In the crypto industry, you can make money by trading or investing in projects. However, this usually requires extensive research, a lot of time and no guarantee of a sustainable income. This is an “active” way of earning money because you will make money proportionally to your efforts (and good decisions). However, there is another way to warn to earn money, the “passive income”. Want to know a little bit more about how you can make money by not doing anything? Keep reading…

What is Passive Income?

Passive income is a modality of earning in which an investor receives an amount of money for the actions of others. This comes in different ways: in the traditional fiat system your bank gives you a small percentage of the money you lock in your savings account, some MLM companies give you a commission on each trade that one of your affiliates closes. In both examples, you don’t do anything but still, receive money even though it is the bank (or your affiliate marketer) who’s doing the job. Why? Because they can work with your money or your reputation.

How Can I Earn a Passive Income from Crypto?

Over the years people have come up with new ways for crypto to make you money while you sleep, let’s look at some of the most tried and tested methods of creating passive income streams with crypto.

Cryptomining

The process of validating a transaction and then getting rewarded with newly minted coins. Crypto mining is not for everyone; it requires expensive custom build hardware, technical knowledge and a massive amount of energy. This makes the mining industry very competitive and dominated by large corporations. Crypto mining is not as profitable as it used to be and not really viable as a passive income for most people. Although some can register a nice profit by mining lower hashrate Proof-of-Work coins with higher potential reward, with the higher potential reward comes higher risk, these lesser-known coins have little liquidity and could become worthless overnight.

How Do I Start Mining?

  • It all depends on the algorithm of the cryptocurrency. Some cryptocurrencies (like Monero) can be mined with a regular computer, others (such as Ethereum) will require potent graphics cards, and other like Bitcoin will need expensive, high-end hardware such as ASIC (Application-Specific Integrated Circuit).
  • The other option is to join a mining network, pay a joining fee and work with other miners. This eliminates the need to spend thousands of dollars getting yourself started but also means reduced rewards as you split them with the team.

Airdrops

When you are given free cryptos because of other coins you are holding or just because you have a specific wallet or perform some actions, like signing up for an exchange or mailing list. Please do your research and be aware of scams and never share your private keys.

Affiliate programmes

Some businesses will reward you for helping their platform to grow (usually through links or referrals). If you have a large social media following, affiliate programmes can be a super easy way to earn easy money.

Running Masternodes

Masternodes are servers that underpin a blockchain network; they have increased capabilities that other nodes on the network do not. Running a masternode usually requires a significant upfront investment and a high level of technical knowledge to get running.

Staking

Staking allows you to generate a passive income regardless of the volatility of the cryptomarket.
Staking was first introduced in 2012 and was used as a reward system for Peercoin (PPC) which utilised the Proof of Stake algorithm. The chance of being the next block validator is proportionate to how much crypto you are currently holding or “staking” in your wallet. In some cases you also add funds to a staking pool, exchanges often manage the technical side of this. Crypto staking is similar to the interest you earn from your bank except here; coins are locked in your wallet. Think of stakers as the miners of a Proof-of-Stake cryptocurrency.

Pros:
-No need for expensive mining equipment or running up massive electricity bills.
-The value of your stake does not depreciate with time, unlike mining hardware.

Cons:
-The value of your stake is affected by the general trend of the market.
-The coins are locked into a wallet for a set time; you cannot do anything with your coins until this time has elapsed.
-Some projects have found ways to fake the projected return rate, and so it’s essential to research the token economic models thoroughly.

DeFi

DeFi or decentralised finance is what Ethereum terms their financial smart contracts and DApps. It is using decentralised networks to modify traditional financial products. DeFi apps control 700 million USD (as of November 2019) worth of digital assets and users can expect to earn 5-20% interest in lending platforms.

There are three ways to make money with DeFi: Leverage, Peer to peer lending and liquidity providing.
When we talk about leverage, we are primarily talking about making a profit from buying and selling assets by predicting price dynamics. If you “go long” you purchase an asset intending to sell as soon as it becomes worth more. If you “go short” you’re expecting the asset to get cheaper, so you sell your asset just to buy it back when it becomes cheaper.

How to leverage DeFi?

Strategies to predict these price dynamics involve keeping your finger on the pulse of news or following reports of fundamental and technical analysis.

Peer to Peer Lending & Liquidity Providing

  • Peer to peer platforms allow you to lock up your assets and benefit from the interest; these rates are either set by the platform or by you based on the market rate.
  • Interest rates vary depending on the platform. You can take advantage of the price difference of markets, borrowing at a low price in one market and lending at a higher price in another.
  • With liquidity providing; you deposit a pair of assets, for example, a certain amount of ETH and the equivalent DAI at the current exchange rate. People can exchange their DAI for your ETH or their ETH for your DAI and pay the exchange fees set up by the contract which you profit from.
  • Compound is an example of a smart contract that allows you to lend and borrow tokens. As you lend, you earn interest. Similar to a traditional bank except, in this case, your interest begins as soon as you deposit into the smart contract. The rate is also much higher than what you would expect from a bank because there’s no middleman.

Pros:

Minimum effort required.

Cons:

Locking funds into smart contracts always carries a risk of bugs.

Conclusion

With a growing interest in making money with zero effort; more ways of earning from crypto are continually being developed. As the security of these products increases, it seems they have the potential to become a credible and steady income source.