Passive Income from Staking Crypto

October 10, 2021

There are several ways to make a passive income using blockchain technology. In this “groundwork” article, we will tell you the basics about staking and lending. You will also find out why investing in eGold is a great idea.

First, let’s have a clear understanding of some terms. What is blockchain?

Blockchain — is a shared immutable, digital ledger of transactions and tracking assets that are duplicated and distributed in the entire network of computers that are part of a blockchain.

Blockchain technology is valuable because it has many applications in many industries. Here are some that we find interesting:

  • Keeping medical records, legal records, school records, etc.
  • Signing legal documents, property deeds, etc.
  • Preventing elections fraud and any kind of voting
  • Helping the 1 billion people who from various reasons can’t have a bank account, but have internet, have a wallet with their earnings, and access them

Basically, any transaction that needs to be private, but transparent, that might also need to be auditable, can be made via blockchain technology without a third party interaction, with no fees and zero room for fraud.

Transactions tracking and recording are not the bottleneck anymore

A digital ledger like the blockchain is very useful in many industries, but can it be scaled for the whole world to use this technology?

Bitcoin is the historical cryptocurrency connected to blockchain and due to its fame and market interest, it became “the” main use of blockchain in the eyes of many. We said “historical” because it was the first one, but also because it is considered to be outdated since it uses “proof of work”. This means that all transactions and assets’ tracking in the Bitcoin blockchain is done using powerful computers for problem-solving — “mining”. Once the problem is solved and a “miner” has the “proof of work” for it, he earns bitcoins. “Proof of work” is not scalable and the computers involved require immense amounts of energy. This makes it unsustainable in the long run. The mechanism was ingenious 10 years ago, but now it doesn’t justify the CO2 footprint it generates, considering the increasing number of transactions.

Thinking of the future, developers have created a more scalable and environmentally friendly method, called “proof of stake”, which calculates the reward based on the coins held by a miner.

Proof of stake is a collaborative approach that splits the reward between validators, while proof of work is a “winner takes it all” approach that bears less when it comes to network development and growth in general. Proof of stake makes transactions faster and less computing power is needed, therefore less electricity, too. Thus, proof of stake is the future.

How can you make money out of this without mining for coins?

Mining

In the American gold rush, the gold diggers started with a simple shovel and a kitchen strain. Once the gold became scarce, they had to use more advanced tools. It is said that the ones who truly got rich those days were the shovel and jeans makers. The comparison might lack creativity, but digging for Bitcoin went through a similar timeline: at the beginning, you could use an average computer, but then once the coin scarcity increased and the problems became more difficult to solve, while the transactions number increased, the miners needed more powerful computers, specially designed for this purpose. You missed this train! Is too expensive to join the Bitcoin miners-band now and the community is exclusivist.

Lending

As with classic coins, crypto can be bought and lent and the borrowers pay interest to you. For example, the BlockFi platform acts as a marketplace (middleman) and the interest rate for Bitcoin is 8%. By lending, you avoid the volatility of the crypto market and you can make a passive income.

Some cryptocurrencies also pay rewards (the blockchain version of the classic dividends), such as Tezos, VeChain, NEO, and Cosmos — via the Coinbase platform. The payout of rewards is small but steady.

Staking

If you own cryptocurrencies that operate on proof of stake, you can stake your coins. This is another form of lending, but you don’t need borrowers or a third party. You stake your coins to the network to secure the network and validate transactions. You receive rewards in additional coins from the network, like earning interest. The more you stake, the more coins you receive.

Staking is the REAL passive income between mining, lending, or trading. Once you stake the coins, you don’t need to invest any time, energy, or brainpower in managing the coins.

Are there profits?

Staking is as profitable as mining or trading, minus the risk. Of course, it’s important to choose the coin you stake wisely. It should be one that has low inflation and volatility and has a sustainable blockchain infrastructure, long-term projects, etc. Many PoS (proof of stake) cryptos are available for staking currently — e.g.: Titan, DASH, Tezos, EOS.io, etc. We recommend Elrond / eGold and you can read on to find out why.

What to check in a coin before staking

Here are 4 important things to consider when choosing the coins you invest in and then stake:

  1. Fixed supply — make sure there is a maximum supply of the coin and thus, the market is limited. This ensures a healthy demand and price increase in the long run.
  1. Real-usage — the crypto you choose should have a practical use, such as being used by companies in one of the industries we gave as examples at the beginning of the article, or other similar ones. There are many coins that weren’t created with a practical goal in mind.
  1. People behind — make sure the team has skin in the game and the company is trustworthy, that wants to build on the long-term.
  1. Ecosystem build around the coin — for example, Elrond has invested in building the Maiar App, the Maiar Exchange, and more features will follow (e.g. lending and borrowing, Maiar Launchpad, NFTs, etc.). Other coins are focused on specific elements, not on building an ecosystem.

Why you should choose to stake EGLD

Here is our take on this, at Disruptive Digital — official staking provider with a successful track record in staking eGold from Elrond:

“The profitability for staking EGLD varies between 12% and 17% depending on how many people are staking. This is short-term. In the long term, the economic model is deflationary, meaning that fewer coins will enter the network each year.

There is a “catch” though. If the fee that is generated by the projects that are run on the network overpasses inflation — meaning the number of coins that are generated by the network is covered from fees — then the network becomes self-sustainable and the capitalization will stay on a lower level than the one proposed.

For example, right now there are about 19.5 million EGLD (July 27, 2021). Every year, a certain percent of EGLD is entered into the network. Let’s say in 2 years there will be enough projects that will generate enough fees and inflation will be 0.

Then the existing EGLD can remain at, let’s say 25 million, and it will not increase as long as the fees cover that inflation. Getting back to profitability — called APR (annual percentage rate) — if the EGLD generated from the fees will be in a bigger volume than the inflation, then the APR can increase without a limit. It’s like this because all the income from the fees generated in the network will go to the validators minus 10% which is Elrond Foundation’s commission for development.” — Daniel Sîrbu, Founder and CEO, Disruptive Digital

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