The concept of ‘passive income’ can be defined as money that is generated from activities or ventures that require no active involvement from a participant.
In recent years, many investors have made the leap toward cryptocurrencies as a way to make passive income.
Since cryptocurrencies are a very hot thing to own at the moment, the possibilities for growth are endless.
If you’re looking to make a passive income with crypto, it can be difficult to know where to start.
When it comes to generating income, there are many different factors that can vastly change how predictable your earnings will be – and if you’re a person who’s looking for a steady income, then it might seem a little overwhelming to get started.
That’s where we come in! In this article, we’re going to be exploring the many different strategies that people use to passively generate income from cryptocurrencies.
We’re going to break these down into separate sections and discuss each at length. Let’s get into it!
Method 1 – Staking
Staking is a popular way for crypto owners to earn passive income as it is one of the lowest risk options on the table.
Crypto exchanges often offer staking options and you can usually do this easily.
Although there are some key differences in how you can approach this practice, staking a cryptocurrency can be defined as a process that involves pledging your crypto assets to support a blockchain network that confirms various transactions.
Depending on the cryptocurrency you currently have, staking can be a great way to make money because of the high-interest rates attached.
The finer details of staking can be complex and difficult to wrap your head around, but generally, the process can be broken down into three easy steps:
This stands for ‘proof of stake,’ which is a system employed by some cryptocurrencies to keep the network secure.
Generally, you’re going to need to have this in order to stake your currency.
Here, your cryptocurrency will be used to validate other people’s transactions.
Because of the encrypted nature of these currencies, your coins will help to secure other people’s transactions within the blockchain.
From here, you’ll be able to earn passive rewards that come as a result of the transactions being validated.
Before we move on to our next method of earning, we would like to outline some of the most common risks associated with staking your cryptocurrency.
Nothing is for free, not even passive income, and there are some risks you’ll need to keep in mind.
If you’re choosing to stake your assets from a centralized exchange, the process will be slightly less secure and it’s possible for your crypto to be hacked.
That said, providing you do this from a crypto wallet, you’re going to find the whole process much more secure.
Also, you rely on your validator a little for income, so you’re going to want to make sure you choose a reputable one to do business with.
Method 2 – Lending
Another way that people make passive income through cryptocurrency is through way of lending.
There are many different ways that investors can lend their crypto to others, and it doesn’t work too differently from any other classic lending method.
Generally, the basic process involves lending your crypto to somebody else for a certain amount of time and charging them for this.
There are lots of different methods of lending that can work quite well with cryptocurrencies, including margin lending, centralized lending, and peer-to-peer lending.
We’re going to break these down for you below:
This basically means relying on an already created lending infrastructure that has been made by a third party.
Many of the interest rates and terms associated will already be well defined, meaning you won’t have to do any of it yourself.
The risk associated with this method is making sure you find a good infrastructure with fair terms and a history of good practice.
This refers to the process in which a trader uses leverage from already borrowed funds.
As a trader, you’ll be able to increase your position when negotiating. This process is usually managed by Crypto Exchanges, with little effort from yourself.
There are several platforms that will allow users to engage in peer-to-peer lending, making it possible for you to borrow and lend directly from other users.
The process generally involves depositing your crypto into a custodial wallet, whereupon you can set the terms yourself.
This is the best option if you’re looking to have a lot more control over the process.
Method 3 – Interest-Bearing Asset Accounts
Many service providers have systems set up that will allow you as a trader to deposit your crypto and earn a passive income.
This is a great method if you’re looking for an alternative to more classical cash-saving accounts.
In order to do this, all you’ll need to do is open an account with your provider and then deposit your cryptocurrency.
There will then likely be a short period of time in which you won’t be able to access it, but this deposit will give you interest.
This is a great method if you’re looking to earn income passively without doing all that much.
Of course, there are some risks and you’ll have to realize that in depositing your cryptocurrency there is a chance you can lose money.
As cryptocurrency becomes increasingly popular, there are always new ways in which you can make passive income through way of what you own.
The methods above were just a few for you to consider, but please consider conducting wider research before committing to something that is best for you.
We hope that this article has given you some ideas and that you now feel a lot more confident about the different ways that you can generate passive income from cryptocurrency.