A Beginner’s Guide On How To Earn Interest On Cryptocurrencies

A Beginner’s Guide On How To Earn Interest On Cryptocurrencies

There is no denying the fact that cryptocurrencies have changed the way we envisaged finance and financial systems. While they have been around for more than a decade, it was during the Coronavirus Pandemic in 2020 that they caught everyone’s fancy. 

‘Money makes More Money’ was a premise that the world of crypto discovered with the advent of De-Fi or Decentralized Finance. This led to the birth of a mind-boggling number of Blockchain-led applications that prioritized the economic interests of the crypto owner. 

Think about it in this sense. You invest in Apple Stocks and hold on to them with the belief that they will be valued much higher than they were when you bought them. In almost every possible scenario this happens and allows you to gain significantly. 

In the last few years, there has been growing awareness of the promise of earning interest in cryptocurrencies. Leading financial experts have pointed out how this can be a great way to open up an alternative passive income earning stream to make a future purchase. 

Earning Interests on your Crypto Holdings: How to go about it?

The first and probably the most important thing that you need to know about this is that it is one of the best ways to diversify your investment portfolio. This is not just your crypto portfolio, but your entire financial one, ranging from stocks to real estate and metals. 

If you want to earn interest on your crypto, you should know that you don’t require to make deposits in cryptocurrencies like Bitcoin or Ethereum. Yes, it is true. While there are some platforms that mandate you to make deposits in crypto to earn interest, there are others that just ask you to deposit normal money. 

Here are some important details that you should know in this regard- 

  1. When it comes to earning interest on crypto holdings, you should know that it works in the exact same way as a regular savings account.  
  2. You earn interest on a compound basis, just like you would in any other investment. This is what makes earning interest in crypto so desirable. 
  3. The Rate of Interest is far higher on cryptocurrencies than it is in a normal savings account. You can earn between 7.5 APY to 12.5 APY on cryptocurrencies. 
  4. Individuals that want to earn interest from cryptocurrencies can make monthly or annual withdrawals by paying a small fee. 

What are the Major Risks Associated with Earning Interest in Cryptocurrencies?

No great investment area or opportunity in the world comes without risks. Whenever you are dealing with a financial instrument, there is always some risk involved. While earning interest from cryptocurrencies is relatively safe, in terms of the payouts and growth, there are some structural risks, that we will be covering. They are just two in number- 

  1. Cybersecurity Risks- 

The rate of cybercrimes has considerably gone up. Nowhere has this problem exploded as much as it has in the crypto ecosystem. You need to make sure that the platform or company you are depositing your money or crypto in has a safe security infrastructure. Look at whether the site or platform has encryption and is licensed by the regulating authorities for financial transactions. 

  1. Defaults on Borrowing- 

While there are plenty of credible and trustworthy companies that are honest and transparent in their financials, there are some that are problematic. You need to do your research on them by looking up Quora, Reddit, and other review platforms. The financial platform that you should choose should have a spotless track record in terms of deposits and interest earnings. 

The Growth of Decentralized Finance or De-Fi Platforms Post-2020

One of the major reasons why De-Fi platforms are growing is to address a simple concern in the crypto-financial systems. Everyone kept asking about the inefficiency that took place when cryptocurrencies were just lying there!

They had the example of traditional cash, currency, and stocks and wanted to accelerate the returns for crypto holders incrementally. De-Fi awareness and platforms have grown significantly in the last two years, notably in the aftermath of the Coronavirus Pandemic. 

Let us try to elaborate on that with some real numbers. According to Harvard Business Review, De-Fi applications has just $1 Billion in deposits in June 2020. By January 2021, in a little over six months, the same reached an astounding $40 Billion!

There was a realization that more investors can be drawn into the crypto ecosystem if there was a possibility of making De-Fi stronger. These investors are interested in securing high-interest rates on their deposits while minimizing the risks at the same time. 

The Final Takeaway

One of the major misconceptions that people have regarding cryptocurrencies is that they are beneficial only for the short term. With De-Fi, you stand to benefit from the long-term compound interest rates that will grow the longer you store the deposits. 

With De-Fi becoming far more mainstream with every passing day, the opportunity to open a stable and secure passive income source with crypto interest is a real and tangible reality. Imagine buying a house, or paying off your student loans, all in a matter of a few years? 

If you have any specific questions on earning interest with crypto or want us to share credible platforms that can help you, please let us know in the comments section below. We would be more than happy to help you out.