Cryptocurrencies have been around over the past few years. The adoption of cryptocurrencies multiplied in the global pandemic shutdown, irrespective of other financial sectors. The number of cryptocurrency users as of 2021 are estimated to be over 300 million worldwide. The reason behind the massive popularity of this sector is its large number of promising investment opportunities. Other than buying and selling cryptos for profit, a large number of people are lending their digital assets to earn crypto dividends, making crypto lending a rewarding investment. In this blog we will dive deep into cryptocurrencies and will learn how to lend and borrow digital assets wisely.
Let’s get started!
What are cryptocurrencies?
Cryptocurrencies are virtual currencies which do not exist in physical form but can be traded and used for shopping through crypto credit and debit cards. There are more than 6000 different cryptocurrencies in circulation. Cryptocurrencies are decentralized which means no central authority manages or maintains them.
Bitcoin is the very first cryptocurrency created by Satoshi Nakamoto in 2009. People generally invest in cryptocurrencies as another of assets just like stocks.
How do cryptocurrencies work?
Cryptocurrencies are created through a process called crypto mining. It involves the use of many computers that work together to solve complicated computational problems that then generate crypto coins.
However, cryptocurrencies run and maintained on a public distributed ledger called blockchain, that keeps record of all transactions.
Being digital currencies, cryptos are stored into digital wallets called crypto wallets. These wallets do not store cryptocurrencies in actuality but their private or public keys which are the only ways to access crypto assets. You can easily buy cryptocurrencies from cryptocurrency exchange platforms.
Why and how to invest in cryptocurrencies?
Before diving in crypto world you should explore is cryptocurrency a good investment and how you can invest in it? Cryptocurrencies are considered one of the best long-term investments. Compared to traditional types of investments, lending different cryptocurrencies provides you with a straight forward way to generate a study passive income. Due to the volatile nature of cryptocurrencies, their prices fluctuate and may increase greatly in future. For example, the price of 1 Bitcoin in 2012 was nearly $5 and in 2021, Bitcoin hit the ever-highest price of $68,000.
The most promising cryptos to invest in 2022 are Bitcoin, Ethereum, Dogecoin, Binance Coin, etc. You
There are many options to invest in cryptocurrencies which are as follows.
- Hodling
- Crypto lending
- Crypto mining
- Crypto stocks
In this blog, we will focus on crypto lending.
What is crypto lending?
Crypto lending involves lenders/investors lending their digit assets to borrowers offering crypto as collateral in exchange for interest. Crypto lending is believed to be one of the straightforward investment options. Investors can lend both crypto coins and stable coins and earn interest depending upon the asset they are lending.
The borrower cannot use the collateral until he pays back the entire loan amount/ In case he fails to repay the loan; the lender has the option to liquidate the collateral to recoup the loan amount he provided.
How does crypto lending work?
Crypto lending works through investors, borrowers, and crypto lending platforms.
The borrower visits the crypto lending platform to request for a loan, offering his crypto as collateral. Once the platform approves his loan request, the collateral in his account is replaced by the loan amount, automatically transferred from the lender’s account to borrower’s account. The lender starts receiving interest payments on a weekly or monthly basis which can be 3% to 7% in case of crypto assets and up to 17% for stable coins. When the borrower pays back the entire loan amount, he can use his collateral.
How to lend and borrow wisely?
Crypto lending requires you to be careful in lending and borrowing assets. The following are some parameters that can help you lend and borrow wisely.
Choose a reputable crypto lending platform
Your experience in crypto lending largely depends on which crypto lending platform you are using. The lender deposits his crypto on the platform until he manually withdraws them. If the platform is not legit, the lender will end up losing his assets.
Therefore, always choose a reputable and popular crypto lending platform.
Choose coins wisely
Either you are borrowing or lending digital assets, you should always choose the asset wisely. For example, if the lender prefers stable coins over cryptos, he can earn more interest payment. Similarly, if the borrower chooses to borrow stable coins, he does not have to worry about the volatility of cryptocurrency.
Check how much interest rate you will earn an investor by lending any crypto coin. Consider the risks associated with borrowing any asset.
Do not rush!
Crypto lending is a broad sector which requires you to have enough knowledge so that you can earn from it instead of losing your investment. Therefore, do not rush. It is recommended to do proper research about the market. Educate yourself through different means to learn how it works and how you can earn from it. Learn from the mistakes and experiences of others.
Conclusion
Cryptocurrency market is surrounded by scammers therefore, you need to be careful. Either its crypto lending or any other investment option the best option is to first learn about the market and then start by small investments.