Chris’ note: If you’ve been following along in these pages, you’ll know all about the massive opportunity in bitcoin. It shot up 308% last year alone. I wouldn’t be surprised to see it surpass those gains in 2021.

But as colleague and world-renowned crypto investor Teeka Tiwari has been pounding the table on… the biggest opportunities in crypto today lie outside of bitcoin.

So today, I’m sharing with you a conversation I had with Teeka’s chief crypto analyst, Greg Wilson. It’s about one of the biggest opportunities on his radar right now – decentralized finance, or DeFi.

As you’ll see, it’s given his readers the chance to make an average yield of almost 10% on their crypto.

Q&A With Greg Wilson, Chief Analyst, Crypto Income Quarterly

Chris: At our Crypto Income Quarterly advisory, you focus on helping your readers earn income on their crypto. And you’ve had remarkable success.

The average capital gain of the 27 open crypto recommendations in the model portfolio is 199%. And the average yield on those coins is 9.6%. That’s almost 10 times larger than the yield on the 10-year U.S. Treasury note.

And yesterday, your readers booked a 1,165% gain on a crypto you recommended just over a year ago. Part of that gain came from earning a double-digit income on that crypto.

We’ll be taking a deeper dive into how you can achieve those kinds of returns in future dispatches. But I want to start with the basics today. Can you talk me through how crypto income works?

Greg: First, let me make something clear. These income opportunities are the next step after you buy your first crypto.

First, you need to open up an account with Coinbase or Gemini. These are the two biggest online crypto exchanges. Then you need to buy some bitcoin (BTC) and some ether (ETH). Ether is the token associated with the Ethereum blockchain and the second-biggest crypto asset by market value.

You’re right… Most folks don’t know about these income opportunities. A lot of this is new. But the basic idea of earning income on your investments is something we all understand.

You collect dividend payments on some of your stocks, for example. These are regular cash payouts from a company’s profits. You get interest income on your bonds, too. Bonds come with a “coupon.” It’s a regular, fixed-dollar cash payout.

With crypto income, it’s different. You’re not getting part of a company’s free cash flow, as is the case with stock dividends. And cryptos don’t come with a coupon, like bonds.

Instead, the most common opportunity to earn income from cryptos is to perform useful tasks in a blockchain network, such as validating transactions.

Chris: How does that work?

Greg: First, it’s important to understand there are two types of blockchains. Both are decentralized. So there’s no middleman involved. You don’t need the services of a central bank, a commercial bank, or a corporate payments processer such as Visa (V) or PayPal (PYPL). This is one of the advantages of DeFi.

The first type is called a proof-of-work blockchain. Bitcoin is the leading example.

With this type, entrepreneurs called “miners” compete to solve complex math puzzles that use huge amounts of computer processing power and electricity. Whoever solves the puzzle first wins the right to validate a new set of transactions – known as a “block.”

In exchange for their effort, and the costs they incur, they earn newly issued coins associated with the network.

That’s why they’re called miners. They play the role gold miners played during the gold standard monetary system.

Gold miners had to expend energy and resources. In return, they got some gold, the global currency at the time. It’s the same with crypto miners. But on the Bitcoin network, the reward for mining is some bitcoin.

A second type of decentralized transaction validation is by proof of stake.

Instead of folks with specialized, high-powered computer rigs expending all this energy to compete to verify transactions, network participants get that job.

Proof-of-stake blockchain does this simply based on participants’ wealth, or “stake,” in the network – in other words, how many native coins they own. Just owning coins – rather than being first to solve complex math puzzles – gives them the right to verify transactions and earn crypto as a reward.

Usually, what happens is the fees are paid out proportional to whatever your stake is in the network. The bigger your stake, the more blocks you get to validate and the more fees you collect. At Crypto Income Quarterly, we call this income “Tech Royalties.”

Chris: It reminds me of how democracies were set up before everyone got the right to vote. You had to own land before you could vote in elections. With proof-of-stake cryptos, you’re given rights just for being a stakeholder.

Greg: That’s a good analogy. With proof-of-work networks, you can earn an income only by becoming a miner and grinding through all those proof-of-work algorithms.

That’s capital-intensive. You have to buy high-speed computers to crunch the numbers. You have to have a facility that can cool down all those computer processors. You have to be able to get enough power to run them all. You have to make sure it’s all secure.

It demands a lot of technical knowledge as well. You have to be able to run a mining node on the bitcoin network. You have to be able to hook up your rigs. You have to keep everything online and running 24/7. You then need to know how to safely store your crypto earnings.

One of the main disadvantages of proof of work is the amount of energy you need – which shoots up your costs. Whether that’s good or bad is a conversation for another day. But what you’re seeing now is a lot of crypto projects moving to proof of stake.

Chris: Is there an example you could share?

Greg: The most notable example is Ethereum. As I said earlier, it’s the second-largest crypto network by market value. It’s a proof-of-work network now. But it’s moving to proof of stake.

The idea is that, over the long run, proof-of-stake networks will be more sustainable. They can also reach faster transaction times. They’re not slowed down by having to first solve complex math puzzles.

Chris: Can you earn income from proof-of-stake networks without verifying transactions yourself?

Greg: Some proof-of-stake networks allow you to vote for “delegates” to validate the transactions on a network. These delegates get paid for their services out of the transaction fees people pay to use the network. Your voting power is determined by your stake – how many coins you own.

Think of delegates as proxies. You can loan your coins – your stake – to one of those delegates. Then when that delegate gets his payout, he splits it with you and the other folks who loaned him the coins. You get paid according to how many coins you loaned.

I say “loan.” But you don’t even have to transfer your coins. They’re never out of your possession. It’s more like you’re pledging those coins to a delegate.

Chris: Are there other ways to earn income on your crypto?

Greg: Crypto exchanges also allow you to earn income. These are the online exchanges that allow you to buy, sell, and trade cryptos.

You can buy “exchange coins” just like you buy any other cryptos. Many of them automatically reward all coin holders with additional income.

Some crypto exchanges share their profits with coin holders. This is the closest thing in crypto to a stock dividend.

They also “burn” their coins. This is the crypto equivalent of share buybacks. The exchange takes coins out of circulation. That causes the remaining coins to appreciate in value because they now represent a bigger share of the exchange’s profits than before.

If an exchange becomes a hit… and gobbles up lots of market share… you can turn your initial stake of its native coin into a small fortune through these income opportunities.

Chris: Twenty years from now, do you see a vibrant alternative financial system based on decentralization and censorship resistance? [For more on how blockchain resists censorship, catch up in yesterday’s dispatch.]

Greg: DeFi is going to open a lot of doors. It will let ordinary folks access censorship-resistant financial services while remaining in full control of their wealth and personal data.

That’s in stark contrast to the centralized finance model of today’s Wall Street, where problems include unequal access, censorship, counterparty risk, and lack of transparency.

I hope I’m around to see this new model overtake it.

Chris: Thanks, Greg.

Greg: Anytime, Chris.

Chris’ note: Bitcoin delivered monstrous gains last year. But these pale in comparison to the gains Greg and Teeka’s Crypto Income Quarterly subscribers are sitting on thanks to “Tech Royalties”… such as 450%, 931%, and even 1,221%.

What’s great about Tech Royalties is you get capital appreciation along with monster 10%-plus yields. So as bitcoin and other cryptos explode in price, the income you generate will rise, too.

To learn more about this trend – including Greg and Teeka’s No. 1 Tech Royalty – go here.