Cryptocurrencies | How To Earn Passive Income With Crypto
Seven different ways to earn passive income with cryptocurrency.
In the early days of crypto, passive income became a favorable term in the community, though the functions of the term have changed over the years. While mining and airdrops were explored significantly to earn passive income in years past, the onset of DeFi has transformed the methods to utilize crypto tokens as passive income. However, the old methods are still very much relevant and, sometimes earn significant rewards as well.
In this article, we look at how to generate passive income in the cryptocurrency landscape using old practices and new techniques.
How to Earn Cryptocurrency
Trading and investing are the two primary methods of earning cryptocurrency tokens. However, significant research is required with day trading or long term investment. However, there are different methods to access cryptocurrency tokens.
Similar to earning interest rates from the money placed in your bank account, an individual can also earn cryptocurrencies through different techniques.
Cryptocurrency Mining
Cryptocurrency mining is the process of crypto coins as rewards in exchange for maintaining the blockchain network. Mining tokens is one of the oldest practices harnessed since the invention of Bitcoin. In the initial days, mining Bitcoin did not require high-end hardware devices and huge mining farms. Now, it tends to be a business requiring substantial investment rather than an individual’s work.
Mining currencies like Bitcoin not only require a huge amount of investment, but it has also grown quite difficult. While lesser-known cryptocurrencies provide a recurring passive income after an initial investment, there are risks of failures in the project. Owing to the expense and hardware set up, other forms like cloud mining and pool mining have become more popular methods accessed by an individual.
Staking Crypto Assets
Staking has become a popular way to earn cryptocurrency through passive income. It involves locking cryptocurrency assets on a particular wallet or exchange platform and receiving rewards. The staking rewards are similar to earning crypto interest in exchange for maintaining the particular blockchain network.
Staking crypto requires minimal effort, as a user can earn a steady flow of tokens by simply locking funds. In some cases, funds are also locked on staking pools or by delegating, in which case a delegator performs the operations for maintaining the network and charges a percentage of the fee. While staking is relatively easy, it also carries risks, such as volatility in the prices of your locked funds and artificially inflating staked returns.
DeFi Lending
Lending has become one of the most prominent use-cases in the DeFi landscape. Decentralized finance gives access to borrowing and lending services in the cryptocurrency ecosystem. Lenders can contribute their cryptocurrency assets to a smart contract and collect interest payments. The interest payment may also be in the form of a new cryptocurrency token in addition to their locked assets.
How it works: a lender placed their cryptocurrency funds into a liquidity pool which can be accessed by borrowers. The process of lending and borrowing is managed through a smart contract and does not require middle-men to oversee operations. Currently, it has become one of the most popular methods to earn crypto assets. Please note that there are risks such as loopholes in smart contracts of the cryptocurrency token. It is advisable to do your own research before investing.
Lightning Nodes
The lightning node is the second layer of a blockchain network, the first one being the application layer. The lightning node acts as a layer on the top of a blockchain network with the capacity to process faster transactions. Hence, the owner of the lightning node processes faster transactions by carrying out two-way transactions, locking liquidity, and thereby increasing the capacity of a blockchain network.
The lightning node owner receives a transaction fee from the network in exchange for providing services. In order to make this a profitable investment, it is necessary to run a lightning node of a blockchain network that has a higher adoption rate.
Masternodes
Masternodes, in concept, are similar to staking but require sizable investment upfront. A masternode is responsible for maintaining a blockchain network. In return, the owner of the masternode receives a high rate of return. However, setting up a masternode requires locking up a major amount of investment.
Another challenge in setting a masternode is that it makes your crypto assets illiquid for a considerable amount of time period. Moreover, there is always a risk of volatility in crypto asset prices.
Airdrops
In the cryptocurrency industry, airdrops have become an innovative mechanism to distribute new cryptocurrency tokens. An airdrop is the process of distributing tokens, usually free, to build awareness of the project. Airdrops are distributed many ways, including following their social media channels, subscribing, being a token holder of a particular crypto token, etc. There are websites that provide updates on airdrops of new cryptocurrency tokens.
Trading Bots
Cryptocurrency trading bots are a method to earn passive income by trading in the cryptocurrency market. Bots use algorithms and advanced technological methods to analyze crypto markets and place a potentially winning trade. With autotrading, you allow a bot to trade in cryptocurrency markets 24/7. However, there are many dubious robots in the market and an individual should conduct necessary research before opting a cryptocurrency bot to trade.
Cryptohopper provides you a secure environment along with a reputed history for earning passive income in cryptocurrency markets. Moreover, with Cryptohopper a trader can access innovative features like arbitrage trading and mirror trading. A user can also set up defined parameters which allows the bot to trade in bullish and bearish market conditions.
The Bottom Line
The cryptocurrency landscape has a lot to offer, with potential for returns in multiple streams. At the same time, the market is volatile and filled with dubious claims. Generating passive income in cryptocurrencies carries risks and challenges, including investing in low-quality assets, errors with private keys, manipulation in smart contract code, and even lock-up periods. But if you do the research and make strategic decisions, the rewards can be substantial.
Remember to conduct your due diligence before choosing to invest through any way in the cryptocurrency landscape.
