Updated: Jan. 13, 2021, 2:34 p.m.
You may know blockchain as the technology behind Bitcoin and many other cryptocurrencies. However, many investors don’t have a thorough understanding of what blockchain is or the best ways to invest in this exciting tech trend.
Here’s a brief overview of what blockchain technology is, followed by some of our favorite blockchain stocks—and one important principle blockchain investors should keep in mind.
What is blockchain?
Blockchain is a form of ledger technology (also known as distributed ledger technology) that keeps records in a decentralized manner. Instead of storing information (say, payment transactions) only on a bank’s internal servers, blockchain technology allows the creation of an unchangeable public ledger that’s accessible to all users. Blockchain ledgers are a very secure means of storing data since they cannot be modified retroactively, and they can be used anonymously to protect the users’ privacy.
It’s worth noting before we go any further that blockchain and cryptocurrency are two different concepts. Blockchain is the underlying technology that powers cryptocurrencies, but it has many other potential applications that have nothing to do with Bitcoin or other digital currencies.
Think of cryptocurrencies as a car and blockchain as its motor. Sure, you need a motor to power a car, but there are many other potential applications for motors. Just to name a few, blockchain has implications for:
- Digital IDs
- Rewards and loyalty programs
- Copyright protection
- Digital voting
- Real estate transfers
- Medical records
Image source: Getty Images
Seven top blockchain stocks to consider
Dozens of publicly traded companies incorporate blockchain into their operations, offer blockchain-related services to customers, or play a role in the cryptocurrency industry. Some are exclusively focused on blockchain innovation and/or cryptocurrencies, while others are using blockchain-related products and services to complement an existing successful business.
With that in mind, here’s a list of seven excellent companies you may want to consider if you want to invest in blockchain technology.
NVIDIA (NASDAQ:NVDA) is the leading manufacturer of graphics processing units (GPUs), which are essential components in such important technological arenas as artificial intelligence, autonomous vehicles, and gaming. In addition, GPUs are key hardware components of cryptocurrency mining. In a nutshell, “miners” use specialized GPUs to process transactions on the blockchain and are rewarded with newly minted digital coins. Rising cryptocurrency prices have created a renewed interest in mining — a recent report showed that NVIDIA sold $175 worth of its GeForce RXT 30 GPUs to Ethereum miners in the most recent quarter alone.
2. CME Group
CME Group (NASDAQ:CME) is the world’s largest futures and options exchange, offering derivative securities for stocks, indexes, foreign exchange, and more. It also is the only exchange that creates a market for bitcoin futures contracts. With bitcoin interest on the rise in recent quarters and the potential for the price of bitcoin to reach new all-time highs, CME Group stands to see revenue rise, as the company gets a small fee for every transaction made on its exchanges. And if cryptocurrency interest continues to rise, other futures products could eventually be offered on the exchange as well.
Financial technology (fintech) company Square (NYSE:SQ) has two main components to its business — its payment-processing ecosystem for small businesses and its Cash App person-to-person payment platform. It also has operations in business lending, a stock trading platform, and several other adjacent businesses, and recently introduced Square Online Store, which helps merchants build out e-commerce and omnichannel capabilities.
Square is a blockchain stock in two main ways. Most obviously, Cash App allows users to buy and sell bitcoin quickly and easily, and with more than $1.6 billion in bitcoin purchased in the third quarter of 2020 alone, this is a significant part of the company’s business. Also, Square has its own team of bitcoin developers, known as Square Crypto, that has several exciting projects of its own.
Although IBM‘s (NYSE:IBM) performance in recent years hasn’t been stellar, the company has made some big moves recently to try to jump-start growth. For example, its $34 billion acquisition of Red Hat gives it lots of cross-selling opportunities with its enterprise clients. On the blockchain side of things, IBM Blockchain has already provided transformative solutions for clients such as Kroger (NYSE:KR), True Tickets (a ticket authentication company), and many others, and it could have a major growth runway if blockchain-based solutions gain more traction in the years to come. As one potential example, IBM Blockchain is focusing on helping customers build more dependable supply chains in light of the COVID-19 interruptions.
Payment processing giant Mastercard (NYSE:MA) has grown tremendously for several years as the trend toward a cashless economy has led to increasing volumes of debit and credit card transactions. Blockchain technology has the potential to transform the cashless payment space, particularly when it comes to cross-border money transfers, which have historically been slow and costly. Mastercard announced a partnership with blockchain technology company R3 to develop a new cross-border payment system, which could ultimately give the company a major competitive advantage in the industry by eliminating the major pain points of sending money internationally. And Mastercard recently accelerated its Crypto Card partner program, which makes it easier for partners to bring cryptocurrency payment cards to market.
DocuSign (NASDAQ:DOCU) is the undisputed market leader in e-signature technology, and it’s not hard to see why this industry has exploded in recent years. Electronic signatures save time and money for companies and individuals — an estimated $36 reduction in the cost of doing business per transaction, according to the company. DocuSign has actively used blockchain technology in its business since 2015, allowing customers to record their agreements on the Ethereum blockchain, and CEO Dan Springer has talked about how important blockchain will be for the future of DocuSign’s business.
In addition to operating the world’s largest e-commerce platform, Amazon (NASDAQ:AMZN) also operates the leading cloud infrastructure service, Amazon Web Services. The AWS platform offers Amazon Managed Blockchain, which allows customers to create and manage their own blockchain networks. Plus, there’s definite potential for Amazon to eventually incorporate blockchain technology into its massive e-commerce business. Blockchain currently makes up a minuscule percentage of Amazon’s revenue, but as the technology evolves, there’s potential for much more.
Learn more about the largest part of the financial sector.
A broad category that covers businesses at the intersection of financials and technology.
Learn how to identify the most promising cryptocurrencies, and explore whether this industry fits your investing style.
Take advantage of the changing finance industry, and invest in its most promising stocks. Here’s what the landscape looks like.
One important takeaway
Notice that none of these stocks are pure-play blockchain or cryptocurrency businesses. All are either well-established businesses or leaders in their respective industries.
Here’s the point — although blockchain technology has been around for about a decade now, it’s still in the early days of its real-world implementation. Blockchain could certainly become a major part of finance, technology, and many other industries in the next few years, or it could take much longer. For this reason, it’s a smart idea to focus on companies that will certainly benefit from the growth of blockchain technology but will be just fine even if blockchain ambitions don’t work out.
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