Four ways to invest in blockchain ranked from riskiest to safest

Bitcoin was an amazing investment, provided you got in early and got out at the peak. Most people believe that blockchain, cryptocurrency’s underlying technology, still holds that kind of promise.

Blockchain feels like personal computing in the 1980s, Internet in the 1990s, mobile in the 2000s, and social in the 2010s. Get in at the right time and find (or start) an Apple, a Google, an Apple (again), or a Facebook, and in 10 years you’re a (m/b)illionaire.

So how do you take advantage of what seems like such a sure thing?

Well first of all, blockchain is not a sure thing. Blockchain could just be an evolutionary step, a pre-cursor to a more robust and relatable technology that winds up being the moneymaker. There are elements of blockchain that hint at concepts that are very sorely needed in today’s digital world: efficiency, privacy, transparency, security. But that doesn’t mean that blockchain is the undisputed champion of those concepts. In fact, I believe that if it weren’t for cryptocurrency, and specifically Bitcoin, emerging as blockchain’s first viable application, blockchain would be kinda boring. It’s easy to grasp the sexiness of money created out of thin air, but very few people understand the value of tokens as an authenticator between two endpoints.

In other words, it’s really, really early to be investing in blockchain. But that never stops anyone from trying.

I’m not your broker, I’m not going to tell you how to allocate your funds. I will tell you that no matter which option you choose, you should do a lot more reading when you’re done with this article.

So here are four ways you can invest in the promise of blockchain technology, ranked from riskiest to safest.

1. Invest in coins and tokens

I mean…

It’s hard to argue against 10,000% returns except for that one counterargument — that those returns were invested 10,000% ago.

While cryptocurrency is not blockchain, it is the most direct way to invest in the application of the technology. It’s also the riskiest of risky options. You’re betting not only on the underlying blockchain technology gaining wider acceptance, but you’re betting that the people employing said technology are employing it correctly, that their vision is clear, their code is kosher, their use case is valid, and that their business model will work. And those are just the startup risks.

With coins and tokens, you’re also betting that they’re not just hitching their car to a runaway train, their morals are in check, that there is no pump-and-dump or Ponzi scheme either purposely or accidentally happening, and that they’re not going to get hacked, tricked, blackmailed, or subpoenaed.

Make your own Wall Street joke here.

The best advice I’ve seen for investing in coin is to do a lot of due diligence and spend some mad money buying a basket of coins across different platforms. Then get all those coins into paper wallets, consider them lost, and then find them in ten years like 50-Cent.

I’d stay away from ICOs. There is just too much froth in the market right now to know what is real and what isn’t. You’re talking about the inflow of a lot of money into a single source at one time, which is like a Petri dish for greed. I’m not saying that ICOs are inherently sketchy, I’m just saying that in the twenty-teens, even IPOs have their problems, and those problems are magnified with ICOs

I also wouldn’t invest in tokens. Tokens are just too much abstraction for me to qualify them as investable. You’ve seen tokens in use already: buying items in a video game, coins in a virtual casino. I wouldn’t convert dollars into tokens unless I was immediately using them to buy a lightsaber or a seat at a virtual poker table. And to be honest, I don’t even do that because usually I get what I need just for playing.

2. Invest in startups that exploit blockchain technology

A corollary of one of my earlier statements: Blockchain is not Bitcoin, or any coin at all. It’s a new, relatively unproven technology counting on a new, relatively unproven transaction paradigm.

But blockchain is a technology, not the application of technology, and the paradigm could solve a huge problem. That means investing in a blockchain startup is less risky than investing in cryptocurrency.

The problem is its hard to find or even define a blockchain startup.

A lot of blockchain startups are just startups using blockchain to produce coins, tokens, or some way to transfer coins or tokens from someone to someone for some purpose.

You know, like Bitcoin, but way late.

Others are tech startups that are pivoting to blockchain because they’re out of options. Look, I can’t say I blame them, especially when you see publicly-traded companies mumbling about coins or tokens or blockchain and reaping quick (and usually quickly evaporating) spoils. Looking at you, Kodak.

But yeah, I do judge these “now-with-more-blockchain” startups, because it’s like that episode of Silicon Valley when every company on the stage at Disrupt claimed to be So(cial) Mo(bile) Lo(cal). Some were MoSoLo, some were LoMoSo, but they were all B(ull)S(hit).

There are some interesting plays with blockchain that lean more on the technology than currency. Right now we hear a lot about pharma, finance, real estate, food sourcing, basically anything that needs to be tracked diligently and openly in massive quantities. But I don’t think the killer use case is out there just yet. The good news is it’s early, but not too early, so the winners aren’t even close to shaking out.

If you have the means and inclination to invest in a blockchain startup, this probably isn’t your first rodeo. So like any other investment, do your research and due diligence, but mostly make sure the company is using blockchain for blockchain reasons, and what they’re doing is trying to find a solution for an existing difficult problem, not trying to find a problem to which they can apply a temporarily lucrative solution.

3. Invest in publicly traded blockchain ETFs

This is where the risk factor drops from crazy to everyday, and it’s also the easiest option. A relatively new concept, there are a number (at least four when I wrote this) publicly traded ETFs that purport to track blockchain companies. This means they’re a basket of publicly traded stocks of companies that are using blockchain or are related to the use of blockchain and cryptocurrencies.

They’re all pretty quick to point out that they don’t invest directly in cryptocurrencies, so they’re a far less risky option.

The problem is, there’s some debate as to how “blockchain” they really are.

I’m in one of these ETFs (BLOK) for a small amount, but only because I like the basket of holdings and the fact that the fund is actively managed, so I’m making a bet that the fund managers are playing for the emergence and evolution of blockchain application and not the hype.

Some of the top holdings in BLOK are Taiwan Semiconductor, NVidia, and AMD on the hardware side. Then there are companies like Overstock and Square on the commerce side. But I mean IBM is in there too, so, not exactly the most cutting of cutting edge.

There are no 10,000% returns here, but at least you’re dealing with garden-variety danger.

4. Invest time in learning blockchain development

Don’t get mad at me for being entrepreneur-guy here, but this is your best bet. Low risk, high potential returns, true blockchain, totally manageable.

Bitcoin was a technology gold rush, and any technologist who has been in the game for a while has seen a few gold rushes and learned to appreciate them for what they are: Bearers of market direction. I’ve listed the “big four” in the opening of this article, and blockchain reminds me the most of the app gold rush of the early 2010s.

Back then, you saw the same signs — apps were going to change the world, thousands of startups sprang up overnight, investment in app companies exploded, the technology evolved from niche to ubiquitous. Today, now that the dust has settled, most of those startups are long gone, but if you’re not running mobile-first technology, you’re dead too.

The thing about blockchain as a technology is it’s a paradigm shift. It has the potential to change the way we pass information much like the Internet connected computers and then mobile put computers on our person 24/7. Those are heady concepts, and blockchain adds the potential of transfer of something of value between two computers on two persons in an efficient and secure manner.

That doesn’t necessarily mean coin or currency, but there are definitely better use cases than cryptokitties. There is a wide-open playing field in the middle somewhere, with technology that’s been proven and starting to become robust.

This is why I geek out on blockchain. It’s like a casino-style buffet of technical opportunity, and you can start at any station.

And don’t tell me you can’t do it. I created the basis of my own cryptocurrency over a weekend and then jotted down everything I learned on the way — a crash course in blockchain and crypto.

Start there. Do the research. Invest the time in learning the technology. Then go find a big problem and solve it.