This series has one goal: To make money. In the pursuit of making money, however, there are two approaches. First, you can spend time (labor) to earn money by performing tasks for others. Second, you can utilize cash (capital) to allow it to earn for you. This second approach is the goal. Use money to make money.
When most people think about Proof of Stake networks, they think they need to run a node to get a piece of the staking rewards. Algorand is taking a little bit of a different approach, in that they are giving rewards out to all account balances on the entire network. Just by holding Algorand tokens in your wallet, you will slowly accumulate a reward.
Currently the rewards on the website show this program continuing until at least October 2020.
Any address on the network that holds a balance will accumulate rewards and a send or receive from the wallet will trigger the rewards to be claimed.
In this edition of Weekly Ways to Earn Crypto, we will walk through setting up a wallet to hold Algorand to earn the rewards. Currently it is yielding around 5%. Also to note, a few wallet providers (Coinbase looks like it is only available for Coinbase Custody?) do not pay out rewards for holding the asset, so make sure this is being held in a wallet you control directly.
First, we need to set up a wallet. On the developer portal, the My Algo wallet was recommended. I would not want to use just any random wallet for this, so I went with the recommended solution. The other option is a mobile wallet that is marked as "Official" but I don't want to store $5k on my phone.
To set up a new wallet, you will need to create a password. I am assuming this is for encrypting your wallet in the browser. Once you have set a password, you will need to either connect a Ledger or create a new seed phrase.
Once you write down your seed phrase, you will need to confirm it.
- Use a Ledger Nano if you have one. This will be much safer.
- Write down and keep safe your seed phrase if you are not using a hardware wallet. This is essential that you do this and you have a process around storing the seed phrase.
Once you generate the wallet, you are good to go.
Before sending any large amount of Algorand into this wallet, be sure you can deposit a small amount and send out back out of the wallet.
After that, just deposit the amount of Algorand you will be staking and it will start accumulating rewards.
An interesting thing I noticed is that rewards do not automatically compound. Rewards accumulate against your balance but are not "claimed" until a transaction in or out of that address occurs. To get compounding rewards, they recommend to send a 0 Algo value transaction to that address to trigger the rewards to be claimed. From that point on the claimed reward will be calculated in your balance towards future rewards.
Investment By The Numbers
- $5k of Algorand to store in the wallet
- $.002 = 0.004 in test transaction fees (negligible)
Price was calculated as of 2020-08-15. The price on Algorand has been very volatile lately so this will probably play a bigger role in the overall investment vs the rewards of 5%.