Crypto Passive Income: Make a Fortune When Sleeping!

Passive Income in a Nutshell

Passive income is money generated from ventures in which an individual is not actively involved. For the most part, all you need to do is invest your money or digital assets in a particular crypto investment strategy or platform and watch it generate profit. In other words, any income that doesn't require your direct exertion in finance is considered passive income. You initially make the initial investment; then, from then on, you earn off it in perpetuity. To make it easier for you, think of it as investments like rental realty, government bonds, or fixed deposit accounts. Passive income is so important to investors because it takes away the uncertainty in investment. It's also a transparent strategy for making wealth all the time, and famous investors like Warren Buffet advocate for it.

How to Make Passive Income from cryptocurrencies?

Crypto could be a relatively new asset class and understood for its excessive volatility. Cryptocurrencies are presently trading 30-40% off their most up-to-date highs. Such corrections are ordinary; it's only natural to wonder how passive income is tenable in such a market. First of all, you need to know how the process of making crypto passive income works. A preferred income-generating option, crypto passive income is seen as a less demanding method of growing a users' crypto portfolio. DeFi's explosion also influenced lending from staking and mining and a market shift to yield farming. Regardless, the goal of crypto passive income remains to 'earn while you sleep.'

The Evolution Of Crypto and the Rise of Crypto Passive Income

To understand the idea of crypto passive income, one must first grasp the evolution of cryptocurrencies:

1. Bitcoin (BTC), the primary successful cryptocurrency, was designed to replace the monopolisation of currency by the central banking system. Nevertheless, Bitcoin did not quite replace the banking system, and that’s because there is a lot more to legacy banking than just currency issuance.
2. Ethereum came shortly after Bitcoin's launch, which built on the idea of Bitcoin, but targeted the finance industry even more deeply. Through Ethereum, developers could take just about any banking service and decentralise it.
3. Ethereum birthed decentralised finance (DeFi), a fast-growing area of blockchain-based financial technologies. Through DeFi, concepts like lending that banks previously monopolised opened to everyone. DeFi has also made it possible to earn a passive income through crypto.

How To Earn Passively In Crypto

Here, we will elaborate on the investments and strategies that even newcomers can use to earn passive income with cryptocurrency.

1. Staking

Staking is the method of using your cryptos to become a network validator and help make sure the network runs efficiently. It is utilised in Proof-of-Stake cryptos and is effective in securing such networks. For example, if someone tries to attack Proof-of-Work cryptos like Bitcoin, they have to raise 51% of the overall hash power employed in mining, which is not easy for extensive networks like Bitcoin. On the other hand, to attack Proof-of-Stake cryptos, one would need to buy 51% of the entire cryptos in circulation. Essentially, the more people stake, the more secure and decentralised the network evolves. For an investor, the staking rewards are what you reach for, supporting keeping the network safe a part of the network of investors.

Staking benefits and Drawbacks

The most profitable advantage of staking is that it is pretty easy to try, and you won’t need an exchange. For example, Binance allows investors to stake their coins directly on the exchange. You can also stake cryptos directly from a wallet. Cryptos give delegated staking if you do not have the talents to line up a staking node. One such crypto is Cardano. In Cardano staking, someone not accustomed to node setup can delegate their coins to a staking pool. They need to try and stay up for the staking rewards. Despite the positive features that lead to earning passive income in crypto, staking carries some risks. Some of the keywords you need to pay attention to in this regard include slashing, mining, lending, Crypto savings account, decentralised gaming, masternode, HODL, and airdrops, which we will explain in detail below.

1. Slashing

Slashing entails the failure of staked cryptos if one doesn't adhere to the staking rules. The thought is to confirm that each node is always behaving correctly for the most specific attractions of the network. While networks that slash manage to run more efficiently, they're a significant risk to an investor who isn't conscious of them. Things like unintentional downtime can cause the mislaying of staked cryptos.

Price fluctuation

Price fluctuations during the lockup period are another risk of staking. Cryptocurrencies tend to losses of over 50%, don't seem to be remarkable, and fluctuate quite heavily. In such cases, the staking prizes would be inconsequential relative to the overall loss.

2. Mining

Mining is another popular way to earn a passive income in crypto, which is a method that entails using computers to produce new cryptos and resolve complex math problems. Mining could be a passive income type because the sole investment you create is to shop for the mining supplies. After all, you get to earn passively from every coin you bring into existence. For many small altcoins, all you would like is an investment in a computer equipped with a GPU. Conversely, for cryptos like Bitcoin and Ether, you wish to speculate in highly advanced mining machines called ASICs (Application-Specific Integrated Circuits). You get to earn by obtaining new Bitcoin, Ethereum, Litecoin, and other cryptos into existence.

Crypto mining risks

One of the risks, specifically when mining using ASICs, is the machine can quickly become obsolete. That's because the mining difficulty is ever increasing. Because the mining difficulty goes up, so does the computational power needed to develop new coins. 

Cloud Mining

Cloud mining is another straightforward way to earn a passive income in crypto. You spend an actual miner for a stake of their mining prize on cloud mining. The idea is that since you will not have the money to speculate on mining tools, pay somebody who has the resources to try and do it for you. That's because the fees charged in most cases don't add up. They also tend to possess lengthy lockup periods, and the cost will be huge. These are just a few of the drawbacks to cloud mining. It also imposes some actual risk to the investor, like being open to scams.

Scams

One of the most significant risks you may face in cloud mining is scams. There are tons of scams cloud-mining companies. The scams usually use a strategy model, and they pay new members by disguising the payment and old members' money as mining rewards.

If you decide on cloud mining as you chose the trail to passive income, you can use Genesis Mining and HashNest, to name but a few. These two might not be that profitable, but a minimum of you're sure that you won't lose your money.

3. Lending

Lending is one of the popular ways to earn money in cryptocurrency. Crypto lending is an easy way, and you give someone your cryptocurrency and get it back with interest. Nevertheless, unlike a bank, this lending happens in a decentralised environment. There are various ways through which you will be able to make money passively by lending crypto. Some are P2P lending, Lending to Margin Traders, and DeFi Crypto Lending.

P2P Lending

P2P lending entails visiting peer-to-peer crypto websites like BTCPop. You then negotiate terms with a possible borrower and lender, and you’ll negotiate a reasonably high interest since you're fully up to speed with the lending terms. The risk is the borrower can disappear.

Lending to Margin Traders

One of the most valuable paths to earn crypto passive income is lending, which entails lending your crypto to daytime traders looking for increased profits. The best thing is that it's pretty easy to drag off, and all you have to do is deposit your cryptos to an exchange like Bitfinex. The next step is to search cryptos with the best lending rates and click on-lend. The rates change in real-time, so it's easy to watch. Despite the convenience, this method has its risks for investors. One of its most significant risks is that the exchange can get hacked. If this happens, there could also be little you'll be able to do to salvage your investment.

DeFi Crypto Lending

DeFi Crypto Lending is lending your crypto in an exceedingly decentralised environment. Using projects like Yearn Finance and Compound, you have got a platform to earn passively and lend you crypto. The money lent out via decentralised exchanges usually moves towards creating liquidity. As a lender interest, you earn a reward for helping generate liquidity. Unlike in centralised banking, where an entity decides what proportion you will earn from your deposits, DeFi rates are purely determined by the market. Appreciations to the forces of demand and provide, what quantity you make as interest can increase significantly at any time.

4. Crypto Savings Accounts

Besides lending, some cryptos allow you to earn interest on savings. They operate like a bank account, albeit in an exceedingly decentralised environment. Unlike staking or crypto lending, you'll be able to get a refund at any time you would like. A simple example of a crypto bank account is the Celsius network. With Celsius, you deposit crypto and begin earning interest immediately. Others that supply similar services include Nexo, Hodlnaut, and Ledn. Like other methods, this passive income option has some risks. 

5. Decentralized Gaming

You purchase items in a Dapp game and earn through its value appreciation. The more gamers need that item, the upper its value gets. The best part is that you must not be a gamer. You only have to find a preferred game on Ethereum or other platforms and buy some collectables. The risk with this can be buying something worthless within the in-game ecosystem. Such an acquisition would mean holding to an item. Therefore, you wish to grasp game economics and what might be valuable.

6. Masternode

These are some nodes that help secure the network. Unlike the traditional Proof-of-Stake node, a Masternode doesn't have to do anything special. All that is needed is for the investor to possess a selected number of coins, then lock them up. An excellent example of a Masternodes network is Dash. With Dash, all you would like is 1000 coins, and you are a Masternode, and you get to earn rewards doing nothing from there! Like other passive incomes, it has some risks you need to bear in mind. The most important one is price fluctuations. If the worth of the crypto dips most, the losses will outweigh any income you were to create from being a Masternode.

7. HODL (Hold On for Dear Life)

Another easy way to earn a passive income in crypto is holding on to your coins. Cryptocurrencies are constantly increasing (long-term), and quickly holding your coins should provide you with a decent return over time. For instance, someone who bought Bitcoin within the early 2010s and never sold has made much passive money. Despite slamming numerous times, Bitcoin has recently hit a high of 68k dollars over time. Besides the long-term value appreciation, HODLing encompasses several other benefits that each one adds up to long-term value growth.

Advantages of HODLing

You get more coins through hard forks. When a cryptocurrency forks (hard fork), it splits into two chains, and investors of the initial chain usually get an equal amount of the new chain coins. It suggests you get to grow your crypto wealth without having to try to do anything. An excellent example of cashing in on a rigid fork is the Bitcoin hard fork of 2017. This fork gave rise to Bitcoin Cash (BCH), and Bitcoin investors got Bitcoin Cash coins that were enough for the quantity of Bitcoin they held. It means if someone had ten Bitcoins at the hard fork, they got ten Bitcoin Cash coins.

Similarly, after the Bitcoin Cash hard fork that created Bitcoin SV, BCH investors got BSV coins resembling their BCH holdings. Actually, someone who only started with Bitcoin and held has a Bitcoin Cash and Bitcoin SV portfolio now. It goes to point out how easy it's to earn passively by simply HODLing crypto.

8. Airdrops

Exchanges and a few wallets do regular crypto airdrops. Usually, you merely must have a wallet address with the deal doing the airdrop, and you will receive free coins. You don't need to do anything to profit from airdrops, and the exchange doesn't even ask you for your private keys to do the airdrop. Just check your wallet sooner or later and realise that your crypto holdings have grown. The only risk with airdrops is that scammers use this method a lot. To avoid falling for scams, ignore messages asking you to send your private keys to urge airdrop. The rule of thumb is that genuine airdrops don't require sharing your private keys.

Top 3 Platforms to Earn Crypto Passive Income

Having hinted at them previously, here are three platforms you ought to consider for crypto passive income:

1. Nexo: It allows users to either lend or borrow crypto or fiat currencies. Nexo requires crypto as collateral for borrowers, and every loan is over-collateralised to contemplate market volatility. Investors earn an Annual Percentage Yield (APY) means a percentage rate reflecting the total amount of staking rewards projected to be earned over an annual periodو of 4% or 6% if they earn in NEXO. Stablecoins like USDC, USDT, and TUSD gain 12% interest. But that's not all; NEXO is a dividend-earning cryptocurrency. Nexo rewards stakers yearly for holding NEXO, making NEXO one of the simplest cryptos to earn passive income from.
2. BlockFi: Same as Nexo, BlockFi's model relies on lenders. BlockFi incentivises its users with an 8.6% APY on crypto (but interests vary, for example, USDT has an APY of 9.6%). Interest is compounded and accrues daily with monthly payouts.
3. Celsius: Another crypto lending platform on our list, Celsius provides a broader range of crypto options. Users can earn up to 17.78% after they reach the platinum level. Stablecoins like USDT and USDC have an APY of 12.65%, and choosing rewards in Celsius' native crypto increases interest.

Crypto Passive Income Tax Implications

For maximum income, consider reducing your tax. Institutions like the IRS (the US specific) track your income and need your returns on crypto profits. To avoid any penalties, file your returns accordingly. You will also increase your earnings by using tax reduction measures. 

How Sustainable Is Crypto Passive Income?

Blockchains offering passive income as either mining or staking have to provide additional products and services to remain profitable, relevant, and sustainable. Within the short term, these rewarding models are sustainable. Nevertheless, increasing market participation and prizes will dilute the token valuation of that platform. Offering more products diversifies a platform's revenue stream, helping maintain a healthy token value.

Can We Earn Crypto Passive Income with Bitcoin?

The short answer is yes! You can achieve Bitcoin passively by crypto lending, and platforms such as BlockFi and Nexo will reward you for lending your Bitcoin in Bitcoin. 

Conclusion

Well done, now you know how to earn passive income. The eight ways you learned to earn passively in cryptocurrencies and benefit from them will help you work less and gain more. Remember that for maximum revenue, you can consider reducing your tax. Here at Cryptologi.st, we will stand by you all the way long and help you be an educated investor to make confident crypto decisions. But please note that we are no financial advisors and do not provide financial advice.