Investing in cryptocurrencies can be considered a double-edged sword. You either earn a lot but be at high risk or gain low amounts of money but have a stable portfolio. You may be more or less successful depending on how much time you intend to put into crypto investing. However, spending time educating yourself rather than constantly trading can be more efficient for your long-term goal.
So, whether you buy Ethereum on Binance.com and write smart contracts in the meantime or just tune in with bitcoin, know that you can use these opportunities to generate passive income. The crypto market is quite an offertory regarding earning opportunities, so you only need to decide on what type of crypto investment you want to try and get knowledgeable enough to stay out of the risk zone. Let’s see how.
POS Staking
The proof-of-stake consensus mechanism is one of the most efficient technologies out there. Recently, Ethereum has switched from its old POW (proof-of-work) mechanism to POS, considerably reducing the blockchain’s carbon footprint and eliminating the need for mining.
POS works by validating transactions through staking, which replaces the need for mining in a POW system. In POS, as a validator, you receive new block rewards for which you don’t need expensive computer hardware. However, you may need to make an initial small investment to have sufficient tokens to add the following block to the chain. Some of the best cryptocurrencies for staking include the following:
- Ethereum (ETH)
- Tezos (XTZ)
- Solana (SOL)
- Cardano (ADA
- Cosmos (ATOM)
Lending
As an investor, you can lend out cryptocurrencies in a few ways so that you can charge interest to the borrower. Depending on the total value of the crypto being lent or the duration of the loan, you can gain more or less interest. To earn more income, rates should be high, and loan terms should be longer and also more extensive in terms of quantity. There are four main ways that you can lend crypto:
- Margin lending allows traders to use assets to increase their influence through margin trading. In this case, crypto exchanges get to handle the details on the lender’s behalf;
- Centralized lending requires both parties to rely on intermediaries’ terms and conditions. As interest rates are fixed from the beginning, users need to deposit their crypto on the platform before earning interest;
- Decentralized lending allows users to use lending services directly through the blockchain network. There are no intermediaries included;
- Peer-to-peer loaning is the easiest way for users to borrow from one another. After depositing their crypto into the platform, a person can set the interest rate, terms of loans, and the amount they want to lend, which gives them complete control over how the lending process goes;
Cloud mining
Cloud mining comes as a solution to POW mining, which requires considerable investment in computing hardware. So, instead of having to build an expensive mining rig, people can “rent” hashing power in exchange for a fixed fee, with which they buy cloud mining contracts that prove they can use a certain hash rate for the agreed period of time. The owner of the contract earns coins proportionally to the size of the contract.
There are other benefits to cloud mining. For example, no technical skills or knowledge are required, and you don’t need to do computer maintenance. However, you need to be careful with this method because there are a lot of scammers out there that are so good at what they’re doing that you might be easily fooled. At the same time, the mining company could go out of business, which is something you can’t really predict, and since there’s the risk of long ROI, this might not be the safest method for generating passive income.
Yield farming
Yield farming might not be the best choice for beginners since it’s quite a complex process. It involves locking up crypto in liquidity pools maintained by smart contracts. In other words, as a liquidity provider, you are rewarded for lending your crypto in the form of a percentage of transaction fees or interest from lenders.
Yield farming is more suitable for more experienced people who also have a high-risk tolerance and proper technical skills. That’s because this process has the following downsides:
- Yield farming can be hacked due to flaws in the smart contracts programming;
- Rug pull schemes are typical; scammers create a promising new farming platform through which they steal user funds;
- DeFi applications are volatile since rates can swift their value rapidly, which can affect LPs to earn less interest than expected;
Affiliate programs
If you run a business or want to start one, you might want to try introducing cryptocurrencies into it through affiliate programs. Participating in such programs rewards you for getting others to sign up or open new accounts, so, generally, you need to:
- Sign up or submit an application;
- Recommend a platform or product to a friend or acquaintance;
- Earn the reward when someone signs up for an account;
Earning cryptocurrency through affiliate programs might not be the safest way to do it, but it is one of the easiest, and it can also be relatively safe since you don’t risk your money in the process. It’s essential to learn all the company’s terms of service before getting to work.
As a business, if you want to accept crypto affiliate programs, you need to consider certain factors, such as payment methods or commission rates, since not all of them can be profitable for the company. Given that cryptocurrencies are a good niche for affiliate marketing, you might earn up to 40% more, depending on the guidelines and commission policies agreed upon.
Conclusion
Depending on your experience, you can generate the passive income you wish for. You can start as a beginner with less income, and in time, when you learn more about cryptocurrencies and blockchain technology, you’ll be able to get considerable revenue. However, you need to be mindful of your risks and address your goals according to your real income.
Nina Smith