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Everything digital is on the rise and newer innovations are frequently introduced. Our usual way of money lending has also become digitalized and encrypted data. After converting our usual bank accounts into digital payment methods, we are now in the crypto era.
Cryptocurrency has been rapidly growing ever since due to the increase in market value and future scopes. Getting to know crypto better can reduce risks and gain maximum value for your digital wallet.
Investing smartly and responsibly is very crucial as this is a tangible way of money transactions and any digital assets are prone to risks such as hacking and scams. As there are platforms to invest digitally, you can make a profit out of it too. This article is a guide on earning interest on your cryptocurrency holding.
How to Earn Interest in Cryptocurrency?
If you are someone who has been researching to know better and make safe trading, then you should also understand the different methods to grow the assets through interests.
You can actually make a profit out of your digital assets just as any money, but there are many pros and cons associated with it. Choosing the right way from the methods to get a passive income needs some research beforehand. Here are some of the popular methods to earn interest through crypto trading.
Savings Accounts
A savings account in crypto is just like a normal bank savings account but offers better interest on digital assets, operates in blockchain technology, and is not restricted to a single place.
The users get the interest in their digital wallet after lending the deposited funds to other borrowers on the platform. It works on a simple lending and borrowing mechanism.
Users who wish to borrow crypto for various reasons like margin trading are supposed to pay interest. This is then distributed to the users who have deposited their assets in a savings account.
Benefits
- Passive income: This is a good option for long-term investors to earn passive income as the initial deposits can be easily increased.
- Flexibility: The amount can be withdrawn whenever needed. It provides liquidity and makes the assets easily available.
- Higher interest rates: The decentralized nature of crypto and the high demand of the crypto space makes it offer higher interest rates.
- Different cryptocurrency options: Savings accounts offer interest in various currencies which helps the users diversify their holdings.
Demerits
- Volatility: The market value of cryptocurrencies is highly volatile, which also affects the interest rates.
- Regulations: Crypto regulations vary and those who have their accounts should be careful about tax implications and other regulatory requirements.
- Risks associated with the platform: Risks while depositing on a platform rest solely on the individuals who hold the account. Each trader should research properly before choosing a savings account provider.
Crypto Lending
Crypto lending is like a finance service. Crypto investors can lend out their assets to borrowers and receive interest from them. Lenders deposit their assets to lending accounts and borrowers receive them as loans from the lending platforms with high interest rates.
The platform controls the net interest rates and sets the interest rate for both lenders and borrowers. These interest rates may vary depending on the platform and they may also charge a service fee. It can be a centralized and decentralized lending platform.
Centralized crypto lending involves trusting the company on the funds and interests. Decentralized crypto lending connects lenders and borrowers through smart contracts.
Benefits
- Doesn’t need a credit check: Loans are available for anyone and don’t need a credit check like traditional bank loans.
- Lower interest rates: Crypto lending has a lower interest rate than traditional bank loans.
- Passive income: Lenders can get interest amounts that are higher than savings accounts.
- Flexible: More flexible than crypto staking as staking locks up the assets into a blockchain.
Demerits
- Institutions making deals: Institutions can make deals on their terms which can cause many issues later.
- Low liquidity: They can meet low liquidity and price drops which can reduce the profit.
- Risks associated with the institution: If the institution goes insolvent while meeting any regulations, the deposits may get lost and cannot be recovered.
Staking
Staking is like getting an interest from your fixed deposit on a bank account. You’ll receive an interest amount if you keep your crypto wallet locked and support the blockchain operations.
Many blockchain networks like Ethereum 2.0 and Avalanche use Proof-of-Stake (PoS), which is a consensus mechanism that secures the blockchain. It is a reward in the form of cryptocurrency that traders get for locking up the assets for some time and participating in network validation.
Benefits
- Passive income: You will receive money without trading your assets. The amount received can vary based on the amount and platform.
- High interest rates: They have high interest rates and vary according to the network and amount. Many platforms even offer up to 50% interest.
- Involvement: Staking encourages the participants to be directly involved in the network’s performance and management. Stakers have a voice when new updates are made.
- Minimal technical knowledge: It also doesn’t need much technical knowledge to stake your assets.
Demerits
- Risk of volatility: The value of cryptocurrency is volatile and hence the profit you made can be reduced to lower amounts and may receive no profits at all.
- Minimum investment required: The network may ask for a minimum amount of deposit for staking.
- Safety: There is a risk of technical errors and fraud. The safety is upon the platform used for staking.
- Blocking: Staking requires blocking the account from transactions for the period you stake the amount. This causes the inability to trade for a period of time while staking.
Affiliate Programs
You would have heard about affiliate marketing that attracts new users or customers. Affiliate programs in crypto are also a form of affiliate marketing in promoting crypto-related services. Affiliate programs are a way to make passive income.
It is the form of receiving payment for referring new traders to a platform. A high percentage of commission fees are gained as new users start to use the platform. Some platforms even offer up to 50% commission.
Benefits
- Passive income: Traders can earn commissions and also receive fast payouts.
- Receive training: Most crypto affiliate programs provide free marketing materials and training tools to better understand and earn commissions.
Demerits
- Skill requirement: Need some skills to attract new traders into investing. Proper implementation of marketing strategies may be required.
Yield Farming
A yield is the earnings made over time after any investments. Yield farming is earning the yield after placing your cryptocurrency assets in a liquidity pool or decentralized finance platforms (DeFi). Lending cryptocurrency to DeFi platforms makes the market more liquid and the investors are given an interest for their interest.
By yield farming traders can get higher returns on their investments. Yield farmers can play different roles like liquidity provider, lender, borrower, and staker. Yield farming lost its popularity after the collapse of TerraUSD stablecoin.
Benefits
- Decentralized: It is governed by smart contracts and doesn’t require any documents or doesn’t have any barriers to start yield farming.
- Access from anywhere: Doesn’t have any geographical barriers and anyone can start investing from anywhere.
- High annual percentage yields: It offers high Annual Percentage Yields (APY) compared to other investments like stock market or real estate.
Demerits
- Scams and frauds: DeFi platforms lack regulations and is easy for scammers to create fake decentralized applications and can also vanish taking away all the deposits called rug pull.
- Volatility: The crypto market is highly volatile and can affect investments if the market value falls.
- Loss of value in the pool: The value of the assets can be reduced when compared to other assets in the liquidity pool. This can cause loss while withdrawing the assets even though the individual price of the asset has not decreased.
Play-to-Earn Games
Crypto games are those games that aim to make money while playing in a game environment. The game environment will be similar to an international crypto market with movements similar to a crypto market.
These games allow players to earn rewards in the form of cryptocurrency. The role of the players includes creating value through blockchain. Gaming has now evolved into a career option rather than just entertainment.
Benefits
- Passive income: Players can earn passive income through gaming, winning levels, and reaching certain ranks.
- Low-risk factors: The players will be playing a game but in a real-world crypto market environment. This reduces the risk of the real crypto market.
- Easy to play: Earning money is easier while playing a game and most crypto games don’t require special equipment and are user friendly.
Demerits
- Volatility: Crypto itself is volatile and this leads to varying values in the profit earned.
- Less entertainment: Even though these are games, there is more scope for earning than entertainment.
Final Verdict
Cryptocurrencies are growing like ever before even though many concerns and risks are being raised. This is because the market value and future implications are also growing.
Other than investing and trading, earning profit through passive income is also possible in various ways which we have dealt with in detail.
Before investing in any institutions or trading, it is crucial to research deeply to avoid loss in profit and assets. Be mindful to avoid any risks associated with the crypto market. Invest after a thorough analysis of the benefits and risks associated as well as what suits your personal interest the best.
