So you did it. You gave in to the FOMO and bought your first crypto. Maybe you went with bitcoin, or maybe you did some research and decided on ether, or maybe you even read our article from last week and found your own project to like. Whatever it was, congratulations, but you might be thinking now what? What’s all the hype about? What can you even do with these other than just hoping the price goes up? Well if you bought bitcoin, that’s about it for now. Sure you can use it to pay for things in some places and you’ll be able to use it a lot more when Paypal integrates it for their client base next year, but all in all, most people just hold bitcoin. The popular narrative around bitcoin’s main use case is as a store of value, and thus people will continue to hold it as a form of digital gold.
The most attractive feature of cryptocurrencies at this stage other than their own appreciating value is the ability to earn much higher returns on your capital than can be found in traditional financial markets. With banks offering interest rates on savings account at 0.01%, there’s no incentive at all to keep your money there. At its most basic, you can earn rewards your crypto such as PolkaDot and now with the launch of Ethereum 2.0, Ether, through what’s known as “staking”. Staking is the act of providing your crypto as collateral to help secure the blockchain. People can lock a certain amount of their crypto (or delegated crypto) for the privilege of running a node. They’re incentivized by rewards to authenticate transactions and can be penalized for manipulation or even node down-time. You can do participate in staking directly if you have the technical know-how, through delegation to specific nodes, or the easiest method, staking on an exchange such as Kraken or Coinbase. This can offer attractive returns such as 12% for DOT and anywhere from 5%-17% for ETH on Kraken.
Another option is using centralized services such as Celsius or Nexo which offer interest rates of over 5% for Bitcoin and other cryptos, and as much as 11% on some stablecoins. While the user is taking on some risk by trusting these services since you do not hold your own keys, the reputation of these two services is rather high and they connect with their communities regularly.
Ethereum also allows you access to a whole host of unique decentralized applications, or dApps, that vary in uses from everything from finance apps for those seeking even higher returns, to video games, to collectibles. The most popular gateway to these dApps is the Metamask chrome extension and mobile app. Metamask not only acts as a wallet for Ether and ERC-20 tokens such as LINK, AAVE, or UNI, but also easily plugs the user into dApps they want to use by checking for EVM compatibility when browsing websites, and connecting the user’s wallet when possible. The Metamask wallet can be downloaded from popular app stores on mobile, or as a browser extension on Google Chrome.
Browsing the internet via Metamask allows the user to access dApps such as Yearn.Finance or Compound.Finance, giving them the ability to invest their funds into vaults or collective pools that then execute according to their smart contract code. Yearn uses an algorithm to find the best yield farming returns for the funds in their vaults while Compound allows people to pool their funds as a decentralized lending and borrowing service. While similar, these two dApps are very different from each other, and are only two examples of an ever expanding DeFi ecosystem.
The decision to buy cryptocurrency is usually just the first step into understanding the wider decentralized community. So now that you’ve bought some, make that crypto work for you.
Thanks for reading!
-JefeDix
