What is crypto, DeFi, and NFT investing?

August 2nd, 2023 By Emily Norwood

When it comes to alternatives, digital assets are the new kids on the block – but that hasn’t stopped the space from experiencing explosive growth in the last decade. As of April 2023, there are more than 23,200 cryptocurrencies and nearly 600 crypto exchanges globally.

In this article, we’ll take a broad look at this emerging asset class, including examining its somewhat mysterious origins, and see how it compares to more established alternatives like franchise investing.

An overview of blockchain

We can’t properly dig into any of these digital assets without first understanding their broader context; namely, blockchain, which is the cutting-edge technology that makes them possible. At its core, blockchain is a distributed database system. Data is stored in “blocks” that are spread out among multiple nodes in a computer network. Each node has a record of what data each block contains and where those blocks are located. This redundancy prevents the data on any given block from being changed. In addition, any movement of a block of data is permanently recorded within the system. You can think of it as a digital ledger system where every transaction is recorded.

What makes this technology so groundbreaking is that it makes digital information immutable and transparent. Until now, any piece of data could be altered with enough technical knowledge and processing power. Blockchain allows for the creation of truly one-of-a-kind digital assets, and this has wide-reaching implications.

What is cryptocurrency?

Modern blockchain and cryptocurrency as we know it are both attributed to the work of an unknown developer (or group of developers) going by the pseudonym Satoshi Nakamoto. At the time of this article’s publication, their identity remains a complete mystery. However, we do know that Nakamoto published a whitepaper in 2008 that outlined how to use the blockchain model to create an efficient decentralized digital currency, and then implemented that model in 2009 to launch Bitcoin.

There had previously been a few attempts to build online currency systems, but Bitcoin was the first digital currency that stuck. Since its launch in 2009, hundreds of other digital coins have hit the market, all with their own underlying blockchains. The term “cryptocurrency” has evolved to refer to any digital or virtual currency that is secured by cryptography and built on a distributed database system. Crypto can be used to pay for products and services online, as well as traded to generate profit in the same way as hard currency.

What is DeFi?

Decentralized finance (often called “DeFi”) is an outgrowth of crypto. It expands the foundational concept behind digital currency into the rest of the financial sector. Using dedicated DeFi apps (“dapps”), users can do all the same things they can do at a traditional bank but on the public Ethereum blockchain, from trading assets to buying derivatives to earning interest. There is no fee and no personal information is required to create an account, called a “wallet.” The idea is to create a global peer-to-peer financial system that’s flexible, private, and accessible to everyone.

What are NFTs?

Non-fungible tokens (NFTs) can be any digital asset, but they’ve gained the most popularity in the world of digital art. Think of NFTs like virtual collectibles. They leverage the immutability of data on the blockchain to allow people to truly own whatever their digital asset of choice might be, whether it’s a picture, a document, the recording of a song, or an original video. While that data file can still be copied, proof of ownership is maintained through the fidelity of the blockchain.

Why invest in crypto, DeFi, and NFTs?

Digital assets and the underlying blockchain technology are brand new and still evolving, and that novelty makes them inherently risky investments.

Benefits of investing in crypto, DeFi, and NFTs

Secure, anonymous asset management: Because these digital assets are decentralized, there’s none of the red tape you might find with a traditional financial institution. The blockchain by its nature is highly secure and difficult to hack. From a privacy standpoint, while most reputable crypto exchanges require documentation, anyone with an Internet connection can create a virtual wallet and begin dealing in crypto, DeFi, and NFTs without disclosing any personally identifying information. In addition, because the entire blockchain system is peer-to-peer, there are no fees or limits on transactions, and moving assets is as quick and easy as a tap or click.
High return potential: Crypto, DeFi, and NFTs can be extraordinarily lucrative for those with the right strategy and timing. In March of 2021, Mike Winkelmann, a digital artist also known as Beeple, sold an NFT of his work through the storied auction house, Christie’s, for a staggering $69 million. A little later that same year, Bitcoin reached its all-time peak value of $65,000+ per token, which made many early adopters incredibly wealthy.

Challenges of investing in crypto, DeFi, and NFTs

Highly volatile: There’s no means of establishing the fair value of digital assets, so their prices are subject to huge swings. Traditional methods of determining value, like dividends or use in the wider economy, simply don’t apply. As such, the market can change very quickly, from reaching record highs to crashing in a matter of hours. Prolonged periods of poor performance have become known as crypto winters.
Not regulated (yet): One of the most defining features of this asset class is the lack of concrete regulation. This means investors have little to no legal protections if something goes wrong or any real means of verifying the legitimacy of claims around these assets. Some management platforms are more reputable than others, but there are no guarantees. At this point, the onus to ensure the safety and security of their investment lies with the investors themselves.

Trends in crypto, DeFi, and NFTs

Expanding applications for blockchain technology

The efficient, transparent, and immutable nature of blockchain has the potential to create major disruption in industries beyond finance. This emerging technology is already being piloted for use in:

Streamlining the legal enforcement of contracts;
Allowing actual ownership of assets within video games;
Establishing origin and authenticity in food and medical supply chains;
Building a tamper-proof public ledger of real estate transactions;
Protecting and maintaining sensitive patient healthcare data;
Creating secure user-managed digital identity systems.

Regulator scrutiny

Some questionable practices that are drawing the attention of U.S. regulators. The Securities and Exchange Commission (SEC) recently filed lawsuits against Coinbase and Binance, alleging that they are, in essence, trading unlicensed securities. In another particularly high-profile case, the founder of the now-defunct crypto exchange FTX is facing federal charges that he misled investors and orchestrated a massive financial fraud. All of these proceedings are poised to totally reshape the way crypto, DeFi, and NFTs are handled legally, which is already causing firms to consider moving their operations abroad.

How crypto, DeFi, and NFTs compare to franchise investing

As we’ve discussed previously in this piece, crypto, DeFi, and NFTs are unregulated digital assets, and as such are highly volatile and appropriate only for investors with a high risk tolerance. This is in sharp contrast to franchise investing, which offers the security and relative stability of real asset ownership. Franchises are proven performers with low volatility and high yield potential. The industry is highly regulated by both the FTC and SEC, and investors can reap all the benefits associated with a real asset, including equity appreciation.

That’s not to say that investors can’t reap the benefits of both in building a diversified portfolio. Combining franchise investments and digital assets could provide excellent diversification opportunities since their markets are largely uncorrelated. A real asset like a franchise can maintain its value or even appreciate during an economic downturn, softening the blow these market conditions might have on yields from trading crypto or NFTs.

FranShares: the benefits of real assets with a portfolio approach

Until recently, franchising was a hands-on investment model. Investors had a choice between owning and operating directly, or hiring a management firm to handle the daily operations of their business.

FranShares brings the passive power of private investing to the franchise model with an actively managed portfolio approach that lets individual investors add this valuable asset class to their asset mix without direct operation or location ownership.

Benefits of investing with FranShares

We combine deep industry expertise with a zero-fee approach to ensure our investors maximize their long-term returns – without the risk of losing their shirts. Our mission is to help investors reap the benefits of franchise investing with a unique business model that offers:

Passive income
Our best-in-class franchise management team ensures that our investors enjoy truly passive income through quarterly distributions – without managing the franchise. In other words, we do the legwork while you sit back and enjoy the returns.
Equity appreciation
The value of your franchise investment may increase over time and may provide secure, long-term passive income.
Flexible capital commitment
We offer accredited and non-accredited investors the opportunity to invest for as little as $500, although our model also appeals to ultra-high-net-worth investors. Our platform allows everyday people to become fractional franchise owners with the ability to invest the right amount of capital for their own personal circumstances.
Diversification
Diversify away from the stock market and other publicly traded assets while owning a portfolio of franchises across different geographies and industries, which creates an effective buffer against challenges that may shut down a single franchise or location, such as service franchises closing temporarily during pandemic lockdowns.
Low volatility
Unlike other assets, which may experience considerable fluctuations due to investor sentiment, the growth in value and disbursements from franchise investments are determined over the longer term by the business operations of the franchises.

Ready to add franchise investing to your portfolio?

If you’re an investor who is looking to incorporate alternative assets into your strategy, investing fractionally with a FranShares franchise portfolio offers high earning potential and diversification in a completely passive model.To learn more about FranShares and this unique opportunity, sign up for our platform on our home page.