How to Earn Interest on Crypto - A Beginner's Guide (2024 Updated)

Summary

The video script from 99Bitcoins.com, hosted by Nate Martin, offers an insightful guide on earning interest on cryptocurrency holdings. It emphasizes the importance of not treating the content as financial or legal advice and encourages viewers to seek professional guidance before making investment decisions. The video explores various strategies such as staking, savings accounts, and DeFi (Decentralized Finance), highlighting the pros and cons of each. It also cautions against high-yield investment programs (HYIPs) and doublers, which are often Ponzi schemes. The summary advises viewers to start with a small percentage of their holdings, prioritize safety, and conduct thorough research before investing. The video concludes with an invitation for viewers to ask questions and engage with the 99Bitcoins community.

Takeaways

• ⚠️ The video content is for informational purposes only and should not be considered as financial or legal advice.
• 📈 There are ways to earn interest on cryptocurrency holdings while maintaining possession, such as staking, savings accounts, and DeFi.
• 🔒 Staking involves locking up a portion of your funds to help maintain a network and earn rewards, with varying APR/ APY rates.
• 💻 Staking can be technical and is often easier for beginners through exchanges or wallets like Kraken, Bitstamp, Binance, Exodus, Ledger, and Atomic.
• 🚫 Staking on an exchange involves risks such as the platform being hacked or going out of business, and usually incurs fees.
• 💰 A crypto savings account allows earning interest by depositing funds with a centralized company, with no lockup period and available for coins that don't support staking.
• 🏦 Companies like Blockfi, Celsius Network, and Nexo offer savings accounts, and it's important to research interest rates and fees.
• 🌐 DeFi (Decentralized Finance) offers financial services through a network of independent computers, allowing for earning interest through various methods like lending and liquidity provision.
• 🤔 DeFi can be complex and requires understanding the service fully before use, and comes with risks including the potential for bugs or flaws in the programming.
• 📊 A good starting point for beginners is to use 10% of their crypto holdings to generate interest, adjusting based on risk tolerance and strategy.
• 🔑 It's crucial to avoid crypto HYIPs (High Yield Investment Programs) and doublers, which are often Ponzi schemes disguised as legitimate decentralized companies.
• ✅ Always check the legitimacy of a company or service, consider centralized vs. decentralized risks, lock-up periods, fees, payout frequency, minimum amounts, and APR/APY before making a decision.

Q & A

What is the primary purpose of the video?

The video is intended to provide educational content and discuss various aspects of financial investment in the context of cryptocurrency, specifically focusing on ways to earn interest on cryptocurrency holdings.

Why is it important to not consider the video content as financial or legal advice?

The video is for informational purposes only and does not account for individual circumstances or legal implications. Viewers are encouraged to seek professional counsel before making any investment decisions.

What is the recommended strategy for making money with crypto according to the video?

The recommended strategy is 'Buy and hold', or HODL, which is considered the best strategy in the long run by the presenter.

What is staking and how does it relate to earning interest on crypto?

Staking is the process of locking up a portion of your funds to help maintain a specific network, like Ethereum or Cardano. In return for maintaining the network, stakers receive a staking reward in the form of interest.

What are the risks associated with a higher interest rate in staking?

A higher interest rate usually indicates additional risks, which could be related to the stability or security of the network, or the potential for the value of the coin to fluctuate significantly.

Why might someone choose to stake through a wallet instead of directly from their computer?

Staking through a wallet can be less technical and more user-friendly, especially for beginners. Wallets like Exodus, Ledger, and Atomic offer staking services with potentially lower fees and without the need for dedicated equipment.

What are the potential downsides of staking on an exchange?

When staking on an exchange, you give up control of your funds to the exchange, which exposes you to risks if the exchange is hacked or goes out of business. Additionally, exchanges usually charge a fee for their staking services.

What is a crypto savings account and how does it work?

A crypto savings account is provided by a centralized company that pays interest for holding your crypto on their platform. The company uses your deposit to lend to others, who return it with interest, from which you earn a portion.

What are the advantages of using a savings account for crypto?

A savings account offers the advantage of no lockup period, allowing for more flexibility. It is also a good alternative for coins that do not support staking, such as Bitcoin.

What is DeFi and how does it allow for earning interest on crypto holdings?

DeFi stands for Decentralized Finance, which refers to financial services not controlled by a central authority but by a network of independent computers using predefined rules. DeFi services allow you to lock up your holdings and earn interest, which can then be used for lending, staking, supplying liquidity to decentralized exchanges, and farming.

What are some reputable DeFi services mentioned in the video?

The video mentions Aave, Compound, Uniswap, and Yearn Finance as reputable DeFi services that allow users to earn interest on their crypto holdings.

What are the risks associated with using DeFi services?

DeFi services carry risks such as the need to convert holdings into specific coins, less intuitive user interfaces, and the potential for bugs or flaws in the programming that could lead to loss of funds.

What is the recommended approach for beginners looking to earn interest on their crypto holdings?

For beginners, the video suggests starting with a small percentage of their holdings (e.g., 10%), choosing established networks and exchanges, and avoiding high-yield investment programs (HYIPs) and doublers, which are often Ponzi schemes.

How can one avoid falling for crypto scams or Ponzi schemes?

To avoid scams, one should research the legitimacy of a company or service, check if it appears in recommended lists from trusted sources, and consult community forums and platforms like Reddit for user experiences and advice.

Outlines

00:00

💼 Introduction to Cryptocurrency Interest Earning

This paragraph introduces the video's purpose, which is to provide educational content on financial investment in cryptocurrencies. It emphasizes that the content is for informational purposes only and should not be taken as legal or financial advice. The video aims to answer questions about earning interest on cryptocurrency holdings, potential risks, and the possible returns. Nate Martin from 99Bitcoins.com welcomes viewers to the Crypto Whiteboard Tuesday series, where complex topics are simplified. He reminds viewers to subscribe and enable notifications for new content. The main topic discussed is earning interest on cryptocurrency, with an emphasis on 'Buy and Hold' or 'HODL' as the best long-term strategy, but also exploring ways to earn interest while holding crypto. Various methods for generating interest are previewed, including staking, which is further explained in a dedicated video. The annual percentage rate (APR or APY) for staking varies significantly between coins, and the risks associated with higher interest rates are highlighted. Staking rules differ between coins, and the process, while doable on one's computer, is technical and not recommended for beginners. Staking through an exchange or wallet is suggested for beginners, with a list of reputable services provided in the video description.

05:04

🏦 Crypto Staking and Savings Accounts

This paragraph delves into the specifics of crypto staking, including the need to lock up funds for maintenance of networks like Ethereum, Cardano, and Polkadot. It explains that staking rewards are distributed as interest, with varying APR or APY rates and associated risks. The paragraph also touches on the technical aspects of staking and the risks of using an exchange, such as loss of control over funds and potential fees. An alternative is staking through a wallet, with examples like Exodus, Ledger, and Atomic, noting that fees and available coins for staking may vary. The concept of a crypto savings account is introduced, where a centralized company pays interest for holding crypto on their platform. The account has no lockup period and is suitable for coins that do not support staking, like Bitcoin. Companies such as Blockfi, Celsius Network, and Nexo are mentioned, along with the importance of researching interest rates and fees. The risks associated with high interest rates are also discussed, cautioning viewers to avoid blindly chasing the highest returns.

10:05

🌐 DeFi and Choosing the Right Interest-Earning Option

The final paragraph introduces DeFi (Decentralized Finance), which refers to financial services not controlled by a central authority but by a network of independent computers. DeFi services allow users to lock up holdings and earn interest, with funds being used for various purposes like lending, staking, liquidity supply, and farming. The paragraph outlines reputable DeFi services such as Aave, Compound, Uniswap, and Yearn Finance, explaining how each operates and the types of returns they offer. Yearn Finance is described in more detail, with its yield optimization and vault services. The paragraph also discusses the downsides of DeFi, including the need for specific coins, technical jargon, and the risks associated with new and emerging technology. The importance of research and understanding before using DeFi services is stressed. The video concludes with guidelines for choosing where to invest, emphasizing safety over high returns, and suggesting using only a portion of one's holdings to earn interest. It advises against engaging with crypto HYIPs and doublers, which are often Ponzi schemes. The video ends with an invitation for viewers to ask questions in the comments and to subscribe for future content.

Keywords

💡Cryptocurrency

Cryptocurrency is a digital or virtual form of currency that uses cryptography for security. It operates on a decentralized system, such as blockchain, which allows for secure transactions without the need for a central authority. In the video, cryptocurrency is the primary asset discussed for earning interest through various methods, highlighting its significance in the context of financial investment.

💡Staking

Staking refers to the process of participating in the proof-of-stake (PoS) consensus mechanism of a cryptocurrency network by locking up a certain amount of the cryptocurrency to support the network's operations. In the video, staking is presented as a method to earn interest on cryptocurrency holdings, with varying annual interest rates and risks associated with different coins.

💡Annual Percentage Rate (APR) or Annual Percentage Yield (APY)

APR and APY are financial terms used to describe the amount of interest an investor can expect to receive on their investment over a year. In the context of the video, they are used to denote the potential interest rewards from staking cryptocurrency, with the understanding that higher rates may come with higher risks.

💡Decentralized Finance (DeFi)

DeFi is an ecosystem of financial services and applications that operate on blockchain technology without the need for traditional intermediaries like banks. The video discusses DeFi as a complex but promising avenue for earning interest on cryptocurrency, involving services such as lending, staking, liquidity provision, and yield optimization.

💡HODL

HODL is a term in the cryptocurrency community that originated as a misspelling of 'hold' but has since come to mean holding onto one's cryptocurrency assets for an extended period, regardless of market volatility. The video mentions HODL as a long-term strategy and contrasts it with methods to earn interest while still holding the cryptocurrency.

💡Interest

In the context of the video, interest refers to the earnings or returns generated on cryptocurrency holdings. It is a key focus of the educational content, as the video aims to inform viewers about different ways to earn interest on their crypto assets, such as through staking, savings accounts, or DeFi platforms.

💡Exchanges

Cryptocurrency exchanges are platforms where users can trade various cryptocurrencies. In the video, exchanges like Kraken, Bitstamp, and Binance are mentioned as places where users can stake cryptocurrencies, highlighting their role in facilitating interest-earning opportunities for beginners.

💡Wallets

A cryptocurrency wallet is a software program where users can store, send, and receive digital currencies securely. The video discusses staking through wallets like Exodus, Ledger, and Atomic as an alternative to exchanges, emphasizing the importance of control over one's funds and the fees associated with these services.

💡Savings Account

In the context of cryptocurrency, a savings account refers to an account provided by a centralized company that pays interest for holding crypto on their platform. The video contrasts savings accounts with other methods, noting the lack of a lockup period and their suitability for coins that do not support staking.

💡Yield Optimizer

A yield optimizer, such as Yearn Finance mentioned in the video, is a DeFi service that automatically allocates funds to the most profitable DeFi protocols to maximize returns. It is an advanced tool for users looking to earn interest on their cryptocurrency holdings by leveraging the compounding effects of different DeFi opportunities.

💡Risk Management

Risk management is the process of identifying, assessing, and mitigating risks. In the video, it is emphasized as a crucial aspect of earning interest on cryptocurrency holdings, advising viewers to only lock up an amount they can afford to lose and to conduct thorough research before choosing a service.

Highlights

The video discusses safe ways to earn interest on cryptocurrency holdings and emphasizes the importance of not treating the content as financial or legal advice.

Nate Martin from 99Bitcoins.com introduces the topic of earning interest on cryptocurrency and encourages viewers to subscribe for updates.

The best long-term strategy for crypto is 'hodling', but there are ways to earn interest while holding.

Staking is introduced as a method for generating interest by locking up funds to maintain a network like Ethereum or Cardano.

Annual interest rates for staking can vary significantly, from 0.05% to 100% per year, with higher rates indicating higher risks.

Different coins have different staking rules, such as varying lock-up periods and technical requirements.

For beginners, staking through an exchange or a wallet is recommended due to lower technical complexity.

Staking on an exchange offers ease of use but comes with risks such as hacks or business failure, and often involves fees.

Staking through a wallet like Exodus or Ledger provides more control over funds but may have higher fees and fewer coin options.

Crypto savings accounts offered by companies like Blockfi or Celsius Network allow earning interest without staking.

High interest rates from savings accounts can signal increased risk, so thorough research is advised.

DeFi, or Decentralized Finance, is a complex but growing option for earning interest through various financial services.

DeFi services like Aave, Compound, Uniswap, and Yearn Finance offer different ways to earn interest on crypto holdings.

Yearn Finance is highlighted for its yield optimization and vaults feature, which maximizes returns with less manual effort.

DeFi comes with downsides, including the need to convert holdings, less intuitive interfaces, and risks associated with new technology.

When choosing a service, consider factors like company reputation, centralized vs. decentralized nature, lock-up periods, fees, and interest rates.

99Bitcoins recommends using no more than 10% of crypto holdings for interest generation, especially for beginners.

Avoid crypto HYIPs and doublers, which are often Ponzi schemes disguised as legitimate services.

The video concludes with a reminder to seek professional advice before making investment decisions and to engage with the community for further insights.

Transcripts

The following video presents opinions and educational content

discussing aspects of financial investment

and is intended for informational purposes only.

The content presented here should not be considered financial

or legal advice,

and we would encourage the viewer to seek professional counsel

before making investment decisions.

Is there a safe way to earn interest on my cryptocurrency holdings?

What do I need to look out for?

And how much can I actually earn?

Well, stick around,

in this episode of Crypto Whiteboard Tuesday

we’ll cover these questions and more.

Hi, I’m Nate Martin from 99Bitcoins.com

and welcome to Crypto Whiteboard Tuesday

where we take complex cryptocurrency topics,

break them down and translate them into plain English.

Before we begin,

don't forget to subscribe to the channel and click the bell

so you’ll immediately get notified when a new video comes out.

Today’s topic is how to earn interest on your cryptocurrency holdings.

We get asked all the time:

what's the best strategy to make money with crypto?

Our answer has always been “Buy and hold”

or HODL as crypto enthusiasts would say.

And our position hasn’t changed:

hodling is, in our opinion, the best strategy in the long run,

but there are ways you can earn interest on your crypto while holding it.

In this video I’m going to cover exactly what methods are available

and give you the pros and cons for each one.

Even more, I’m going to show you how to choose the best one for you

and give you practical tips to get started,

so let’s dive in.

The first option we’ll discuss for generating interest on your crypto

is through staking.

Now, if you want to get the full breakdown on what staking is,

you’ll want to take a look at our “What is staking?” video.

In a nutshell,

staking is the action of locking up, or parking,

a portion of your funds in order to help maintain a specific network

like Ethereum, Cardano, Polkadot or any other platform

that uses the staking mechanism.

In return for helping to maintain the network,

a staking reward will be distributed between the stakers

in the form of interest.

The annual interest rate, also known as APR or APY,

varies a lot between coins

and can be anywhere from 0.05% to 100% per year.

A higher interest rate usually means there are additional risks,

so you’ll want to do some research

before deciding which coin you’ll want to stake.

Another important aspect of staking is that each coin has different rules for it.

For example, if you stake Ethereum

you’ll need to lock up your funds for a very long period of time,

and at the time of this video,

it currently doesn’t even have a clear end date.

Other coins may allow for a much shorter,

and well-defined, staking period.

While staking can be done directly from your computer

without the need for any dedicated equipment,

this process is fairly technical,

has a lot of limitations and isn’t advised for beginners.

The easiest way to stake for a beginner would be through an exchange or a wallet.

Most popular exchanges like Kraken, Bitstamp and Binance

allow you to stake a variety of coins.

Aside from the ease of use of staking on an exchange,

the minimum amount to stake will usually be fairly low

and in some cases there won’t even be a minimum lock up period.

On the downside, when you’re staking on an exchange

you’re giving up control of your funds to the exchange.

This means that your funds are at risk if the exchange gets hacked

or goes out of business.

Additionally, most exchanges take a fee for providing their staking services.

A good alternative for people who don’t want to give control over their funds

would be to stake through a wallet.

There are a number of staking wallets;

Exodus, Ledger and Atomic just to name a few.

Make sure you take a look at what fees each wallet charges:

you may find some that don’t charge any staking fees at all.

Keep in mind that in most cases

wallets will offer a smaller variety of coins

that they make available for staking.

You can find a list of reputable exchanges and wallets

that supply staking services in the description below.

The next option for generating interest on your crypto holdings

is through a savings account.

A savings account is an account provided by a centralized company

which agrees to pay you interest for holding your crypto on their platform.

The company can then use your deposit to pay lenders

who will return it in time with interest.

The downside here of course is that you’ll have to give up control over your funds.

On the upside,

there is no lockup period for a savings account

and it’s a good alternative for coins that don’t support staking,

such as Bitcoin.

Some of the more popular companies that allow for a savings account

are Blockfi, Celsius Network and Nexo.

Many exchanges such as Coinbase, Gemini and CEX

allow you to have a savings account as well.

Again, you’ll need to do your research

regarding how much interest you can get for each coin

and what fees you’ll be charged.

And remember that high interest rates usually signal some form of increased risk,

whether it’s a new untested coin or a less reputable company.

So don’t just blindly choose the highest return possible.

We’ve put a list of reputable companies that supply a crypto savings account

in the description below.

Finally we come to our most complicated option which is DeFi.

DeFi stands for Decentralized Finance,

and it's a term given to financial services

that aren’t controlled by a central authority,

but by a network of independent computers using predefined rules.

Now if that sounds a little confusing, I get it.

Check out our “What is DeFi?” video

for a simple, but more detailed explanation on the subject.

Many decentralized services allow you to lock up your holdings

and earn interest in return.

The locked up funds can be used for different purposes

such as lending, staking,

supplying liquidity to decentralized exchanges and farming.

I know some of these terms don’t make a lot of sense at the moment,

but since it would be impossible to cover the whole theory behind all of this here,

just know that in return for the interest you’re receiving,

your funds will be used for other purposes while they are locked up.

Let’s go over some of the more reputable DeFi services

that are worth checking out.

Aave and Compound are two leading DeFi networks

that allow for decentralized borrowing and lending.

You can earn interest on your crypto holdings

by depositing any of the supported coins to their platform.

Uniswap is a leading decentralized exchange

that we’ve covered in depth in our “What is Uniswap?” video.

By providing liquidity to uniswap you can earn interest on your holdings.

Yearn Finance is a yield optimizer for maximizing DeFi returns

by automatically switching your holdings between DeFi networks,

so you don’t have to manually look for where you can get the most returns

at any given moment.

It works by depositing stablecoins,

cryptocurrencies that have a constant value, into the Yearn network

and receiving Yearn tokens in return.

For example if you deposit the stablecoin DAI to the yearn network

you receive yDAI in return.

These tokens then start accumulating interest

as your deposited funds are constantly moved around to maximize returns.

Whenever you wish to cash out

you can just trade your yDAI back to your original DAI stablecoin.

Aside from simply depositing coins to a limited range of lending protocols,

Yearn also supplies an advanced service called “Vaults”

which manages the funds with more complex and somewhat riskier strategies.

Vaults are an actively managed deposit.

Money placed in vaults can be used for trading, borrowing

or supplying liquidity.

Vaults also support a wider variety of coins than the standard yearn service.

While the DeFi space holds a lot of opportunities to earn interest

it’s not without downsides.

To start with, earning interest with DeFi

usually works through the use of specific coins

that support the network you’re looking to use.

This means that in some cases

you’ll need to convert your holdings into a different type of coin.

Additionally, decentralized services are usually much less intuitive

for the average user

and can require that you understand some additional technical jargon.

Therefore we advise to use them only after doing extensive research

and understanding how the service works completely.

If you’re not sure exactly what you’re doing

you may want to use a centralized service that will allow you the same functionality

and yield through an easier interface.

And finally, DeFi is an emerging technology,

and just like with any new technology

there is always the risk that there are bugs or flaws in the programming.

Millions of dollars have already been lost in DeFi

because the technology is in such a very early stage.

If you want to get a complete list of the different DeFi services

which can earn you interest

just head over to DefiPulse.com,

the largest site today that lists them all.

There you can also find short explanations

about each network, interesting statistics

and see how much money is currently locked in all DeFi protocols.

By now you might be totally confused

by the endless options available for generating interest on your crypto,

and you’re probably asking - how do I choose where to put my money?

At 99Bitcoins,

our first guideline is always - better safe than sorry.

This means that because crypto is such a new and exciting

but also risky space,

we always try to minimize this risk as much as possible.

This means that we won’t lock up an amount we can’t afford to lose

or that we need to have available at hand.

A good rule of thumb for us

is to use 10% of our crypto holdings for generating interest.

Of course this can change

depending on your risk tolerance and overall strategy,

but if you’re just starting out,

this is a good starting point while you get familiar with the options we covered.

Additionally, for us it’s always about

what currency we’re looking to keep on holding

and not how much interest we can make.

Meaning, if we're holding BTC,

we won’t convert it to another currency in order to generate higher interest.

Instead, we’ll look for a service

that allows us to generate interest on our BTC.

Here’s a list of some additional things to check before making your choice.

First, take a look at the company or network supplying the service.

Perhaps there’s a specific coin that you really like

and want to support its network,

therefore staking that coin makes the most sense to you.

Additionally check to see if the company you’re planning to use

is centralized or decentralized.

Centralized companies pose the risks of fraud,

mismanagement and theft

while decentralized companies pose technical risks

and usually have more complex interfaces which aren’t very beginner intuitive.

It’s up to you what type of company you prefer

but personally we believe that simplicity trumps everything else in this case.

Other things to look at are lock up periods, service fees,

frequency of interest payouts, minimum lock up amounts

and of course the annual percentage rate, sometimes referred to as APR or APY.

Finally, we prefer to lock up funds only in established networks and exchanges

that have been running for some time without any major issues.

Of course this usually means a lower interest rate,

but as I said earlier - better safe than sorry.

One thing you’ll want to avoid at all costs

are crypto HYIPs and doublers.

These are sites that promise unusually high yields

or claim to double your coins

and pretend to be legit decentralized companies,

while in fact they are just ponzi schemes in disguise.

If you’re not sure whether or not a company is legit,

make sure to see if it appears in the list of our recommended services

in the description below,

or ask around in the different community forums and on reddit.

That’s it for today’s video about how to earn interest

on your crypto holdings.

Hopefully by now you know what options are available,

their specific pros and cons

and how to choose the best one for your needs.

You may still have some questions.

If so, just leave them in the comment section below.

Finally, if you’re watching this video on YouTube,

and enjoy what you’ve seen,

don’t forget to hit the like button,

subscribe to the channel and click that bell

so that you’ll be notified as soon as we post new episodes.

It really helps us out a lot.

Thanks for joining me here at the Whiteboard.

For 99bitcoins.com, I’m Nate Martin,

and I’ll see you…in a bit.