Photo by Vasilis Chatzopoulos on Unsplash
Since cryptocurrencies were invented in 2009, smart investors have taken advantage of the many opportunities they bring to make a passive income. Crypto assets investment can create wealth through appreciation in value, lending, mining, or staking.
Besides increasing wealth passively, investors can also use more active ways to earn crypto, but it is not without risk. For example, playing at a crypto slots casino can be a way to make quick crypto profits, but since it is not without risk, extra care is needed. Besides crypto gambling, another way to actively earn more crypto is by becoming a freelancer and offering your skills or services on platforms like Cryptogrind or Ethlance in exchange for crypto payments. As an investor, mixing both passive and active means of earning more wealth can help you balance your potential gains and risks.
In this article, we will look at the various ways that crypto investors could possibly earn passive income.
How Passive Crypto Income Works
Passive crypto income is when people earn cryptocurrencies without actively participating in activities such as crypto trading or gambling. Basically, you will be using different tactics to put your crypto assets to work and make profits for you. The expected profits and timeframe related to reaping the profits vary from method to method. Whatever investment option a person finally decides on should be aligned with their risk tolerance and investment goals. There are different ways in which investors can earn passive income, which include but are not limited to staking, lending, liquidity pools, and mining.
Staking
Staking crypto is like giving your support to a blockchain network in exchange for crypto rewards. You are basically helping to verify transactions and secure the network. Staking can be highly profitable as shown by a recent report where staking rewards beat S&P 500 dividends by 450%.
The profitability of your staking investment depends on the crypto coin you are staking, the amount of time you are staking for, and the staking platform you are using. For example, staking Ethereum (ETH) can give around 4-6% per year, whereas staking other coins can give higher or lower returns depending on the network's parameters and the staked coin. Other projects that offer staking besides Ethereum are Cardano (ADA) and Polkadot (DOT).
Crypto Lending
This is a way to earn interest on your crypto assets by lending them out to others. The crypto lending system is similar to that of traditional banking, except that in this case you will be using cryptocurrencies instead of fiat currencies. You deposit your crypto into a lending platform like Celsius or BlockFi, and they lend it out to borrowers who pay you interest on the loan. The interest is paid out in the same currency as the loan.
The interest rates can vary depending on the platform and the type of cryptocurrency you are lending, but generally, lending stablecoins like Tether USD (USDT) or USD Coin (USDC) can give higher returns compared to other cryptocurrencies.
Crypto Mining
Crypto mining involves solving complex mathematical problems using specialized hardware, also known as mining rigs. Crypto mining serves two purposes:
First, it verifies transactions on the network, making sure that they are correct and secure. By solving these mathematical problems, miners add transactions to the blockchain, creating a permanent and unchangeable record of all activity on the network. Second, miners are given newly minted coins for their efforts, which serves as an incentive to keep the network running smoothly. This process, known as Proof of Work, is how new coins are created and distributed and how people earn passive income through mining.
Bitcoin mining is the most well-known form of crypto mining, but other coins like Ethereum, Litecoin, and Dogecoin can also be mined. However, mining has become more difficult and expensive as it uses specialized hardware and significant amounts of electricity. One alternative to avoid these complications is cloud mining, where you lease mining capacity from a company that operates a mining farm. This requires less upfront investment but can have lower returns than traditional mining.
Dividend-paying Cryptocurrencies
You can earn passive income by holding dividend-paying cryptocurrencies, also known as dividend coins, in your crypto wallet. These coins work in the same way that dividend-paying stocks do, where the company distributes some of its profits to shareholders.
One popular example of a dividend-paying crypto is NEO, which allows users to claim GAS tokens as dividends just for holding NEO in their wallet. Other dividend-paying coins include KuCoin Shares (KCS), Ontology (ONT), and VeChain (VET). The amount of dividends you receive will depend on the specific coin and how much of it you hold.
Yield Farming
Yield farming, which is also sometimes called liquidity mining, is one way to earn passive income by providing liquidity to decentralized finance (DeFi) platforms. You deposit your crypto into a liquidity pool on a DeFi platform, such as Uniswap or SushiSwap, which will be used to facilitate trades on the platform. In return, you receive a portion of the fees generated by the platform, usually paid out in the platform's native token.
Crypto Trading Bots
Automated trading bots can help users generate passive income by carrying out trades on their behalf based on fixed trading strategies. They can monitor market trends, analyze data, and make trades based on algorithms, all without the need for human intervention.
Crypto trading bots can be a good option for generating passive income because they can potentially execute trades more efficiently than humans. However, they do require some level of setup and maintenance, and there is always a risk that the bot will not perform as expected or that it will make trades that result in losses. Popular crypto trading bots include Cryptohopper, 3Commas, and Gunbot.
Airdrops
An airdrop is the distribution of free tokens or coins to users, often as a marketing strategy to attract attention and adoption of a new cryptocurrency or project. Airdrops are generally free to participate in but may require users to perform certain actions, such as holding a specific coin in their wallet or following a project's social media accounts.
They can be a good way to earn crypto passively, but they can also be risky, as many new projects are untested and may not have strong fundamentals or strong community backing. It is important to thoroughly research any airdrop before participating.
Tokenized Real Estate
Tokenized real estate refers to the process of using blockchain technology to digitize ownership rights to physical real estate, such as a house, office building, or retail space. Some platforms allow users to invest in real estate assets through tokenization, enabling them to earn passive income through rental yields or property appreciation.
Rather than owning a traditional paper deed, tokenized real estate allows for part ownership, where investors can buy and sell small shares of the property in the form of digital tokens. This opens up the real estate market to a wider range of investors, including those who may not have had the capital to buy a whole property before.
Crypto Affiliate Marketing
Affiliate marketing is a popular way to earn income, both in the traditional and crypto worlds. In the crypto space, it involves promoting products or services related to cryptocurrencies and receiving a referral commission when someone clicks on your affiliate link and makes a purchase.
For example, if you promote a crypto trading platform like Coinbase and a user signs up using your link, you can earn a commission on the fees they pay for trades. For you to succeed in crypto affiliate marketing, you will need a platform for sharing your links, such as a blog, social media account, or email list.
Crypto Passive Income and Taxes
Just like any other source of income, such as traditional investments, dividends, or interest, crypto passive income is subject to taxation. How you will be taxed depends on the source of your passive income and your location. For example, in the United States, staking rewards are generally considered taxable income, while cloud mining income may be treated as business income. It is important to keep accurate records of your crypto passive income and report it on your tax return to avoid any penalties or legal issues.
Things to Remember
- Cryptocurrencies are associated with high volatility and uncertainty; therefore, anything to do with crypto should be handled with caution.
- The blockchain is being targeted by fraudsters and hackers time and time again, so it is up to investors to protect their crypto assets.
- Investment scams promise to make you lots of money with no risk at all, but there is no such thing as a risk-free investment. An investment can be low-risk but not completely risk-free.
Conclusion
While it is very possible to earn a passive income with cryptocurrency, it is important to always do your own research on the method you intend to use. As mentioned earlier, crypto can be earned both passively and actively, and each comes with its own risks and challenges. Earning passively is not for everyone, as some people prefer a more hands-on approach like betting using crypto at online casinos to earn quickly. For you to get the most out of your crypto investments, you should strike the right balance between expected risk and potential reward.
