Crypto markets experience massive boom and bust cycles that lead to headlines and front-page news. This has brought with it a lot of new users interested in making high returns on their investments through crypto. But what if you don’t want to be exposed to high volatility in your investments? The crypto industry still has investment opportunities for you.
How To Make Money in Crypto?
Usually, users who earn massive returns from trading and investing crypto tokens garner the most attention. But there are several other methods to earn crypto with more stability than buying and selling. Read on to find some of the easiest ways to earn income passively.
Blockchains require all blocks to be validated before they can be finalised. This is known as achieving consensus and blockchains use different mechanisms to reach it. Popular coins like Bitcoin and Litecoin use the Proof of Work consensus mechanism.
Under this system, users or “miners” must employ their computers to solve complex cryptographic puzzles. The first to arrive at the solution is rewarded for the time and energy expended. This is known as the block reward for mining.
You can start earning a passive income with mining today. Simply choose a blockchain to mine on and download the required tools. Alternatively, you can join mining pools which groups computers together and use their combined power to increase the likelihood of earning rewards.
The most popular alternative to Proof of Work is Proof of Stake. Under this system, you don’t have to expend any computational power or energy. Instead, you simply have to “stake” or lock in the native token of the blockchain. This acts as proof of your investment.
If you have enough tokens staked, you can create a “node” and begin validating transactions. However, this can be costly and prohibitive. On some other networks that use Delegated Proof of Stake, you can delegate your tokens to an active validator and earn a share of their block rewards.
Read more: What is Staking Crypto
For users already invested in the crypto ecosystem, this can be a simple way to earn more. To begin staking, simply open a crypto wallet, purchase the required number of tokens and select the staking option.
Yield farming refers to providing liquidity for lending and borrowing services and earning interest from it. This process involves locking your tokens into the smart contracts of a decentralised finance app. The app’s protocol automatically connects borrowers to the pool of funds, who pay interest for using the funds.
The borrowers are usually other DeFi applications that need quick access to liquidity, so the repayment risk is low. It is a popular choice for passive income but requires you to research the pools you lock your tokens in.
Decentralised crypto exchanges usually enable peer-to-peer transactions in a fast and secure manner. However, operating on a purely P2P basis can lower the volumes of the platform. This is where liquidity mining comes in.
To achieve the required level of liquidity for smooth functioning and market making, liquidity pools provide coin swap pools. The pool contains a pair of crypto tokens that can be swapped for each other. For example, a BTC/USDT pool allows you to exchange BTC coins for USDT tokens and vice versa.
Providing your tokens to a liquidity pool makes you an LP (liquidity provider). LPs earn a portion of the network fees based on the liquidity they provide. Sometimes, this earning is in the form of a liquidity token that can be staked further to earn more returns.
Standard crypto mining can take place on your personal devices like computers and laptops. However, as more miners enter the process, it gets increasingly difficult and expensive to stay competitive. While you could have mined Bitcoins on your device easily 10 years ago, you must spend tens of thousands of dollars on specialised hardware today to be successful.
This is where cloud mining can help. Cloud mining is a method under which you pay a service provider to be able to use their hardware for crypto mining. These payments are usually monthly payments to access a particular tier of hardware.
There is thus no hardware to maintain, zero capital expenditure and you do not have to worry about your hardware becoming obsolete. This can be profitable if the average return from mining is greater than your subscription cost.
Airdrops are marketing tactics by crypto projects that wish to boost their popularity and circulation ahead of an Initial Coin Offering (ICO). This involves distributing the native token of the project to prospective users for free. This garners more attention towards the token and increases its circulation before it is available for trading.
Read more: What Is A Crypto Airdrop
There are many kinds of airdrops. Some grant you tokens simply by linking your wallet while others require you to complete simple tasks like following the project on their social media page. While airdrops are not consistent or grant high returns, they can be an interesting way to expand your crypto portfolio.
While yield farming is a variation of lending in crypto, it has many other possibilities. As a crypto lender, you can use centralised or decentralised platforms to find borrowers. Alternatively, peer-to-peer lending platforms enable you to lend directly to an individual.
Such platforms usually include a user’s history and credit scores to reduce the risk of non-repayment.
Some crypto platforms offer accounts where your funds and tokens can earn interest. Similar to savings accounts with your bank, the platform uses these funds for lending and staking or other investments. Having a savings account with the platform entitles you to a portion of the returns made using your funds.
Crypto Passive Income Advantages
- Earning income passively can be a simple process with very little oversight on your part once the investment has been made.
- There are several platforms to choose from, through which you can find the solution that works best for you.
- Volatility is much lower in such methods as your investment is not severely impacted by wild swings in a token’s price.
- You can diversify your investments using several of the methods you find to ensure the risk of investment is spread out.
Crypto Passive Income Disadvantages
- While its stability may be positive, earning passively also means you cannot take advantage of a rapid increase in the price of a token.
- As crypto is a new and rapidly expanding industry, there are many projects that exist only to defraud or steal from their users. Do your own research before deciding to invest in a crypto project.
- Decentralised projects rely on their protocols to automate processes like lending or yield generation. Any bugs or vulnerabilities can lead to hackers exploiting the system and stealing your funds or data. Ensure the project you choose regularly undergoes software security checks.
Earning passively through crypto is a huge avenue that is only set to grow in the coming years. There are hundreds of options and platforms to choose from, but it is essential to be careful and conduct research before investing. If you diversify your funds and ensure a project’s validity, returns could surely follow.
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