List of contents

  • What is passive income?

  • What are the ways to generate passive income with crypto?

    • Mining

    • Staking

    • Lending

    • Running a Lightning node

    • Affiliate Program

    • Masternodes

    • Forks dan airdrops

    • Blockchain-based content creation platform

  • What are the risks in generating passive income with crypto?

  • Closing


What is passive income?

Trading or investing in projects is one way to earn money in the blockchain industry. However, it usually requires in-depth research and a significant investment of time – but it still won't guarantee a reliable source of income. 

Even the best investors can experience long or sustained periods of loss, and one way to survive those losses is to have alternative sources of income.

There are several methods other than trading or investing that can help you increase your cryptocurrency assets. It can provide the same ongoing income as earning interest, but requires only some effort to get started and little to no effort to keep it going.

Thus, you can have several sources of income, which, when combined with others, can amount to quite a small amount.

This article will take you through several ways you can try to earn passive income with crypto.


What are the ways to generate passive income with crypto?

Mining

Mining is basically using computing power to secure a network to receive wages. Although it does not require ownership of cryptocurrency, this is the oldest method of generating passive income in the world of cryptocurrency.

In the early days of Bitcoin, mining using everyday Central Processing Units (CPUs) was a viable solution. Since the network's hash rate increased, most miners switched to using more powerful Graphics Processing Units (GPUs). As competition increases even more, it has almost become a battleground for Application-Specific Integrated Circuits (ASICs) - electronics that use mining chips made specifically for this purpose.

The ASIC industry is highly competitive and dominated by companies that have the resources to undertake research and development. Even if these chips eventually reach the retail market, they are likely to be outdated and will require a long mining time to reach break-even.

Thus, Bitcoin mining has mostly become a corporate business, no longer a viable source of passive income for individuals.

On the other hand, mining Proof of Work coins that have a low hash rate can be a profitable venture for some people. On this network, using a GPU still makes sense. Mining lesser-known coins carries the potential for higher rewards, but comes with higher risks as well. Mined coins can turn worthless in a matter of days, have low liquidity, experience bugs, or other adverse factors.

It should be noted that setting up and maintaining mining equipment requires an initial investment and some technical expertise. 


Staking

Staking is essentially an  alternative to mining with smaller resources. This typically requires storing funds in a specific wallet and performing various network functions (such as validating transactions) to receive staking rewards. Stake (stored tokens) incentivizes maintaining network security through ownership.

The staking network uses Proof of Stake as a consensus algorithm. There are other versions, such as Delegated Proof of Stake or Leased Proof of Stake.

Typically, staking involves setting up a staking wallet and simply depositing coins. In some cases, the process involves adding or delegating funds to a  staking pool. Some exchanges do this for you. All you have to do is just deposit your tokens on the exchange and all technical requirements will be resolved.

Staking can be a brilliant way to increase your amount of cryptocurrency with minimal effort. However, some staking projects employ the tactic of artificially inflating projected staking returns. It is therefore critical for you to investigate the token economic model in effectively mitigating the promising projected staking rewards. 

Binance Staking supports many types of coins that you can earn through staking rewards. Simply deposit coins into Binance and follow the guide to get started.


Lending

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 your funds for a certain period and then receive interest payments. The interest rate is fixed (set by the platform) or also set by you based on the current state of the market.

Some exchanges with margin trading have this feature in their platforms.

This method is ideal for long-term holders who want to increase their assets with little effort. It is worth noting that locking funds in a smart contract always carries the risk of bugs.

Binance Lending offers a variety of options that allow you to earn interest on your holdings.

 

Running a Lightning node

 The Lightning Network is a second layer protocol that runs on top of a blockchain, like Bitcoin. It is an off-chain micropayment network, meaning that it can be used for fast transactions that are not directly transferred to the underlying blockchain.

Transactions on the Bitcoin network are typically one-way, meaning that if Alice sends bitcoins to Bob, Bob cannot use the same payment channel to send those coins back to Alice. However, the Lightning Network uses a two-way channel that requires two participants to previously agree to the terms of a transaction.

Lightning Nodes provide liquidity and increase the capacity of the Lightning Network by locking bitcoin into payment channels. It then collects fees on payments run on their channels.

Running a Lightning node can be challenging for bitcoin owners who are not technically savvy, and the results depend largely on overall adoption of the Lightning Network.


Affiliate Program

Some crypto businesses will reward you for inviting other users to their platform. This includes affiliate links, referrals, or discounts offered to new users you introduce to the platform.

If you have a large social media following, affiliate programs can be a brilliant way to generate additional income. However, to avoid low-quality projects, it is always advisable to research the services beforehand.

If you are interested in making passive income with Binance, please join the Binance Affiliate Program and get rewarded as you introduce Binance to the world!


Masternodes

In simple terms, a masternode is similar to a server, but runs on a decentralized network and has functions that are not performed by other nodes on the network.

Token projects tend to grant privileges only to parties who have a high incentive to maintain network stability. Masternodes typically require large upfront investments and considerable technical expertise to get started.

However for some masternodes, token ownership requirements can be very high making staking illiquid. Projects with masternodes also tend to inflate their projected returns, so it is always important for you to do your own research (DYOR) before investing.


Forks dan airdrops

Taking advantage of a hard fork is a relatively easy tactic for investors. Simply hold the coins that will be forked when the hard fork occurs (usually determined by the  block height). If there are two or more competing chains after the fork, holders will have a token balance on each chain.

Airdrops are similar to forks, all that is required is ownership of the wallet address at the time the airdrop occurs. Some exchanges hold airdrops to their users. Please note that receiving an airdrop never requires you to share your private keys - this is a sign of a scam.


Blockchain-based content creation platform

Advances in distributed ledger technology have brought many new types of content platforms. This allows content creators to monetize their content in a variety of unique ways without including annoying ads.

In such systems, content creators retain ownership of their creations and typically monetize attention in various ways. This may initially require a lot of work but can provide a steady source of income when a substantial body of content is available and ready to market. 


What are the risks in generating passive income with crypto?

  • Buying low-quality assets: Misleading or artificially inflated returns can cause investors to buy assets that end up having very little value. Some staking networks adopt a multi-token system where rewards are paid on a second token, leading to constant pressure to sell staking tokens.

  • User error: Since the blockchain industry is still in its infancy, starting and maintaining this source of income requires technical expertise and critical thinking. For some holders, it may be best to wait until the services are more user friendly, or they only use a few services that require little technical competence.

  • Lock-in period: Some lending or staking methods require you to lock funds for a certain time. This makes your holdings illiquid at the time, leaving you unable to do anything when something happens that might negatively affect the value of your assets. 

  • Bug risk: Locking your tokens in a staking wallet or smart contract is always a risk of bugs. Typically, there are several options available with varying levels of quality. It is important to research these options before deciding.


Closing

Ways to generate passive income in the blockchain industry continue to develop and become increasingly popular. Blockchain businesses have also adopted several methods, providing services generally known as mining.

As these products become more secure and reliable, they will likely become the right choice as a source of regular income.