Analysis

Financial Guider > All Articles > Analysis

How Investment Diversification Reduces Financial Risk

10 minutes to read
investment diversification

Diversification is fundamental for sound investment portfolios. Yet, despite the importance of investment diversification, its meaning remains vague for many. When wealth building, it is important to strive to reduce the level of risk in your portfolio.

This article aims to aid your learning of how to begin minimising risk while your savings increase. Let’s get started!

What is diversification?

The essence of diversification is the reduction of losses by spreading the risk burden.

Let’s say you collect an amount of physical capital, and you now want to invest that money. 

How do you go about investment diversification?

You read an article online that says how particularly well a technology company is doing at this moment in time. After reading the article, you decide to invest all of your money in shares of that single company. Then, when they release the quarterly report, it shows they never reached their projections, and the exchange rate starts falling sharply. Now roughly 40% of your invested capital is already absorbed, and you face losing everything, should the share price continue to plummet. 

An alternative situation to the scenario mentioned above would be that you seek out some level of professional advisory.

investment diversification

Nine out of 10 experts are likely to recommend buying a bigger multiple of, preferably, different products instead of just several smaller ones that are all similar to eachother. 

To create such a portfolio, for example, you would buy a smaller real estate unit, as well as government securities, bonds and shares. It would even be possible to further add more investment assets different to these ones. By building your portfolio like this, you would be able to spread the risk, therefore reducing how much is held in each asset. And if the value of one asset decreases (Like with the stock price we used as an example previously), then only a smaller portion of your entire wealth is lost, because only a small percentage loses its value. This is what diversification is.

You can read about the basics of investing here

Why is diversified investment important?

As we have said, the aim of diversification reducing the risk of investment. As long as you keep your total capital in only one investment vehicle, there is a chance that you will suffer a significant loss as a result of an unfortunate event. 

Economic processes are constantly changing and, therefore, so is the value of all the different assets. As a result, crises come and go – during which the value of various investment vehicles can fall significantly.

But on top of that, many things can affect their value. For example, a high-value property is still just a building and can become badly damaged (House fire) or even the quality of the property’s surrounding area, both of these reasons, and many more, can cause the property value to depreciate. Your money invested in the shares of an IT company could easily fall because of the scandal surrounding the company. And, further from this, your bonds can be devalued more or less overnight. Moreover, unfortunately, there have been cases in recent years when the issuing financial institution has become insolvent (not able to repay owed debts – bankrupt).

Read more about Why Depreciation Is The Biggest Perk Of Real Estate Investing

Although these examples seem to be extreme, over the last few years such stories could be read in credible news outlets. Unfortunately there will be more cases of this nature heppening in the likely not-too-distant future. Therefore it’s better not too underestimate the chance of such situations occurring.

In the case of a varied portfolio, usually only a small part of your assets will be in threat at any given time This makes having a diversified portfolio is moderately risk-reducing.

How does diversification work?

The most important rule of diversification is to invest in assets whose exchange rate movements don’t correlate. That is, the fall in the exchange rate of one asset class does not cause a negative change in the other.

Let’s say, hypothetically, you put 40% of your savings into an investment fund with high-risk technology stocks, and 60% into a low-risk sovereign debt or bond mutual fund. Thus, fluctuations in the price of high-risk stocks will not have such an impact on your overall savings. 

By putting your money into mutual funds, you are diversifying on your own, because you are not putting everything on one company, but on, say, 60-70. So of course, here it is also worth carefully exploring the characteristics of the investment vehicle.

What should you pay attention to when building a diversified portfolio?

When developing a diversification strategy, think primarily about:

  • What are individual goals?
  • Do you want to invest regularly or in one lump sum?
  • How much return do you expect?
  • How long do you want to invest?
  • How much risk are you willing to take?

Do you need a flexible, disbursable**, easy-to-monetize (liquid) form of investment from which you can quickly withdraw your money if necessary? Or do you have more of a long-term reserve that you won’t expect to touch for years?

Each investment vehicle has its own characteristics. The goal is not to have money everywhere, but to divide it into a percentage of different options, thus reducing the risk. 

**able to be distributed or scattered – definition source here

Why is diversifying important?

In the world of investments, there is a rule of thumb: the risk taken is proportional to the level of return. So, on the other hand, a low-risk government bond will also give a low yield. But, due to the low risk of the government bond, the returns are more or less guaranteed. Exceptions to this would include; the bankruptcy of invested companies, war and economical collapse(recession).

A newly listed company with high expectations from investors promises high returns. However, bad political or economic news can be enough to cause a stock’s value to fall by 20-30%.

This shows that it is worth diversifying our investments primarily on the basis of risk levels. On a scale ranging from low-risk investments to extremely risky assets, you need to choose the forms you’d like to invest in. Of course, it is worth combining the different risk assets in certain proportions that are relevant to your overall strategy.

What major asset classes can you invest in?

Government securities

Government securities are one of the simplest, least risky forms of investment. When you buy government securities, you essentially “lend” your money to the state, that is, you get a state guarantee. Low risk is accompanied by low returns.

Bonds

A bond differs from government securities in that you don’t “lend” your assets to the state here. Instead, they’re “loaned” to a financial institution or company, and for a fixed period of time. The risk is higher here too since, in this case, it is more possible for a company or financial institution to become insolvent(unable to pay arrears in any case). In addition, the so-called exchange rate risk is to be taken into account, which is due to the change in the value of the given bond. The higher the yield on a bond, the riskier it is.

Shares

When you buy shares, you acquire a small slice of the ownership of a particular company. This investment vehicle is an extremely high-risk asset, which should only be considered if you have good market research, market experience or – if you are more inexperienced than most – are prepared to potentially experience losses within some of your trades.

Read about market risk here

Property

A real estate investment is one of the so-called illiquid investments. This means that it is difficult to exchange a property for cash. Buying and selling a property, or even renting it, takes longer, so if you need money quickly at any time, real estate is not the best way to invest your property. In the case of long-term financial plans, however, this is an excellent asset to have. For this type of investment, the risk is moderately high, but the time and capital requirements can be significant. – despite this, if you are renting your unit out, this will easily make a return for you as a more passive income.

Foreign currency

Foreign exchange investment is one of the most skilled investment vehicles, because of this the risk management required is high. This method isn’t recommended for beginners under any circumstances.

Read our article about Forex

Commodity products

In investment terminology, naturally occurring raw materials used in different industrial sectors are referred to as commodity products. Examples of commodities would be gold and oil. In addition to foreign exchange trading, this is the other group of investment assets that requires a higher level of expertise and large time expenditure and can be very risky.

Cryptocurrency

Virtual money has recently become a very popular investment vehicle due to its return potential. Although it should be noted that there have been numerous instances of regular, unexpected crashes and unpredictable behaviour of cryptocurrencies that you can readily find information on.

Bearing all of the above in mind, cryptocurrency trading is a particularly risky area of expertise.

The easiest way to diversify investments?

The easiest way to diversify is through investment funds. The advantage of these is that by buying a single asset, you practically put your money in a diversified portfolio. For example, with a fund, you can choose an investment fund based on geographic regions (e.g. USA, Far East, Central Europe, etc.), raw materials (gold, oil), risk, or even sector. Each fund has dozens or even hundreds of securities, which also supports diversification. 

In addition, this way you can diversify much more cost-efficiently than buying each of the securities, found in any chosen investment fund, separately. And further to the fact that these assets are completely liquid, a whole team of experts is engaged in achieving the best possible return on it. 

Putting savings in investment funds can also be solved within the framework of your pension insurance in the form of life insurance tied to investment units 

Is there such a thing as excessive diversification?

Diversification is very important in creating a balanced investment portfolio, but it can also be overdone. One of the disadvantages of excessive diversification is that the investment system can easily become overbearing for any investor. If you don’t know exactly what your money is doing and what or where losses have been made, and where to focus your attention, you may lose control of your money. 

Another downside to excessive diversification is relatively low yields. Figuratively speaking, the more legs you stand on financially, likely there will be less capital allocated to each product. This is why, most of the time, these lower yields can be expected. Not only this but, lower capital allocation also means there is less risk of you losing a large proportion of investment in one go, without diversification you could even lose everything all at once.

However, this does also mean if one asset fund generates high returns, you will benefit less from it because of the smaller amount invested than if you put a larger amount into it. 

This reduces the relative return on diversified portfolios, but in a balanced investment system, the strengthened portfolio security offsets this lower yield potential due to reduced risk, and therefore reduced losses.

Conclusion

As in other areas of life, it is very important to reduce the risk in finance and it can be detrimental to keep our savings and assets all in one place: whether it be in an account, in a bank account, or in the shares of one particular company. However, with a balanced portfolio of investments managed very carefully either by you or by experienced professionals, you can be sure that your wealth grows in the long term and provides you with financial security. 

Long-term investment: A “How to”

11 minutes to read
Long-term investment article

Generally speaking, long-term investment is usually a beneficial solution for those who want to increase their money and can spare the money for many years to come.

In general, long-term investments are more profitable than short-term investments. Although, on the other hand, it does still come at a price of its own. Long-term investment requires more experience on the part of the investor.

You shouldn’t rush your purchase, and the product should be carefully selected, as the yield will be influenced solely by the future of the product – This is why we always stand by the DYOR (Do Your Own Research) mentality.

Long-term or short-term investment, which to choose?

  • Compare the best long- and short-term investments available on the market based on maturity, profit and risk.
  • Decide which product is best for you.

Five principles of long-term investment

Before you begin investing, it is crucial to be aware of the aspects that will help you make the best decisions.

1. Choose an investment that will satisfy your goals

When you invest your money, you need to know how much risk you can take. You must select the product according to your own needs.

2. Invest in multiple products

The more products you buy, the more confident you can be that you won’t lose your money to a company. Diversification usually results in a lower risk.

3. Don’t try to time

Many people want to invest with the buy low and sell high strategy. However, such timing is risky and often gives experienced investors a hard time.

4. Shop as planned at regular intervals

Regular investment is a well-established technique. The basic concept is to divide the amount you want to invest into several parts and invest the capital at predetermined intervals.

Experience has shown that this technique makes it cheaper to obtain shares overall. This is known as dollar cost averaging

5. Check your investments

You should look at your portfolio at least once a month. The market is constantly changing, so the balance between your products can easily be upset. If you notice this, it is recommended that you redistribute the amount invested..

How can I invest?

There are many different ways a person can invest to shape and build their portfolio. However, as there are distinct differences between the available products, it can be overwhelming to choose which ones to allocate capital.

Here, we have put together short explanations of each product you will see most often:

Shares

Minimum capital: From $1 You can start even with a small amount as you can even buy just a fraction of a share

Possible profit: very high

Time horizon: 5+ years

Savvy: very high

Risk: very high

Stocks are one of the most popular types of investment. Many people buy shares because there is a large amount to choose from and everyone can likely find a suitable product for them. Stock investment can be beneficial in both the short term and the long term.

The biggest problem with securities like this is that they can be risky. Many factors influence the value of the shares. For example, the company could go bankrupt casing you to lose your entire investment.

If you decide to buy shares, we recommend you diversify by buying shares in several companies instead of just one.

Long-term investment shares

S&P 500 index growth from 1981 to 2021. This includes the value of the largest 500 companies in the United States.

Property

Minimum capital: over $100,000

Possible profit: high

Time horizon: 10+ years

Savvy: medium

Risk: medium

Real estate can be a profitable long-term investment. There will always be demand for it, so you can be sure that a property will likely hold its value in the future.

When buying real estate, it is worth considering several aspects. Your chances for success will likely be higher if you purchase real estate in a developing city, in a popular neighbourhood.

An apartment can potentially be a lucrative passive income when run correctly. Why – because if you rent it out, you can make a profit long-term, continuously, not just from a single, one-time sale.

Investment fund

Minimum capital: $1,000 to $10,000

Possible gain: medium

Time horizon: 1-5 years

Savvy: low

Risk: high

An investment fund can benefit people who want to save long-term but are less knowledgeable about the market.

Experienced investors manage this fund and will invest your money in different products. They get a small contribution from the profits but, in return, they help you put your money in the right places.

Anyone who buys into an investment fund can choose an open and closed-end contract. The open-ended contract can be sold at any time, but the closed-end fund can only be redeemed at the end of the term.

Risk:

Although experienced investors manage money for a living, they too can also make bad decisions. So, keep in mind that an investment fund is sometimes almost as risky as buying securities yourself.

Bitcoin

Minimum capital: From $1 You can start even with a small amount as you can even buy just a fraction of a Bitcoin called Satoshi

Possible profit: very high

Timescale: 1+ months

Savvy: very high

Risk: very high

Bitcoin was the first cryptocurrency and is considered to be the most popular. By design, it helps people to store their money in a secure, location separate from the bank in their own crypto currency wallet that only they have access to and no-one can control it but we will talk about this in a separate topic.

Because of its popularity, many investors choose to trade with Bitcoin, this is evident when looking at price increase patterns. Bitcoin is being adopted as a currency by more and more businesses, but the future of virtual currency is still not known.

Bitcoin chart

Bitcoin has increased over the years. The price is expressed in US dollars (USD).

We only recommend cryptocurrency investing for individuals who have some experience and/or are aware of the risks involved.

ETF

Minimum capital: $1,000 to $10,000

Possible profit: high

Time horizon: 1-5 years

Savvy: low

Risk: medium

ETFs are exchange-traded investment funds. An ETF includes several securities, primarily shares of similar companies.

Because it invests in multiple products simultaneously, it is safer than a single stock, but it also has a lower yield.  For this reason, shares are usually bought by those who think in the long term.

By purchasing an ETF, you would be investing in the product behind the investment fund. An ETF can be more than just a security; it can also be a commodity. Most ETFs are index trackers.

Commodities

Minimum capital: $1,000 to $10,000

Possible profit: very high

Time horizon: 5-10 years

Savvy: very high

Risk: very high

Many people think that some commodities products aren’t profitable. In contrast, various raw materials and essential products can be an excellent long-term investment.

There are several ways to invest in such products. The easiest way is to buy the goods or choose a suitable aforementioned ETF.

Risk:

In the case of commodities products, risk must be taken into account due to the government’s and economy’s heavy influence on the market.

Benefits of long-term investment

> In most cases this form of investment produces a positive return.

> The best weapon against recession.

> It can require little effort and little attention when ran well.

>You can use profits to reinvest back into the asset.

> Long-term yields will not be affected by temporary fluctuations.

Disadvantages of long-term investment

> It takes a lot of patience.

> It is more difficult to diversify than with short-term investments.

> It demands determination and commitment.

> It’s hard to know which investment would be worth it the most.

> To choose a good product, you need experience.

Pay attention to this in case of long-term investment

Before you decide to invest in the long term, you may want to be aware of a few things.

  • Don’t have unrealistic expectations. Long-term investments only develop over time, so don’t expect an immediate return.
  • Take the risk. Like all investments, long-term alternatives are risky.
  • You need knowledge. It is not worth starting the investment hot-headedly, and long-term investments require both experience and strong research.
  • Optimize your investment. If you’re thinking long-term, it’s worth keeping your money in more products.

Misconceptions

There are some misconceptions that novice investors often misjudge. We want to take the chance to correct some of these misconceptions for you, because:

  • Shares do not always yield high returns in the long term
  • Bonds can sometimes out-perform shares
  • You don’t have to wait for the market’s “lows” to invest
  • You may not benefit if you leave your money to experts
  • Investment should not be based only on past returns
  • The chance that you may lose the amount invested, indeed exists

Before you invest your money, consider the fact that this money will be written off and is ‘no longer yours’ and that this could last for years, or even decades. So never invest more than what you can afford.

If losing the amount invested would result in financial difficulties, you’ll probably have to reduce it. This also includes utilization of personal loans which, a lot of the time, is not a wise move in the long term – only invest if YOU can!

Before deciding, think about the worst-case scenario since, with this, you can assess your potential situation including any negative consequences, making a sensible decision easier to achieve.

Where and how can I invest?

  • If you want to invest in real estate, you need to look for an apartment or house on the market.
  • If you would like to invest into a bank deposit, contact your bank.
  • If you were to buy a security or cryptocurrency, it is easiest to do this through an online broker.

If you are looking for such a platform, we recommend eToro to you. eToro is one of the most popular online brokers; their services are available both on mobile and PC.

Investing in eToro

Anyone can use eToro, and CopyTrading makes it an excellent choice for novice investors.

Registration takes a few minutes, but you will need to verify your identity after completing your user profile. To do this, you will need a scanned, document.

On the site you can choose from several products, such as:

  • Shares
  • cryptocurrencies
  • ETFs
  • CFDs
  • Indexes

Once you’ve confirmed your user account and deposited into your account, you can purchase any product. The use of eToro is entirely free of charge and there are no hidden fees.

$100,000 demo account

Novice investors will receive a demo account. The preliminary account allows you to test the site and gives you some experience of the market. Making it easier to decide what product(s) you want to buy later with the demo account.

CopyTrading

CopyTrading is one of the most popular services on eToro. Here you are able to replicate the movements of a more experienced investor, gaining further insight into market strategy at the same time – all whilst hopefully making a profit when they make good decisions.

The risk must be taken into account

Successful investors also make bad decisions, so don’t expect CopyTrading to relieve you of the risk of investing.

Before choosing CopyTrading, be sure to check investors’ listings. Their profile contains valuable information, including how much their past investments have come out good.

eToro gives you every opportunity to make the right decision.

How do I create an account on eToro? – eToro

Synopsis

Long-term investment requires a lot of commitment, as well as patience, but more often than not this waiting will bear fruit. There are plenty of opportunities for long-term investment in the market; you just need to find the solution that suits you best.

Don’t forget the following:

If you’re a novice investor, try your luck with a smaller amount first.

Before investing long term, it is necessary to heavily consider what kind of product to buy and why any particular one would suit your portfolio.

If you decide to invest in something with a high risk factor, it would likely be a good idea to consult an expert before going ahead.

Only risk as much as you can comfortably lose.

Every investment is done at your own risk and past performance may not always be a reliable indicator of future results. It is never a certainty that an investment will pay off and so careful management is important.

Read more from Us

What is PANCAKESWAP and CAKE good for? A Complete Guide

6 minutes to read
pancakeswap

Despite the frivolous name, PancakeSwap and Cake is no joke; the platform is one of the most significant dApps of all time and regularly attracts $100 million worth of daily traffic. In less than a year, it became the largest DEX on the Binance Smart Chain, beating Binance DEX. Not only this but its native token, CAKE, is keeping itself stable among the top DEX coins.

WHAT IS PANCAKESWAP COIN (CAKE)?

KEY DETAILS*:

Available at: PancakeSwap, Binance, KuCoin.

Competitors: Biswap, UNI; BAKE; SUSHI

Highest price: $42 / $0.00033 BTC

Lowest price: $0.5/ $0.0000135 BTC

*information correct at the time of writing and research

CAKE IS PANCAKESWAP’S OWN COIN

PancakeSwap is the Binance smartchain’s most popular decentralized exchange. Over the past year, PancakeSwap has made an amazing run-up to the blockchain world, building a huge user base with its extensive toolkit being a great attraction to users. The advantage of BSC in DEX compared to Ethereum-based platforms is the low network fee, so it is more economical to immerse oneself into DeFi on PancakeSwap with less money than, for example, UniSwap.

The platform allows you to trade Binance Coin (BNB), and other BEP-20 tokens, directly from the wallet in a peer-to-peer manner. The trades completed by PancakeSwap are finalized and executed by a smart contract without a stock exchange or other traders. The team behind PancakeSwap are completely anonymous, but the smart contract and platform have audits from Certik and Slowmist.

Since its launch in September 2020, PancakeSwap has incorporated all major DeFi trends into its system. There’s token farming, pools, NFTs, sweepstakes, and all you need is one thing – some of the native CAKE token. CAKE is also a governance token, so important Pancakeswap related improvements and decisions are also the collective responsibility and voting rights of token owners.

WHAT HAPPENS ON PANCAKESWAP?

One type of decentralized exchange is AMM (Automated Market Maker), where trading is not conducted directly between buyers and sellers, but customers buy tokens from one (or more) pools and send the other token to the same place to pay for it. There are two tokens in a pool, just as currency pairs consist of two currencies. Without the offer book, there are no opposing offers to buy and sell.

Tokens sold (submitted) and purchased (withdrawn) during trading will shift the ratio of the two tokens in the pool, and the exchange rate that moves in the opposite direction balances the pool in value from both directions. This mechanism is very similar to a depth chart of trading on centralized exchanges, where the relative differences between bids and offers move the exchange rate.

The tokens available in the pool are provided to traders who have temporarily exchanged their BSC-based tokens for liquidity provider (LP) tokens. It requires two different tokens, both of which must be sent to the pool, and the total value of the two is given an LP token that channels the pool’s profits to the LP holders in proportion to their tokens. The profit here is a fixed 0.25% fee for pool-related trades, which is spread among those who allow AMM trading.

pancakeswap and cake

For it to be accessible, PancakeSwap requires a Web3 supported wallet. The most popular ones being Metamask, TrustWallet, or WalletConnect. All you have to do is reconfigure the network on these wallets, besides BSC we can connect to similar DEX’s on other blockchains, such as Ethereum, Polygon and AVAX this way. The revenues and costs of the development are all publicly shared, 15% of the trading fees go to a treasury, which is a fund for the cover of expenses, maintenance of the platform, etc.

PancakeSwap has undergone a lot of innovations in a very short space of time, respectively. V2 developed the syrup pools that are now accessible and also introduced their referral program. At the same time, the trading fee jumped from 0.2% to 0.25% – 0.05% of which is then used to repurchase the CAKE token on the open market, these purchased tokens are then burned, thus reducing inventory. Currently there is no specific roadmap that has been released, instead though there is a publicly published to-do-list which doesn’t feature any deadlines. These to-dos include a tied staking product, a loan facility, and NFT prizes for completing tasks and leveling up.

HOW DOES THE CAKE TOKEN RELATE TO DEX?

Like Binance, PancakeSwap has platforms linked to popular forms of investments. DEX links them in some form to the spending or possession of CAKE tokens, thus generating traffic to their own cryptocurrency.

YIELD FARMS

The liquidity shown above is provided with LP (Liquidity Provider) tokens, on PancakeSwap we can also stake these LP tokens and receive a CAKE token as a reward. During stakes, the transaction fee earnings for LP tokens will continue to be retained. Annual interest varies from farm to farm, and, in some places, it can certainly reach several hundred per cent. There is always another side to yield, especially if it looks unrealistically high, in the case of yield farm-to-farm interest, this is the impermanent loss that you can read more about in our other article.

SYRUP POOLS

The Syrup pool at PancakeSwap is the stakes corner. A wide range of BEP-20 tokens can be staked here as a community. Reward can be that token, or it can be CAKE. The interest rate on the stake is variable according to the rules of the given token, and the exchange rate movements of the tokens converted to stakes are included in the actual investment result.

LOTTERY V2

Tickets can be purchased with CAKE token, which is discounted in large batches, and the prize pot is made up of even more CAKE.  40% of ticket revenue will be allocated by the smart contract to ticket holders with all six matching numbers.

BET ON EXCHANGE RATE

It is also a simple feature. The price of the BNB coin can be accepted in a five-minute perspective. The returns made from those who lost the bet is distributed among those betting on the winning side.

NETWORK MANAGEMENT WITH CAKE TOKEN

Also on PancakeSwap is the site where the votes on important issues affecting the ecosystem take place. The right to vote is linked to the CAKE token or indirectly to its owner. Like a board meeting of a public limited company, most CAKE tokens are implemented here.

The proposals can be published by anyone who undertakes to promote their idea, not just the founders and leading developers. The community thus seeks, at its discretion, to introduce changes that benefit everyone because they depend on each other. Liquidity insurers will not vote for unrealistic trading fees, because if traders turn away from the pools, there will be no trading fees to share.

CAN CAPITAL MARKETS SAVE THE EARTH FROM THE CLIMATE CATASTROPHE?

4 minutes to read
green sustainable environment

In the vast majority, capital markets have not yet taken into account the risks of climate catastrophe, and only 14 percent of the experts surveyed believe that the risks are integrated into prices. The rise of green portfolios is also slowed by regulatory inconsistencies. However, the catalyst for change could be the recently concluded COP26 conference and government green programmes, according to recent research by KPMG.

What Research was Carried Out?

KPMG, CREATE-Research and the CAIA Association compiled a global survey entitled “Can capital markets save the planet?” based on interviews with almost 100 managers of investment firms and pension funds that manage $34.5 trillion.

What Were The Research Findings?

The research found that while capital markets attract a lot of capital, they cannot effectively price in the risks of climate change due to political, regulatory contradictions and insufficiently transparent financial impacts – and only 14 percent of those surveyed believe otherwise. For alternative investments, this figure is 11 per cent and for bonds it is only 8 per cent..

It is important to note that pricing climate risks is more clearly visible within the energy sector than it is noticeable in projects that are more capital intensive. This is because market access takes a long time.

Does Anything Affect The Research?

The biggest obstacle seems to be that, due to the nature of climate research, the impact of climate change on GDP is difficult to predict. The fundamental reason for this is that there is no similar historical history or experience of how our economic and financial systems can or will respond to these effects. The problem is compounded by the fact that governments and authorities that are supposed to support reducing CARBON emissions often do not move on a ‘trajectory’.

“For the time being, real action is well behind the definitions, so the potential and risks of climate change remain difficult to price

– Gergő Wieder, senior manager at KPMG.

To date, no country has introduced rules that adequately integrate environmental and social costs into companies’ financial reports, especially in a way that supports the pricing of climate risks. For this reason, the financing of market-based incentives and technologies to reduce CO2 emissions is progressing slowly. Development is also hampered by the lack of uniform pricing of emission quotas, which continue to play an important role in addressing the effects of climate change.

A Green Ray Of Hope

However, two events could be a turning point in this area. One is the green turnaround of the world’s major economies, which includes, among other things, the adoption of clean energy standards, the mandatory reporting of the carbon footprint for stock market companies, and the review of pension fund investments on the basis of ESG (environmental, social and governance) aspects. The other is the COP26 conference organised by the UNITED NATIONS.

What Changes Are Likely To Happen to avoid a climate catastrophe?

84 per cent of those surveyed said the Glasgow meeting would be followed by more coordinated intergovernmental measures and capital markets were preparing for expected progress in the three key areas – output pricing, alternative energy production and mandatory reporting.

When asked whether capital markets would start pricing in climate risks at a higher rate, 42 percent of respondents said yes, while 30 percent said they might, while 28 percent did not believe. More than 60 percent of respondents expect a shift towards pricing climate risks in all asset classes over the next three years.

The Drawback

The research notes that it requires huge, coordinated political efforts and support to steer trillions of dollars of investment towards carbon-reducing technologies. Some respondents fear that, in the absence of concerted action, current political trends will continue to allow risks to recover in the global financial system, at which point the ‘Minsky moment’ may occur – i.e. the price of securities may suddenly collapse as a result of a panic.

GDP = gross domestic product:

Gross domestic product (GDP) is a measurement that seeks to capture a country’s economic output. Countries with larger GDPs will have a greater amount of goods and services generated within them, and will generally have a higher standard of living.- www.investopedia.com

climate catastrophe
CLIMATE CATASTROPHE

Read More

WHAT DOES THE THETA NETWORK “YOUTUBE BLOCKCHAIN ALTERNATIVE” KNOW? A complete guide

5 minutes to read

Theta Network is the largest blockchain-based video sharing portal the Theta network. It’s cheaper and decentralized, as we like for a blockchain project. It’s a promising initiative, and Samsung and Sony have already backed it.

WHAT IS THETA NETWORK (THETA)?

Available at: Binance Huobi KuCoin, OKEx

Competitors: BAT, HIVE

Highest price: $14 / $0.00026 BTC

Lowest price: $0.04 / $0.0000094 BTC

(at the time or writing)

You can find up-to-date market information from THETA coin here.

WHAT’S WRONG WITH TRADITIONAL VIDEO SHARERS?

Sharing video content is not an easy business. One problem is that when materials are stored in one place, access is extremely slow. To eliminate this, video portals use many servers around the world, so streaming is hassle-free, an infrastructure called the Content Delivery Network (CDN) is utilized.

However, the operation of the CDN is very expensive, and since data centers charge the video website based on data traffic, if a portal becomes popular, the costs will multiply. On YouTube, for example, we either pay for a premium account or watch ads. If you’re not completely IT illiterate, you can use an adblocker or Brave browser. Although, given that YouTube still generates huge revenue, apparently this is not universal.

That’s where Theta.tv comes in.

WHAT IS THETA NETWORK?

Theta Network aims to reduce the costs that well-known video-sharing platforms pay for their operations. This is achieved by channeling some of the data stored on the CDN to Theta’s peer-to-peer network. The principle is similar to that of BitTorrent, where content is shared directly by users, but content producers are paid here. Theta Network does not seek to replace YouTube or Twitch, it merely offers an infrastructure where sharing works in more of a decentralized manner at lower costs.

If you watch a video on a streaming site that uses the Theta Network, you will get the data through a combination of two channels. The video comes partially directly from the website’s divisive platform and partly from Theta’s network. Although Theta Network is cheaper than centralized solutions, some costs have to be taken into account, which is what Theta cryptocurrencies are for.

THETA NETWORK WORKS WITH TWO COINS

Those who share video material using Theta Network will receive a payment, which is paid for by the platforms themselves, not by end users. To pay for streamed content, the network uses a standalone token called TFUEL.

Another cryptocurrency running on Theta Network is THETA. The main role of this token is network management. Basically, THETA owners can vote on the direction of development, so the community has the fate of Theta Network in their hands. For now, this process is still in its infancy, but it is planned to play a greater role in the future.

There is a fixed stock of THETA coins on the market, which is 1 billion coins, and no more is generated from that.  Stacking THETA, on the other hand, can yield TFUEL, of which 5.3 billion exists, 5% per year going to stake THETA holders, so that’s inflation.

WHAT YOU NEED TO KNOW ABOUT THETA BLOCKCHAIN

Theta’s own blockchain is fast and designed for smaller transactions. This is a great way for content providers to get their TFUEL tokens right away, which never gets to be a bigger amount all at once. In the background, the infrastructure is based on a proof of stake consensus mechanism that delivers the staking model using the Tendermint blockchain code. During stakes, THETA coins are tied up at network nodes who are responsible for validating the transaction.

Validation of non-consensus blocks is protected by the system losing some of the stacked THETA coins, so it is in the interests of all involved in the process to operate authentically. As long as the stakers go with the shared ledger, they search the blockchain, but in case of fraud they lose anyway, which makes the transmission of the blockchain and transactions reliable.

In the logic of validation, there is another important thing that ensures safety. The Blockchain has two levels. First of all, there are validating nodes that are high-performance computers and can authenticate a lot of transactions very quickly. There are not many of them and they are typically operated by companies that have taken on the hardware and technical background needed to provide blockchain, e.g. Samsung or Sony. They have the capacity to keep transactions running on a global blockchain in order, both in terms of validation and general ledger entry.  The validator node also has another task: to stack 1 million THETA coins.

The other level on blockchain is made up of the community nodes. Their job is to monitor these validator nodes. There are thousands of community nodes, immediately indicating if a validator deviates from the consensus with a bad block, and they shut down the suspicious or malicious validator. The community node stakes 1000 THETA coins.

WHO IS WORKING ON THE DEVELOPMENT OF THETA NETWORK?

The company to which Theta is credited is Theta Labs, whose CEO is Mitch Liu, the owner of Theta.tv. Compared to the size of the project, the team is small, there are only 25 people overall, in the San Francisco – Bay Area area, but they also recently opened an office in Seoul.

The company’s chief strategy manager claims Theta Labs generates just a token amount of revenue, but Theta.tv generates some profit. Financially, they rely mostly on investors, including Samsung and the Sony innovation fund, along with a range of additional equity funds. They run the validator nodes, four of which have announced that they will be working on a $100 million THETA coin that they had bought earlier at a much lower price than now.

the theta network

The advisory team includes executives from major media companies, such as Steve Chen, YouTube co-founder; Justin Kana, co-founder of Twitch and Jonathan Wong, director of product development at video streaming company Rakuten Viki.

Theta Labs has registered three patents with the U.S. Patent Office, all three describing technology innovations in video streaming on decentralized networks.

Click here for more

Send this to a friend