I'm always talking to and onboarding new crypto investors and one question I get asked by every single one of them is:
"what do I do with the coin after I buy it"?
In this post, I am going to answer that question by providing you with the top 5 things you can do with your cryptocurrency after you bought it.
- HODL (hold) and wait for the price to increase
- Stake them to earn rewards
- Farm with them to earn yields
- Lend them to earn interests
- Spend them on the goods and services you consume
Let's discuss how to go about each of the above options in the remaining part of the post.
1. HODL (hold) and wait for the price to increase
Most times, the best thing you can do with your cryptocurrency is to do nothing with it.
All you have to do is store it in a wallet that you control the private keys and let the market do its things.
This is similar to how you would buy a piece of land and leave it idle waiting for the area to develop so that it would be worth more in the future.
Cryptocurrencies, therefore, are like a digital piece of land. As the project and technology that backs them advances, so will the value of the coin or token.
In the long run, the price of most cryptocurrencies with real-life use cases will go up. And that's why just HODLing is considered the simplest way to make money in crypto without taking on further risks.
2. Stake them to earn rewards
If you're like me, you hate "idle money".
I like to put my money to work for me just as I work hard to make the money. Because that's the only way you can become wealthy.
And one of the best ways to put that cryptocurrency of yours to work for you is to stake it.
Staking, just like mining, is the process of validating transactions on a proof of stake (PoS) blockchain by locking up the required minimum amount of the specific cryptocurrency.
Simply put, staking=mining.
However, whereas mining is for proof of work (PoW) blockchains like Bitcoin, staking is for PoS chains like Ethereum 2.0.
When you stake, you earn what's called a staking reward which is paid in the same cryptocurrency that you staked.
- Here’s Why Staking On Centralized Exchanges is a Bad Idea
- Top 5 Best Staking Wallets – No. 1 is a must-have
You can stake your cryptocurrency directly on the blockchain by yourself and take the responsibility of becoming a validator or put your funds in a staking pool and share in the rewards of the pool.
Due to the requirements and responsibilities of becoming a validator, most retail investors stake their coins or tokens in a staking pool.
3. Farm with them to earn yields
Another way to put your money to work for you is by farming with it.
Yield farming is the process of putting your funds in a liquidity pool on an AMM (automated market maker) for the benefits of earning a share of the trading fees.
AMMs are a form of decentralized exchanges where people can buy and sell different cryptocurrencies.
When you deposit your coins or tokens into a liquidity pool, you now own a share of that pool.
As people trade the tokens in that pool, they're charged a liquidity provider fee. These fees are then distributed to everyone who deposited their coins into the pool.
If you own 10% of the funds in the pool, you will earn 10% of all the fees generated.
The more funds you have in the pool and the longer you leave it there, the more yields you will harvest.
4. Lend them to earn interests
Another interesting aspect of DeFi that helps you put your money to work is crypto lending.
It's exactly as the name suggests. You make your coin or token available to other market participants to use and they pay you interest.
This is similar to how you lend out or borrow money in traditional finance.
However, unlike in traditional finance, borrowers must deposit at least up to 150% of the amount they want to borrow as collateral.
So that if they default in paying up their loan, the coin they deposited will be liquidated to pay off the lender.
The interest from lending out your cryptocurrency is a hundred times greater than what you would get from a bank or any other financial institution in the traditional financial system.
5. Spend them on the goods and services you consume
There's a reason it's called "cryptocurrency". It's because it's a type of "currency". It's digital, cryptographically secured currency.
You can make payment for your daily cup of coffee, groceries, a Tesla car, and practically anything you want to buy with a cryptocurrency.
Some cryptocurrencies are more suitable as a means of payment for goods and services than others due to such factors as speed of settlement, cost of a transaction, and the stability of the price.
The next time someone tells you that cryptocurrencies are useless, tell them to shut up and send a link to this article.
What do you do with your cryptocurrency? Share with us in the comments section below.