How to Invest in Web3 in 8 Steps

Learn how to invest in Web3 using the steps below. Keep learning about Web3 to stay current with technological innovations and changes. Review the potential pros and cons of the internet to determine if it’s a good investment for you.

What is Web3?

According to the Government Finance Officers Association (GFOA), Web3 uses blockchain technology as a building block. The third generation of the web uses a combination of non-fungible tokens (NFTs) and cryptocurrencies. The world wide web (WWW) rapidly evolved within the last few decades into a decentralized and interconnected network. Web3 builds on the progress made in Web1 and Web2. This next version of the web is still new and has yet to come into its prime. Web3 focuses on the decentralization of data as opposed to the more centralized approach implemented by governments. This version of the web allows the users to collect and oversee the data using a peer-to-peer network. 

While Web3 has the ability to improve the metaverse, the two remain different. The metaverse creates virtual worlds while Web3 aims to make a decentralized version of the web.

What is the Web3 Ecosystem Like?

Discover what the Web3 ecosystem is like by exploring its layers, which range from infrastructure to application.

Infrastructure Layer

The infrastructure layer makes sure the decentralized web is able to function. This layer includes projects that handle data storage and communication protocols and works with a variety of projects to create the bigger picture.

Network Layer

The network layer focuses on connection and functions on a decentralized level, ensuring security and node connection.

Protocol Layer

This layer is considered the base layer of the stack, focusing on communication and functioning based on blockchain technology.

The protocol layer pulls from the scaling solutions and knowledge implemented by Bitcoin and Ethereum.

Services and Optional Components 

Web3’s services and optional components emphasize the changing technology. The tech-driven layer is heavily decentralized and focuses on tools such as data feeds and side chains. 

Application Layer

The application layer is considered the point of entry and handles the user interface to assist with applications such as wallets.

8 Steps to Invest in Web3

Research Web3 to decide if you’re ready to invest in the next version of the internet.

1. Educate Yourself 

When navigating Web3, learn the definitions behind several key terms.

• Blockchain: Blockchain is a continually expanding record that implements a decentralized database. The decentralized structure makes it difficult to corrupt or hack. The ledger promotes transparency while offering more security.
• Decentralized finance (DeFi): Decentralized finance functions using blockchain and cryptocurrency innovations. DeFi usually improves transparency while increasing security.
• NFTs: Non-fungible tokens (NFTs) exist on the blockchain and are typically considered digital assets. The digital signatures of NFTs cannot be replicated.
• Smart contracts: Smart contracts are agreements that exist on the blockchain, executed automatically.

2. Research Projects 

Examine the projects created with the help of Web3, focusing on those with strong visions and real-world applications. Think about key factors including partnerships and community support. The projects can serve a wide range of purposes including financial, gaming, healthcare data, art and many other projects.

3. Choose a Wallet 

Select a wallet that works with Web3 digital assets, including cryptocurrencies and NFTs. Before choosing a wallet, make sure that it will work with the blockchain networks you plan to use.

4. Buy Cryptocurrencies and NFTs

After picking a project or multiple projects, buy cryptocurrencies and NFTs. Follow the directions when making an account and depositing funds. Research transaction times to avoid unexpected waits and surprise fees. Research a crypto company to have a better understanding of potential investment targets. Learn about different cryptocurrency exchanges to navigate the buying process. A crypto exchange allows you to buy and sell crypto while participating in the larger crypto market.

5. Secure Your Investments 

After purchasing your investments, consider moving them to your wallet. It’s typically a good idea to move cryptocurrencies into a wallet to have an added layer of security. Keep the private key or backup phrase in a safe place. Explore different wallets to determine the level of security that would best match your level of risk tolerance. For the risk-averse, a hardware wallet is a type of crypto wallet that uses cold storage to keep your keys offline. Hardware wallets make it more difficult for hackers.

6. Diversify Your Portfolio 

Think about diversifying your portfolio over different projects, cryptocurrencies and NFTs. It might be a good idea to buy traditional assets, including stocks and bonds, to decrease your portfolio’s level of risk. Certain companies that are involved in Web3 offer stocks. Younger investors can implement more bullish investment strategies because they have more time to learn from and recover from losses. Speak with a financial adviser to determine the best way to diversify your portfolio.

7. Stay Informed

Pay attention to upcoming potential Web3 developments. Follow reputable newsletters and influencers to have a general sense of the industry. Participate in discussions and communities to have more access to information. Keeping up with the rapidly evolving industry can put you ahead of the curve. Review updates released by tech companies to stay informed. 

8. Monitor and Manage

​​It’s important to pay attention to your investments. Avoid investing if you feel short on time or aren’t in a position to actively monitor your performance.

Benefits of Investing in Web3

Web3 has the potential to become an excellent addition to a well-rounded portfolio.

Early Adoption of Emerging Technologies 

Web3 remains relatively young, and the potential for technological advancements in the future remains high. Artificial intelligence (AI) continues to play a large part in Web3’s development. Early investors have the potential to get into the industry before it experiences growth. 

Creates New Possibilities for Ownership and Monetization of Digital Assets 

Digital assets including cryptocurrencies and NFTs take the concept of ownership to a new level. The ownership status of digital content remains relatively new and provides a window of opportunity for new economic activities. 

Empowers You to Have Greater Control Over Your Online Identities 

The decentralized nature of Web3 offers you the opportunity to more closely manage your data. You have more chances to share your information as you see fit. The design of Web3 focuses on security and likely lowers the level of risk associated with data and identity theft.

Risks of Investing in Web3

Before investing, explore the potential risks associated with Web3. Know your style of risk management before investing.

Market Volatility 

Investing in Web3 is volatile and risky. The future of Web3 remains uncertain, which makes the market subject to strong price fluctuations.

Regulatory Uncertainty 

Web3 continues to shift and grow, which makes it difficult to predict its regulatory future. A large amount of uncertainty remains when it comes to the future of Web3 and possible government regulation.

Security Risks

When it comes to the virtual frontier, all bets are off. Investments such as cryptocurrencies are still vulnerable to hackers which means that an investor likely faces a unique level of risk.

Web3: Investing in Innovation

Web3 continues to grow and change alongside exciting technological shifts and advancements. New digital investments can significantly impact your portfolio. Weigh the potential benefits and risks associated with Web3 to determine the best choice for you. 

Frequently Asked Questions