Best Cryptocurrency exchanges for staking Cryptos to earn annual interest

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Earn interest income through cryptocurrency without trading

2020 was a year in which cryptocurrencies were in the spotlight, mostly due to unfortunate events.

The COVID-19 pandemic caused a global economic collapse earlier this year.

The government faced the situation before it was ready, businesses closed and people lost their jobs.

In this despair, people began to turn to digital currency.

As the creator of Bitcoin, Satoshi Nakamoto, said many years ago, digital currencies are starting to get attention.

Many people have started researching how to get cryptocurrency through various methods and earn money with what they earn.

Of course, there are certain and obvious ways to do this, such as trading on an exchange online or buying cryptocurrency through mining or payment.

Also, due to the volatility of cryptocurrencies, you can automatically earn income while investing in cryptocurrencies for the long term.

In 2020 alone, the price of Bitcoin rose significantly.

If you bought 1 Bitcoin in January 2020, when the price was $7,000, you would have made a huge profit as the price of Bitcoin has soared to $19,000 at the time of this writing.

However, many people don’t have the time to trade or can’t afford to wait for long-term investments to pay off. For this reason, people are starting to look for ways to automatically make money just by owning cryptocurrencies, even relying on potential income to survive each month in times of economic uncertainty like now.

As a result, the ever-growing cryptocurrency community is sharing several different ways to earn interest through cryptocurrency .

That’s exactly what we’re going to talk about today.

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How can I make money with cryptocurrency?

DeFi has emerged as a new driving force in cryptocurrencies, providing several ways to earn interest through cryptocurrencies.

In the cryptocurrency industry, DeFi provides digital asset users with decentralized banking services similar to those offered by traditional banks today. The only difference is that the DeFi service is provided in a decentralized rather than centralized way, and users do not have to meet the numerous and stringent standards imposed by traditional banks to participate in this service.

DeFi is available to everyone who doesn’t have a bank account or who is considered to be running low on a bank account, such as people living in developing countries. The service is easily accessible and offers a range of services that enable people not seen in traditional banks to receive the same benefits as everyone else.

Additionally, as part of the cryptocurrency industry, DeFi also offers security, transparency, immutability and other benefits of Distributed Ledger Technology (DLT).

Let’s take a look at the different ways to earn interest within the emerging DeFi sector of the cryptocurrency industry. There are several ways to earn interest without buying cryptocurrencies.

This includes concepts such as staking, yield farming, cryptocurrency lending, and how to offer multiple cryptocurrencies to earn interest.

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About Staking

Staking is somewhat similar to mining, but it is a method of earning interest through long-term holdings of cryptocurrency without requiring excessive energy or electricity rates from investors.

Instead, staking puts users’ funds in a cryptocurrency wallet, which allows users to support the operation and security of specific blockchain networks.

The supported cryptocurrencies are stored by the blockchain and are rewarded in return.

And the cryptocurrencies stored here are locked up by users for a specific period and cannot be withdrawn.

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How to make money by staking?

Users can usually use their own personal wallets or hold stakes through exchanges.

The staking method is simple. The user’s own personal wallet acts as an interest-bearing account in cryptocurrencies, and they can make money without using cryptocurrencies by simply depositing them.

That one sentence above says all about staking.

This is possible due to the Proof of Stake (PoS) consensus mechanism. It is a way for blockchains to use energy-efficient processes to add new cryptocurrencies to circulation while still remaining decentralized. This process feels similar to mining as the PoS chain also produces and verifies blocks, but instead relies on staking.

Simply put, users become potential validators of blocks while investing in cryptocurrencies.

The protocol randomly selects validators at specific intervals and creates new blocks when validators are selected.

Investors who put more cryptocurrencies in their wallets will be selected as validators, and the more cryptocurrencies investors have, the more money they will make.

Just like traditional cryptocurrency mining, you can earn money as a reward for maintaining the blockchain. However, these rewards are calculated differently for each blockchain.

There is still no universal formula that applies to all staking protocols in the cryptocurrency industry.

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Interest farming

The second way to acquire cryptocurrency on DeFi is through interest farming, a method that investors use to earn rewards by providing liquidity.

* Interest farming: It is called “yield farming” and refers to a method of receiving compensation through liquidity supply.

Interest farming is done with ERC-20 tokens and stablecoins.

Again, in this work, the only thing users have to do is to lock up the cryptocurrency and operate a liquidity pool to provide the coins to the underlying mechanism to pay the rewards. A liquidity pool is called a pool of tokens tied to a smart contract, and investors facilitate trading by providing liquidity.

Additionally, liquidity pools are primarily provided by decentralized exchanges (DEXs).

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Interest farming vs staking

This concept is very similar to staking. However, there are some differences. Yield farming, for example, differs from staking in that it moves investors’ cryptocurrencies from one market in which they normally trade to another.

This is because different markets or pools have different returns. Investors always look for pools that offer the highest interest rates to make as much money as possible. Staking, on the other hand, is associated with a specific project, where staking is the desire to support the network of that project and receive rewards in return for long-term storage.

Once an investor finds a pool and deposits tokens, they receive money in a transaction fee proportional to their contribution to the pool. They also receive payments in corresponding reward tokens, created by decentralized exchanges. Of course, the value of this token depends entirely on the market.

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Interest Farming vs Lending Pool

This concept is very similar to staking. However, there are some differences. Yield farming, for example, differs from staking in that it moves investors’ cryptocurrencies from one market in which they normally trade to another.

This is because different markets or pools have different returns. Investors always look for pools that offer the highest interest rates to make as much money as possible. Staking, on the other hand, is associated with a specific project, where staking is the desire to support the network of that project and receive rewards in return for long-term storage.

Once an investor finds a pool and deposits tokens, they receive money in a transaction fee proportional to their contribution to the pool. They also receive payments in corresponding reward tokens, created by decentralized exchanges. Of course, the value of this token depends entirely on the market.

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Interest Farming vs Lending Pool

This actually works pretty much the same in the cryptocurrency industry, except for the fact that there are no banks or other centralized institutions involved. As third parties withdraw from the transaction, users lend and borrow funds directly from each other, and borrowers receive interest on the amount they provide.

For example, let’s say a cryptocurrency user has a certain amount of cryptocurrency and will not use it for a while. Then they can go to a cryptocurrency lending site, open an account, deposit their funds, and lend money to anyone who needs it at interest.

Investors lend at interest, so once the borrower pays off, they make money and see results beyond what they started out with.

Borrowers must repay the loan with additional interest. However, as noted above, some loan services or loan pools will also require collateral for the borrower. Exact terms and conditions for borrowers may vary depending on the different sites and platforms available.

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Cryptocurrency Synthetic Products

Finally, users can earn mixed interest rates on their cryptocurrencies. This is not particularly unique to DeFi.

If so, what is it to invest in a mixture of various cryptocurrencies?

Earning compound interest is one of the most powerful financial moves that businesses and individuals alike can make. Also, it can be done by anyone with both cryptocurrency and fiat currency.

However, like most other methods of earning interest, it will take time and patience.

In general, if users aim to earn compounded cryptocurrency interest, they will have to wait a longer period. This can last from months to years or even decades.

This is the process by which users lock cryptocurrency for a period of time and earn some interest, interest is added to their initial deposit or principal, and now they can earn interest on a larger amount (concept of compound interest). Example for easy understanding Let me explain.

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How is compound interest calculated?

Let’s say a user owns 1 bitcoin and moves to a platform where they can earn up to 6% interest on a monthly basis. This means within one month the user will own 1.005 BTC, earning 0.005 BTC (6%) in the first month.

Then, they will start next month with 1.005 instead of the original 1 BTC.

Essentially, as each month passes, the amount of interest you receive increases.

If users leave their money untouched for 12 months under the conditions we have described, after a year they will own around 1.062 BTC, and the longer they wait, the more they earn.

Calculation of compound interest is easy, and anyone can do it using a cryptocurrency compound interest calculator.

Similar cryptocurrency profit calculators exist for other methods, all calculations are available online for free.

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Conclusion

There are many ways to earn interest with cryptocurrencies these days, and the amount of interest depends on the coin used, the method, the amount deposited, or the amount of time the user is willing to wait.

So, everyone who owns and trades a coin or does not want to trade and hoax can use the coin for staking, yield farming, lending or compound interest, as described above, hoping that their coin price will go up.

Any of these methods will allow you to increase your monthly income without the risk of losing your coins. Other risks such as unexpected price changes, scammers, and security threats still exist, so the best way for cryptocurrency users to protect themselves is to learn how to invest in cryptocurrencies and do extensive research.

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