Blockchain technology is one of the hottest trends in the finance scene, with the potential to completely transform traditional business models in a number of sectors. Blockchain works similarly to a massive digital spreadsheet, which is shared by all the members of a decentralized network. While blockchain technology is most frequently associated with confirming Bitcoin payments, it can also be used in a number of other ways. Since Bitcoin has become more widely accepted by the mainstream, it has been valued at almost $6 billion.

How to Invest in Blockchain

Along with a rapidly expanding user base, Bitcoin is now being considered by a number of financial services companies. Paramount among the benefits offered by cryptocurrency is the ability to reduce the cost of transferring funds, particularly on a global scale. The impact of Bitcoin, and the technology behind it, on the finance industry, has been likened to the disruption that the Internet caused in the music and publishing industries. (For related reading, see: The Future of Cryptocurrency.)

In light of tremendous promise, investors have already begun to look at how they can tap into the profit potential of blockchain technology. Given the nature of blockchain technology, prior to making any investment decisions, there are certain unique factors to consider that differ from traditional investments. The good news is that opportunities for investing in blockchain technology abound, giving investors at every level the chance to leverage the potential offered by this revolutionary technology. How an investor chooses to invest in blockchain technology will largely depend on the amount of risk he or she is willing to incur, as well as the type of yield they wish to achieve.

1. Stockpiling Bitcoin

Just as many investors have taken advantage of the opportunity to stockpile gold in anticipation of the rising price, other investors are taking advantage of the opportunity to stockpile Bitcoin. Although the two assets are different, in that gold is a tangible item and Bitcoin is not, many of the basic investment principles remain the same. For instance, both assets are considered rare. While the rate at which Bitcoins were generated in the early days of the technology was relatively fast, that rate has slowed over the last few years as the technology reached its built-in limit of 21 million coins.

It all comes down to simple supply and demand. With limited supply, as demand increases, value also rises. If you are under the impression that the concept of stockpiling Bitcoins for investment purposes is only for speculators, think again. The famed Winklevoss twins once reported they held up to one percent of the total amount of Bitcoins in circulation. With more and more methods for procuring Bitcoin being made available, there has certainly never been a better time to begin a cryptocurrency investment portfolio.

2. Blockchain Penny Stocks

Yes, there are even penny stocks for cryptocurrency. While Bitcoin is definitely the most well-known digital currency, it is certainly not the only option. Other types of digital currency include Litecoin and Altcoins. Over the last few years, some alternative digital currencies were developed in an attempt to compete with Bitcoin, but many others were designed specifically to fill needs not met by Bitcoin. For instance, some cryptocurrencies have been developed for the purposes of enabling digital asset registry, providing increased privacy, allowing escrow services, and more. Bitcoin penny stocks like Bitcoin Shop Inc, Global Future City Holding, and American Green, Inc. offer Bitcoin penny stock investment opportunities.

3. Altcoin Crowdfunding

Crowdfunding is now considered a popular and mainstream method for raising seed capital for all types of investments. If you're seeking to get involved in blockchain technology, one option to consider is a unique crowdfunding method using alternative coins. With this method, total coin supply is pre-mined and then sold in an initial coin offering, or ICO, prior to the network being publicly launched. Bitshares is just one of the many well-known coin networks that used this method to get started. Services and apps using blockchain technology have also utilized this same pre-sale method to raise funding. With this method, investors are given the opportunity to purchase coins with the expectation that prices will increase at some point in the future if the service becomes popular.

4. Angel Funding and Startup Ventures

Angel funding and investing in startups is certainly not a new concept. One variation that is beginning to gain traction is the idea of investing in startups built on blockchain technology. As Bitcoin has become increasingly popular and accepted by more mainstream businesses, the number of entrepreneurs interested in experimenting with the technology behind the cryptocurrency has skyrocketed. Yet, as is the case with any other new venture, such startups need funding. Providing startup and angel funding allows you to get in on the ground floor of what could turn out to be the next Google, Apple, or blockchain frontier. Of course, it should always be understood that there are significant risks. Since the profit potential is massive, it is important to carefully weigh both the pros and the cons.

5. Pure Blockchain Technology Play

An increasing number of pure blockchain technology plays is now also on the rise. Companies such as hashing Space Corporation, BTCS, Inc. and Global Arena Holding are rapidly becoming well-known names in this space. BTCS, for instance, markets itself as the first "pure-play" U.S. public company focused on blockchain technology. The company works to secure the blockchain via its distinctive transaction verification services. Global Arena Holding is currently leveraging blockchain technology for potential in voting verification.

Not sure which investment method is right for your risk appetite? If you want to keep risk low, the best option is to invest in stocks issued by one of the larger financial services companies currently experimenting with the potential of blockchain technology for improving services. For investors who are able to tolerate a higher degree of risk in exchange for a greater return, investing in one of the pure blockchain technology investment opportunities could deliver the right combination of risk versus return.

The Bottom Line

While many naysayers contended that blockchain technology and cryptocurrencies such as Bitcoin were nothing more than a passing fad, six years in, they represent a concept that continues to gain steam and could even have the power to change the world. For those adventurous investors who choose to become involved in the blockchain technology boom, the payoff could be massive.