Buying and selling cryptocurrencies is not the only way to make money in the cryptocurrency market. Blockchain technology allows for many different ways to earn cryptocurrency and with the growth of the DeFi (Decentralized Finance) market we are seeing increasingly more methods to generate passive income in the cryptocurrency markets.
What is Passive Income?
Passive income is where there is no active involvement required. In many cases passive income through cryptocurrency is generated simply by buying or owning a specific cryptocurrency and this can even be done through the safety of holding these coins or tokens in your hardware wallet.
6 Best Ways to Earn Passive Crypto Income
Here are the 6 best methods to earn passive income with cryptocurrency.
1. Yield farming
Over the last few years, decentralized finance (DeFi) has exploded and this new niche within the cryptocurrency market offers investors an opportunity to earn passive income by providing liquidy to the market and in return receive a percentage of trading fees (from the pool).
Liquidity is typically provided in the form of a trading pair, in which liquidity is put up for the pair. Each time the liquidy is used the liquidity provider receives a percentage of the trading fee. The benefit of this method is that your liquidity can be used many times throughout the day and each time you earn from each transaction.
2. Cloud Mining
Cryptocurrencies (like Bitcoin) are created through the process of mining. This is a computationally intensive approach that requires a significant amount of hardware and technical expertise. However, there is an alternative approach to buying your own hardware and configuring it and it is known as cloud mining.
Cloud mining is where third parties handle the hardware and technical components and in return for paying a daily maintenance fee, you get to keep the proceeds of the mining. Most cloud mining operations require a lump sum payment (to purchase the miner) and also charge a daily maintenance fee (for handling the internet and technical aspects). The mining rewards are yours to keep and are automatically sent to your wallet on a daily basis.
Some cryptocurrencies function with the Proof-of-Stake consensus mechanism which allows users to 'stake' their cryptocurrency in return for a percentage of the fees charged. In the past, staking could only be done on the platform (or exchange) however with better integrations many hardware wallets.
Another consensus mechanism used by some cryptocurrencies is Nodes. By operating and running a node, the node operator is able to receive a share of the fees charged for the transaction (or function performed).
An example of such as node is a Bitcoin Lightning Node which is a layer-2 scaling solution that allows for 'lightning-fast' micropayments at scale.
5. Dividend Earning Tokens
Some cryptocurrencies (tokens) offer the holders a share of the revenue earned. To be able to benefit from these tokens, as an investor all you have to do is hold these tokens.
An example of this is KuCoin shares (KCS) where the holders receive a daily share of the transaction fees (earned by KuCoin).
6. Cryptocurrency Lending
Cryptocurrency lending has become very popular in recent years and are offered by both centralzied and decentralized organizations within the cryptocurrency space. The way that lending works, is as a lender you cryptocurrency assets to borrorers in return for interest.
The most popular method is through the use of DeFi lending, where transactions are programatically conducted and without the use of intermediaries. These are self-executing contracts (also known as smart contracts) where the calculation of the interest rate and repayment compliance is handled automatically.