For the last 15 years, we have been avid long-term buy-and-hold investors. We invest primarily in Total Market Index Funds and ETFs. So why are we interested in Blockchain, Smart Contracts, and NFT’s now?
Like many, I had no idea what a Crypro actually was. And I’m still not 100% sure.
But with how often it is in the media, online, and spoken about at the playground, I had to at least get the basics down.
Mr. Bean has been excited about the Crypto and Blockchain Technology that is slowly gaining a presence in the world, for a while.
Through his excitement, I have finally decided to join the Crypto Band Wagon, at least a little bit. And here’s why:
FOMO (Fear of Missing Out)
Back in the late 80s and early 90s, the internet was just starting. It was a great concept but many people thought it was just a passing fad.
They couldn’t envision what the technology could actually be used for in everyday life.
In the late 90s and early 2000s, internet companies started to take off. The new innovations allowed for all sorts of things.
Some people got a bit too excited and bid up stock prices for certain internet-related companies and we had the Dot Com crash.
Everyone thought that was the end, but as we all know today, the internet is alive and well. Taking over every aspect of our lives.
Blockchain Could Be the New Internet
With the new Blockchain Technology, allowing things like NFTs and Smart Contracts, there is a whole new world of possibilities out there.
“Non-fungible tokens or NFTs are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.“
Investopedia.com
NFTs are not just the stupid monkey pictures we see selling for thousands of dollars on social media. It is a unique way to track and verify purchases.
Think of how it could change the house buying market. With every purchase being tracked and verified, the need for title and loan lean research could be unnecessary in the future.
“A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.“
Investopedia.com
Smart Contracts allow for contractual terms to be embedded within an NFT. These Smart Contracts can allow agreements to be fulfilled immediately as well as months or even years down the line as NFT items are bought and sold.
Artists currently can only sell their product once and will never benefit from that work again. No matter how valuable it may become later on.
With Smart Contracts embedded, an artist could ensure that every time their piece is sold, they earn a percentage of the sale price.
This is a new technology that can change the way the world works in the future.
Still Has Some Bugs to Work Out
Due to privacy issues, costs, and many other factors, this technology has a lot of bugs to work out in its current state.
But top minds, throughout the technology field, are working on growing Blockchain’s capabilities and different forms of the Metaverse.
No matter how many kinks are still there to work out, I can see how this technology will grow to the heights of the internet in the future. And I want to make sure we at least have a small piece invested in the technology as it grows.
Trading vs Investing – Blockchain, Smart Contracts, and NFT’s
As I’ve mentioned in a past post, Mr. Bean has been studying trading for the last year.
In addition to our long-term investment strategy, he wants to try mixing things up in an attempt to take advantage of the ridiculous gains that can occur in the more speculative short-term trading market.
As he investigates, cryptocurrencies keep coming up.
Trading
We fully understand the risks involved with trading any speculative stocks, including cryptocurrencies. You can go from $1,000 or more to $0 in a matter of minutes! So you never want to put more than you’re ok losing into any individual trade.
Therefore, we only use a very small portion, less than 2%, of our entire net worth for this trading “gamble,” as I tend to consider it.
(We have been building our portfolio for years. If we were just starting out on our investment journey, we would not even consider this. So please take that into account depending on where you are on your financial journey.)
He has begun to put a portion of his designated trading fund into specific cryptocurrencies and individual stocks.
This gives us the ability to be exposed to the new technology market, and hopefully, its crazy short-term growth But without overexposing us to the ever-changing opinions of the general market.
(One of our favorite trading apps is Webull. The charts are great and it’s just super simple to use. Plus they give free stock bonuses when you sign up. And We’ve recently started using Coinbase for Crypto)
While Mr. Bean is trying his hand in short-term trading, I am continuing to run our long-term investments the same as I always have.
Investing
The majority of our investment funds are in low-cost index funds with Vanguard (Simple Investing). But I also have a Webull account now. (We couldn’t pass up the free stock referral bonus.)
In my trading account, I buy small fractional shares of ETFs and individual companies that are highly involved in the new Blockchain Technology.
I’m using the old “Gold Rush” analogy of “Investing in the Picks and Axes” instead of the actual gold.
(While many during the Gold Rush were trying to get rich searching for gold, many MORE people actually got rich supplying the picks and axes the gold diggers needed.)
I’m not trying to pick and buy a few of the many, many different cryptocurrencies available. 99.9% of which will probably go to $0 overtime!
I’m more concerned with investing in the companies that will produce and grow the technology, in the long term.
This strategy allows me to hopefully profit from the technology’s growth without having to pick the right coin or NFT stupid monkey picture.
Diversified Portfolio Including Blockchain, Smart Contracts, and NFT’s
So yes, we are finally directly including crypto/blockchain into our investments!
But as with all things investing, it is important to keep a well-diversified portfolio.
- The majority of our investments are in Total Stock Market index funds, maybe 65%
- 5% in Total International index funds
- We have about 5% exposure to Bonds index funds
- 10% in Small Cap index funds
- 10% in REITS index funds (Real Estate Investment Trusts). We’re still deciding if we want to begin investing in personal rental properties.
- And we’re building up to about 5% in short term trading accounts (1-2% in crypto/blockchain technology sector)
We want exposure to all the good stuff, with the potential to grow over the long term. But we also don’t want to put all our eggs in one basket. We are always looking for more ways to diversify as our net worth increases.
Wrap-Up
With the hype about crypto and blockchain on social media, I finally had to take a real look at what it all means. (After a ton of persuasion from Mr. Bean.)
I am in NO WAY a professional in the subject and am just beginning to understand the basics of how it all works.
I still see cryptocurrencies as a very speculative investment but the blockchain technology that makes it all possible has a lot of potentials.
And if this technology has the opportunity to make millions rich, we might as well hold a few pieces in case it takes off.
(I was in the middle of writing this post when I heard an episode of the ChooseFI Podcast in which Brad was deep-diving into the basics of Blockchain, Smart Contracts, and NFTs.
If you’re interested in learning more yourself, check out this episode. He broke it down to make it super easy to understand.)
1 thought on “What are Blockchain, Smart Contracts, and NFT’s?”