Most investors enter the financial market to build wealth. However, investment isn’t a one-time thing but a long-term commitment that must be sensitive to possible innovations.
Investors can prepare for economy-affecting changes by following wealth preservation tips and partnering with consultants.
Still, one of the best ways to be a resilient investor is to understand the trend.
If you’re an accredited investor aiming to stay on top of investment opportunities, you’ve probably already heard about blockchain technology.
However, you might wonder what blockchain is and how its recent boom impacts today’s investors and their investments.
This article breaks down the key features of blockchain technology, including tokenization, smart contracts, and decentralization.
You’ll also learn how companies and platforms leverage the new technology to help you make profitable investment decisions.
Understanding Blockchain Technology and Private Equity Investment
Blockchain technology and cryptocurrency (arguably blockchain technology’s most popular application) have become essential to today’s fintech and investment world.
Many financial, legal, and governmental institutions, including premier auditing firms and central banks, have set up blockchain development labs.
However, many are still confused about blockchain technology, including how cryptocurrencies work and whether tokens have any real financial value.
Specifically, many investment professionals wonder how they’re affected or should prepare for this emerging technology.
The Role of Digital Marketing in Demystifying Blockchain Technology and Cryptocurrencies
In the rapidly evolving landscape of fintech and investment, digital marketing plays a crucial role in demystifying the complexities surrounding blockchain technology and cryptocurrencies.
As blockchain emerges as a transformative force in various industries, including finance, legal, and governmental sectors, it becomes paramount for businesses and institutions to communicate the potential and real-world applications of this innovative technology.
Digital marketing strategies, such as content marketing, social media outreach, and educational webinars, can be employed to bridge the knowledge gap and dispel misconceptions. By crafting engaging and informative content, financial institutions, premier auditing firms, and central banks can build awareness and trust among their target audiences.
Furthermore, through targeted campaigns, they can address common uncertainties about cryptocurrencies and illustrate the tangible financial value that tokens hold within the blockchain ecosystem.
As digital marketing aligns the fintech industry with the rapidly changing technological landscape, it facilitates a more inclusive and informed participation in this groundbreaking domain.
Here’s a rundown of the key terms, concepts, and applications to give you an idea of how blockchain impacts the modern financial system.
The Blockchain Revolution
Blockchain, or distributed ledger technology (DLT), is a decentralized database that stores real-time value exchanges through a peer-to-peer network.
Transactions are organized into blocks, each chained to a previous block and permanently recorded.
Blockchain users can enter all sorts of assets into the system, including votes, contracts, music, and money.
Here’s why this mechanism has far-reaching consequences for the finance and investment industries:
A financial system operates on trust that a chosen exchange medium—for example, gold—will have value to others.
The blockchain revolution signals a change in the traditional application of that trust. With blockchain, trust depends on a distributed ledger network containing property ownership and value transfer records.
Blockchain-based networks facilitate direct property or asset trading, with the platform as the foundation for trust regarding the legitimacy of all parties and the transaction’s authenticity.
Consequently, the technology enables self-executing or smart contracts that can help streamline today’s processes for negotiating and implementing agreements.
Private Equity and Asset Management
Today, forward-thinking private equity firms also focus on how blockchains — including tokens, smart contracts, and related technologies — will impact their investments and businesses.
Here’s how blockchain technology can affect private equity investments:
- As an investment theme: Blockchain will likely continue to draw sophisticated investors as the technology integrates into the underlying infrastructure of various industries and use cases.
- As a disruptive factor to the portfolio: Even if investors don’t participate in the blockchain system directly, proactive funds scan their portfolios and augment traditional companies’ due diligence, identifying disruptive risks and opportunities.
- As a tool for developing new fund strategies: Digital tokens (an application of blockchain technology) can redefine how private equity funds raise and manage capital.
These tokens can open up opportunities for wealthy individuals and accelerate the development of more liquid fund formats.
Digital tokens can also increase efficiency and reduce administration costs.
Various types of token sales are available, including:
- Initial coin offerings (ICOs): Digital tokens are sold to investors directly through a project’s website via smart contracts.
- Initial decentralized exchange offerings (IDOs): Investors buy tokens on decentralized exchanges (DEXs).
- Initial exchange offerings (IEOs): Projects issue tokens on centralized exchanges and sell them to investors.
- Initial game offerings (IGOs): Investors can purchase in-game tokens, assets, and nonfungible tokens (NFTs).
Private equity funds typically have a few investors and hold long-term investments. This scenario means fewer transactions, fewer parties involved, and less reconciliation.
Consolidating and improving recordkeeping in more considerable retail funds takes time.
Fund groups might have to modernize the ownership processes and adapt to the DLT in public securities markets where their managers participate.
Leveraging Blockchain Technology When Investing
Payment is one of the most common use cases for blockchain technology. Using blockchains, you can exchange censorship-resistant digital assets for value on platforms like Bitcoin and Ethereum.
Be quick to analyze crowdfunding trends. You can also participate in crowdfunding a new cryptocurrency or crypto-related venture via an ICO by purchasing a new cryptocurrency launched by a blockchain developer.
Today, you can also buy shares of companies using or developing blockchain technology.
At the same time, incorporating a digital ledger system can also help make a business more efficient and profitable. As you already know, profit increases share prices over time.
You can also invest in an exchange-traded fund (ETF) that directly tracks the price movement of Bitcoin or another digital asset.
A popular choice is VanEck Bitcoin Strategy ETF. Alternatively, you can invest in an ETF that tracks the performance of a few blockchain companies, like Nasdaq NextGen Economy ETF.
In conclusion, blockchain technology does not have to crash into the financial services and investment industry with a bang. In fact, the revolution is already underway.
As blockchain adoption increases, verified investing can become more common, providing people with new opportunities to diversify their investments.
References
1. Cong, L. W. (2019). Blockchain Economics for Investment Professionals. The Journal of Investing, 28(3), 13–20. https://doi.org/10.3905/joi.2019.28.3.013
