Blockchain: what is the best time to invest?

5 min

Every innovation, in its initial phase, is complex to understand: you do not know well the technology and its various applications. Today, choosing what is the best time to invest in Blockchain involves significantly lower risk than in the past, but some tips to make a proper analysis of the market can serve especially to those who do not know what it is.

Blockchain: the market trend

A brand-new technology intrigues and the desire to be the first to invest and gain a large slice of the market is certainly tempting, but the risks are not always worth it. Instead, allowing time to pass before making an investment can help us to understand what the real models of success are and what we should focus on. Only then can we help generate value on a global scale.

Blockchain does not escape this trend even though it is a technology that is proving to be revolutionary and not a passing fad. The infographic taken from Gartner shows how Blockchain will follow the Hype Cycle with an initial surge linked to the eagerness to be first, a second phase with investments based on success models and the maturity phase that, according to Gartner’s forecasts, will be reached in 2027.

Today we are still in the midst of what Gartner calls “Irrational Exuberance”. A phase in which many people decide to invest in Blockchain-related projects attracted by words like Bitcoin, Cryptocurrency, Smart Contract and by the logic of security and traceability.

Being the first is not always a winning strategy especially if the investment margins are not high. The risk, at this stage, is to start projects that, if they don’t take off, can’t self-finance in the long run and turn into a failure.

A simple definition of blockchain

Before we get to the logic of investing, it is necessary to fully understand what the Blockchain is. There are many definitions online, more or less in-depth. In this case, we want to give a simplified view of a technology that has enormous potential. We apologize to Satoshi Nakamoto, inventor of the Blockchain, if the concept has been reduced to the bone.

Imagine a chain whose component links (transactions) contain individual pieces of information in what is called a digital ledger. No chain block can contain the entire information, which makes the ledger secure and inviolable.

Antonio Grasso, CEO of Digital Business Innovation and Tech influencer, explains the whole process clearly:

The Blockchain is “just a database,” a secure, decentralized, and transparent data container in which each piece of data connects with previous pieces of data through cryptography, creating a unique string that represents all the information it contains. This string is added to the next transaction and recalculated, creating the “blockchain”.

An example: commercial transactions

Let’s take a commercial transaction as an example. The contracts that accompany goods or services contain confidential information such as the data of the seller, the buyer, the price, and the date. If we want to certify this transaction, i.e. we want to make it secure, we can use Blockchain technology. How? By turning the information into a distributed public ledger.

What is the path to creating a ledger?

  • we start from the first block in the chain, which usually does not contain data. It is sealed and an alphanumeric code called a fingerprint is generated. This code is the result of an algorithm known as a hash;
  • then, we pass to the second block. We repeat the same operation but, in addition to the data of the information we want to encrypt, we will also insert the fingerprint of the previous block. Once the second block is sealed, the content will be unreadable because it has been transformed into a code. A single block will not be able to contain all the data of the transaction and the number will depend on the length of the information to be sent;
  • each block then contains the encrypted information of the previous block, generating a chain. The entire information contained in the Blockchain is called a ledger.

Once described the practical aspect of the Blockchain, let’s understand why it is secure and transparent. When we create a ledger, its copy will be downloaded to a sufficient number of servers that prevent from making a modification.

How the blockchain works

What does it mean? Let’s go back to the fingerprint or the code associated with a block in the chain. If I open that block and modify a single word, but also a dot or an accent, the fingerprint of that block will change because it is unique. This will generate a butterfly effect on the succession of the chain. The miner, that is the one who will have to verify and certify that chain, will notice a difference between the code of that block and the original one contained in the next block. It is therefore evident that the chain has been corrupted.

Therefore, the Blockchain is immutable and secure. In addition, cryptography does not allow me to read the information contained in the blocks, but the steps are transparent and verifiable by stakeholders by downloading a copy of the Blockchain.

Can a decentralized Blockchain be hacked? No, because that would require modifying the copy of that ledger on 50 + 1 % of the servers where it resides simultaneously and this is technically impossible.

What can this “distributed public ledger” be used for? To track long value chains where independent actors are involved.

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Blockchain application examples

  • Transport and logistics: monitoring the origin of raw materials and following their route before they reach the factory helps companies to ascertain their originality and genuineness. This eliminates or reduces the risk of counterfeiting. Data transparency is guaranteed by the digital ledger that records all data and transport transactions.
  • Smart Contract: for smart legal contracts. The transposition of a paper contract into code allows the software in charge to automatically read the terms of the contract and consequent actions in relation to the clauses. The blockchain has also added greater reliability, security and trust. If you want to learn more about smart contracts read “Smart Contract and DApps: what they are and how they work”
  • Accounting management: as it allows to the storage of encrypted data and information, accessible only with passwords. In this way, the accounting records are transparent but safe and without any possibility of external interference.

We're in the midst of what Gartner calls Blockchain's phase of irrational exuberance. What lies ahead in the next few years? Click To Tweet

Is there a good time to invest?

As an entrepreneur, you know that there is no right time to invest and that every choice brings with it both risks and opportunities. If equipped with foresight and financial resources, CEOs could invest even in the early stage of technology, the one where the risk-opportunity ratio is decidedly high. Either you win or you exit the market.

If, on the other hand, the resources to invest are limited, it is better to move with greater caution and wait for the second phase. The one in which you can analyze success models and compare them with your own business. Gartner foresees that this phase will arrive between 2022 and 2026, but forecasts on innovation projects and technologies may undergo unexpected accelerations and slowdowns.

The confirmation of the correct investment comes when the project is still on the market during the maturity phase of Blockchain, a technology that fits right into the Internet of Value. This time is expected to arrive between 2027 and 2030 and will result in an increase in overall value due to the percentage increase in successful projects. What are the cons? Competition is high at this stage. In conclusion, faites vos jeux.

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