The first rule of investment
Let’s be honest from the start, the first rule of investment is that there are no rules. As the last couple of months have proved, the markets can and sometimes do move in a variety of different directions and anyone that tells you that they have developed a structure that guarantees returns should, politely, be treated with a really high level of scepticism.
That said, one of the most fundamental rules we’ve learned from investment professionals at any level is that it’s not wise to keep your eggs in one basket, because if the basket should fall, all your eggs will be broken. To put it another way: spread your risk.
There are many opportunities to do this if you are an institutional investor, because the potential size of investment that you can make means that companies and sectors are always likely to be very accommodating.
If your means are more modest however, your support is less likely to have been welcomed in the past, not least because the amount of paperwork involved meant that it was not economical to support small investments. Additional factors such as broker fees meant that sectors like natural resources have had very high barriers to entry in place. This meant that for smaller investors, spreading risk was more challenging.
Levelling the playing field
Technology has been the catalyst of rapid evolution in the financial markets over the last few years, and the emergence of the blockchain seems set to continue the trend. It has the potential to bolster transparency, make it easier to manage bureaucracy, reduce the need for brokers, and bring down prices generally. In short, it reduces barriers to entry.
From an investment point of view it is worth making the point that there is a difference between the blockchain, which is a non-centralised, globally distributed, virtually immutable, ledger of value, and the cryptocurrencies that it is often directly associated with.
From the perspective of a non-technological investor, in many cases cryptocurrencies are either currencies for currencies’ sake or they are simply speculative instruments that have the same characteristics of shares in a start-up organisations. If they are currencies for currencies’ sake, then the only value lies in demand for the specific currency. This is great while everyone believes that they have value, but can make them a catastrophic investment if or when the bull is chased away by a bear.
Similarly, if they are playing the role of shares (meaning actually developed and issued as digital share certificates) in a start-up organisation, they only have value if the company continues to exist and hopefully grow. Naturally there is a chance that the next Microsoft, Apple or Netflix is out there and currently offering the opportunity to support them through a cryptocurrency, but the element of risk is as significant as it is for any start-up investment.
A third way
While the crypto sector’s reputation has suffered over the last few years as a result of the stratospheric highs and devastating lows that it has delivered, it’s worth keeping in mind that a blockchain can be used to represent the value of virtually anything. Including barrels of oil and volumes of gas.
PermianChain has created an opportunity to change the way that oil and gas organisations operate and for investors at all sizes to support natural resource projects. We have a platform that lets oil and gas organisations associate a token with a digital security (digital representation of shares) in their company or by a volume of natural gas (i.e. mcf) that is transformed and converted into electricity (i.e. kWh) which can be traded freely, transparently, and cost-effectively between suppliers of natural gas and users needing access to computing power for cryptocurrency mining.
This creates several benefits for oil and gas organisations (as we outlined in this set of articles), but from an investor point of view the reduction in fees and bureaucracy makes it possible to be involved in the natural resources sector even when you don’t have the heft of an institutional investor.
From this perspective, the PermianChain’s platform is not a place where cryptocurrencies are being traded. It is a platform where a tokenised representation of an investment or commodity in a natural resource project (i.e. Gas-to-Power) can be traded, a tangible asset with a performance that is linked directly to the project/commodity it is associated with.
The oil and gas sector has had a torrid time over the last few months as a result of the Covid-19 pandemic, but given how entwined it is likely to remain in the functioning of the global economy for the medium term, it remains a good place to spread risk. The projects registered on the PermianChain platform enable investors of all sizes to spread risk into an established sector that is well understood but has up to now been difficult to access for smaller investors.
If you would like further information about PermianChain, follow this link.
PermianChain is a proprietary technology platform that brings together the crypto-mining and oil and gas sectors. Using a permissioned access blockchain, PermianChain makes it possible to utilise stranded and wasted energy resources, unlocking liquidity and transforming the way that oil and gas projects are funded, produced, bought and sold. Established in 2018, PermianChain Technologies is a pioneer member of the Blockchain Research Institute (BRI) and start-up member of the Petroleum Technology Alliance Canada (PTAC).