Summary

  • What is passive income?

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

    • Mining

    • Staking

    • Loans

    • Running a Lightning node

    • Referral programs

    • Masternodes

    • Forks et airdrops

    • Blockchain-based content creation platforms

  • What are the risks associated with passive income from cryptos?

  • Conclusion


What is passive income?

Trading or investing in projects is one way to make money in the blockchain industry. However, this usually requires extensive research and investing a lot of time, but this will not guarantee a reliable source of income.

Even the best investors can experience prolonged periods of loss, and one way to survive them is to have alternative sources of income.

Methods other than trading or investing can help you increase your capital in cryptocurrencies. This can be recurring income similar to interest earnings, but requiring little effort to set up and little or no maintenance effort.

This way, you can have multiple income streams that, when combined together, can add up to a significant amount.

This article invites you to discover how to generate passive income using cryptocurrencies.


What are the ways to generate passive income with cryptos?

Mining

Essentially, mining is using your computing power to secure a network in order to receive a reward. You don't need to hold cryptocurrencies for this, but it is the oldest method of generating passive income in the cryptocurrency space.

In the early days of Bitcoin, mining with a traditional computer processor (CPU) was a viable solution. As the network hash rate increased, most miners upgraded to more powerful graphics cards (GPUs). As competition has increased further, it has become almost exclusively the playground of specialized products, "Application-Specific Integrated Circuits (ASIC)": electronic devices that use mining chips tailor-made for this specific purpose.

The ASIC industry is highly competitive and dominated by companies with significant resources invested in research and development. By the time these chips appear on the retail market, they are likely already obsolete and require a long time to pay for themselves.

As such, bitcoin mining has become a professional activity rather than a viable source of passive income for an individual.

On the other hand, Proof of Work low hash rate currency mining can still be a profitable business for some. On these networks, the use of GPUs may still be viable. Mining lesser-known currencies offers bigger potential gains, but comes with higher risk. Mined currencies can become very expensive overnight, be illiquid, face a bug, or face many other problems.

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


Staking

Staking is essentially a less resource-intensive alternative to mining. This typically involves holding funds in an appropriate wallet and performing various actions for the network (such as validating transactions) with a view to receiving staking rewards. Stake (i.e. ownership of tokens) motivates maintaining network security through ownership of a large number of tokens.

Networks that offer staking use Proof of Stake as a consensus algorithm. Other versions exist, such as Delegated Proof of Stake or Leased Proof of Stake.

In general, staking involves creating a staking wallet and simply holding the tokens. In some cases, the process involves adding or delegating funds to a staking pool. Some exchanges offer to do this for you. All you have to do is keep your tokens on the exchange, all the technical details will be managed for you.

Staking can be a great way to increase your cryptocurrency funds with minimal effort. However, some staking projects use techniques that artificially inflate the displayed staking rate of return. It is essential to investigate the economic models of these tokens, as they can belie promising reward projections.

Binance Staking supports a wide variety of projects that will allow you to earn staking rewards. Simply deposit your cryptos on Binance and follow the guide.


Loans

Lending is a completely passive way to earn interest on your cryptocurrency funds. There are many peer-to-peer (P2P) lending platforms that allow you to freeze your funds for a period of time in order to earn interest. The interest rate can either be fixed (set by the platform) or set by you based on the current market rate.

Some exchanges that offer margin trading have integrated this functionality natively into their platform.

This method is ideal for long-term holders who want to easily increase their holdings. It should be noted that locking funds in a smart contract always carries a bug risk.

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

 

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 micropayments network, which means it can be used for fast transactions that are not immediately transferred to the underlying blockchain.

Typical transactions on the Bitcoin network are one-way, meaning that if Alice sends a bitcoin to Bob, Bob will not be able to use the same payment channel to send that coin back to Alice. The Lightning Network, however, uses two-way channels, which requires both participants to agree to the terms of the transaction beforehand.

Lightning nodes provide liquidity and increase the capacity of the Lightning Network by locking Bitcoin into payment channels. They then collect fees for payments made through these channels.

Managing a Lightning node can be a challenge for an unsavvy bitcoin holder, and the rewards are highly dependent on overall adoption of the Lightning Network.


Referral programs

Some crypto companies will reward you for attracting more users to their platform. These include affiliate links, sponsorships, or other discounts offered to new users you have introduced to the platform.

If you have a large number of followers on social media, affiliate programs can be a great way to generate side income. However, to avoid publicizing poor quality projects, it is always useful to research the services beforehand.

If you want to generate passive income with Binance, join the Binance Affiliate Program and get rewarded for introducing the world to Binance!


Masternodes

To simplify, a masternode is similar to a server, but it runs in a decentralized network and has features that other nodes in the network do not have.

Projects tend to grant special privileges only to those actors who have a vested interest in maintaining network stability. Masternodes generally require a significant initial investment and considerable technical expertise to set up.

For some masternodes, however, the token balance requirement may be so high that it makes staking illiquid. Masternode-based projects also tend to inflate projected returns, so it is always essential to do your own research (DYOR) before investing in a project.


Forks et airdrops

Taking advantage of a hard fork is a relatively simple tactic for investors. Simply hold currencies before the hard fork event (usually determined by block height). If there are two or more competing chains after the fork, then the holder will own a balance of tokens on each of them.

Airdrops are similar to forks in that they only require having a wallet address at the time of the Airdrop. Some exchange platforms will airdrop to their users. Note that receiving an airdrop will never require sharing private keys. Such a prerequisite constitutes a telltale sign of a scam or scam.


Blockchain-based content creation platforms

The advent of distributed database technologies has enabled the emergence of new types of content platforms. These allow content creators to monetize content in several unique ways and without the inclusion of intrusive advertisements.

In such a system, content creators retain ownership of their creations and usually monetize attention in some way. This can be a lot of work initially, but can be a steady source of income once a larger content pipeline is built up.


What are the risks associated with passive income from cryptos?

  • Purchasing low-quality assets: Inflated or misleading rates of return can tempt investors to purchase an asset that otherwise has very little value. Some staking networks adopt a multi-token system in which rewards are paid in a second token, which creates constant selling pressure for the reward token.

  • User error: As the blockchain industry is still in its infancy, establishing and maintaining these revenue streams requires technical expertise and critical thinking. For some crypto owners, it may be best to wait until these services become easier to use or only use those that require minimal technical skills.

  • Lock-up periods: Some lending or staking methods require you to lock up your funds for a certain period of time. This makes your positions effectively illiquid during this period, leaving you vulnerable to any events that could negatively impact the price of your asset.

  • Risk of bugs: Locking your tokens in a staking wallet or smart contract always carries the risk of bugs. Generally, there are several choices available with varying degrees of quality. It is imperative to research these choices before committing. Free software can be a good place to start, as these options are at least verified by the community.


Conclusion

Ways to generate passive income in the blockchain industry are growing in number and popularity. Blockchain companies have also adopted some of these methods, providing services commonly referred to as “broadcast mining.”

As products become more and more reliable and safe, they could soon become a valid option for building a source of regular income.