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Filecoin is a decentralized storage network made by Protocol Labs whose mission is to “store humanity’s most important information.” It is an open-source cloud-based storage marketplace protocol coupled with an incentive layer. The Filecoin and Ethereum ecosystems are becoming increasingly intertwined as smart contracts (Ethereum) are integrated onto the storage layer (Filecoin). While some cryptocurrencies have an inherent staking feature, Filecoin was not built this way.
Filecoin blockchain is based on a hybrid consensus platform model comprising proof-of-space and proof-of-stake (POS). In addition, the Filecoin (FIL) crypto token is a product of proof-of-replication and proof-of-space-time. Considering it is not a traditional proof-of-stake crypto, Filecoin staking does not exist in the conventional sense.
Filecoin tokens are created through mining, though differently from the way Bitcoin is mined. While bitcoin mining uses computer power, Filecoin tokens are created as miners provide storage space and bandwidth to customers of the storage network, in exchange for which they are rewarded in FIL crypto.
While Filecoin is not fully proof-of-stake, there are variations of staking available. Miners, who provide storage to the network, must stake collateral to participate in the network, which we’ll discuss in more detail below. In addition, cryptocurrency exchanges have integrated ways to stake Filecoin on their respective platforms, including Binance, Crypto.com, and decentralized trading platform BakerySwap, to name a few. Other crypto exchanges could add Filecoin staking capabilities, too.
Here you will find the most relevant information about Filecoin staking and the providers that support this feature.
- Filecoin staking is possible on a handful of major cryptocurrency trading platforms, including Binance and Crypto.com, which should assure investors that they are in good company. Staking is also available on decentralized trading platform BakerySwap.
- You can also participate in staking differently as a miner of the Filecoin token. By placing collateral on the Filecoin network, you are staking your investment and can earn FIL tokens in exchange for providing storage to clients.
- Filecoin has integrated Ethereum capabilities, which in addition to being one of the largest blockchains, is based on proof-of-stake.
- Staking Filecoin in the traditional sense is not currently an option considering that the network is not solely based on a proof-of-stake consensus algorithm.
- Filecoin staking is not straightforward and can mean one of several things, which could confuse users.
- To earn the highest interest rates, you’ve got to lock up your Filecoin tokens for months or longer, which could cramp your style if you decide you want to trade the coin during the lock-up period.
Table of Contents
What is Filecoin Staking?
Staking Filecoin involves placing your FC tokens on a platform, such as a crypto exchange, and leaving them there for a set period. This could be anywhere from several months to a year or longer. The longer you leave your coins on the staking platform, the more rewards you will earn in the form of FC tokens. By staking Filecoin, you are providing liquidity to traders on the respective platform to buy and sell this crypto.
Also, Filecoin miners participate in a type of staking of their own. This “staking” is an investment in the form of collateral provided by Filecoin miners (aka storage providers) to participate in the network. By having a “stake” in the storage network, miners are incentivized to see the network succeed.
Staking is miners’ commitment to keeping clients online by providing them with storage and ensuring the network runs smoothly. If the miners renege on their commitment, the network takes their staking collateral away. The amount Filecoin miners earn is commensurate with the storage they provide to clients.
Filecoin miners must commit 0.1901 FIL tokens as collateral or a stake for every 32 gibibytes of data that can be converted into storage. Filecoin miners earn 10 FIL per completed block on the blockchain, vested to them over six months.
How to Stake Filecoin?
Staking Filecoin (FIL) on Binance using the Simple Earn feature is an easy way to earn passive income from your crypto holdings. Here’s a step-by-step guide on how to stake FIL on Binance:
Step 1: Sign Up and Verify your Account
If you want to stake Filecoin, the first thing you must do is create an account on Binance.
Then go through the verification steps to provide Binance with proof of identity.
Step 2: Fund your Account
Click on the “Earn” tab on the top navigation bar and select “Simple Earn”.
Go to the drop-down menu labeled ‘Earn.’ Here, you will have multiple options. Click on ‘Binance Earn’ and then search for ‘FIL’.
Step 4: Analyze the Staking Parameters and Stake
If you want to earn rewards with your FIL on Binance.com, you can go to the “Products on Offer” section and then click “Simple Earn” and click “Subscribe Now”.
“Simple Earn” lets you deposit your FIL in flexible or locked products and earn daily rewards. You can subscribe or redeem at any time, so you can maintain your assets’ flexibility and liquidity. The rewards are sourced from Binance’s own funds and are based on the market conditions.
Filecoin Staking Tax
While regulations vary depending on the country in which you live, you can expect that you will have to pay taxes on your Filecoin staking earnings.
- In the U.K., the latest rules indicate that investors should report any earnings from staking in the decentralized finance (DeFi) market, where staking Filecoin is grouped, should be treated as miscellaneous income. The value of the crypto holdings is based on the price when you received the funds.
- In Germany, staking earnings are subject to income tax, but if you hold onto the crypto assets for at least 12 months, you won’t have to pay income taxes on them.
- The U.S. IRS hasn’t been specific with its guidance on staking earnings. To be on the safe side, tax professionals advise investors to treat their staking earnings as income based on the value of the crypto when it is received. So, when you decide to sell the crypto you earned from staking, you’ll have to determine if you’ve experienced a capital gain or loss depending on the change in the Filecoin price since you first made them.
A good piece of advice is to seek a tax professional for the latest laws in your jurisdiction, as regulators tend to update their tax guidance as the cryptocurrency industry matures.
Why do people like Staking Filecoin?
People like staking Filecoin because it offers potentially generous interest rates on platforms like Binance Earn, Crypto.com, or BakerySwap. Investors holding their FIL coins can put these funds to work for them and generate passive income around the clock. Also, Filecoin is a high-profile project that integrates with major proof-of-stake blockchain Ethereum.
The interest rates for staking Filecoin are attractive to investors, sometimes running into the triple-digit percentage range. Investors know that if they are willing to stake their tokens for a year or longer, they will generate more coins that could potentially rise in value as the Filecoin ecosystem continues to grow. Filecoin is among the leaders in decentralized storage, which gives investors confidence that they are participating in a project that plans to be around for the long haul.
Conclusion
Filecoin is a high-profile blockchain project with its own unique consensus algorithm model. While it is not a proof-of-stake project in the traditional sense, there are still ways around this so that investors can stake Filecoin. In addition, the project has a staking mechanism for miners that allows storage providers with skin in the game to generate FIL coins as their reward.
Investors can decide whether to stake Filecoin on a centralized cryptocurrency exchange such as Binance or a decentralized trading platform such as BakerySwap. The interest rates for placing FIL tokens on these platforms go as high as the double-digit and triple-digit percentage range for those willing to let the tokens sit for months or longer. With all these rewards, don’t forget to pay the piper when tax season comes around.
Investors who want to participate as miners can do so by staking some of their FIL on the network. In exchange, they are rewarded with FIL tokens as transactions are completed on the blockchain. In this case, the staking represents the collateral in the form of FIL tokens that the miner, or storage provider, is willing to plunk down to participate. It gives them an invested interest in the success of the platform and clients.
Filecoin Staking FAQs
Can I remove my staking earnings early on Binance?
If you choose flexible staking on Binance, you can withdraw your earnings at any time. However, if you selected the lock-up option, you would lose your staked earnings for withdrawing before the lock-up period is over and will just be entitled to the principal.Be sure and become familiar with the withdrawal rules for the exchange on which you choose to stake your Filecoin.
Why should I stake my Filecoin?
In addition to generating passive income for yourself, you will be bolstering the liquidity of Filecoin on the exchange where you stake. This could attract more investors who would like to trade Filecoin and potentially increase demand.
What are the risks associated with staking Filecoin?
If you stake your crypto on a centralized trading platform, you are at the mercy of the exchange. This places you in a vulnerable position in the unfortunate event of bankruptcy, for example. The centralized exchanges participating in Filecoin mining, such as Binance, are some of the industry’s largest, with the longest operating histories. Another risk is the possibility that you miss out on trades in the crypto market because you have your Filecoin locked up on a staking platform.
WeInvests is a financial portal-based research agency. We do our utmost best to offer reliable and unbiased information about crypto, finance, trading and stocks. However, we do not offer financial advice and users should always carry out their own research.
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