DISCLAIMER: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory course for any loss from such transactions.
In addition to buying and trading crypto assets, you can make money from crypto investments by turning them into a passive source of income.
In a time when bitcoin is becoming more broadly acknowledged and more financial ventures are forming that are backed by cryptocurrencies, crypto enthusiasts must understand how to properly navigate this new sea of options.
The term passive income refers to income sources in which a person is not actively involved. All you need to do to generate passive cryptocurrency income is invest your digital assets in a certain crypto investment platform or method. By doing this, you will be able to create a new passive income stream that will allow you to earn money without having to put in a lot of continuing work.
Staking
Staking cryptocurrencies is a method that involves engaging your crypto assets to support a blockchain network and confirm transactions. It is possible with cryptocurrencies that use the proof-of-stake mechanism to process payments.
In this way, you can use your crypto assets to work for you and earn rewards from it.
Yield farming
Yield farming is a method of earning cryptocurrencies by temporarily lending crypto assets to DeFi platforms for interest.
The primary product of the DeFi market is decentralized exchanges, which rely on interested investors to help them facilitate trades. A yield farmer receives a percentage of the fees from platforms when they supply liquidity.
The funds locked in the liquidity pool provide liquidity to a DeFi protocol, where they are utilized to facilitate trading, lending, and borrowing. By providing liquidity, the platform earns fees that are paid out to investors according to their share of the liquidity pool.
Mining
Mining was the primary way to earn passive income with crypto. This process allows you to receive a reward for securing a network using computing power. It is not necessary to own cryptocurrency to profit from passive mining.
Initially, miners used to mine Bitcoin on a standard computer or general-purpose mining rigs. As the hash rate climbed, miners started utilizing more powerful computers.
However, mining has become a corporate business and is becoming increasingly out of reach for an average person to use as a source of crypto passive income.
Savings account
Another conservative and typically secure way to profit passively from cryptocurrency is through savings accounts. By opening a crypto savings account, users can get a return on their cryptocurrency deposits. They function similarly to the financial products that conventional banks provide.
The prime reason for considering a crypto savings plan is the high yield or interest rates between 10 and 20% that several exchanges provide.
But it is important to remember that crypto assets can fluctuate which can impact the annual yield.
Lending Platforms
By lending your digital assets to borrowers, you can generate passive revenue in the form of interest. You can earn a profit by providing liquidity to other crypto users. The loan will be paid back to you, with interest, with a DeFi platform acting as the intermediary.
The four main lending methods for generating passive cryptocurrency income are Decentralised or DeFi Lending, Centralised Lending, Peer-to-Peer Lending (P2P), and Margin Lending.
Dividend-earning tokens
A dividend is a portion of the profit that is paid to shareholders in a business. Crypto dividends work the same and are obtained when the company behind the crypto distributes its profit to its cryptocurrency holders
Staking is considered by some to be a form of cryptocurrency dividend while it is not by others. The difference is that staking is a reward for maintaining the crypto’s network. They are often the fees that the network earned from transactions. Dividends, on the other hand, come from the overall profits.
The majority of cryptocurrencies do not offer dividends. However, there are still several cryptocurrencies that pay dividends.
Liquidity Pools
Although there are some risks, this is a long-term approach to making money with cryptocurrencies online because liquidity pools are the backbone of the DeFi ecosystem. These pools are also necessary for a vast array of crypto-related businesses.
It entails putting money into a huge digital pile where all of these assets are protected by smart contracts. These pools make lending, decentralized trade, and several other functions possible.
The liquidity providers can benefit from passive income in the form of trading fees, which come from a portion of a trading fee from the activity of trading in a pool, in exchange for offering their money.
However, there is also the possibility of temporary loss for a liquidity provider, which occurs when the value of a crypto asset placed into a liquidity pool changes from its initial value.
Referrals, affiliates, Airdrops, and forks
There are numerous varieties of referral and affiliate programs out there. These schemes pay you back for introducing clients to use their service.
Forks occur when a current coin splits off into a new chain. They reward you for supporting the original product. Airdrops happen when new coins are created and “dropped” onto users as a reward for one reason or another. All these act as an incentive to try out a new crypto product.
There are several ways to use cryptocurrencies for passive income, each requiring a different level of technical expertise, work, and risk. Cryptocurrencies are highly volatile and price reductions can easily overshadow the benefits you receive. When using cryptocurrencies to generate passive income, consumers should understand all risks. Although a high rate of return is possible, a total loss is also a possibility.
