These days, bank savings rates are very low. Bank of America offers 0.03% on term deposits of $10,000 or more. For many, these rates are unattractive, especially considering that inflation impacts the real rate of return, pushing it negative in most cases.
Instead of suffering with poor returns, why not consider the benefits of earning much better rewards with cryptocurrency? Depending on the method chosen, investors can earn between 2% and 18%, or more, return on investment. Amounts are usually paid in the particular cryptocurrency invested. For example, those participating with the Cardano method are paid in Cardano units.
Perhaps the easiest way to earn great returns with crypto is to use the “Earn” function at Crypto.com. This service allows the user to invest various types of crypto at various rates of return. Acting like a term deposit, users lock their crypto for a desired duration. Even a daily rate is offered which does not lock funds, but which returns a lower rate. Crypto.com earn rates are highly variable, depending on the term chosen and the type of crypto involved. Rates are guaranteed for the duration of the term but may be different over time.
Other methods are available. For example, those with local Zilliqa wallets may use a staking service. Depending on particular options, staking can return between 6% and 16%. This is only possible if you install a local wallet. When you do, you become completely responsible for security. Protect your assets.
Other crypto that offer staking payouts include Ark, Cardano, Tezos, Synthetix, Algorand, and more. Ethereum is expected to offer staking in the future.
Why Staking? What Does Bitcoin Do?
Staking was established as a reward for existing holders of a particular cryptocurrency. The term refers to the reward that is given to a holder when a new block is generated. Each new block must be owned by an existing wallet. Staking sets the owner of new blocks to that of an existing wallet, generally based on size of the balance. If a wallet has 0.0001% of the crypto supply, there is roughly a 0.0001% chance that the wallet will be awarded a block.
Bitcoin uses a different approach when new blocks are established. With that crypto, new blocks are calculated using large amounts of computer processing. A new block is generated with a private key based on the current datetime and a difficulty factor. Crypto miners attempt to determine the private key by applying their computer power with a known algorithm. When a miner finds the private key for the block, that miner broadcasts the find to the existing Bitcoin network. If the miner is the first to prove that they hold the correct private key, the new block ownership is awarded to the miner's wallet.
Coins such as Bitcoin, Litecoin and Ethereum, are said to use a “proof of work” approach to new block ownership. “Work”, in the form of computer processing, is performed by miners, resulting in a payoff to one miner. Other miners working on a particular block essentially waste their work if they do not determine the block key first.
Coins that use staking, like Zilliqa, Cardano and Ark, are said to use “proof of stake”. New block ownership is established by the network automatically. Ownership is randomly awarded to existing wallets roughly in proportion to the balance of funds that the wallet already owns. Typical returns for proof of stake coins range from 5% to 35%, or more. The highest staking returns typically come from the more experimental crypto and are high initially to encourage holders to lock their funds for extended periods of time. Staking returns are not guaranteed to remain at current levels. Instead, they may fluctuate according to various factors.
Staking Returns for Various Cryptocurrencies
|Cryptocurrency||Return||Crypto Value, ($US)|
|Algorand||8 – 10%||$0.427|
|Tezos||5 – 6%||$2.00|
|Cosmos Atom||8.2 – 20%||$5.37|
Too Good To Be True?
The above staking returns do look too good to be true. After all, how could an asset earn 35% return sustainably? Likely the rate of return will not stay that high forever. Indeed, Synthetix previously returned over 55% for a while. Things change, but the returns above were current as of January 2021. The key is for investors to act quickly.
Staking rates are set by a consensus of people associated with a particular crypto. They try to find a balance between returning a sustainable reward, attracting the right number of people to their project, and setting the reward so that the underlying asset doesn't dilute too much. Typically, the highest returns are for the newest cryptocurrencies. Synthetix, fox example, was started early in 2018. It didn't attract much interest until June 2020 at which time it started to rise dramatically.
A key feature of a cryptocurrency is the adoption rate, or how many people are committed to the project. Bitcoin is the big one, having been started late in 2009. Bitcoin languished for a long time before it became the dominant force that it is today. Many other cryptocurrencies were released after Bitcoin. In order to gain market share, many have offered staking rewards. As we see above, some staking rewards are quite lucrative.
Rather than just rush to purchase the highest returning proof of stake crypto, (Synthetix), investors should try to analyze the available offerings. Sure Synthetix is offering a high reward, but the underlying technology is highly experimental as of early 2021. While $1000 invested in Synthetix should return $350 in a year, the performance of the crypto units is unknown. Also, at the current $9 price, only about 111 units can be purchased for $1000. Alternatively, the same capital would purchase about 5000 Cardano units. Although the return is less for Cardano, the upside capital gain could be better in the long run. Cardano is still in early to mid development, but they are poised to implement exciting features in 2021 and beyond. The timeline for Synthetix is less certain.
How to Get Started
In order to earn staking returns, a quantity of a particular cryptocurrency must be purchased. When the crypto is on hand, it must then be transferred to a local wallet on your home computer or mobile device.