The Defi technology boom has many people wondering how they can earn interest through Bitcoin lending sites. If you keep up with current blockchain and business news then you’ll know the possibility of earning money from any bags of Bitcoin you hold is worth your time.
Keep in mind, however, that it’s not risk free. To earn interest with bitcoin lending, you need to give up control of your bitcoin to a lending platform.
In this article we’ll take a look at how to earn interest with Bitcoin lending but, just as important, how to keep your funds secure while doing so.
Earning interest by lending your Bitcoin through various platforms is thanks to a new technology called Decentralized Finance, or DeFi for short. An Article from ConsenSys sums it up like this: “Decentralized finance—often called DeFi—refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on the Ethereum blockchain.
From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. Now with over $7 billion worth of value locked in Ethereum smart contracts, decentralized finance has emerged as the most active sector in the blockchain space, with a wide range of use cases for individuals, developers, and institutions.
“We are a stone’s throw away from the global financial industry running on a common software infrastructure.” –Lex Sokolin, Global Fintech Co-Head of ConsenSys
Before DeFi, traditional finance allowed only bankers to earn from people’s saved funds. Only bankers and the banking system could lend money. DeFi now allows the common person to earn interest by lending out their cryptocurrencies.
How does that work?
When you find a Bitcoin lending platform that works for you, you do the following:
Sign up and deposit the amount of cryptocurrency you chose.
Earn interest daily or monthly
Withdraw when you need to, according to the terms.
The Bitcoin lending platform will use the cryptocurrency you deposited and lend it to people who need to borrow funds.
If the person borrowing funds defaults on their loan, then the platform will sell the collateral that person put up. The funds from selling the collateral will be used to pay you back.
How Much Can You Earn?
If you choose to earn money from your cryptocurrency holdings through a platform, then you might want to choose one that maximizes your interest.
Blockfi, for example, offers 4.5% on deposits of Bitcoin.
YouHodler, by contrast, offers up to 12% on deposits of stable coins or fiat.
As you can see, the amount you can earn also depends on which cryptocurrency you deposit.
If you just want to earn high interest, then you’ll need to sell or convert your Bitcoin into stablecoins.
You might miss out on the price appreciation of Bitcoin, but you might also not lose if the price sinks. Either way you’ll be earning a steady 12% per year.
If you want to keep your Bitcoin while also earning an interest, then the interest will be lower but at least you can earn from any price increase you think might happen.
If these options are interesting to you then you should know a few more tips and tricks.
Tips on Earning Interest with Bitcoin Lending Platforms
Another thing to keep in mind is that each Bitcoin lending platform pays interest differently.
Blockfi and Youhodler pay interest once a month at the end of each month you keep your funds on the platform.
This is important to keep in mind because if you withdraw your funds halfway through the month, or even close to the end, you won’t earn interest from that month.
Coinloan, on the other hand, pays interest in one lump sum when the term is over.
This is also important to consider because of compound interest.
If you want your funds to grow rapidly, it’s good to have compounded interest paid out daily so that the interest keeps compounding.
Nevertheless, at the end of the day, the most important thing to consider is the security measures each Bitcoin lending platform has on their site.
Make sure the platform you choose has either interest or uses a crypto custodian that holds high levels of security over their hot and cold wallets.
Blockfi, for example, uses Gemini as a custodian, while YouHodler has insurance on their own cold wallets.
Those types of security measures help ensure that your funds have a higher chance of being there to withdraw, instead of taken by hackers.