The crypto market has been experiencing massive growth. While this opens up possibilities to earn money, it also carries the risk of losing money. One way to capitalize on the current crypto and blockchain trend is by earning passive income. Again, this comes with possibilities, but also risks. Let’s find out how to earn passive income with crypto!
What is passive income?
Passive income is income that you do not need to work for, or spend very little to get. This is a method to help you earn income, even when you are not working.
This is the opposite concept of “active income” – income for which you have to actively spend both time and effort.
Features of passive income
There are no guarantees when it comes to passive income
Many factors influence passive income, including the type of labor, time, and field. Unlike fixed wage income, when you go to work every day and are paid for that day, passive income does not come to you every day. It can take a while, even up to several years, to receive this income. As mentioned above: it has many factors.
- The variety of passive income streams
There are many various ways to produce passive income, rather than working 8 hours a day and counting on your wage as your primary source of money because you don’t have much time to do other things. At the same time, it’s dynamic and entirely usable in a variety of ways. You are not bound by time or geography if you earn passive money.
- Passive income is still risky
Because of the non-fixed nature, of course, passive income will not be absolutely safe; there are still certain risks.
So, how to earn passive income with crypto?
If you want to “taste a new breeze” with crypto investments using passive income methods, try these ways.
This is one of the most popular ways to earn passive income with Bitcoin and other cryptocurrencies. Mining is the practice of computing power to the solution of complex mathematical problems. This allows information about transactions to be validated and stored on the Blockchain system.
In return, miners will receive a certain amount of coins, called block mining rewards.
In the early days, mining was relatively easy using Bitcoin Core mining software along with a computer processor known as an ASIC (Application Specific Integrated Circuit). As cryptocurrencies became popular, and coin prices increased, mining became increasingly profitable.
Nowadays, mining becomes more difficult and consumes a lot of cost and resources. Retail miners are not making as much money as they once did. Instead, large mining farms employ hundreds of ASICs and massive amounts of electricity. As a result, this method of getting passive income is becoming less popular.
The Proof-of-Stake (PoS) consensus mechanism maintains the security of blockchains by requiring users to lock or keep their coins in a cryptocurrency wallet. Rewards (including block rewards and transaction fees) will be given to staking participants as an incentive for their contributions.
Thus, staking became a popular way to earn passive income with crypto. Long-term holders are especially fond of staking, as it can help them increase their passive income.
You can stake on exchanges like Binance, Coinbase, Bitfinex, Kraken, Huobi, OKEx.
Despite the potential for steady returns, staking still has certain risks. You won’t be able to do any buying/selling or trading with this staked coin, which will lead to miss out on potential gains if the coin price spikes.
Lending, as the names indicate, is a method of lending your idle assets. You will receive both principal and interest at the end of the loan term. In general, this form is nearly identical to lending fiat money. However, in the cryptocurrency market, the lender’s assets are the coins/tokens that they hold but have not yet used.
Cryptocurrency lending is appealing because it provides passive income while avoiding market volatility and has a high interest rate.
In the past, when the cryptocurrency market was not too developed, investors often loaned some key coins such as BTC, ETH, etc. Today, thanks to the strong development of DeFi, lending has expanded. Accordingly, you can lend any coin/token you own to earn interest.
Even so, lending itself is still risky if the price of the coin you’re lending falls during the loan term.
Liquidity providers with current assets supply liquidity to the protocol’s liquidity pools in Yield Farming. A liquidity pool is nothing more than a collection of tokens that have been locked in a smart contract. Users can use these pools to borrow, lend, and exchange tokens.
Fees apply to transactions conducted in the pool. The liquidity providers regard these fees to be revenue, and they are shared according to the percentage of liquidity they have contributed to the pool.
In addition, the liquidity provider earns a token for providing liquidity (it can be on the entire protocol pool or some specified pool).
Some popular platforms for Yield Farming are Uniswap, SushiSwap, MakerDao, Compound Finance, Synthetix, and Aave.
Yield Farming is quite complicated and there is high risk if you do not understand how it works. These risks could be:
- Scam or hacker attack leads to collapse.
- Smart contract error or security hole leads to loss of money.
- Liquidity pool has been withdrawn.
- Tokens can lose value, which means your total portfolio will be worth less.
- If you want to withdraw liquidity early to sell for profit because of a price rise of a coin, you will not receive the original amount of tokens.
- Negligence when manipulating DeFi wallets leads to hacker attacks.
Dividend Token allows holders to receive passive income without having to have ownership in the organization.
Similar to stocks, in some cases dividend payout depends on whether the issuer has met performance milestones or targets and this is beyond your control.
In addition, dividends are distributed when the project is profitable. If the project starts to lose money, you may not receive regular dividends and the value of the tokens you are holding may plummet.
Investing in crypto startups
This method allows you to be an initial investor of a project by buying their tokens in capital calls.
Tokens sold to investors in the early sale often have a very low price. In addition, there are projects with bonus tokens for investors. There are many projects that, after being listed and traded on the exchange, increase in price compared to the seed or private round price.
The profit can be very large, but there are also many potential risks for this form of investment. It is still important to learn and research to make investment decisions. Choosing hidden gems is something you need to pay attention to, in order to get an effective investment. There are no guarantees that the price of a ‘crypto startup’ will rise, even if you are a very early investor.
Above, we have introduced you to the concept and some ways to earn passive income in the crypto market. Earning passive income is a way for you to profit optimization, but in any kind of investment always has hidden risks, high profit expectations come with high risk.
The cryptocurrency industry has exploded in popularity in recent years and holds a lot of promise. The sooner you begin earning cryptocurrencies on this market, the better your possibilities of earning more money.
Remember: High profits always go hand in hand with great risks. Any of the above ways of making cryptocurrencies need to be learned. Don’t go all-in, and learn / play with the methods described in this article with a low amount of your portfolio. The more experience you have, the better.