How much can I earn with cryptocurrencies

How To Make Passive Income Using Crypto - A Beginner's Guide

content

What is passive income?

Trading or investing in projects is one way of making money in the blockchain industry. However, this typically requires detailed research and a significant investment of time, but it has nonetheless proven to be a reliable source of income.

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

There are methods other than trading or investing that can help you increase your cryptocurrency holdings. These can earn current income similar to interest, but require little effort to set up and little or no effort to maintain.

This allows you to have multiple sources of income that, when combined, can add up to a significant amount.

This article is going to highlight some of the ways you can make passive income using crypto.

How can you earn passive income with cryptocurrencies?

Mining

Mining essentially means using computing power to secure a network and get a reward. While it doesn't require you to have cryptocurrencies yourself, it is the oldest method of earning passive income from cryptocurrencies.
In the early days of Bitcoin, mining on a traditional central processing unit (CPU) was a viable solution. As the network's hash rate increased, most miners used more powerful graphics processing units (GPUs). With increasing competition, mining has almost exclusively become the playing field for Application-Specific Integrated Circuits (ASICs) - a technology that uses mining chips specially tailored to this area of ‚Äč‚Äčapplication.
The ASIC industry is very competitive and is dominated by companies that have significant resources to devote to research and development. By the time these chips hit the retail market, they are likely already out of date and would take significant mining time to break even.

Because of this, Bitcoin mining has mostly become a corporate business rather than a viable source of passive income for the average person.

On the other hand, mining proof of work coins with lower hash rates can still be a profitable endeavor for some. The use of GPUs can still make sense in these networks. Mining lesser-known coins promises a higher potential reward, but it also carries a higher risk. The coins could become worthless overnight, have little liquidity, be affected by a programming error or many other factors.

It's worth noting that mining equipment setup and maintenance requires an initial investment and some technical knowledge.

Staking

Staking is essentially a less resource-intensive alternative to mining. It usually involves keeping funds in a suitable wallet and performing various network functions (e.g. validating transactions) in order to receive staking rewards. The stakes (i.e. the token holding) motivate the ownership to maintain the security of the network.
Staking networks use Proof of Stake as their consensus algorithm. Other versions of this are e.g. B. Delegated Proof of Stake or Leased Proof of Stake.
Staking usually involves setting up a staking wallet and simply storing the coins. In some cases, the process involves adding or delegating funds to a staking pool. Some file sharing networks will do this for you. All you have to do is keep your tokens on the exchange and all the technical requirements will be taken care of.

Staking can be an excellent way to grow your cryptocurrency holdings with minimal effort. However, some staking projects use tactics that artificially inflate the projected staking return rate. It is essential to analyze token economy models in advance in order to realistically assess promising staking forecasts.

Binance Staking supports a wide variety of coins that will bring you staking rewards. Simply deposit the coins on Binance and follow the instructions to begin the process.

loan

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

Some margin trading exchanges have implemented this feature natively on their platform.

This method is ideal for long term owners who want to increase their inventory with little effort. It's worth noting that locking funds in a smart contract always carries the risk of making mistakes.

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

Operating a Lightning Node

The Lightning Network is a second-level protocol that runs on a blockchain like Bitcoin. It is an off-chain micropayment network, i.e. it can be used for fast transactions that are not immediately transferred to the underlying blockchain.

Typical transactions in the Bitcoin network are one-way, i. H. when Alice sends a bitcoin to Bob, Bob cannot use the same payment channel to return that coin to Alice. However, the Lightning Network uses bidirectional channels in which the two participants must agree on the terms of the transaction beforehand.

Lightning nodes provide liquidity and increase the capacity of the Lightning Network by integrating Bitcoin into payment channels. They will then receive the fees for the payments that go through their channels.

Operating a Lightning Node can be a challenge for a non-tech-savvy Bitcoin user, and the rewards depend heavily on the general prevalence of the Lightning Network.

Affiliate programs

Some crypto companies will reward you for bringing more users to their platform. This includes affiliate links, referrals or other discounts offered to new users who are introduced to the platform by you.

If you have a larger social media fan base, affiliate programs can be an excellent way to generate extra income. However, to avoid getting the message across about inferior projects, it is always worth doing some research on the services beforehand.

If you are interested in making passive income with Binance, join the Binance Affiliate Program and be rewarded for introducing Binance to the world!

Masternodes

Put simply, a masternode is similar to a server, but is one that runs on a decentralized network and has functions that other nodes on the network do not.

Token projects tend to grant special privileges only to actors who have a high incentive to maintain network stability. Masternodes typically require a significant up-front investment and a considerable amount of technical expertise.

With some masternodes, however, the amount required for token holding can be so high that it effectively makes the stake illiquid. Projects with masternodes also tend to exaggerate the projected returns, so it is always imperative to do your own research (DYOR) before making an investment.

Forks and Airdrops

Using a hard fork is a relatively easy tactic for investors. It is only necessary to hold the corresponding coins on the day of the hard fork (usually determined by the block height). If there are two or more competing chains after the fork, the holder has a token balance for each chain.
Airdrops are similar to forks in that they only require possession of a wallet address at the time of the airdrop. Some exchanges will airdrops for their users. Note that receiving an Airdrop never requires sharing private keys - a condition that is always a tell-tale sign of fraud.

Blockchain-based platforms for content

The advent of distributed ledger technology has enabled many new types of content platforms. These allow authors to monetize their content in a variety of ways without the need for annoying advertisements.

In such a system, the authors of the content retain ownership of their works and usually monetize the perception in some way. This can be a lot of work at first, but it can be a stable source of income once a larger inventory of content is in place.

What are the risks if you want to earn passive income with crypto?

  • Buying an inferior asset: Artificially inflated or misleading returns can lure investors into buying an asset that otherwise has very little value. Some staking networks use a multi-token system where the rewards are paid out in a second token, which creates constant selling pressure on the reward token.
  • User error: With the blockchain industry still in its infancy, setting up and maintaining these revenue streams requires technical expertise and an investigative mindset. For some owners, it may be best to wait for these services to become more user-friendly or to use only those that require minimal technical expertise.
  • Blocking times: Some credit or staking methods require you to lock your funds for a period of time. This effectively makes your holdings illiquid for that period and leaves you vulnerable to any events that can negatively affect the price of your asset.
  • Risk of error: Blocking your tokens in a staking wallet or smart contract always carries the risk of programming errors. As a rule, there are several options with different levels of quality. It is imperative to research these options before deciding on one. Open source software could be a good place to start as these options are at least being explored by the community.

Conclusion

The opportunities to generate passive income in the blockchain industry are increasing and becoming more popular. Blockchain companies have also adopted some of these methods and offer services commonly known as generalized mining.

As the products become more reliable and safer, they could soon become a real option for a stable source of income.