A Beginner's Guide to Getting Passive Income from Cryptocurrency
The goal of investing is to maximize our profits, and one way to do this is to diversify your portfolio across various investment products and types. The ultimate goal is to make money even when we are sleeping. For this to happen, we must make our money work for us, and therefore our portfolio must be designed in such a way as to generate passive income.
The cryptocurrency market is notoriously unstable. When the market often experiences such sharp fluctuations, it is essential to create a source of income that you can rely on. That's where passive income comes in.
This article will tell you what passive income is and how to make your money work to receive passive income in cryptocurrency.
Let's dive into this question!
What is passive income?
Passive income is the income received from your investments without active participation after the initial stage. Put, any of your assets that generate income in themselves are passive income.
The cryptocurrency market can be very volatile, and even the most experienced investors can incur losses for an extended period. In an unstable market where income is never guaranteed, it is essential to create alternative sources of income that will help you earn regardless of market conditions.
This can be done by finding sources of income that bring passive profit. These investments will help you earn a regular payment, similar to receiving interest in a bank, and will require only minimal effort at the initial stage to create and no effort to maintain.
Having multiple such sources of income can help you diversify your portfolio. Moreover, regular investment in such products will help you take advantage of the accrual of compound interest over time. Gradually, you will be able to increase your crypto portfolio to a significant amount.
Ways to get passive income from cryptocurrencies
Let's look at how an investor can earn passive income in the cryptocurrency market.
Mining is the process of receiving a reward for verifying transactions to protect the network by using computing power to solve complex mathematical problems. This is a way to generate passive income in cryptocurrency using OG, which does not require you to have any cryptocurrencies.
When mining cryptocurrencies, cryptography experts use powerful computers to solve complex algorithms and mathematical problems and share "proof of work" to demonstrate the solution. As a reward for their work, the miner who solved the mathematical problem the fastest receives a cryptocurrency or a blockchain token that helps to ensure security.
Although mining is an excellent way to earn passive income in cryptocurrency, installing and maintaining mining equipment can be very expensive. Becoming a miner requires significant investments and some technical experience at the initial stages.
Bitcoin mining has become a corporate business these days. However, individual miners can still participate by joining one of the major mining pools and receiving their share of the reward. Moreover, individual miners can also mine coins with a lower hash rate than Bitcoin. This would mean that they don't require as much computing power, and thus mining can still be profitable. However, mining coins with a lower hash rate comes with risks since these are primarily lesser-known coins that carry little liquidity and can also become useless overnight. Thus, it is essential to conduct your research and make an informed decision.
2. Token staking
Since mining requires significant initial investments and expensive electricity costs, it is difficult for individual miners to organize a profitable mining operation. As a result, token staking has become a more popular way for individuals to earn passive income in cryptocurrency.
Many cryptocurrency Proofs of Stake (PoS), such as Cardano (ADA), allow people who hold their coins or tokens to place bets on their holdings. A person can become a miner in such networks without specifying the initial cost of buying expensive equipment, such as POW cryptocurrency mining.
In PoS mining, the more cryptocurrencies a person has, the more power he has for mining. For example, to become a validator on Ethereum, a minimum of 32 ETH is required to create a betting pool. You can put more than 32 ETH and increase the mining power. Moreover, people with small holdings can also pool their ETH and create a betting pool.
Lending in cryptocurrency works similarly to lending in TradFi - the borrower pays the lender interest. In addition, many credit platforms, such as BlockFi, Gemini, Celsius, and others, allow users to lock their funds on their platform for a certain period and collect interest payments on them.
In cryptocurrency lending, a loan is secured because it always has more crypto assets than what was borrowed. The borrower provides cryptocurrency as collateral, which ensures that the lender will receive compensation even in a problem.
Lenders can also choose between Defi and Ceci service providers. Ceci service providers include platforms such as Celsius, whereas Defi variants include media such as AAVE and Compound.
For long-term holders who plan to keep their cryptocurrency, lending is perhaps the best way to generate passive income.
4. Profitable farming (yield farming)
Profitable farming is a way to earn more cryptocurrency with your cryptocurrency. This is a method of making a cryptocurrency that uses financial products offered by Defi protocols and allows investors to maximize their profits.
This is an opportunity for high-risk and high-return investments, in which investors receive a reward for blocking their cryptocurrency on various Defi platforms.
The traditional way to get a passive income is from investments. Dividends in cryptocurrency work the same way as in conventional financial markets.
Some cryptocurrencies that bring dividends include:
- Tezos (XTZ);
- Cosmos (ATOM);
- VeChain (VET);
- NEO (NEO).
6. Special events
There are many special events in cryptography that are unique to the crypto universe. They represent a good opportunity for investors to maximize their profits.
Special events include:
Airdrops are mainly used to attract attention and new subscribers; airdrops are events in which free tokens are distributed to multiple wallet addresses.
Forks are cases when a new cryptocurrency is formed due to updating the original blockchain. For example, Bitcoin Cash (BCH) and Bitcoin Satoshi Vision (BSV) are forks of Bitcoin (BTC).
Burns are events when a cryptographic company sends some of its tokens to an unusable wallet and "burns" them, making them obsolete. This event leads to an increase in the deficit and the token's value.
Buybacks are events when a cryptographic company buys its token from the public. Such an event leads to a decrease in the supply and an increase in the value of the token. For example, the BNB token has a program to buy back and burn tokens. In addition, burning MakerDAO works similarly to share buybacks.
Rewards - here, users can earn cryptocurrency by interacting with the ecosystem as a whole.
As investors, we love passive income. Who doesn't love making money in their sleep, right? Over the years, the number of ways to generate passive income in cryptocurrency has increased. Initially, there was only a mining method, but now more economical ways of obtaining passive income have appeared for individual investors.
If you want to get started, the Intelfin blog articles will help you learn more about the various ways to make your cryptocurrency work for you.
So, have you already researched receiving the passive income in cryptocurrency? How do you prefer to do this?