🧘‍♂️Worst Kept Secret

Market Meditations | May 5, 2021

Today, we turn our attention to another means of building wealth

Dear Meditators

The bull markets are notoriously volatile and it is not everyone’s preference to be subject to such volatility. Both from a financial and emotional perspective. Fortunately, there are means of earning lucrative yields on passive income. Where passive means, once you understand the method and set it up, it will generate you yield with little to no further involvement. 

Today, we turn our attention to another means of building wealth: staking. We will explore: what staking entails from a technological perspective, what it means for an investor and how you can get started with your first staking investment today.

Read, enjoy and share with your network. If you enjoy the work we do and want to support us in the production of more guides and content, consider joining the Market Meditations community. 

At Market Meditations, we firmly believe that cryptoshould be accessible to everyone. That’s why we are delighted to be partnered with Exodus, one of the top cryptocurrency wallet providers. 

The Exodus wallet is free and can be downloaded on your computer or phone. Allowing you to easily store, trade and earn interest on your crypto from one place. Another great feature is the capability to track your entire portfolio: breaking down how much of each asset you own, it’s price and it’s percentage of your total portfolio.

Staking can be considered a less resource-intensive alternative to mining. It involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. To understand staking, we must understand Proof of Stake (PoS) and Proof of Work (PoW). Let’s address them one at a time.

Proof of Work

  • PoW is the mechanism that allows transactions to be gathered into blocks. These blocks are linked together to create the blockchain. More specifically, miners compete to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain.

  • ✅ Advantages? PoW has proven to be a very robust mechanism to facilitate consensus in a decentralised manner. 

  • ❌ Disadvantages? It involves a lot of arbitrary competition. The puzzle the miners are competing to solve serves no purpose other than keeping the network secure. 

Proof of Stake

  • The main idea is that participants can lock coins (their ‘stake’) and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block. The probability of being chosen tends to be proportional to the amount of coins: the more coins locked up, the higher the chances.

  • ✅ Advantages? Some argue that the production of blocks through staking enables a higher degree of scalability for blockchains (what determines which participants create a block isn’t based on their ability to solve hash challenges as it is with PoW). This is one of the reasons the Ethereum network is planned to migrate from PoW to PoS in a set of technical upgrades collectively referred to as ETH 2.0.

  • ❌ Disadvantages? Locking up funds in a smart contract is prone to bugs, so it’s always important to use high quality wallets or exchanges. 

For more on the Proof of Stake technology, check out this paper: Peer-to-Peer Crypto-Curreny with Proof-of-Stake and this article.

What does Staking Mean For an Investor 

If you are not interested in the technological perspective, it is sufficient to think of staking as the act of locking cryptocurrencies to receive rewards. Or, if you like, the equivalent of opening a savings account on the blockchain. Like a savings account, your balance will accrue additional income. While each Proof of Stake blockchain has its particular staking currency, some networks adopt a two-token system where the rewards are paid in a second token. Each blockchain network may use a different way of calculating staking rewards.

For some other networks, staking rewards are determined as a fixed percentage. A predictable reward schedule rather than a probabilistic chance of receiving a block reward may look favourable to some. And since this is public information, it may incentivise participants to get involved in staking. 

Risks of Staking

  • Market Risk: even if you’re earning 25% APY, if the price of the asset you’re staking decreases significantly, you will have still lost money

  • Liquidity Risk: if the asset you’re staking is illiquid, converting it back to stablecoins or Bitcoin could present a challenge

  • Lockup Periods: occasionally, a requirement for staking is locking up your crypto for a fixed period of time anywhere from 24 hours to a few years. If you’re unable to sell your crypto due to the lockup period, you could lose money.

  • Validator Risks: if you’re running your own validator node, this is a highly technical (and costly) process. Make sure to take this into account.

Get Started with Your First Staking Investment Today

In most cases, you’ll be able to stake your coins directly from your crypto wallet, such as your Exodus wallet. On the other hand, many exchanges (such as FTX) offer staking services to their users. Note you are not directly involved in staking but rather, you are contributing to a staking pool: a staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. Many pool providers charge a fee from the staking rewards that are distributed to participants. 

1️⃣ Staking With Your Crypto Wallet 

Staking inside of Exodus is as simple as finding the crypto you want to stake and start earning rewards. Cryptos you can stake on Exodus: Algorand, Cardano, Cosmos, NEO/GAS, ONT/ONG, Solana, Tezos and VET/VTHO. Exodus provides a video guide on how to start staking both on your mobile or desktop.

Step 1 – If you don’t already have Exodus on your mobile or desktop, begin by deciding where you want to download it. 

Step 2 – Once you have downloaded Exodus, click on settings and navigate to the Apps tab, where you will want to select the ‘Rewards’ option.

Step 3 – You’ll then see the cryptos that have earning potential and their APY rates. Each crypto asset has its own rules which are revealed when you click ‘Get Rewards’.

2️⃣ Staking With Your Crypto Exchange

Using FTX as an example, you can use the exchange to stake FTT (their native token).

Note that if you click on our referral link, you will be eligible to receive a discount.

FTX provide a 4 step guide on getting started: 

Step 1 – Go to https://ftx.com/markets and pick your FTT pair

Step 2 – Go to the FTT page (https://ftx.com/ftt) or click “FTT” on the top bar

Step 3 – Scroll down to “FTT Staking” and click “Stake”

Step 4 – Put in the amount and click “Stake”

And thus concludes our staking guide. Looking for more ways to generate passive income? It has been our intention for some time to provide our readership with means to build wealth. And so, we can direct you to the following free resources:

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Chainlink Real Estate?

SmartZip, an automated marketing and predictive analytics platform for the real estate industry has announced last night their decision to launch their own Chainlink node. This node enables SmartZip to supply data such as property prices, geographic patterns and trends, predictive pricing models, market valuations, and more in a secure, reliable way through cryptography. Let’s take a look at the details.

Chainlink is a decentralized network of notes that can supply data and information from sources that are off-chain to smart contracts on the blockchain by way of oracles. Put simply, this allows you to connect the external world with the blockchain. This allows developers to utilise off-chain data to create and improve smart contract applications across a wide range of industries. In its own words, SmartZip states “Not only does this open up new revenue streams in an emerging market but…this saves us a considerable amount of time and resources, while exposing our data to a new decentralized economy.” Developers, for example, can create applications like prediction markets for the future values of homes.

According to Robert Reardon, General Manager of SmartZip, “Chainlink offers SmartZip a quick, easy, and secure solution for transitioning our current API infrastructure to support blockchain networks.” More specifically, Chainlink sets itself apart in the following ways:

  • Data Signing: all on-chain data is authenticated by the node

  • Blockchain Agnostic: the node enables SmartZip to collect all data through one funnel

  • Secure Infrastructure: audited, open-source software

This is not the first time we’ve seen Chainlink being used by companies in the real-world. As crypto traders and investors, it’s important to separate projects with real fundamental use-cases and projects that are simply pump and dumps. This doesn’t mean projects without use-cases cannot pump (in fact, we’ve seen that these at times pump the hardest). The takeaway here is that you need to create a strategy that works for your risk tolerance and time horizon and this strategy may differ depending on the coin that you’re trading or investing in.

Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission.

Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.