Cryptocurrency has been gaining interest among investors once again since 2020. You may have heard of the unbelievable returns that young crypto investors are making, and also of the crazy losses that many are seating on today since the markets tumbled in Jan 2022.
That aside, did you know that you can generate passive income with cryptocurrencies?
In this article, we look at 5 ways cryptocurrency investors can generate a passive income, as arranged by ease of participation:
1. Cloud Mining
In ‘traditional’ cryptocurrency mining, you have to invest in cutting edge computing hardware in order to take part and earn a significant return. The cost of capital is rather high.
However, today investors have access to cloud mining which lowers the cost of entry. There are two ways to start cloud mining:
i) Contribute your computing power
Platforms like unmineable allow you to use your existing computer to mine for cryptocurrency and get a payout in proportion of your computing power.
All you need to do is to choose the coin you wish to mine, set up the unmineable software and you are good to go.
Do take note that it’s not free, Bryan shared his cloud mining experience here.
ii) Rent mining power from a cloud mining service provider
Cloud mining services allow investors to rent a portion of professional mining rigs or hardward in return for the mining returns. These are popular for passive income because they offer an easy way to make money, without the hassle of buying and maintaining expensive equipment.
Depending on the cloud mining service you use, you can purchase cloud mining contracts with different time periods, which pays them with their share of mined coins at regular intervals.
You don’t need to own cryptocurrencies to get started.
2. Crypto Savings Account
Crypto Savings Accounts function like bank savings accounts, with higher yields. Crypto savings accounts are the easiest way for investors to start generating a yield because most of these can be done via the crypto exchange where you buy your crypto.
All you need to start earning with crypto savings accounts is:
- Select a crypto savings account
- Buy the cryptocurrency that you wish to earn yields on
- Deposit it into your crypto savings account
- Watch your earnings grow
By depositing your cryptocurrency into a savings account, you can earn a yield on your investment. This yield is typically much higher than what you would receive from a traditional bank, and it allows you to collect passive income while still retaining ownership of your coins.
There are many different Crypto Savings Accounts available with different levels of accessibility and yields – some are offered by crypto exchanges which make it easy for you to earn some extra income while waiting for your crypto investments to grow.
We compiled the best crypto savings accounts here.
3. Dividend Paying Coins
On top of savings accounts, there are dividend paying coins. With such coins, all you need to do is to buy and hold them.
A popular example is the Kucoin Token (KCS) which is the utility token of the Kucoin cryptocurrency exchange. Users can pay for transactions using it. But, the best part is, users who hold more than 6 KCS get a daily dividend, which comes from 50% of KuCoin’s daily trading fee revenue. The bigger the exchange grows, the more revenue holders get!
That said, you should take note that dividend paying tokens or coins also function as cryptocurrencies and their prices can be volatile. Not all high dividend stocks are good stocks, likewise you shouldn’t be jumping into these tokens only for the payouts. Remember to do your own due diligence!
Another way to generate crypto ‘dividends’ is through a process called:
4. Staking
In a Proof of Work systems like Bitcoin, the network is secured by miners who use their computational power to solve complex mathematical problems. In a Proof of Stake systems like Solana and soon Ethereum, the network is secured by holders of the coins who help validate transactions.
To become a validator, holders must stake a certain amount of coins. In return for verifying transactions and securing the blockchain, validators or stakers are rewarded with more coins.
Staking requires a little more technical knowledge to get started.
Investors need to either holding coins in a staking wallet, or stake their coins via a validator in order to start earning staking yields.
In return for their services, stakers are rewarded with new coins, which allows them to generate passive income from their investment.
That said, staking is a great way for you to contribute to the success of the cryptocurrency you own while growing their portfolios. However, staking yields vary with cryptocurrency projects, you can check StakingRewards.com for an estimate of the yields.
PSA: you should not be investing in a cryptocurrency purely based on its staking yields, like how you shouldn’t be investing in dividend stocks just because it pays a high dividend yield.
5. Yield Farming
Yield farming is an DeFi investment strategy that crypto investors use to generate high yields. DeFi is short for Decentralised Finance.
In yield farming, investors lend out their cryptocurrency holdings in return for interest payments or a cut of transaction fees.
Yield farming offers investors a passive income stream as they do not need to be involved in the day-to-day management of the loan. Instead, the process is done via a DeFi protocol or platform where borrowers usually also benefit from lower interest rates as there is no middleman or bank taking a cut.
Popular yield farming protocols include Aave, UniSwap, Curve Finnace, Solend and many more. Chris Long shared his yield farming experience previously too.
To participate in yield farming, you’ll need to understand how DeFi works, the many risks involved and be comfortable using a hot wallet to move your funds around. You’ll also need to keep abreast of changes in the DeFi space as it evolves rapidly and yields are known to fluctuate accordingly.
Cryptocurrencies provide tantalising passive income yields. However, the space moves quickly and what works today, may not be as lucrative next month.
