Covid-19 has changed the way the world operates, particularly when thinking about finance. Countries are accruing huge debts from Quantitative Easing (QE), and interest rates have never been lower. Blockchain technology offers a way to diversify your investments, to act as a hedge against the coming dollar crisis. In this passionately crafted blog post, I will explain what crypto staking is, why it is better than bank interest, and how you can get started doing it before dinner tonight!
But first, why is this even a thing? Why do people care about interest?
When it comes to investing, there are three main ways to make a profit.
Capital Gains - Where the asset goes up in value over time
Income - When the asset pays a dividend or interest
Tax Minimisation - Where you benefit from deductions in your tax return because of your investments
In the world of traditional finance, when you are younger it is better to have a "Growth" portfolio where you focus mainly on fast-growing assets that are likely to give capital gains but may not payout a strong dividend. As you get older and get closer to retirement, your assets have hopefully gone up in value and you now want to move to an "Income" portfolio, where you focus on lower risk, more stable investments that pay a higher yearly income without needing to sell the asset.
For centuries this has been limited to stocks, long term deposits and bonds. But now, with the introduction of blockchain technology, there is a way to hold assets that have the potential for explosive capital gains, but also pay out an income in what's called a Staking Reward. Let me explain.
What is a Staking Reward?
Assumed Knowledge: What is a cryptocurrency?
Assumed Knowledge: What is a consensus Protocol?
When a cryptocurrency operates on the Proof-Of-Stake (PoS) Consensus
Staking cryptocurrency means that you are holding cryptocurrency to verify transactions and support the network. In exchange for holding the crypto and strengthen the network, you will receive a reward. See this super helpful graphic from Blockgeeks. Comparing Bitcoin's consensus method Proof-of-Work (PoW) to PoS.
Proof-of-stake is a far superior consensus mechanism and will ultimately succeed in the long term. That is why even though Bitcoin may do well as an investment in the short term, it's PoW technology will be its downfall in the long run.
Marketed as the more environmentally-friendly option, Proof of Stake makes mining new blocks easier for holders of greater amounts of the native cryptocurrency. The logic is clear: if you hold more tokens, you have the highest stake in the network’s long-term success.
How to Start Earning Staking rewards?
Which Cryptos offer staking rewards?
Tezos 5.53% interest per year
Cosmos 8.11% interest per year
Cardano 2.81% interest per year
Algorand 5.13% interest per year
Vechain 0.82% interest per year
Tron 4.11% interest per year
Tether 6.35% interest per year
For the full list of cryptos to stake visit stakingrewards.com
Why is this better than bank interest?
You benefit from both capital gains when cryptos go up in value, and also income from staking
It's paid daily, compounded daily
Higher interest rate than long term bank deposits
You're in control of your money
Easy to diversify into different staking cryptos
Will benefit from mass adoption of cryptocurrencies
Let me know in the comments if you think crypto staking is a good fit for your strategy.
All the best, let me know if you have any questions.
- Mitch Hamilton