How Cryptocurrencies Can Increase Your Savings & Generate More Wealth
Let’s first understand the simple concept of assets.
An asset in simple terms is something that you own. However, you can also own the latest model Car, a music system, or very expensive $1000 Nike shoes but these kinds of assets always go down in value unless they are a collector’s item or have gold embedded in them, as gold always goes up in value over time.
And then there are assets that also, provide revenue and or also increase in value over time, like land, house, gold, silver, shares, and certain cryptocurrencies like Bitcoin, Ethereum, etc.
PROBLEM WITH TRADITIONAL INVESTMENTS
While it’s great to own physical assets like gold, land, house, and shares, etc, not everyone is interested in them for various reasons like:-
- The rate of return or the rate at which these traditional assets grow is very slow, especially when it comes to the property where it grows to about 6% to 10% yearly, where shares can grow by more than 10% to 15% in some cases. Now compare this to crypto assets like Bitcoin which grew by an approximate average of 1500% annually or Ethereum at about 150% annually, like these, there are so many other cryptocurrencies whose annual average growth rate will shock you however, crypto assets are highly volatile and one can lose all their investments if they are not careful enough.
- Another reason someone will prefer crypto over say owning a property is that you can have a huge ongoing expense in the form of mortgage fees and interest charges for 25 to 30 years loan term until you pay it off. Instead of that you can put all of that amount of money into purchasing crypto assets. And if you know what you are doing those crypto assets will exponentially go up in value over time.
- Also, the speed of transactions is much faster if you want to transact with crypto over sending currency from one country to another. Not only there are heavy fees involved for changing the currency to another currency but also the speed of the transaction is not as fast as a crypto transaction. In saying this, banking and financial institutions around the world are making it easier and less expensive to transact involving foreign currencies, however, some will still argue that crypto is still a better alternative, as crypto transfers are also evolving rapidly and they keep getting faster and more simple to do.
- One more thing is that people like the decentralised aspect of cryptocurrency trading as compared to banks’ regulations and rules that do not apply to the crypto world.
Next thing is that when it comes to crypto assets there are two main things to look out for:-
- Do they have the potential to go up in value, and
- Can they generate revenue?
Now let’s see how investing in crypto assets can potentially start generating passive income.
One of the very basic ways to earn passive income through crypto assets is by staking and lending. The very first-time crypto staking occurred was in 2012 when Peercoin Blockchain rewarded its holders for staking their coins. So how do you stake crypto? Or what does crypto staking means?
Well, staking is placing your holdings in a blockchain project which wants to improve upon existing technologies so more users can use that blockchain. So when you place your crypto assets holdings in such blockchain projects you are staking your cryptos for development and enhancement and you are rewarded with more coins as that project becomes popular. If that project crashes you can also end up losing your crypto assets.
For example, there are instances in the past where people lost their crypto staking assets as some Staking platforms, decentralised exchanges (DEX), and other blockchains have either suffered a cyber attack or they had internal disagreements and decided to go separate ways, or these platforms got shut down due to fraud and Ponzi scheme allegations, or some users in platform misrepresented their rewards. So a wise investor should know the good and the bad side of staking their cryptocurrencies and the risk and rewards associated with it so always do your due diligence.
Now, let’s see more ways how your crypto assets can generate revenue:-
- Mining:- Mining generates revenue by rewarding the miner with the cryptocurrency they are mining. So, the Bitcoin miner gets rewarded with more Bitcoins and Ethereum miner gets rewarded with more Ethereum. However, these two cryptos mentioned above are two expensive to mine but there are other way smaller altcoins that are way easy to mine and don’t cost as much money.
- Staking:- Just like mining, this is another way to verify transactions to earn rewards. The difference is that Staking involves locking your coins for a certain amount of time in a crypto exchange. That exchange will use your coins to verify transactions and reward you with more coins over a period of time. The coins that have become popular in the staking space are Cardano (ADA), Polkadot (DOT), and Ethereum (ETH).
- Lending:- This is very similar to staking where you have to lock in your coins with an exchange so they can give you interest depending upon the lock-in period. BlockFi and Celsius networks use this method.
- Cryptocurrency Dividends: – Similar to how you earn dividends on a dividend-bearing share. Certain exchanges such as Nexo and Crypto.com pays dividends on their profits if you hold tokens from that exchange.
- Masternodes:- Running a masternode is not cheap and requires technical expertise, so many people might not choose this option, however, just to mention that masternodes perform certain functions on a blockchain network that rewards users who run those functions.
- Gaming Tokens:- Some gaming tokens like WAX & MANA are used in the gaming ecosystem to pay for transaction fees or other fees to increase the value of the system and MANA is used to purchase virtual land, if this improves the system it becomes more valuable and more revenue is generated. And gaming tokens such AXS can be used for the security of the underlying blockchain of the gaming system and holders get rewarded for staking their coins.
- Stablecoins:- These are called stablecoins as they are pegged to the US dollar so they do not increase in value over time like Tether (USDT) & USD coin (USDC), however, they facilitate transactions and transfers and earn fees because of that hence generating revenue for its holders.
There are other methods of earning revenue from crypto assets as well, however, we will stick with the most common ones listed above. And the most popular of these methods are staking at the moment and let’s look at the top coins for staking in current cryptocurrency market.
- Solana (SOL):- This coin is designed to increase transaction speeds and scalability, it started back in March 2021 and have a staking period of 28 days. You can expect about 8 to 10% annual return, the rewards are paid out approximately every 2.6 days and is added to the staking balance for compounding effect.
- Polkadot (DOT):- As the name suggests it connects the dots. For example if a developer wants to work on Bitcoin and Ethereum blockchain together than Polkadot comes into play. Polkadot staking started in August 2020 with a 28 day lock in period paying 12 – 20% annual return with rewards being paid out every 24 hrs roughly. The rewards are added to the staked amount for compounding effect.
- Cardano (ADA):- As the cryptocurrencies started gaining popularity since 2011 there had been many more trying to make things easier and faster, but the rise in popularity meant rise in users as well which means more load on the system and slowing down of transactions. Cardano was designed to solve this issue by increasing the speed and scalability. Another interesting feature of Cardano is that it improves the governance by having a system of on-chain voting, which means that network participants can vote regarding introduction of new features to ensure Cardano is going in the right direction and if future ready and relevant by being flexible and adaptable. Cardano started staking in August 2020 and offers 5 day staking period which means you can get rewards every 5 days at 6% annual, giving you the flexibility to withdraw and use when you want
- Cosmos (ATOM):- In a nutshell it connects different blockhain networks to solve problems relating to scalability, usability for present and future without affecting the sovereignty of the individual blockchain that are interconnected through this token. Cosmos pays staking reward every 7 to 14 days usually, and it started staking in March 2019, paying out an annual yield of around 7 to 10%. Cosmos rewards must be claimed in order to reinvest.
- Avalanche (AVAX) :- The role of Avalanche coin is to make financial applications more efficient and more decentralised. The minimum staking period for Avalanche crypto is 14 days earning 10 – 15 % annual return. Avalanche started staking in September 2020. Note that Avalanche rewards are automatically added to the staker’s balance.
With staking crypto the thing to note that there could be fees and charges for exiting early or for withdrawing rewards or for unstaking your coins, also the rewards earned can be subjected to taxes as well. As with any other investments there are risks involved and always ensure that you do your own research when investing in crypto assets as these can be highly volatile.