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Investors continue to make money in cryptocurrency by taking advantage of the high price swings in trading coins, with savvy investors using robotized solutions to automate their profits. But is there life beyond the buy-and-hold approach in the crypto industry?
The global crypto market has quadrupled from its 2020 year-end value, reaching a market cap of $1 trillion. Monitoring Ethereum price and other cryptocurrency values can provide insight, though just trading and investing in crypto might not be a guaranteed way to earn passively.
Many investors are familiar with earning passive income with fiat currency. However, advances in the crypto industry have made it possible for individuals to passively earn with cryptocurrency.
Imagine if you could earn more crypto with crypto. Sounds good, right? There are several ways in which investors can do it.
First, let’s look at what passive income is all about.
What is Passive Income?
Passive income is the income that you generate without being actively involved. It is when you no longer trade your time and energy to get paid, but you get paid for the efforts of others and the effort on your money.
According to Steve Fisher, passive income is one of the keys to financial freedom and freedom of time.
6 Ways to Earn Passively With Cryptocurrency
Beyond simply buying and holding, earning interest on your cryptocurrency holdings is something you should consider. Here are some ways in which you can earn passively with cryptocurrency.
#1. Mining
Mining is the oldest way of earning cryptocurrency passively. You get rewarded for using computer power to secure a network transaction.
In the early days of Bitcoin, miners adopted the Central Processing Unit (CPU) to mine. But as the hashrate increased, most miners had to use computers with high Graphics Processing Units (GPU).
However, mining Proof-of-Work coins with a lower hashrate comes with a huge reward, but it can be very risky. For example, the minted coins might become worthless overnight.
It is worth noting that, although there are mining sites that give rewards, the initial cost of investment to set up and maintain the mining equipment might be high.
#2. Staking
Staking involves keeping funds in a secure wallet and validating network transactions to receive staking rewards. The stake (token holding) enhances the maintenance of transactions within the network.
Staking your coins for a specific period is one of the simple ways to earn passive income with cryptocurrency. Most staking networks use Proof-of-Stake as their algorithm.
Proof–of–stake (PoS) involves lending your coins to a network to validate a transaction within the network. The staking platform rewards holders with newly minted coins for staking their crypto in exchange for securing and processing a transaction.
To stake your coins, you have to set up a staking wallet and hold the coins for some time. In most cases, the staking process involves delegating funds to a staking pool.
Some crypto exchanges like Binance offer you an opportunity to stake your coins and earn passively over time. All you have to do is deposit your coins on Binance staking, and Binance will take care of all the technical aspects involved.
For example, you can earn up to 5% interest per annum on your stake if you stake coins such as NEO (NEO), Reddcoin (RDD), or Komodo (KMD).
Staking coins has become one of the best ways to earn passive income with cryptocurrency. Most HODLers stake their coins to increase their investment portfolios.
#3. DeFi Lending
You can earn passive interest in your cryptocurrency holdings by lending your coins. Lending platforms enable you to lock your cryptocurrency into a smart contract.
These funds can be borrowed by other crypto holders and pay you interest over time. Most borrowings in DeFi protocols are locked in smart contracts, and it is almost risk-free. However, you have to ensure that there are no backdoors to the smart contract or the lending platform before lending your coins.
You can also make use of peer-to-peer (P2P) lending platforms to lock your funds and collect interest, which can either be fixed or set by you.
#4. Running a Lightning Network Node
Another way you can earn passive income with cryptocurrency is by running Lightning nodes. You may be wondering whether cryptocurrencies will be able to handle millions of transactions daily.
The simple answer is yes, Lightning Network (LN) is a second-layer technology that can amplify the number of transactions. The Lightning Network is an off-chain payment method which means most can be used for quick transactions without being sent to the underlying Blockchain.
Lightning Network users can create LN payment systems. You’ll receive the transaction fees as users make use of your Lightning payment system. It is worth noting that running a Lightning Network might not be easy for non-tech holders, and its adoption influences its rewards.
#5. Holding Dividend-Paying Currencies
One of the easiest ways you can earn passive income with cryptocurrency is by holding dividends-paying tokens. Some exchanges issue most of the dividends-paying tokens. Examples of such tokens include NEO and Cosmos.
However, it is important to know that not all tokens pay dividends, and you must do your research before buying any dividend token.
Some tokens offer users trading discounts and, at times, a share of the platform’s profit. For example, KuCoin Token (KCS) and Bibox Tokens (BIX) pay holders up to 50% of the trading fees as dividends.
The good aspect about dividends is that they are consistent and can compound over time, so you’ll be earning without being actively involved. To earn more, you simply need to buy more of the tokens and hold them for some time.
#6. Yield Farming
Yield farming, also known as liquidity mining, constitutes a major part of the DeFi boom. Yield farming is similar to the traditional farming system in which farmers (in this case, investors) expect to generate at least 100% annually.
In yield farming, an investor (yield farmers) deposits digital assets into a trading or lending pool and then stake the protocol’s token to earn returns.
For example, if you are yield farming on PancakeSwap, (Binance Smart Chain yield farm), you have to deposit two tokens into the lending pool. You’ll be able to receive dividends from the trading fees and an additional pool token called LP token.
Then, you can stake the LP token to earn the protocol’s token reward, which is called “cake.”
Yield farming can be a risky venture. It is essential to do your research before engaging in yield farming.
Conclusion
As the number of ways you can earn passively with cryptocurrency continues to increase, there’s only so much money one can make on a daily basis. That’s why it’s important to put your money to work 24/7/365.
One of the ways to attain financial freedom is by creating multiple streams of passive income, and cryptocurrency provides an entirely new way to earn passively online.
So even if you have investments in the traditional market and property, you may want to consider increasing your investment portfolio by putting your cryptocurrency to work for you. Earning passive income with your cryptocurrency is a good way to build long-lasting wealth.
For advanced automated crypto trading strategies, some users turn to tools like Quantum AI, which may help enhance returns in certain scenarios
