In the cryptocurrency industry, you can earn money by trading or investing in projects. However, usually for this you need to study a large amount of information and spend a lot of time, and this still does not guarantee a steady income. This is an “active” way to make money, because the amount received will depend on the efforts made (and deliberate decisions). However, there is another way to get money - “passive income”. Want to learn a little more about how to make money and do nothing?
What is passive income?
Passive income is a way of earning, in which the investor receives a certain amount for the actions of other people. This happens in different ways: in the traditional fiat system, the bank gives a small percentage of the money that you block in your savings account; some network companies pay a commission for each transaction in which one of your partners participates. In both examples, you do nothing, but you still get money, even if the bank (or sales representative) does all the work. Why? Because they can use your money or reputation.
How to get passive income in the cryptocurrency industry?
Over the years, people have come up with new ways to make money using cryptocurrencies while you sleep. Consider some tried and tested methods for generating passive income in the cryptocurrency industry.
The process of conducting a transaction and receiving rewards through new coins. Mining is not suitable for everyone; it requires expensive special equipment, technical knowledge and a huge amount of energy. As a result, the industry has become very competitive, with large corporations dominating. Mining is no longer as profitable as before, and not very effective as a source of passive income for most people.
Although some of them can make good profits by mining coins with a PoW algorithm with a lower hashrate and higher potential reward. However, a higher reward carries a higher risk, as little-known coins have low liquidity and may be useless.
How to start mining?
It all depends on the algorithm of the cryptocurrency. Some cryptocurrencies (for example, Monero) can be mined using a conventional computer, while others (for example, ethereum) require powerful video cards. And some, such as Bitcoin, will require expensive, state-of-the-art equipment, such as ASICs (specialized integrated circuits).
Another option is to join the mining network, pay an entrance fee and work together with other miners. In this case, you do not need to spend thousands of dollars to start work, but the reward will decrease, given that it will have to be shared with the team.
They give you cryptocurrency for free because you have other coins, or because you use a specific wallet or fulfill certain conditions, for example, register on the exchange, or subscribe to the newsletter. Do not forget to study potential airdrops - there may be fraudulent schemes among them. And never give your private keys to anyone.
Some companies reward users for helping develop their platform (usually through links or referrals). If you have a large number of subscribers on social networks, affiliate programs can be a good way to earn easy money.
Masternodes are servers that support a blockchain network; they have advanced features that other nodes on the network do not have. To start a masternode, as a rule, significant initial investments are required, as well as a high level of technical literacy.
Staking allows you to generate passive income regardless of the volatility of the cryptocurrency market. The bet first appeared in 2012 and was used as a reward system for Peercoin (PPC), a coin based on the Proof of Stake algorithm (proof of stake). The probability of becoming the validator of the next block is proportional to the number of coins that you hold in your wallet.
In some cases, traders add funds to the staking pool, and exchanges take on the technical aspect.Cryptocurrency staking, in fact, is similar to interest on a bank deposit, only here coins are blocked on your wallet.Staking participants can be compared with cryptocurrency miners using the Proof-of-Stake algorithm.
- You do not need expensive equipment for mining, there are no huge electricity bills.
- The value of your stake (staking) does not depreciate over time, unlike mining equipment.
- The value of your share is influenced by market dynamics.
- Coins are locked in the wallet for a certain time; during this period they can not be used.
- Some projects falsify the predicted rate of return, so it is important to carefully research the economic models of tokens.
DeFi or decentralized finance is what Ethereum calls its smart financial contracts and decentralized applications (DApps). They use decentralized networks to enhance traditional financial products. DeFi applications control digital assets worth $ 700 million (as of November 2019), and users can earn 5-20% on cryptocurrency lending platforms.
There are three ways to make money using DeFi: leverage, P2P lending, and liquidity provision.
Leverage, as a rule, implies the purchase and sale of assets taking into account the projected price dynamics. “Long position” means that a trader buys an asset in the expectation of selling it at a higher price. A “short position” is a sale with the expectation of redeeming an asset when it becomes cheaper.
How to use leverage in the context of DeFi
Strategies for forecasting price dynamics include news tracking, fundamental and technical analysis.
P2P lending and liquidity provision
P2P platforms allow you to block assets and earn interest; they are set by the platform or by you based on the market rate.
The percentage may vary depending on the platform. You can earn on the price difference by borrowing at a low interest in one market, and lending at a higher interest in another.
To ensure liquidity, you deposit a couple of assets, for example, a certain amount of ETH and the equivalent in DAI at the current exchange rate. People can exchange their DAI for your ETH or their ETH for your DAI and pay the exchange fees established by the contract from which you make a profit.
An example is Compound, a smart contract that allows you to lend and borrow tokens.
When you loan, you earn interest. This is similar to a traditional bank, the difference is that interest begins to accumulate from the moment you place assets on a smart contract. The rate is also much higher than in the bank, because there are no intermediaries.
- Minimum effort.
- When blocking funds on a smart contract, there is always a risk of error.
The growing interest in earning effortlessly leads to the emergence of various ways to profit on the cryptocurrency market. As the safety of the products on offer increases, they become a worthy and reliable source of income.