What is passive income?
Buying and selling cryptocurrencies or investing in projects is one way to make money in the blockchain industry. However, this often requires detailed research and a significant investment of time on the part of the participant - but it still does not guarantee a reliable source of income.
Even the best investors can endure prolonged losses, and one of the ways to survive is to have alternative sources of income.
Besides buying, selling and investing in cryptocurrency, there are other ways for you to increase the amount of cryptocurrency you hold. This money can give you a regular income stream like interest with little effort to set up and maintain easily.
This way, you can have several sources of income, and together they can bring you a large amount of money.
This article will introduce some ways you can earn passive income with cryptocurrency.
Ways you can earn passive income with cryptocurrency?
Mining (mining) of cryptocurrency
Cryptocurrency mining is essentially the use of computing power to secure a network in order to receive rewards. You don't need to hold cryptocurrency to do this, but this is the first method to earn passive income in the crypto space.
In the early days of Bitcoin, miners could mine daily on a Central Processing Unit (CPU). As the network hash rate increased, most miners switched to using more powerful Graphics Processing Units (GPUs). As competition becomes fiercer, cryptocurrency mining has almost become the playground of Application Specific Integrated Circuits (ASICs) - which are electronic devices that use mining chips specifically designed for cryptocurrency mining.
The ASIC industry is very competitive and is dominated by corporations with large resources available to undertake research and development. By the time these chips hit the retail market, they are likely to be outdated and users will have to spend a significant amount of time mining to reach the break-even point.
As such, Bitcoin mining has virtually become a corporate business and no longer a potential source of passive income for ordinary users.
On the other hand, mining Proof of Work coins with lower hash rates can still be profitable for some. On these networks, miners can still use GPUs. Mining lesser-known coins can offer higher rewards, but comes with higher risks. Mined coins can become worthless overnight, and they have low liquidity, can be buggy or hindered by many other factors.
Setting up and maintaining mining equipment in particular requires an initial investment and some technical expertise.
Staking
Staking is essentially a less resource-intensive alternative to cryptocurrency mining. Staking is holding cryptocurrency in a suitable digital wallet and performing various operations on the network (such as validating transactions) to receive staking rewards. Stakes (the number of tokens you hold) reward users for maintaining the security of the network through their ownership.
Staking networks use Proof of Stake as their consensus algorithm. They also come in other versions, such as Delegated Proof of Stake or Leased Proof of Stake.
Normally, to stake you need to set up a wallet and keep your stake in it. In some cases, to perform this process you need to add or authorize those shares to a group of shares. Some exchanges will do this for you. All you need to do is keep your tokens on the exchange and the exchange will be responsible for all the technical requirements.
Staking can be a great way to increase your cryptocurrency holdings easily. However, some equity projects use tactics to artificially increase the expected rate of return. So you need to look closely at token economic models as they can reduce the predictions of bonuses promised for staking.
Binance Staking supports many cryptocurrencies that will help you earn bonuses. Just deposit to Binance and follow the instructions to get started.
Loan
Lending is a completely passive way to earn interest on your cryptocurrency holdings. There are many peer-to-peer (P2P) lending platforms that allow you to lock in your capital for a period of time to collect interest later. Interest rates can be fixed (set by the platform) or set by you based on current market rates.
Some exchanges with margin trading have implemented this feature on their platforms.
This method is ideal for cryptocurrency investors who want to increase their holdings without much effort. It is worth noting that locking funds in a smart contract always carries the risk of technical errors.
Binance Lending offers many options that allow you to earn interest on your cryptocurrency holdings.
Run a Lightning node
The Lightning Network is a second layer protocol that runs on a blockchain like Bitcoin. It is an offline micropayment network, which means it can be used for quick transactions without being immediately transferred to the underlying blockchain.
Typical transactions on the Bitcoin network are one-way transactions, meaning that if Alice sends a bitcoin to Bob, Bob cannot use the same payment channel to send the same amount back to Alice. However, the Lightning Network uses two-way channels that require two participants to agree to the terms of the transaction in advance.
Lightning nodes increase the liquidity and capacity of the Lightning Network by locking bitcoin into payment channels. They then collect fees from payment transactions that flow through their channels.
Running a Lightning node can be challenging for non-technical bitcoin investors, and the reward amount depends heavily on the overall implementation of the Lightning Network.
Linked program
Some cryptocurrency businesses will reward you for referring more users to their platform. This includes affiliate links, referrals or another discount offered to new users you refer to the platform.
If you have a lot of people following your social media, affiliate programs can be a great way to earn extra income. However, to avoid spreading low-quality projects, you should learn about those services in advance.
If you are interested in earning passive income with Binance, join the Binance Affiliate Program and get rewarded for telling people about Binance!
Master node
Simply put, a master node is similar to a server but one that runs in a decentralized network and has functionality that other nodes on the network do not have.
Token projects tend to only offer special perks to highly motivated participants to maintain network stability. A master node typically requires a sizable upfront investment and requires participants with good technical expertise to set up.
However, for some master nodes, the requirement to hold tokens can be so high that it causes the stake to become illiquid. Projects with master nodes also tend to increase the expected rate of return, so you need to do your own Research (DYOR) before investing in a project.
Updates (forks) and free cryptocurrency airdrops (airdrops)
Taking advantage of a forced update (hard fork) is a relatively simple tactic for investors. This only requires them to hold the coins that were updated on the update date (usually determined by block height). If there are two or more competing chains after the update, the owner will have the token balance of each chain.
Free cryptocurrency releases (airdrops) are similar to updates in that they only require ownership of a wallet address at the time of the airdrop. Some exchanges will do airdrops for their users. Note that in order to receive the airdrop, you never need to share your private key - if you are asked to do so it is a sign of a scam.
Blockchain-based content creation platform
The advent of distributed ledger technologies has enabled many new types of content platforms. This allows content creators to monetize their content in many unique ways that don't include intrusive ads.
In such a system, content creators maintain ownership of their creations and often monetize their content in some way. This may require a lot of work for the content creator initially but can provide a steady stream of income once they have a significant amount of content.
What are the risks of earning passive income with cryptocurrency?
Buying a low-quality asset: An artificially inflated or miscalculated rate of return can lure investors into buying an asset with a very low value. Some staking networks adopt a multi-token system, where rewards are paid in a second token, which creates constant selling pressure for the rewarded tokens.
User error: Because the blockchain industry is still in its infancy, establishing and maintaining these income streams requires technical expertise and an inquiring mindset. For some investors, it may be best to wait until these services become more user-friendly or to use only those that require minimal technical competence.
Lock-in period: Some loan or equity options require you to lock in the funds for a certain period of time. This leaves your assets illiquid during that time, leaving you vulnerable to any event that could negatively affect the price of your assets.
Risk of technical errors: Locking your tokens in a staking wallet or smart contract always carries the risk of technical errors. Usually, there are many types of e-wallets with different levels of quality. You need to research these options before choosing. Open source software can be a good starting point, as those options are at least community-verified.
Conclude
There are more and more ways to generate passive income in the blockchain industry and they are becoming popular. Blockchain businesses have also been adopting some of these methods, providing services commonly known as generalized cryptocurrency mining.
As these services become more reliable and secure, they may soon become a good option for a steady stream of income.
