Earning money often involves locking in work from 9 am to 5 pm and working five days a week. However, there are many ways to easily earn money without requiring much technical expertise.
Passive income is the money you earn without your active participation — similar to a salary. While common approaches involve buying real estate or selling, lesser-known methods, such as those involving cryptocurrency, which can be volatile but potentially yield higher returns, can also produce results.
There are many user-friendly ways to grow your money and digital assets even with a basic amount of cryptocurrency, each with its own pros, cons, and levels of risk. Here are four ways you can use cryptocurrency to generate a stream of passive income.
Mining
According to Ashley Tison, Esq., founder of OZPros, cryptocurrency mining (the process by which blockchain networks finalize transactions) is the "ultimate passive investment."
Tison stated that although it requires a significant amount of capital and resources upfront, cryptocurrency miners generate cryptocurrency assets every minute, every hour, every day — becoming the definition of true passive income through cryptocurrency passive income.
Hold
One tried-and-true method mentioned by our experts is "HODLing" — buying and holding your coins until they increase in value. Since many markets are cyclical, purchasing popular coins, like Bitcoin, and allowing them to appreciate can be one of the safest methods to grow your money.
This method has many advantages, including high profit potential and simplicity. Additionally, it helps investors avoid short-term fluctuations and conversely, can help you avoid the stress and decision-making involved in constantly updating information about short-term price volatility.
There are also some drawbacks. For example, while avoiding short-term fluctuations, HODLers still have to endure the long-term fluctuations of the market. Cryptocurrency prices can be very unpredictable, and the value of your holdings may decrease significantly.
Additionally, there is a lack of diversification. If your assets perform poorly, you may miss the opportunity to diversify your portfolio and reduce risk.
Staking
David Kemmerer, co-founder and CEO of CoinLedger, said that one of the easiest and most popular ways to earn passive income with cryptocurrency is through staking rewards.
"Staking is essentially something that helps support the operation of the blockchain by validating transactions. Those who assist with this can then earn rewards, which is a source of passive income. You don’t have to put in much effort," Kemmerer said.
"All you really have to do is own a type of cryptocurrency that uses a specific proof-of-stake model, then choose how much you want to stake."
In other words, individuals can lock their cryptocurrency on the blockchain and earn rewards when doing so in the form of regular payments of a certain token that can be accrued or sold on exchanges.
Yield Farming
Yield farming is the activity of earning cryptocurrency by depositing assets into liquidity pools on decentralized finance (DeFi) platforms and decentralized exchanges (DEX), such as Uniswap. Jeff Owens, co-founder of Haven1, said this is another way to earn passive income from cryptocurrency.
As he explained, it usually requires depositing two different assets into a liquidity pool.
"Returns can be high — sometimes reaching hundreds of percent — but the risks are also higher due to liquidation from the volatility of the underlying assets," he said. "Yield farming was extremely popular during the DeFi boom of 2021, but significant risks deter many cryptocurrency users from engaging in this activity."