As the cryptocurrency market matures, there are more opportunities for investors and tech-savvy individuals to move their funds to new areas of interest.
However, understanding exactly what you're getting into and how you can reduce your risk is a key component of any investment strategy. The cryptocurrency market is also full of terms and language such as “gas fees,” non-fungible tokens (NFTs), and “hoddles.”
Navigating the world of cryptocurrencies safely, especially the murky waters of a plethora of new tokens and projects, is almost a full-time job.
One area of focus is the technology royalty market.
Royalties can be compared to dividends earned from traditional stock market investments. But within the “Cryptoverse” things are not quite what they seem.
Let's take a look at how you can protect yourself and your money when diving into crypto royalty investing.
What is cryptocurrency royalty?
Royalties are defined as compensation received in exchange for investing in an asset.
Some of you may be familiar with the term royalty in the music industry. Record industry executives make millions of dollars funding up-and-coming artists. They do this by signing a contract that gives them a percentage of the sales of each song or album sold.
And these royalties continue to be paid in cash over the years, depending on the level of popularity.
In the world of cryptocurrencies, royalty payments are distributed in the form of underlying tokens. You stake a certain amount of money by exchanging Bitcoin, Ethereum, or other cryptocurrencies for tokens that represent crypto projects that you hope will one day be worth something.
Now let's take a closer look at the investment process. Certain terms require explanation to make the process easier to understand.
Proof of Stake for Proof of Work
Proof of Stake (PoS) and Proof of Work (PoW) are consensus mechanisms for validating cryptocurrency transactions. These are essentially processes that run on the blockchain to keep everyone honest.
Without these validation processes, the blockchain cannot be modified.
Using proof of work, miners compete against each other to solve complex calculations. They then receive compensation for their work. However, the operating costs of mining operations are significant and use enormous amounts of electrical energy. This is one of the drawbacks of using proof of work to validate blockchain transactions.
On the other hand, you have proof of the stake. Here, validators can earn income based on the stake they hold within the blockchain. To be chosen as a validator, you need to buy a large amount of tokens, which is considered one of the drawbacks.
To earn royalties, investors buy stakeable crypto coins and deposit them into a staking pool. We then collect royalties as compensation for investing in the tokens.
Staking is considered a more efficient and less environmentally damaging way to verify blockchain transactions, as it requires much less electrical energy to perform the verification.
But what are you actually investing in?
As any investor knows, you cannot assess the risk of an investment unless you understand the underlying business of the investment.
Warren Buffett and Charlie Munger are perhaps the most successful and prolific value investors of the past half century, having made billions of dollars over the years by investing only in businesses they understood. I'm here.
Perhaps it is prudent to add that neither of them considers Bitcoin or the crypto market to be anything other than a large-scale gamble.
Blockchain is not just about virtual currency
But blockchain is more than just Bitcoin, Ethereum, or other cryptocurrencies
You can find it on the exchange.
Blockchain technology is essentially a technology that can guarantee secure data storage. This allows end users to encrypt any data, making it impossible to modify it without being caught.
Also, this system is not subject to any specific authority such as the government or financial institution.
Blockchain facilitates secure storage
Blockchain is used to authenticate documents, manage cryptocurrencies, control project management, and manage dispute resolution processes.
It facilitates the tokenization of assets such as NFTs and is used to allocate and manage equity in physical assets such as homes and apartment complexes.
The list of uses is virtually endless.
Now that you have some idea of the utility of blockchain, you can see that each project represented by a token has the potential to become an industry-changing event or tool through the adoption of blockchain technology.
Blockchain value
Herein lies the value of blockchain projects. If the project takes off and is adopted by a large enough customer base, the value of the underlying token will increase and investors will not only be able to profit through their share of the token.
It includes not only the original investment, but also any tokens received as royalty payments.
Of course, to enjoy long-term value growth and a regular flow of royalties, royalties must be kept rather than cashed out early.
How to invest to receive crypto royalties
The process of investing in crypto projects that earn royalties can be a bit confusing, but once you go through the process, it's not that difficult.
Here we outline the steps you need to take to own a piece of cryptocurrency loyalty action.
1. Buy cryptocurrency
The first step to investing in a project and receiving crypto royalties is to purchase crypto.
To do this, you need a wallet to receive the purchased currency.
An electronic wallet is a program that you load onto your computer or external device. You can also use online wallets, but they are less secure than keeping your cryptocurrencies on your own device.
Once you have a wallet, you will need to open an account at a cryptocurrency exchange. Exchanges are where you buy your cryptocurrency of choice.
Once your account has been opened and verified, you will need to deposit funds into your exchange account.
When you buy a cryptocurrency, you are effectively exchanging dollars or other real-world money for a virtual currency like Bitcoin or Ethereum.
Popular secure exchanges are Coinbase and Binance, and secure wallets are available from Trezor, Ledger, and Metamask.
2. Identify projects to invest in
There are many different projects you can invest in, and new ones come online every day.
To track existing projects and learn about new ones, websites like CoinGecko and CryptoSlate provide research platforms and commentary. You can also join our Twitter and Facebook groups and attend crypto conferences to stay up to date.
Once you've found a project you're interested in and performed your due diligence, it's time to make your investment.
3. Make an investment
To invest in a project, you need to purchase tokens.
Each project has a wallet address to which you need to send your cryptocurrencies. Purchasing tokens is called a swap. This is because you are exchanging one token for another.
Each project has several cryptocurrency tokens that it accepts in exchange for project tokens.
You will be shown the exchange rate where you can see how much project tokens you can receive for the cryptocurrency tokens you want to invest.
Also note that each platform has something called a “gas fee.” This is the cost of exchanging one token for another on the network. These charges vary throughout the day and are related to the traffic on your network.
To minimize the amount you pay in fees, it's a good idea to know when fees are lowest during the day. Websites like crypto.com and etherscan.io let you track the latest gas prices and see historical data to help you time your purchases.
4. Track your investments
It's important to stay up to date with what's happening with each project you invest in.
It's not difficult to find new projects to invest in and track your portfolio, as various websites offer commentary on what's happening in the cryptocurrency market.
You should also monitor your investments by checking out the project's website, following its social media accounts, and joining the project's Discord.
The line between gambling and investing can sometimes blur, but through careful research and a prudent money management strategy, investing in crypto loyalty tokens can be well profitable.
