risks associated with blockchain include:


  1. Legal risk
  2. Operational risk (e.g. system outages, security, resiliency and capacity)
  3. Code and cryptography risk
  4. Consensus and governance risk 
bitcoin


Cryptocurrency & Bitcoins


One of the first applications of blockchain was in the domain of "cryptocurrency" payment.   Cryptography is used for security and anti-counterfeiting measures.


Bitcoin is a digital payment currency that utilizes cryptocurrency (a digital medium of exchange) and peer-to-peer (P2P) technology to create and manage monetary transactions as opposed to a central authority. The open source Bitcoin P2P network creates the bitcoins and manages all the bitcoin transactions.  There are many other cryptocurrencies in addition to Bitcoin (i.e. over a thousand).


The benefits of bitcoin include:


  1. User autonomy
  2. Discretion
  3. Peer-to-peer focus
  4. Elimination of banking fees
  5. Very low transaction fees (at times)
  6. Mobile payments
  7. Accessibility

The issues and risks associated with bitcoin include:


  1. Exposure to Bitcoin-specific scams and fraud (i.e. criminal threat such as automated theft)
  2. Black market activity may damage reputation and usefulness
  3. Susceptible to high price volatility
  4. No chargebacks or refunds
  5. Competing cryptocurrencies
  6. Environmental ills of bitcoin mining (i.e. requiring vast amounts of electricity; mining equiprment rapidly becomes obsolete)
  7. Technological threats (i.e.  (e.g. a 51% attack, the network doesn't scale, bad security on supporting platforms)
  8. Regulatory threats 

There are various applications of both blockchain and cryptocurrencies.


Initial Coin Offerings (ICOs)


An Initial Coin Offering (ICO) is the cryptocurrency industry's equivalent to an Initial Public Offering (IPO). ICOs act as a way to raise funds, where a company looking to raise money to create a new coin, app, or service launches an ICO.


The characteristics of an ICO include:


  1. First release of a cryptocurrency
  2. Usually a token, built on the Ethereum blockchain.
  3. Can have various conditions
  4. May be tied to something of present or future value
  5. Can be used for crowdfunding.

The benefits of  an ICO include:


  1. Liquidity 
  2. Decentralisation
  3. Openness
  4. Variation in cost
  5. Lower competition
  6. Able to invest cryptocurrency profits.

The issues and risks associated with an ICO include:


  1. Hard to prove backing/benefits
  2. Unreasonable valuations
  3. Possibly not legal (uncertain at this point).
  4. Can be hijacked via hackers. 

How to judge an ICO:


  1. Pay attention to the fundamentals (as with any investment).
  2. Understand the details.
  3. Examine the utility or assets (if any).
  4. Check and double-check.


In summary, the definitions an concepts of blockchain, bitcoin, cryptocurrency and Initial Coin Offerings (ICOs) are intriguing and warrant additional investigation and understanding -- and positioning for now and for the future.  

3

How does one make a "blockchain/bitcoin-type" investment?


The following are the steps for making a bitcoin-type investment:


  1. Open an account on a cryptocurrency exchange, e.g. with Coinbase, Binance, Gemini, Robinhood, etc
  2. Do your analysis to determine the best coin and set up a purchase for Bitcoin, Ethereum, Litecoin, etc
  3. Think about how to store your cryptocurrency (e.g. Hot Wallet where bitcoin is stored by a trusted exchange in the cloud, e.g. Coinbase, Electrum, Blockchain, Mycelium; Cold Wallet where you have a small, encrypted portable devise, e.g. Trezor, Ledger Nano).
  4. Make your purchase (and wait for the confirmation)
  5. Manage your investment. 



Application:  International Trade 

A particularly interesting industry application for blockchain is International Trade wherein there are often many parties/entities involved, many steps, and many transactions.  This has made this domain subject to fraud, unauthorised parties, mis-stated orders, delivery of wrong/fraudulent products, substantial transaction fees, and delays in shipments.


international trade

One particularly interesting application of blockchain and cryptocurrency to International Trade is the work done by Frethan.


FRETHAN is an international trade certificate storage platform based on Blockchain technology. The platform uses the Blockchain network to connect the global trade demand users-- via the Frethan chain data credit network, and under the shared ecological incentive mechanism -- it establishes a trust-based, efficient and autonomous international trade certification platform and international trade ecosystem. I


t makes each seller and buyer count and be authenticasted  and every transaction step that goes through the platform counts!  Reduces fraud, wasted effort, transaction costs and makes the whole process more timely and efficient.  (Interestingly, Frethan is now open to further investment via the Frethan coin.  If interested, please let me know and I can send you more information). 


Application: Internet of Things 

Another interesting application of Blockchain is IOTA, i.e. a coin for the Internet of Things.

In a blog post discussing IOTA’s road map, David Sonstebo, co-founder of cryptocurrency, wrote that it was developed to enable the “paradigm shift” to the Internet of Things by establishing a “de facto standardized “Ledger of Everything.”


Simply put, this means the cryptocurrency will enable data exchange between sensor-equipped machines that populate the Internet of Things. 


According to Investopedia, "IOTA does not use the traditional blockchain design used by most cryptocurrencies. Instead, it has developed a new platform called Tangle, which uses a mathematical concept known as Directed Acyclic Graphs (DAG).


For its own transaction to be valid, each node in a DAG Tangle must approve two previous transactions at other node. This has two consequences. First, it removes “miners” as entities to validate transactions, thereby removing a possible bottleneck when transaction speed and numbers are high. Second, the network’s growth and speed becomes directly proportional to the numbers of its users.


IOTA also does not have transaction fees and claims to have solved scaling problems, such as network delays due to block congestion, related to bitcoin."


IOTA, for example, will allow the consumer to sell their data and therefore monetizes data.  It is particularly interesting and  has some initial substantial traction and involvement of over 1102 companies and organisations.  

world trade map

Summary Takeaways!


So in summary, the key takeaways are:


  1. Blockchain as a technology that is here to stay and is worth investigating.
  2. Real-world applications such as  IOTA (Internet of Things coin) and international trade are particularly interesting -- with proven demand and interest.
  3. Bitcoin and other cryptocurrencies including Initial Coin Offerings (ICO) are simillarly worth investigating for inclusion within a broad investment portfolios.  
blockchain

If you are interested in finding out more about blockchain, bitcoin and other cryptocurrencies, and Initial Coin Offerings, please feel free to set up a free initial consultation with Ken at kenbusinessdoctor.youcanbook.me 


Also, please feel free to check out other relevant blogs such as ​Want to build a successful business ecosystem?

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