Trust became such a big part of crypto through 2022 when it all should have been trustless. As Web3 continues to evolve, we have witnessed a rising paradox over the last year - an increasing emphasis on trust in what was meant to be a trustless domain. As market participants set their sights on the next Bull cycle, it is crucial to maintain perspective and exercise caution when investing in this market.
The entry of traditional players and the persistent prominence of virtue signalling serves as a reminder that the ‘Crypto-verse’ is still full of unknowns, where due diligence and scepticism are your best tools for success. It is important to keep the following 5 principles in mind when thinking about investing in the space:
The Illusion of Certainty
First and foremost, it is vital to recognize that in the realm of crypto no one holds a crystal ball. When platforms parade prominent figures who appear to exude confidence and certainty, a healthy degree of scepticism is warranted. While these individuals may offer valuable insights, it is essential to remember that their communication is often in service of someone else’s agenda, be it talking up their own positions or promoting their products or that of others. DYOR - Do your own research is paramount especially when it comes to claims made by influencers, investors or those parading as ‘experts’ in crypto.
Trustless(ness) as the Guiding Principle
Crypto was built on a foundation of being ‘trustless’. This means instead of relying on a trusted intermediary to verify or secure your transaction (like your bank or a third party service provider), the interactions don’t require trust between parties, because they are verified and secured by blockchain technology instead of intermediaries. As the crypto market matures, the re-emergence of trustless services could be the answer to the centralisation problem we have seen over the last year. However, this does not render those services risk-free. The decentralised nature of trustless services implies the absence of an intermediary, which, while empowering, demands that the individual is savvy and vigilant to protect their interests.
Read the Fine Print
Many investors were caught off guard during 2021/22, lured by projects that seemed professional but were either illegally operating, pretending to be something they were not or grossly mismanaged. It’s imperative to focus on the language used by these platforms. Pay attention to terms like AUM, the terminology they use, and the terms and conditions concerning liability. The devil is often in the details, and these details could save you from a life-changing loss.
The Arrival of TradFi and the Question of CeFi
As traditional financial entities make their foray into the crypto space, the landscape will evolve. This blurring of the lines between both realms brings with it many questions for regulators and for Web2 consumer who ‘assume’ traditional consumer protection applies.
Centralised Finance (CeFi) could emerge as a critical component, raising questions regarding a potential 'lender of last resort' and how regulatory protections would apply to entities built inbetween. Would this amalgamation between the two create a hybrid that carries the benefits of both worlds or lead to the dilution of the very principles on which cryptocurrency was built?
Bitcoin Purists, Volatility, and the Perils of Leverage
The cryptoverse has also witnessed the relentless defence of Bitcoin by purists and maximallists. With an influx of various crypto assets, Bitcoin enthusiasts continue to pit it against everything non-Bitcoin. As a market participant, one must recognise that the crypto market is inherently volatile and unpredictable. Employing leverage on assets with such high volatility is akin to playing a high-stakes game of chicken. Sooner or later, one gets caught out or the fox gets you.
Staying safe in the raging seas of the cryptoverse requires a good compass and a keen eye. Trustlessness should be the North Star, but let not that lull you into complacency. As TradFi lines up to enter these waters, platforms and personalities clamour for attention, let vigilance, due diligence, and caution be your trusted crew members.
Remember, in the crypto ocean, you are the captain of your own ship. Navigate wisely.