Staking Filecoin

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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 algorithm 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. However, there are alternative ways to generate passive income from Filecoin via staking. 

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. 

Given the generous rewards that several cryptocurrency platforms offer for staking Filecoin, we thought now would be an excellent time to find out if it is really that simple to generate passive returns from staking Filecoin. Here you will find the most relevant information about Filecoin staking and the providers that support this feature.   

Pros
  • 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.
Cons
  • 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.

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 of 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?

Before you can stake Filecoin, you must be sure you own some FIL tokens in your digital wallet. You have several crypto trading platforms on which you can purchase Filecoin to choose from, including Binance, Kraken, Coinbase, and Crypto.com. Once you own Filecoin, you are on your way to participating in staking.

To stake Filecoin on Binance:

  • Cryptocurrency exchange Binance allows you to stake Filecoin on Binance Earn, a platform for generating rewards in the crypto market. 
  • You must first own Filecoin in your Binance wallet. To do this, you can either 1.) Purchase Filecoin tokens on Binance; 2.) Transfer funds from another crypto wallet to your Filecoin wallet on BInance.com. Either way, you must have an account on Binance if you want to stake Filecoin on Binance Earn. 
  • You are looking for the “Simple Earn” category on Binance Earn, which, as the name suggests, helps you earn staking rewards. 
  • In the case of Filecoin, Binance Earn offers you a trio of staking options: lock up your coins for 120 days at an APR of 9.80%, lock up your coins for 30 days at an APR of 4.60%, or a flexible option in which you can withdraw your FIl at any time for an APR of 0.40%.  
  • Search for FIL in the search bar on the Binance Earn page and “subscribe” to the staking option of your choice. 
  • Binance also offers a calculator to help you discover how much you will earn by staking Filecoin.
  • By staking Filecoin on Binance Earn, you trust the exchange to keep your crypto tokens safe.  
  • Follow StakingCrypto.info for information about other crypto exchanges that support staking Filecoin. The process is similar to most centralized exchanges. Just obtain FIL tokens in your crypto wallet and then follow the steps to place them on the exchange’s staking platform. 

To stake on decentralized crypto exchange BakerySwap, follow these steps:  

  • Go to the BakerySwap website and select the “earning” tab. 
  • You must then connect your MetaMask crypto wallet to the BakerySwap decentralized trading platform. BakerySwap will prompt you with a “connect to a wallet” button.  
  • Click “next” followed by “connect,” and you should see BakerySwap’s staking page before you. Select Filecoin (FIL) and hit the “stake” option.  
  • You should be able to see the types of returns that BakerySwap is offering for staking Filecoin at the moment. BakerySwap has been known to provide some of the industry’s highest APRs to gain traction with crypto investors. The Filecoin staking APR has been known to rise into the triple-digit percentage range.
  • When you select Filecoin staking, you will be prompted to enter the number of FIL tokens you would like to stake on BakerySwap. The minimum requirement is 20 FIL coins. 
  • Next, click the “stake” button followed by the plus (+) sign. Enter the relevant value and confirm the transaction on your MetaMask wallet. 
  • BakerySwap should now present you with a dashboard illustrating how much Filecoin you have sent to stake. 
  • You can withdraw your FIL tokens at any time on BakerySwap. 

To mine Filecoin: 

  • The basic steps are to provide storage and earn. 
  • You will be joining over 4,000 storage providers on the Filecoin network. 
  • To get started, Filecoin asks that you first connect with one of their experts who can start you on your way. 
  • From there, you’ll need to download the relevant mining software and take a series of technical steps to provide storage and earn FIL. 

Filecoin Staking Tax

With all of these ways to stake Filecoin, you could see your income increase this year. And 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 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.

Risk Disclaimer

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