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How blockchain technology is changing the way people invest

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More than a decade after the release of the genesis block on the Bitcoin network, blockchain technology has changed the way people invest their money. Many platforms in the crypto space have much less demanding requirements for investors compared to traditional finance.

It is easier for investors to buy cryptocurrencies than traditional assets. Anyone can download free bitcoin (Bitcoin) or use a multi-crypto wallet to sign up on one of the many available cryptocurrency exchanges.still many exchanges Do not require users to verify their identitysome require identity verification only when certain limits are reached.

Compare this to buying stock. Almost all platforms have a Know Your Customer (KYC) procedure that users must complete before purchasing their first stock. In addition, users can only buy shares of public companies and not own shares of private companies.

Crypto investors, on the other hand, can invest in tokens created by public or private companies. Investors in the crypto space can also participate in early-stage funding rounds, including seed-stage funding.

Traditional markets typically only allow accredited investors and high net worth individuals to participate. In contrast, seed-stage funding for cryptocurrency projects is open to anyone with a wallet. It’s all at the discretion of the founding team. Jeremy Musighi, head of growth at Balancer, an automated portfolio manager and trading platform for Ethereum, told Cointelegraph:

“Cryptocurrency investors have access to a level of transparency far beyond what is possible in other asset classes. In contrast to stock market investors who can analyze quarterly reports written by self-reporting companies Additionally, crypto investors can unauthorized mine into data on the performance of decentralized protocols and track key metrics on a real-time or historical basis.”

Musighi continues: Access to accurate and complete information is key to investing and I think it is day and night when comparing crypto to other asset classes. ”

Due to the lack of centralization and low barriers to entry for cryptocurrency investors, the industry has gained much popularity in developing countries. For example, in Nigeria, 35% of the population between the ages of 18 and 60 ( 33.4 million) Cryptocurrencies owned or traded this year52% of the world (17.36 million people) hold half of their assets in cryptocurrencies. This is largely due to the lack of access to affordable traditional financial services in the country. Cryptocurrencies are a simpler, more widely accessible alternative to traditional financial (TradFi) services. TradFi usually comes with different restrictions and bureaucracy than the average Joe participates in.

Cryptocurrencies are also attracting young investors to the space, creating competition among friends and family. one of the driving factors behind this. Unfortunately, many of these young investors mistakenly believe that the cryptocurrency market is regulated, despite the low barriers to entry. Easier access to financial tools may attract younger investors who may not meet the requirements to participate in traditional finance.

Musighi believes young investors are leaning towards cryptocurrencies because they grew up around technology. They spend more time online, appreciate the value of digital assets more naturally, and grasp the concept of cryptocurrencies more easily. It’s no surprise that the digital generation is drawn to digital money. ”

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Misha Lederman, communications director at Klever, a decentralized crypto wallet, told Cointelegraph: For decades, Wall Street has played the stock and commodity markets by different rules than Main Street. Bitcoin and cryptocurrencies allow a new generation of average investors to early and equitably participate, compete and accumulate in one of the most exciting industries of our time. ”

How Investors Are Making Money in the Crypto Space

Cryptocurrencies are not only more accessible to investors, but they also offer multiple avenues for investors to make money. The cryptocurrency market has various subsectors such as token sales and decentralized finance (DeFi).

Token sales were one of the first sub-sectors to gain popularity within the crypto space. A token sale is a funding round that allows investors to buy a cryptocurrency project’s native tokens before they hit the market. The idea is that once the token is listed, investors can “get in early” and make a profit. This is based on the expectation that the price of the token will rise after listing due to speculation and increased liquidity.

Token sales come in a variety of forms, including:

The popularity of the ICO market first peaked, $1 billion mark in 2017ICOs and new iterations (IEOs, IDOs, IGOs, etc.) were initially attractive to investors because they were very easy to join and users only needed a cryptocurrency wallet to participate. However, there are now additional requirements such as KYC (for IEOs), whitelisting and limits on the amount investors can contribute to the crowdsale.

Regardless of these new requirements, it will be relatively easier for users to participate in token sales than in TradFi sales. For example, an initial public offering has stricter requirements. Also, some platforms require investors to have at least $250,000 in their account or trade 3 times before they are eligible.

DeFi is another sector of the cryptocurrency space that has attracted the attention of many investors. This includes sectors such as yield farming (the process of providing liquidity to his DEX in exchange for rewards in the project’s native token), cryptocurrency lending platforms, and staking that allows investors to earn interest. Because there are many protocols within Crypto assets locked to a specific network.

Such platforms typically offer investors Personal unmanaged wallet Where you control your private key. Investors need to connect to the protocol that uses this wallet. For example, many investors use MetaMask to connect to her DEX and other platforms when engaging with her DeFi. The user then interacts directly with the protocol using the associated smart her contract to perform staking, liquidity farming or lending/borrowing.

DeFi has given investors more control over their finances than TradFi, where users typically let asset managers or brokers handle the process. However, some protocols automate certain processes within the DeFi sector.

HyperDex, for example, is a platform that makes standard financial instruments accessible via DeFi. The platform works through containers called cubes. liquidity pool on DEX. These cubes are powered by smart contracts, allowing users to select cubes according to their preferences. Additionally, you can participate in various protocols such as bond staking, algorithmic trading, and race trading. prediction market.

Yearn.finance is another platform that uses smart contracts. Automate the process of yield farmingSmart contracts automatically switch between liquidity pools based on the highest payout. So while DeFi requires users to be more hands-on with their investments, there are still protocols that can handle specific tasks via smart contracts. Compare this to traditional finance. Traditional finance requires third parties to handle tasks instead of automated smart contracts, bringing users closer to protocols and their holdings.

Volatility is a double-edged sword

Volatility is another factor in the crypto market that has influenced how people invest their money. Investors can expect much higher returns because cryptocurrencies are much more volatile than traditional assets.For example, average return 10% every year in the stock market.

Conversely, cryptocurrency investors have seen everywhere 50% in 1 month High-quality coins like Ether (ethereum) to 100% in 1 day memecoin like Dogecoin (Doge). However, increased volatility also brings with it the potential for greater downsides. For example, this year alone, many cryptocurrencies, including 72 of the top 100 coins, dropped over 90% During the recent market downturn.

The cause of this high volatility may not be known, but experts speculate that it may be the cause. Factors such as lack of regulation And institutional funding in this area is modest.

Regardless of the reason for the high volatility, many investors tried to take advantage of it.For example, many UK investors tend to look at cryptocurrencies As a “get rich quick” scheme, according to a study covered by Cointelegraph in 2019.

Ellie Le Rest, CEO of Avalanche ecosystem accelerator Colony, told Cointelegraph about the volatility in the crypto space:

“We believe volatility is a good thing because it has attracted profit-seeking investors to the market and will continue to do so. It facilitates the development of highly scalable infrastructure.”

Due to the lack of investor research, many investors have been duped by fraudulent projects in this area.For example, worth more than $1 billion Crypto lost to crooks In 2021, according to a report covered by Cointelegraph. The same report notes that nearly half of all crypto-related scams come from social media platforms.

“DeFi is still in its infancy, so there are a lot of risks involved. Hacks and exploits can cost billions of dollars. Players in the DeFi industry should prioritize protecting their users and enhancing security as their top priority,” Lederman continues.

“That said, when understanding the risks involved and properly calibrating for those risks, DeFi offers young cryptocurrency investors a world of new opportunities, instead of centralized lenders and legacy financial institutions. can be opened.”

The survey results further show that many investors do not research the coins and projects they invest in. Instead, they tend to follow the endorsements of social media and YouTube influencers to get rich quick. Nevertheless, there are still many smart investors in this space.For example, in March many investors Earned money by following your favorite projects When the native token rises in value after a big announcement. This process is known as “buying rumors and selling news”. Investors can gain insight by joining the project’s community and learning about future announcements and news.

Crypto Market Pros and Cons for Investors

Benefits for investors in the crypto space include reduced barriers to entry due to less bureaucracy and regulation in the industry. Investors also have more control over their funds as they do not have to rely on brokers or intermediaries to manage their holdings. Additional benefits include holding and trading cryptocurrencies and high return potential with many protocols within his DeFi sector.

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Disadvantages for investors include a high probability of loss due to user error, fraud and hacking. And one of the most significant downsides is the volatility of the cryptocurrency market in general, with big positives usually followed by significant downsides.

Investors have an easier path to building wealth through cryptocurrencies as it is easier to enter than traditional finance. However, investors should perform due diligence on the projects they plan to invest in and only risk an amount they can afford to lose.