From altcoins to NFTs, blockchain technology has taken the whole world by storm. Everybody knows that it’s the hottest thing in the market right now, but how can YOU actually use it to make money? In this article, I’ll walk you through 7 different ways to earn passive income through cryptocurrency that you can start doing today!
Holding
Now, you may be thinking that this just sounds simple, and you’d be right! It really is that simple. At its core, cryptocurrency is just another class of asset that people can hold, and, like any other asset, it has the potential for its value to rise as demand rises. If you hold a certain amount of tokens in a crypto wallet, and the value of the cryptocurrency increases, your tokens are now suddenly worth more than they used to. And due to the advantages offered by the blockchain technology on which cryptocurrency is built on, demand is definitely rising. In just the past five years, the value of Bitcoin has gone from under $800 to over $64,000! That’s an increase of over 8,000% percent in five years! For other cryptocurrencies, the increase has been even greater, and this momentum is not about to stop anytime soon.
However, despite the constant gains in crypto value over the years, the fluctuation in prices gives people concern. The most recent drop in Bitcoin value saw it fall from $64,000 to $46,000, which is about a 28% loss. If you’re someone who’s invested much of their hard-earned money into owning some crypto tokens, those aren’t numbers that you’d want to see. But increasingly, it’s become agreed upon that crypto values will continue to go through a series of surges and falls, and that’s where the power of holding comes in. As long as you hedge your risks, and don’t invest more than you can afford to lose, a drop in crypto values shouldn’t daunt you at all.
Crypto Mining
We’ve all heard of crypto mining, and some of us have even heard of how it’s part of why there’s been a global chip shortage. But what is it, and what does it take to get in on the action? Well, simply put, crypto mining is the process through which more units of cryptocurrency are created for circulation. Very intensive computer setups are used to solve complex mathematical problems, and the first computer to solve a problem is basically “awarded” a new set of tokens. It’s a way for people to earn tokens of cryptocurrencies like Bitcoin without buying any bitcoin themselves. The computation involved is mostly brute force, which is why crypto miners set up mining rigs that use powerful dedicated GPUs, short for graphics processing units.
While it may sound appealing to turn towards crypto mining as your first bet, it might still not be the right fit for you. Miners can sometimes spend thousands upon thousands of dollars on the equipment and tools needed to mine crypto tokens, not to mention all the electricity costs associated with it, and STILL get a minimal return on their investment. As all crypto miners are competing with each other to solve the puzzle the quickest, the chances of being awarded a set of tokens are extremely low, so unless you’re willing to drop tens of thousands of bucks on an entire mining system, where each individual graphics card can cost $2,000, you might want to explore another option.
Affiliate Programs
Surprised? Not all ways to make money from crypto involve buying it or abusing blockchain technology with expertise. Some crypto companies offer affiliate programs, where they reward people for referring others to their platform. The types of reward involved can vary from traditional monetary, to just straight up rewarding you with tokens. While this requires a bit more activity than simply holding or mining, being rewarded with tokens for referring people to a crypto platform means your assets gain value as the value of that cryptocurrency increases. However, the rewards from this can be quite low, even for very active users, with many only earning $1,000 a month for what would essentially be a part-time job. For something with lower effort, you might like the next option on the list.
Decentralized Finance
If you’ve been following cryptocurrency over the last few years, you might have heard people vouch for it as an alternative to fiat money because it’s “decentralized”, meaning that there’s no need for any intervention by institutions like banks or the state. Decentralized Finance, or DeFi, is based exactly on this principle, with platforms providing crypto owners a place to enlist their tokens for lending directly without an intermediary.
Where, normally, banks would ask clients to deposit their money into a savings account which they would then manage on their behalf by giving out loans, DeFi platforms allow crypto owners to manage their assets on their own. The key difference this makes is that where the interest gained on loans normally went to the banks, the interest gained on loans here goes directly to whose crypto is being borrowed, making it an accessible method of earning passive income. Some of the popular DeFi platforms are Maker, Aave, and Compound, where users can simply create an account and get started.
However, one of the biggest reasons people may choose not to opt for enlisting their hard-earned crypto tokens is the risk of something called impermanent loss. For lenders on a DeFi platform, they have to be conscious of the fact that the value of their tokens gets locked once they’re put in a liquidity pool on the platform. If the gains on a cryptocurrency are higher during a given period than the rise in the value of the liquidity pool that users have put their tokens into, they may actually lose out on making money compared to if they’d simply held their tokens in a crypto wallet.
Normally, however, the interest rates are very high, and someone investing $1,000 in Bitcoin through a DeFi platform could expect to have earned over $223 more through interest, and that’s assuming that the value of your cryptocurrency tokens remains the same. And as we know, chances are your tokens are going to get more and more valuable, meaning the interest you gain will be a lot higher too. If the value of Bitcoin increases by 50% over the year, this could even mean you earn up to $350 for spending just $1,000! However, not all platforms offer such high-interest rates, where you would only have the potential to earn $40 or $50 for every $1000 you invest that stays the same, so for a little more risk with a little more reward, there’s another option that might excite you.
Centralized Finance
Now we come to DeFi’s lesser liked sibling, Centralized Finance, or CeFi. CeFi essentially serves the same purpose as DeFi, allowing users to join a platform where they can both lend and borrow cryptocurrencies, with lenders earning money off of the interest gained on loans. What separates CeFi from DeFi, however, is that the platform in this case is managed by an institution similar to a bank. What that can mean is that after depositing your tokens with them, they will be locked up for a certain period, meaning that you will be unable to access them — similar to a savings account.
However, these CeFi institutions acknowledge the risk that comes with having your money locked in an account, knowing that you can’t take it out for a certain period. To compensate, they offer much higher average interest rates than DeFi platforms. Investing $1,000 worth of Bitcoin or Ethereum would mean you get an average of $75 every year, assuming that the value of cryptocurrency remains the same. But, once again, Bitcoin saw an 800 times increase in its value over the past five years, so $75 is probably the worst-case scenario that you could expect if the growth continues. Chances are, depositing $1,000 worth of your tokens with a CeFi institution like Hodlnaut could mean you earn anywhere from $150 to $350 on your investment.
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Staking
Without an authority ensuring the validity of transactions conducted through cryptocurrencies, it’s important to make sure that the crypto community can do it on its own. Community volunteers known as validators conduct a technical checking process to make sure that everything is in order, but normally, anybody could be selected at random to be a validator. Of course, not every crypto owner has the technical skills needed to be part of this pool, so those selected can delegate their tokens to someone who can.
The process is very technical and very important, and validators are required to lock in a certain amount of their tokens for validation. They then earn interest on those tokens, and once the validation is complete, the cryptosystem rewards them by giving them even more tokens. It sounds like a sweet deal, doesn’t it?
Unfortunately, staking is not very accessible. Staking Ethereum, for instance, requires you to deposit a minimum of 32 tokens — worth over $115,000. Not all crypto owners have that kind of money, but if you do, go ahead and stake your coins. You could expect to make anywhere between $10,000 and $25,000 for that amount of investment.
Yield Farming
Staking was already complex, but now we enter the world of the truly technical. Yield farming makes use of DeFi platforms but in a far more technical manner than simply letting your funds sit in an account to earn interest. Like all financial platforms, DeFi platforms have to make sure that their liquidity ratio is balanced, and this is where yield farmers come in. Yield farmers provide these platforms with their own crypto to use as part of the liquidity pool, but only on a temporary basis.
Using their advanced knowledge of cryptocurrency and blockchain technology, yield farmers move around their tokens from one DeFi platform to the next, based on whatever earns them the highest interest rates in the shortest amount of time. To do this, they need to not only have a great technical skillset but also invest a lot of money into different currencies upfront. But for an experienced yield farmer who can invest $100,000 into the activity, they can expect to double that amount easily in a year.
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