Digital assets are a vital investment opportunity to take advantage of in 2022. Creating a digital investment portfolio is an essential diversification method and could lead to highly lucrative returns if properly managed.
Investing in Crypto
Blockchain technology has created a highly lucrative crypto market with ample opportunities for investors to build and diversify their digital portfolios. Because the crypto market is volatile and constantly innovating, diversifying your digital investments is essential for safeguarding your bottom line. There is always risk involved in any type of investment, so it’s necessary to brush up on crypto basics and various cryptocurrencies before making any investment.
Generating Crypto Returns
There are many ways you can invest your cryptocurrency to generate lucrative gains over the long or short term. Staking, yield farming, and investing in NFTs are three significant ways crypto investors put their holdings to use and generate returns.
Staking
Some blockchains, such as the Cardano blockchain, utilize a proof-or-stake model to verify transactions on the network. With a proof-of-stake model, owners of the coin use their machines to become nodes on the network and stake their investments as collateral for a chance to verify blocks. If your node is chosen to verify a block, you have a certain amount of time to complete the verification and earn the rewards. From selecting nodes to distributing rewards, the time it takes to complete this cycle is called an epoch. Each block is randomly assigned to a node at the beginning of each epoch, depending on the amount in the stake pool of each node. Though it only requires one coin owner to manage a node, many investors can stake their coins with reputable pools, increasing the likelihood of being selected for validation. These proof-of-stake models are less likely to encounter network attacks and require less computing power than other models, making them more sustainable and accessible.
Farming
Liquidity farming, also known as yield farming, is another way to generate gains over time. Similar to staking, you lock your investment in a liquidity pool for a certain period using a smart contract. Crypto farms are held on dApps (decentralized apps) and allow farmers to lend out crypto to borrowers in exchange for interest and fees. These interest, fees, and sometimes entire coins are distributed among those within the pool. Like lending at traditional banks, there is always risk involved for borrowers and lenders. Before investing, be sure to check the health of the liquidity pool by measuring the TVL, Total Value Locked. The TVL is simply how much crypto is locked in the collection at that time. The higher the TVL, the higher the investment security and market validation for the liquidity pool.
NFTs
Non-fungible tokens of NFTs are another wise crypto investment for long-term returns. Like investing in the art world, NFTs can hedge your portfolio against inflation, and generally, NFTs will accrue value over time. NFTs are encrypted digital assets that are popularly used to verify the originality of a given piece of digital art. By minting a digital artwork into an NFT, you encrypt the original data and place the asset on a blockchain where it can be bought, sold, and auctioned as a unique asset and artwork. NFTs will hold information about the original artist no matter how many times it is resold, and NFTs can even pay royalties back to their creators each time they are resold on the network. Many celebrities like Snoop Dogg are investing heavily in the NFT market, and more and more artists are using NFTs to sell and market their intellectual property. Now, NFT marketplaces such as FTX can be used to purchase digital art, videos, music, and other types of digital media NFTs.
