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Should You Invest In Blockchain Or Cryptocurrencies?

Should You Invest In Blockchain Or Cryptocurrencies?

Cryptocurrency & Blockchain

1 Introduction 

1.1 Background 

The cryptocurrency market’s total value is around 1 trillion US dollars, and the previous  peak has reached more than 2.3 trillion US dollars. The cryptocurrency-related needs,  including not, game games, metaverse. This article mainly studies the risks of  blockchain investment. The cryptocurrency industry is growing at an incredible rate.  Nearly 21,000 different coins exist today, spread across various niche industries. Over  the past few years, there has been an exponential increase in the number of  cryptocurrencies.

The possibility of making enormous profits from trading erratic  markets has drawn investors, and project developers have expanded the use of digital  currencies to include decentralized finance (Defi), gaming, non-fungible tokens  (NFTs), and metaverse environments. The first popular decentralized cryptocurrency,  launched in 2009 by an anonymous developer under the name Satoshi Nakamoto, is  Bitcoin.

Briefly, cryptocurrencies are a virtual money system that works like real money, allowing users to make virtual payments for goods and services without  needing a centrally located, trustworthy institution. Cryptocurrencies use cryptography  to ensure that only legitimate, one-of-a-kind transactions occur [1]. Since 2011, Bitcoin  has received extensive media coverage. After Bitcoin, all other cryptocurrencies  quickly acquired a familiar name. When it was first introduced in the fall of 2011,  Litecoin had mediocre success. Ripple overtook Bitcoin as the currency with the most  significant market capitalization in cryptocurrencies.

1.2 Related Research 

Miraz explains the use of blockchain and other digital ledger technologies in a variety  of other fields, the basics of blockchain, the use of Blockchain beyond Cryptocurrency,  the implementation of enhanced security for blockchain, and future developments for  cryptocurrency and blockchain. The author Miraz thinks the application of blockchain  concepts and technology has gone beyond the use of Bitcoin because it is safer and  more private [2]. Liu assesses cryptocurrencies in depth using an empirical asset pricing  framework. It offers a standard reference point for upcoming models. Using six  cryptocurrency valuation ratios and a dynamic cryptocurrency asset pricing model, Liu  investigates the connections between coin market returns and significant  cryptocurrency-specific features that have been theorized in the theoretical literature  [3]. 

Mukhopadhyay gives the concepts that are pertinent, historical viewpoints,  blockchains, mining, hash algorithms, issues with cryptocurrencies, how these  problems are addressed, and conclusions covered in this paper. The author  Mukhopadhyay thinks that the Bitcoin block is made up of five fields: a nonce, a  timestamp, a block version number, a block size, and a magic number. The research  investigates the five areas of Bitcoin [4]. Liu looks at potential causes for the scale and  momentum effects of cryptocurrencies. The author Liu discovers that the size premium  is bigger when there is a significant amount of Bitcoin transactions, and some of it may  be due to the market’s premium for the illiquidity and characteristics of  cryptocurrencies.

In order to capture the cross-sectional anticipated returns on  cryptocurrencies, author Liu also introduces the three factors of the cryptocurrency  market, size and momentum [5].

Treleaven talks about the usage of Blockchain  technology in several industrial applications, including healthcare, finance,  government, and manufacturing, which are presented and illustrated. In addition to  managing wills, conveyances, medical information, public documents, personal  records, asset monitoring, and coupons, blockchain has a plethora of other potential  applications. The author Treleaven thinks Blockchain will allow for more agile value  chains to handle the issues of regulation, cybercrime, and fraud [6]. 

Bilow believes trust is necessary for everything, including the ownership of an audio  asset and the veracity of the news source. A distributed digital ledger called a  blockchain is incredibly hard to change. Blockchain addresses the issue of user trust by  enabling users to verify each other’s transactions independently. Explains a blockchain based prototype platform that media production companies can use to manage  contributor remuneration and product distribution [7]. Ilham thinks the financial  commodity known as cryptocurrency offers potential profits.

The goal of the author Ilham is to improve how risk is managed while buying digital assets such as cryptocurrencies.

Additionally, based on the findings of this study, the government is  anticipated to consider the “Legal Cryptocurrency and Taxation” (LCTR) policy  proposal when drafting regulations on digital currency assets to consider the interests  of all parties and achieve the maximization of national commodity transaction revenue  based on 2021 data [8]. 

Harrast finds Numerous hazards associated with cryptocurrencies have an impact on the auditor’s inherent risk assessment.

The experience with cryptocurrencies is adversely connected with intrinsic risk perception. The entity decides to use a  cryptocurrency exchange, but neither the balance of cryptocurrencies held in the entity’s  account nor the transactions the exchange executes on the entity’s behalf are effectively  under the exchange’s control. The participants consider the challenge of estimating a  cryptocurrency’s worth as the most probable cryptocurrency risk [9]. Zhang investigates  the pricing of liquidity risk across a range of cryptocurrency returns.

The author Zhang  demonstrates a negative correlation between liquidity and bitcoin returns utilizing  univariate portfolio analysis, bivariate portfolio analysis, and Fama-MacBeth  regression analysis. The author Zhang also provides the procedure for determining  liquidity and other cryptocurrency features based on a significant amount of  experimental data [10]. Dowling talks about NFTs, or non-fungible tokens, being the  first thing to use blockchain technology for. Furthermore, given that non-money markets evolved  from cryptocurrencies, the author Dowling investigates whether non-money pricing is  related to cryptocurrency pricing. In addition, the limited pass-through effect of volatility between  cryptocurrencies and NFT, the direct relationship between ether and NFT, and the  limited pass-through effect of volatility between Bitcoin and ether. NFT has primarily  registered on Ethereum smart [11]. 

1.3 Objective 

The major and most popular cryptocurrency in the market are Bitcoin, Ethereum, Tether  coin, USD coin, dogecoin, and so on. According to the newest news, Bitcoin was the  first cryptocurrency to enter the market in 2009, with a market value of 318.2 billion  dollars. Ethereum, A decentralized Ethereum Virtual Machine, is offered by Ethereum,  an open-source, public blockchain platform with smart contract functionality, to  manage peer-to-peer contracts using its unique money. Tether and USD Coins are stable  coins with a fixed price of 1 dollar each. It is related to special assets, Tether is related  to the USD dollar, and the USD coin is associated with the US. Institutions. 

2 Cryptocurrency and Blockchain Applications 

2.1 Cryptocurrency 

The original purpose of cryptocurrencies was to offer an alternative payment option for  online commerce. Cryptocurrencies haven’t yet gained widespread consumer and  company adoption, and their prices are currently too unstable to be useful as payment  options. Being a decentralized currency, it develops without undue government control  or influence, and peer-to-peer Internet protocols keep an eye on the bitcoin market [12]. 

2.2 Blockchain Applications  

The technology that powers the Bitcoin cryptocurrency system is known as Blockchain  [13]. Blockchain Application: digital media, including music, books, videos, games.,  and other content, have progressively entered the mainstream as the Internet continues  to improve. Intellectual property has evolved into the mainstay of market competition 

because of the risk associated with the information economy. Due to the seriousness of  intellectual property rights infringement in the current Internet context, copyright  protection of digital assets has become a sensitive point in the industry.  Disintermediation, consensus processes, and immutability are attributes of blockchain. 

The value chain for culture and entertainment may be effectively integrated using  blockchain technology, which can also speed up transactions and shorten the value  creation cycle. It can successfully stop piracy by realizing the value transfer of digital  content, ensuring that the transfer process is trustworthy, auditable, and transparent. 

2.3 Non-fungible Tokens (NFTs) and Metaverse 

The development of non-fungible tokens (NFTs) and a metaverse community is one  possible use for blockchain technology and the most well-liked and rapidly expanding  trend. A virtual world where everything, including individuals and their possessions, is  entirely digitalized is referred to as the “metaverse.” Applications for the metaverse  open huge prospects and value for all enterprises and act as an addition to the current  social media system to further connect people.  

First, it is crucial to define this terminology and the current state of the art to comprehend the possible advantages and value that metaverse and NFT applications  can deliver. An NFT is a distinctive digital token with a distinguishable hash from other  tokens. Each token is unique, and there is only one of each NFT because every NFT  has a unique hash. Therefore, since the token represents the original asset, and all other  copies of the asset are replicas, artwork and other kinds of distinctive digital assets can  be converted into NFTs. However, utilizing NFTs and blockchain technology is  necessary to build and manage metaverse systems.

Moreover, a real metaverse is a decentralized, digital environment where NFTs are used to represent assets, and the blockchain is used  to record transactions. First, it is crucial to define this terminology and the current state  of the art to comprehend the possible advantages and value that metaverse and NFT  applications can deliver. An NFT is a specific digital token that stands out from other  tickets thanks to its unique hash. Each ticket is unique, and there is only one of each  NFT because every NFT has a unique hash. Therefore, since the token represents the  original asset, all other support copperwork and distinctive digital assets can be  converted into NFTs. Thus, the advantage of utilizing non-fungible tokens is that they make  it possible for all blockchain network users to determine who owns the original  asset.[11] 

3 Bubble judgment and investment suggestions 

3.1 Bubble Judgment  

Major Companies Accept Crypto are Microsoft, it is one of the biggest companies in  the world, and they are starting to accept crypto as payment. Also, PayPal, Overstock,  Whole Foods, Etsy, Starbucks, Newegg, Home Depot. In addition, even Tesla accepted cryptocurrencies, and it provided some products with the price of dogecoin, a kind of  cryptocurrency. 

In the middle of March 2020, the price of bitcoin still hovered around 5,500 dollars.  In 2021, Bitcoin once reached a record high of more than 64,000 dollars per coin in the  middle of April, but it fell to 18,000 dollars in June 2022 and did not rise for several  months. Including other popular currencies, they all suffered huge price fluctuations in  May and June of 2022, with a loss of $3.7 Billion, most of which were crypto losses.  Such price trends and fluctuations can indicate the existence of bubbles. The value of the virtual currency itself is very small. However, if we act on how to reduce the losses brought  by virtual currency. Moreover, there is the application of blockchain because blockchain is a thing  that will develop in the future.  

However, because cryptocurrency’s price fluctuates too much, it is a risk for companies that use it, resulting in relatively large fluctuations in commodity prices. 

3.2 Investment suggestions  

The bandwagon effect, often known as herding behavior, is one phenomenon that might  be connected to the expansion of bitcoin investing. The stability of bitcoin investors’  finances may be seriously threatened by this. [14] Not only bitcoin investors but also  many cryptocurrency investors will buy cryptocurrency because they follow the  bandwagon effect without the relevant knowledge and ways to prevent risks. This is  also a cause of bubbles because the topic of cryptocurrency fire blindly to buy. 

Investment literacy is the possession of the knowledge and skills necessary for  someone to use all their financial resources to make educated decisions. Investment  literacy is necessary for investors to learn more about cryptocurrency and, based on  learning to make decisions. [14] 

Applications built on the blockchain for the metaverse have much promise to help  existing companies grow and offer better services. For instance, businesses can build virtual storefronts that offer customers the same experience as physical stores. While allowing consumers to shop whenever and wherever they choose. Additionally,  purchasing NFTs—virtual parcels of land—allows businesses to build a more inclusive  and involved user base, which may increase engagement and consumer satisfaction.  While many businesses rely on centralized mobile apps to provide services, metaverse  applications replicate real-world interactions and foster a decentralized community that  is open to all network users and transparent, allowing for easy access. These metaverse  functions and applications are quite likely to keep evolving, and a lot of companies will  probably want to expand their offerings into the decentralized, blockchain-based virtual  reality. 

The case of virtual currency and blockchain are closely related, and based on the  rapid development of blockchain, some development of blockchain investment is more  promising, such as virtual currency, the foundation of virtual currency is blockchain,  but the development of blockchain is not only virtual currency, including NFT,  metaverse and other developments.

4 Conclusion 

In conclusion, the world of cryptocurrencies is changing fast. There are many kinds of  cryptocurrencies, but they fluctuate a lot, so the bubble is also very big. The real mainstream value lies in the fact that there is a certain amount of bitcoin, for example, that is constant, the government does not regulate that. And companies are willing to  use it as a payment currency. Based on current analysis, crypto risks and bubbles remain  large. For investors, investing in cryptocurrencies is something to think about carefully. And there are a lot of new developments in the blockchain based on it. Lastly, in the long run, the development of blockchain will be more sustainable, including its derivative  products such as NFT, Metaverse, etc. There may even be more blockchain-based  developments in the future. 

Reference 

1. Shah, I. N. M., & Rani, H. A. CRYPTOGRAPHY IN BLOCKCHAIN TECHNOLOGY. 2. Miraz, M. H., & Ali, M. (2018). Applications of blockchain technology beyond  cryptocurrency. arXiv preprint arXiv:1801.03528. 

3. Liu, Y., & Tsyvinski, A. (2021). Risks and returns of cryptocurrency. The Review of  Financial Studies, 34(6), 2689-2727. 

4. Mukhopadhyay, U., Skjellum, A., Hambolu, O., Oakley, J., Yu, L., & Brooks, R. (2016,  December). A brief survey of cryptocurrency systems. In 2016 14th annual conference on  privacy, security, and trust (PST) (pp. 745-752). IEEE. 

5. Liu, Y., Tsyvinski, A., & Wu, X. (2022). Common risk factors in cryptocurrency. The  Journal of Finance, 77(2), 1133-1177. 

6. Treleaven, P., Brown, R. G., & Yang, D. (2017). Blockchain technology in  finance. Computer, 50(9), 14-17. 

7. Bilow, S. C. (2020). Introduction: blockchain in media and entertainment. SMPTE Motion  Imaging Journal, 129(1), 20-21. 

8. Ilham, R. N., Sadalia, I., Irawati, N., & Sinta, I. (2022). Risk And Return Model of Digital  Cryptocurrency Asset Investment In Indonesia. Al Qalam: Jurnal Ilmiah Keagamaan dan  Kemasyarakatan, 16(1), 357-376. 

9. Harrast, S. A., McGilsky, D., & Sun, Y. (2022). Determining the Inherent Risks of  Cryptocurrency: A Survey Analysis. Current Issues in Auditing, 16(2), A10-A17. 10. Zhang, W., & Li, Y. (2021). Liquidity risk and expected cryptocurrency  returns. International Journal of Finance & Economics. 

11. Dowling, M. (2022). Is non-fungible token pricing driven by cryptocurrencies? Finance  Research Letters, 44, 102097. 

12. Farell, R. (2015). An analysis of the cryptocurrency industry. 

13. Yaga, D., Mell, P., Roby, N., & Scarfone, K. (2019). Blockchain technology  overview. arXiv preprint arXiv:1906.11078. 14. Kim, K. T., Hanna, S. D., & Lee, S. T. (2022). Investment literacy, overconfidence, and  cryptocurrency investment. Forthcoming, Financial Services Review (accepted).

Should You Invest In Blockchain Or Cryptocurrencies?