Crypto Savings: Earn money with you blockchain wallet
Are you willing to dip your toe into the world of cryptocurrencies, but don’t want to go full in as an investor? Do you have funds you will not need for a certain period of time? Welcome to the world of cryptocurrency saving accounts, where your blockchain wallet is your financial institution, earning you digital currency at amazing interest rates.
First things first. To own cryptocurrency you will need to open account at crypto wallet. Most of them are available on web or as mobile or desktop apps (hot wallets), but there are also hardware solutions, usb-like devices that keep your cryptocoins (cold wallets).
Benefits of cold wallet is an extra layer of security. No one can access your funds if they are stored on a usb-like stick. They are very inconvenient for use. Each time you want to access your funds, they need to be powered on and connected to the internet. While hot wallets are free, cold wallet can cost you up to $200.
Hot wallets have greatest benefit of belonging to a crypto-exchange or doubling as cryptocurrency savings accounts. Registration is simple, requiring just the basic info. It is enough to download an app or install a web-plugin and follow the instructions. The trickiest part of a hot wallet is the seed phrase. 12 word recovery phrase is what gives you a private key to gain full access to your wallet, even if you happen to delete or reinstall the wallet app. Never, ever give your private key to anyone. Keep it stored separately from your login and password, and preferably offline.
Some of the best wallets for beginners are:
- Trust Wallet
- Atomic Wallet
Earning money with crypto wallet
One of the methods for earning money with a crypto wallet is HODLing (hold on for dear life). Holding onto your crypto is simply using a currency, like bitcoin, and hoping it will rise in value. It is not the strategy that promises great returns, but it is the easiest one. HODLing is a long-term investment, using bitcoin as a simple store of value. It is not a viable strategy for more volatile altcoins, so it is primarily used with tried and tested coins such are bitcoin and ethereum.
Cryptocurrency savings accounts
Admittedly, there are more profitable ways to increase your yields in the world of crypto; staking, liquidity pools, yield farming. However, these are advanced strategies that require deeper knowledge of decentralized finances (DeFi), automated market makers, and intimate knowledge of various blockchain platforms, many of which are not user-friendly or intuitive as operating a crypto wallet. Treat crypto funds in the wallet as you would a traditional checking account.
Crypto savings accounts are similar to traditional currency investment accounts. Basically crypto savings accounts are type of account where you can deposit your bitcoin or other currency and earn interest.
Where the money comes from is practically the same like in other financial institutions. Providers of the service lend your locked capital to trusted institutional and corporate borrowers. Your capital earns a set percentage of interest each year. Although different savings accounts have different payout rules, yield is expressed as Annual Percentage Yield (APY).
Major difference between the traditional savings accounts and crypto savings accounts are the risks and yields.
Crypto savings have no insurance. Federal Deposit Insurance Corporation (FDIC) makes sure that even if the bank loaning out your funds goes broke, you won’t lose a dime. There is no such guarantee or insurance when you are depositing cryptocurrency to your crypto savings account.
Cryptocurrencies are volatile assets. Price fluctuations of cryptocurrencies can be wild and unpredictable. You might gain high yield APY only to have a net loss due to price drop of your cryptocoin of choice. This can go either way, so you may have a bit loss or big gain depends on the direction of the price swing. Using stablecoin for your cryptocurrency savings account takes away much of the volatility, but offers lower interest rates.
Yields are much higher with cryptocurrency savings accounts. Traditional banking offers interest rates under 1%, typically between 0.4 and 0.6%. Stablecoin savings account interest rates vary from 4.5 to 13%, while bitcoin savings account rates vary from 2 to 8%.
Read the fine print. Do your research to find out which crypto savings account is the best for you before you commit your funds. Interest rate could vary by amount of currency you deposit. Some providers will compound interest daily, others will do it monthly. Compound interest is the real money maker, so be sure you have the provider that will automatically do it for you. Check the withdrawal fees and number of times per month you are eligible for withdrawals. Some cryptowallets double as crypto savings accounts. Some providers of savings accounts offer crypto exchange services, buying, selling or swapping.
BlockFi is accessible, with hefty yields and low fees. Their forte are stablecoins. Best for bitcoin interest is Celsius as it allows better maximum amounts of coins deposited. Linus is beginner
friendly with $1 minimum deposit and no withdrawal fees. Nexo offers daily simple interest payments and short 24h lockup times.
Cryptocurrencies like bitcoin
Bitcoin is the grandfather of all cryptocurrencies. In fact, every non-bitcoin currency is nicknamed “altcoin” (e.g alternative coin). Due to volatility it isn’t the best option for crypto savings account, as the amount deposited is limited and interest rates not that good compared to other coins.
Most popular option for crypto savings are stablecoins. They are blockchain-based tokens, just like bitcoin, only their value is pegged to USD. It means that a stablecoin should always be worth exactly 1$. There are some tiny fluctuations, but generally they don’t shift in value more than a penny or so, before stabilizing at $1 mark.
How to deal with cryptocurrency savings?
If you treat cryptocurrency savings as long-term investment and deposit only the amount you are willing to risk it could prove to be your emergency fund. If you believe in crypto, savings accounts can be a great way to diversify your portfolio and set your foot in the world of cryptocurrencies. But if are looking for insured, risk-free options, maybe you should stick with the traditional investments, rather than dabbling with crypto assets.
MA in English and literature. I have a passion for writing, and I read – A lot! Recently I became super interested in the economy and especially decentralized economy and cryptocurrency. This blog is a hobby of mine, I like to put together pieces from what I am researching every day.