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Most of the Gen X friends I’ve onboarded into crypto just want to get in the game. They feel like they’re getting left behind somehow, and that their kids will be driving Lambos and partying in Ibiza because they picked the right cat-themed coin, while they drive to work and count the days until they can start drawing from their 401k. So they want to throw something into crypto just in case Bitcoin goes to $1M in a few years and they can tell their boss where he can stick his TPS reports. I hope someone still gets that reference.
They almost always start with Bitcoin, because, well, it’s Bitcoin. Everything else seems like a slot machine when people first get into the space, and despite the highs and lows, Bitcoin still seems like the “safest” crypto to start with. But sometimes holding Bitcoin and watching other cryptos take off is a lot like sitting on your sailboat plugging along while watching speedboats get to their destinations hours or days before you. I have had people tell me they simply don’t have time to do research on other crypto projects, so they can’t justify buying into them. I get it. I’m lucky that I don’t work 9-5 so I can spend time researching this stuff. Not everyone can.
So they take the “safe” route and buy 1 Bitcoin. Great. They’ll leave it on an exchange or put it on a TREZOR wallet and put it in a safe and come back in 5 years. How many Bitcoin do they have? 1. Either it’s worth more than what they paid for it or it’s not. Much like the ounce of gold they have sitting right next to that Trezor in the safe.
Not all cryptos are built this way. In fact, there are a lot of cryptos that reward coin or token holders with more coins or tokens simply for “staking,” which basically means that you lock your coins so they can’t be sold or transferred. On Proof of Stake blockchains, the act of staking helps to secure the network, making it more secure. Transactions usually have fees associated with them, and those fees get distributed to stakers.
Think of it like depositing your money in a savings account at your bank. You will earn interest (albeit a pitiful amount right now) that is paid in USD. Staking crypto usually gives you more crypto. And each crypto has its own rules. Sometimes you have to lock up your coins for a specific period of time, sometimes you can unstake whenever you want. But many coins do offer sizeable rewards for staking. As an example, as of December 22, 2021, when I wrote this, this was what EXODUS wallet was paying stakers on these coins:
Those returns are pretty healthy compared to what you can get in a savings account at Chase or Bank of America, but they’re not available for every coin or token. For example, you can’t stake Bitcoin and get more of it.
Do you watch the NBA? Have you seen the StormX logo on the Portland Trailblazers uniforms? StormX is a crypto that pays you crypto back on purchases at stores like Sam’s Club and Nike, and for services like Uber and Door Dash. More at stormx.io if you’re interested. But another thing StormX offers is staking through their website, where you can earn more StormX by staking yours, so you’re just adding to the rewards you can already get from owning it and shopping through their app.
So back to the 5-year Bitcoin scenario above. Your 1 Bitcoin turned into exactly 1 Bitcoin in 5 years. But what if you had held Cosmos in the same example, and staked it in your Exodus wallet? Assuming you would have spent $50k on that Bitcoin, take a look at what your $50k would look like if you bought Cosmos instead and staked it for 5 years: https://www.calculator.net/interest-rate-calculator.html
But what if Bitcoin hits $100k before then? Wouldn’t I have been better off just holding Bitcoin? Maybe, but what if Cosmos’s price doubles. That not only doubled your principal amount (now worth $100k), but the tens of thousands of coins you earned from staking benefitted from that doubling. That’s a lot more money than a simple 12.57% rate of return. But there's also the risk that Cosmos's price drops and all of your staking rewards are wiped out. That's another risk to consider. I monitor all of my stakes regularly, and probably wouldn't stake as much if I couldn't.
The crypto paying the highest rates of return I’m aware of is Hex.com, where you can stake your tokens from 1 to 5555 days. The longer you stake, the higher your percentage return is. I personally own Hex and have various stake lengths. The APY I’m getting is shown on the Hex website daily, and here’s what I’m currently getting on three of mine – 10 years, 270 days, and 1 year. That’s not bad. And considering I bought Hex at under $0.01 and it's hovering around $0.30 at the time of this writing, I'm pretty happy with this investment. Who knows what it will be in 2031 when my 10-year stake ends, but I’m pretty confident it will be quite a bit more than what I put in.
What are the risks?
Losing it all is one of them. Beware of some staking apps or projects that require you to surrender control over your coins in order to stake them. If you give up your coins, you incur counterparty risk that could involve you losing everything you put in.
Your staked coins could also lose value if the underlying blockchain is hacked or otherwise has problems that cause its price to bottom out. And if you’ve locked your coins and can’t get them out, you may be helplessly watching that plane fly straight into the ground and there’s nothing you can do about it.
Summary:
Whatever you decide to buy, the possibility of staking and earning extra rewards should be a consideration if you like waking up with more money than you had when you went to sleep. The returns from staking coins could be significant. Just be careful that you understand and are comfortable with the risks involved. Never invest more than you can afford to lose.
And remember, I am not a financial advisor and nothing I say is financial advice.
