New to the game? Start by staking.

By Username12 | UN12 money | 23 Mar 2021


***DISCLAIMER***

I am not a financial advisor, nor am I giving you financial advise.

 

So if you're reading this you're likely new to the world of cryptocurrency, or you know someone who's thinking about taking the plunge but is hesitant.  I'm not gonna lie, it's an intimidating space to jump into, especially since many people's budgets have only gotten tighter thanks to COVID and the effects it has had on our lives.  You'll start reading about the world of cryptocurrencies only to fall down the rabbit hole of acronym soup and cryptocurrency specific jargon so fast you can find yourself lost in the sauce and not even know what color it is let alone if it's tomato based or cream based.  Add in the complexity of the potential tax ramifications and many people shut off their brains and run away. See exhibit A, or click on the .gif below for an accurate depiction.

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Newcomers who get overwhelmed be like....

 

So here's the "bottom line up front" (BLUF) -  If you're new to crypto you really should consider starting out by seeking an established centralized exchange (CEX) platform with which you can "stake" your cryptocurrency so you can start generating "rewards" and start growing your wealth.  If you think of this like a high yield savings account  it makes it easier to wrap your mind around it if you're new to all of this.  To put this into basic investing terms and demystify the jargon a bit...

  • Staking = Holding your cryptocurrency/money on an investment platform
  • Rewards = Interest paid out for holding cryptocurrency on a platform

 

There's a really simple reason why I'm encouraging my friends and family to do this, and it's not because there's a potential monetary reward for me in the form of referrals.  It's because many have spare funds, not including their emergency funds, which are currently sitting and not growing at any appreciable rate.  We all want to grow our wealth so we can live a more "comfortable" life.  There's no quick or easy way to "get rich."  It takes time, money, effort, a dash of luck and a whole lot of discipline.  As my partner likes to say, and this applies to more than just money, "The only way you get there is by putting in the effort and being smart about how you spend your time."   I too was scared to jump into the world of cryptocurrency, it's a lot to take in, but you too can make the jump and at least git a fork in the proverbial fire.   

 

I have a savings account and checking account with a state credit union.  Those accounts earn 0.15% APY and 0.20% APY respectively.  It's not much, but considering this is money I need ready access to it's better than nothing.  I use my checking account for paying bills, nothing else.  My savings account serves as my immediate need in case Murphy decides to strike, click the link if you're unfamiliar with the concept it's something that was drilled into me by the military.   Regardless 0.10-0.20% APY is frankly a "pants on the head level of stupid" way to grow some passive income.  I used to chase after certificates of deposit (CD) for the best rates, but those haven't been worth doing for the last 10 years outside of one-off promotional deals.  Likewise I used to chase after those "introductory offers" for opening a bank account and setting up direct deposit for $100-200, but now that I'm married and have kids that's gone out the window along with almost all of my free time.   My spouse likewise has little desire to be dealing with a new account every 2 or 3 months, so I shelved that idea.  If you've got the free time to do so, it can be a decent way to pick up $200-1000 a year for relatively little effort. 

 

Stop blabbing!  So what's a better way?

What I've found to be the "best" way to grow some interest/wealth passively has been in staking cryptocurrencies, specifically stable coins.  The reason for this is it's relatively safe, as they are always $1.  For folks who are new to cryptocurrency this is a much easier thing to wrap your head around than all the blockchain technologies and benefits to various other coins.  The fact that they hold at, or just above/below $1 makes them far less scary to new users.

 

There are many platforms that you can do this on.  The platform I chose to go with for this is BlockFi.  The main reason I went with BlockFi is because of their overall good interest rates, their reasonable fees, no lockup time, and they will provide you with your 1099 at the end of the year.  As I like to say, "There's no such thing as a free lunch."  I am giving up a few percentage points worth of interest for the convenience of their platform.  For me the biggest selling point was the tax documentation.  Like I said earlier, with a spouse and kids I perpetually have a never ending "to-do" list and never enough time to get things done.  The little free time that I do have I don't want to be spending it tracking every transaction to record it's value so I can properly file my taxes at the end of the year.  And yes, you do want to file your taxes properly, especially when it comes to cryptocurrencies.  All transactions on a blockchain can be easily tracked, and if you try to hide from the IRS they're going to love you all deep and tender like during an audit.  If you know anyone who's been audited, they'll tell you how much of a headache it is.

 

Their interest rates can be seen in the image below.  So yeah, getting 8.6% interest passively on a USD backed stablecoin is 100% worth my time.  The fact that it compounds daily, and pays out monthly, is added icing on the cake.  This blows any CD out of the water in both interest rate as well as the fact that you can pull that money at any time.  If you decide you want to roll the dice on one of the other cryptocurrencies you have the option of Bitcoin (BTC), Etherium (ETH), Litecoin (LTC), Chainlink (LINK) and PAX Gold (PAXG).  All of which ALSO will earn you some interest.  If you do some more research and want to go with USDC, PAX or BUSD have at it.  When you convert USD to cryptocurrency on BlockFi your only choice is to put it in as GUSD initially.  You can trade it to one of the other options instantly and without any fees.


***UPDATE***  Rates for ETH are now tiered starting 01APR2021 - Read more about it HERE


BlockFi Rates

https://blockfi.com/rates

You'll note that I put a red line through USDT, another stable coin.  The reason I did that is because I do not see it as an option under my dashboard, I cannot deposit it nor can I trade to get it.  I've contacted BlockFi customer support to find out what gives, and I'll update when they do.  As with everything in life, the fine print matters. 

  • Interest is compounded and paid out monthly, just like your savings/checking account.
  • These rates are not guaranteed, and they can change.  Thankfully BlockFi does notify it's users of any changes, for example they updated their fee schedule recently and I received an email notifying me of it.  
  • If you live in the state of New York, you're already getting screwed over in more ways than one but you can add this to the list.  You're unfortunately not eligible for an interest account with BlockFi effectively rendering this platform useless for you.  Sorry, write your local politicians to change the laws and/or move to a different state. 

 

Now, lets take a look at their fees...

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https://blockfi.com/fees

 

Key point I want to direct your attention to is in the fine print.  The *** bullet specifically.  You get 1 (one) free crypto and stablecoin withdrawal per month.  You only pay these fees on your 2nd, 3rd, 4th, etc trades.  If you're not going to be trading regularly, then you really don't need to worry about this.  if you decide you want to leave BlockFi you withdraw your funds to another wallet (which may be another platform or a cold/hardware wallet) or in the case of stablecoins to your bank account.  Important to note the following...

  • Non-stablecoin withdrawals may take up to 7 days
  • Stablecoin withdrawals may take up to 30 days

I'll admit, that's not the best terms ever, but so long as this isn't your, "I need my money right frickin now!" account then they're acceptable.  

 

Anything else I should know?

  • All interest earned is by default paid in the asset you hold/stake.  So if you stake BTC on BlockFi your interest is paid in BTC.  You can elect to have your interest pay out to a different cryptocurrency if you so desire, but you have to manually go in select that option.
  • You can fund your account by bank ACH (NOW INSTANT!!!) up to $5K per day for US customers
  • You can fund your account by wire transfer (takes 1-2 days for US customers, 3-5 for foreign customers)
  • ALL deposits of USD are made into your account in Gemini USD (GUSD), you have no other option for direct conversion of USD to crypto initially.
  • Your trades are instantaneous on the platform and there are NO fees/gas costs/network fees with those trades. 
  • Transferring in BTC and ETH took about 30min for them to hit my account.  
  • You can setup reoccurring transactions from a stablecoin to whatever cryptocurrency you desire

 

Why shouldn't I use another platform?

Ok here's the brutal honest answer, only you can decide if this is the right platform for you.  But I'll take a stab at reasons why you'd want to go with another platform. 

  • You live outside of the US.  Just being honest, there's very little reason you should consider BlockFi.  Nexo would be a better option as it's more tailored to non-US citizens (US Citizens are ineligible for NEXO coins, so you will never get above the base ROI on that platform and there's not tax help).
  • You need access to your funds in a much shorter timetable than potentially 7-30 days.  Essentially don't use this as your sole emergency fund, but rather as a tier 2 or tier 3 emergency fund.  I'll go into my tiered approach to emergency funds in a future article on this blog.
  • ***NOW IRRELEVANT*** - ACH transfers are instantaneous.  You have a strong sense of the "fear of missing out" (FOMO) and want to be able to use a debit card to buy "right frickin now" (RFN).  The soonest you'll get money into this account is 30min for a cryptocurrency deposit, 1-2 days for a wire transfer, or 5 days for a Bank ACH (US only).  You either need to plan ahead and keep a balance of stablecoin in the account to FOMO with, or use a different platform for your FOMO desires
  • If you're only after the greatest ROI in the form of passive income BlockFi isn't it, there are competitors who do much better.  For example I contacted Celsius Network for more info as I was seriously thinking about using them, but their email address is undeliverable.  Not exactly a good look for a company I'd be putting my hard earned money on. 
  • You want interest to be compounded and paid out daily rather than monthly.  Just not how BlockFi plays the game.  It's one of the reasons Celsius was more appealing, but like I mentioned their lack of communication and clarity of their support page was a deal breaker for me. ***I'm re-investigating Celsius and giving them another hard look currently - updated 02APR2021**
  • If you want to stake coins other than the ones listed above BlockFi isn't the right platform for you.  The recently added Litecoin (LTC) and Chainlink (LINK).  So there's a chance you'll see new ones added as time goes on...but frankly take what you see at face value and I'd not buy on the "chance" they'll expand to your newest favorite crypto.
  • It's a Centralized Exchange (CEX) so you will have to go through an identity verification process.  This is how they can generate your tax documentation.  If you desire more anonymity then this is 100% not the platform for you.
  • You don't have advanced trading options such as setting buy/sell limits for automated transactions.  Basically I'd look at this account as a "set it and forget it" type account.
  • You want to capitalize on the small swings in value of stablecoins.  Sometimes stablecoins drift in value a few cents above or below $1.  On BlockFi the value stays $1 no matter what the market is doing.  

 

So I hope this unmuddies the waters a little bit.  And if you decide you want to use BlockFi for yourself or others I'd appreciate it if you sign up with my referral link.  Once you fund your account with $100 USD you'll get a $10 bonus the following month and I will as well.  I'm not part of their affiliate program, so I don't think you or I qualify for their other current promotion.  It's not much but hey a free $10 with the potential for an 8.6% annual ROI on the account balance isn't exactly something I'd scoff at.  Full disclosure, I am currently holding BTC, ETH, and GUSD on BlockFi.  If there's enough interest I'll do a future article on how much my interest has net me by using them.   

 

I'll be releasing other articles in the near future on my journey into crypto and some of the lessons I've learned along the way as well as a glossary of terms/acronyms you can quick reference in plain English.  Specifically a series on how to manage your money smarter and not harder focusing on the skills we all should have been taught in grade school.  So follow me if that's something that interest you.  Any and all constructive criticism is welcome and I'm never afraid to admit that I was wrong or incorrect about something.  

**Update**  launched the first article of my "Learn to Manage Your Money" series.  Check it out here

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Username12
Username12

Documenting my journey into the cryptocurrency world in hopes of making it more accessible to newcomers. I'll also be writing articles sharing some of my hobbies and experiences along with way.


UN12 money
UN12 money

A blog where I talk about how I have grown my wealth, and the tips/tricks I have provided to friends and coworkers to grow their own. I go over the stuff you SHOULD have learned in grade school about managing your own money, setting a budget, living within your means, and being smart with your money. **Note: Nothing in this blog is given as financial or legal advice.

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