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With millions of Americans suddenly forced to work from home due to the still-raging pandemic, many turned to trading platforms like Robinhood for a crash course in investing. That right there bodes very well for so-called blockchain stocks, or companies levered to the technology that underlines cryptocurrencies. But to understand the potential of this sector, one needs to have a basic understanding of this advanced digital architecture.
Look up the definition of a blockchain and you’ll come across something like this: a distributed, decentralized, public ledger. To truly appreciate blockchain stocks, it’s easier to think about what this innovation isn’t. For instance, take a look at a central bank, which has three distinct characteristics:
- Non-distributed: central banks make monetary policy decisions internally and do not distribute their authority to the public.
- Centralized: all authority is ultimately given to a governing leader or entity.
- Private: all transactional information is privately held for security and privacy reasons.
While we’re accustomed to centralized infrastructures, this format has one glaring problem: corruption. Anyone with authorization can manipulate data for their own nefarious benefit. In some cases, such as government bailouts during the Great Recession, this manipulation is out in the open supposedly for “the greater good.”
Coincidentally, bitcoin was born amid the chaos that stemmed from the 2008 financial crisis. And with it, the idea of the blockchain was born.
In this digital ecosystem, the rules of the game are determined by public consensus (distribution). Further, transaction data within a blockchain is verified through “mining,” or a competition among networked nodes (computers) to solve complex problems to gain the right to verify data into the target blockchain, typically accruing a reward (cryptocurrency) for doing so (decentralization).
Finally, all transactional information is available for public assessment without compromising personal information (public ledger). In this manner, corruption is limited, thereby facilitating a paradigm shift in our monetary system. Hence, these blockchain stocks have significant potential:
- Square (NYSE:SQ)
- Intel (NASDAQ:INTC)
- IBM (NYSE:IBM)
- Nvidia (NASDAQ:NVDA)
- Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)
- Marathon Patent Group (NASDAQ:MARA)
- Virtual Medical International (OTCMKTS:QEBR)
While discussions about blockchain technology focus largely on cryptocurrencies, imagine the bigger implications. For instance, what would happen if we decentralized real estate transactions? Theoretically, we could immediately eliminate or reduce the influence of middlemen entities, like attorneys and brokers. Therefore, the potential of blockchain stocks go well beyond bitcoin, which is why you’ll want to keep close tabs on this sector!
Source: IgorGolovniov / Shutterstock.com
One of the hottest names in financial technology, or fintech, Square is a long-term buy for the forward-thinking investor. At its core, the underlying platform allows small businesses to compete with the bigger dogs, providing easy-to-use and intuitive payment processors. As well, Square offers an entire accounting ecosystem that allows entrepreneurs to streamline their transactional data. Thus, small-business owners can focus on growing their companies, driving the bull case for SQ stock.
However, SQ is also one of the most compelling blockchain stocks that you can buy. Square CEO Jack Dorsey – who also heads social media firm Twitter (NYSE:TWTR) – has long been an advocate for innovative technologies. Thus, I wasn’t surprised at all that he backed cryptocurrency integration at a time when such a notion seemed laughable. Well, not too many folks are laughing now, especially judging from the rise of SQ stock.
Square is one of a growing number of mainstream platforms where users can buy and sell bitcoin. Additionally, earlier this year, the U.S. Patent and Trademark Office granted the company a patent for “a new network that enables seamless crypto-to-fiat transactions.” Clearly, Dorsey and his team have big ambitions for the groundbreaking architecture, making SQ one of the best blockchain stocks to buy.
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At present, very few people want to hear about Intel and for completely understandable reasons. In recent years, the company has lagged rival Advanced Micro Devices (NASDAQ:AMD). But then came the bombshell: Intel has been forced to delay its next-generation chips to 2022. Now, we face a very real prospect where Intel will be known as the poor man’s AMD.
Naturally, this spooked many stakeholders and INTC stock crumbled on the devastating disclosure. Plus, it’s hard to blame them as Intel has demonstrated a recent track record of disappointments.
Still, for those who are interested in comeback stories and particularly blockchain stocks, you may want to give another look at INTC stock. As I explained above, the blockchain appeals to many people because it is a public ledger. However, anytime something is known to the world, it can be used for nefarious purposes.
This is particularly important as blockchain technology improves other segments, such as healthcare. For instance, Fetch.AI combines artificial intelligence and the blockchain to create a system where healthcare facilities autonomously share medical data without compromising patient privacy. Potentially, this will improve broader health outcomes.
But as the blockchain becomes more mainstream, there will be demand to secure certain information (such as patient’s medical records). This is where Intel’s Software Guard Extensions (SGX) comes into play. Basically, SGX is a hardware-based memory encryption platform which adds another layer of protection for valuable information.
While it may not be appreciated now, it likely will be in the future. Therefore, keep INTC in your list of blockchain stocks to buy for the long haul.
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Another legacy tech firm that has seen better days is IBM. A promising recovery narrative in the aftermath of the 2008 financial crisis, IBM stock made good on its speculative potential. However, this feel-good story peaked in 2013. Unfortunately for “Big Blue,” the organization was saddled with legacy businesses that were rapidly becoming irrelevant. Part of the reason why was the sharp and accelerated pivot to the cloud, which Amazon (NASDAQ:AMZN) has dominated.
Nevertheless, I like IBM stock as an undervalued sentiment play. With so many sexy tech names crowding the headlines, IBM is presently flying under the radar. However, as one of the more compelling blockchain stocks, I don’t expect this circumstance to last indefinitely.
Here’s the deal with the tech icon: this has always been an organization with big ideas, hence it’s long list of enterprise clients. And while the blockchain centers on cryptocurrencies for now, eventually, investors will recognize the potential for the innovation to solve large-scale problems.
A great example of course is the global food supply chain. So much of our food goes to waste and increasingly, the end-product is damaged before it arrives to retailers. To remedy this and other major challenges of inefficiencies, IBM has launched a collaborative blockchain platform where enterprises can work together to solve them.
Admittedly, it’s very forward thinking, requiring investor patience. However, if you’ve got a time frame measured in years, this may be one of the best blockchain stocks to pick up.
Source: Hairem / Shutterstock.com
As great as the blockchain technology is, for most applications, the innovation doesn’t work without a peer-to-peer network. To put it simply, without large-scale participation, the platform becomes pointless, as does the reward token associated with the blockchain. Thus, blockchain stocks don’t just revolve around fanciful ideas. Instead, you have companies like Nvidia providing the hardware necessary to make this innovation work.
Earlier I mentioned that miners verify transaction data associated with a particular blockchain. To do this, miners use advanced processing rigs, such as Nvidia’s library of graphics processing units (GPUs), to solve the complex algorithms necessary to win the right to verify data and thereby earn reward tokens.
Initially, the difficulty of the algorithms, or “hash” was low. But over time, verifying data became more computationally intensive, requiring rigs to run higher hash rates, or computing power. As it turns out, Nvidia is one of the leaders in mining-specific GPUs, which previously bolstered the narrative for NVDA stock.
Moving forward, I see similar enthusiasm developing. Unlike traditional publicly traded securities, cryptocurrencies can be bought anytime, anywhere. Undoubtedly, this will attract younger investors to the market, driving up demand for cryptocurrencies. In turn, this will make crypto mining much more economically sustainable, benefitting NVDA stock.
Alphabet (GOOG, GOOGL)
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While blockchain stocks are often tied to worldwide business problems or transactional services, the underlying technology isn’t just for serious endeavors. Indeed, the platform can rectify some of the most mundane issues. Surely, this played a role in Alphabet’s partnership with Theta Labs, a venture-backed blockchain company.
As you may know, Alphabet has stayed away from the blockchain arena. But with its subsidiary Google Cloud collaborating with Theta Labs, there’s now more reason to be interested in GOOGL stock.
During the course of this pandemic, many folks who were sheltering in place turned to streaming platforms like Netflix (NASDAQ:NFLX). Logically, the sudden and extreme demand overloaded centralized data servers. But as Forbes’ contributor Cory Johnson stated, Theta came up with an ingenious solution by moving small chunks of content to the extreme edges of the network. Johnson writes:
If you decided to watch “Narcos” at noon (hey, it’s a quarantine — no one will know), and then a neighbor decides to watch the same thing fifteen minutes later and yet another wants to watch it in an hour, chunks of the content would jump from your TV to your neighbors to the next — even though you were the only one downloading Narcos from the central Netflix server. One server ping, many viewers.
Powering this streamlining of complex data is the blockchain. Thus, with this pivotal partnership, GOOGL stock looks to be a contender in this burgeoning market.
Marathon Patent Group (MARA)
Source: Marko Aliaksandr/ShutterStock.com
For the last two ideas among blockchain stocks, I’m going to explore high-risk, high-reward opportunities. These are organizations that you want to dedicate only money that you can comfortably afford to lose. By no means should you consider these stable investments.
With that caveat out of the way, let’s talk about Marathon Patent Group, which owns mining hardware. Take a look at opinions on MARA stock and you’ll likely see more negative takes than positive ones. Again, with the inherent volatility of a cryptocurrency-based business, the skepticism is more than understandable.
Still, there is a method to the madness. As I mentioned on an earlier story about Marathon Patent, MARA stock and bitcoin’s network difficulty – or the computational power required to mine the cryptocurrency – generally share an inverse relationship. Basically, as the network difficulty rises, MARA has gone down.
But as I mentioned in my Marathon piece, “So long as crypto prices are high enough to yield a rational, economic reward, mining makes sense.” If sentiment strongly returns to the cryptocurrency sector, even with a higher network difficulty, it’s possible that miners can be handsomely profitable in their algorithmic ventures.
Virtual Medical International (QEBR)
Currently, Virtual Medical International is the company name that underlines QEBR stock, which technically is one of the most compelling blockchain stocks on the extreme end of the speculation spectrum. Furthermore, Virtual Medical’s listing in the over-the-counter markets will invariably draw skepticism.
Nevertheless, if you’re willing to overlook these warning signs, QEBR stock may be worth consideration for your “dumb money” portfolio. Fundamentally, QEBR seeks to become a mining farm for the Filecoin cryptocurrency once it becomes publicly operational. Really, it’s the ties to Filecoin that make this publicly traded company so intriguing.
What bitcoin did for monetary transactions, Filecoin aims to do for data storage. Like central banks, data storage is controlled by a handful of data servers often located far away from the source of demand (user). To bring data closer to the user, we have an industry of middlemen called content delivery networks.
But what if you had extra storage space on your computer that you could use to bring data far closer to the demand source than has ever been possible? With blockchain technology, this is no longer the exclusive realm of science fiction.
Truly, Filecoin has the capacity to upturn the paradigm of data storage and cloud computing in general. This is why QEBR has attracted the blockchain industry. However, be aware that significant risks abound, so don’t bet the house on it.
On the date of publication, Josh Enomoto held a long position in bitcoin.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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