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 crypto, the “passive income”. Want to know a little bit more about how you can make money by not doing anything? Keep reading.
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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 Crypto Passively?
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.
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.
Earn Crypto from 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.
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 crypto.
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 allows you to generate a passive income regardless of the volatility of the cryptomarket.
It 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.
-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.
-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 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 crypto from 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.
– Minimum effort required.
– Locking funds into smart contracts always carries a risk of bugs.
Yield Farming is a complex process. A yield farmer is essentially a market maker or a
lender that stakes across multiple applications or protocols.
This process begins when a market maker (I.e., a liquidity provider), earns a profit from cryptocurrency
trades. When you trade a cryptocurrency, you are trading in and out of what’s known as a liquidity pool.
Liquidity providers (LP) create liquidity pools.
In return, they are given what’s known as LP tokens. These are essentially IOUs that entitle a liquidity
provider to a share of the fees, earned from trades in a liquidity pool. Staking these LP tokens on
another application or a token farm is known as yield farming.
Yield farming typically boasts a higher APY than staking. This is because the earnings are compounded
across multiple applications and protocols. However, this complex process creates a larger surface area
of attack for hackers. Some of the most popular yield farming protocols are:
- Yearn Finance
- Curve/ Convex Finance
- Pickle Finance
- DeFi Swap
Play to Earn Crypto (P2E)
With play-to-earn games (P2E), players collect cryptocurrencies or NFTs produced in blockchain-based games. A unique feature of P2E games is that the more a user participates, the more chances they have to earn crypto. The game’s value grows for the community and developers as more players join and develop the in-game marketplace.
The first NFT game built on Ethereum — Cryptokitties — laid the foundation for GameFi and P2E. Cryptokitties is a game developed by Dapper Labs that allows users to collect, breed, buy, and sell digital cats. The non-fungible kittens’ meteoric rise to fame quickly overloaded the Ethereum blockchain. As a result, the developers created a separate blockchain for the transactions.
While not always lucrative, P2E games are a relatively low-risk way to earn crypto. Moreover, blockchain-based gaming incentives bridges the gap between the Web 3 and the concept of game testing. It is not difficult for some to imagine earning a living through gaming, as blockchain games continue to develop and generate massive amounts of income.
Some examples of play-to-earn games are:
- The Sandbox
- Axie Infinity
- Gods Unchained
Learn to Earn Crypto (L2E)
Crypto projects are frequently preoccupied with various methods of promoting themselves in a competitive field. One method is to give tokens to their users in exchange for participating, playing, or simply learning. Learn-to-earn is an example of how to earn crypto in new ways.
Learn-to-earn is the concept of rewarding users with tokens for learning about cryptocurrency, typically in the with the tokens you learned about. This is most often facilitated by exchanges vying for traffic to their platform. The idea is to teach you while simultaneously making you an investor in their projects.
Here are some platforms for you to earn crypto:
- Coinbase Earn
- Binance Academy
- CoinMarketCap Earn
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.
What is play-to-earn?
What is learn-to-earn?
How do you earn crypto?
What is yield farming?
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