Passive income comes through ventures where the person is not actively engaged. Most of the time, you must invest your cash or digital assets in the right crypto investing strategy or platform and let it make money.
Sometimes, it is possible to make the gains predetermined and reliable. In other cases, various variables beyond your control could occur.
Is It Possible to Earn Passive Income in Crypto?
Many cryptocurrency owners have surpassed uncertainty boundaries and found the potential for lucrative returns from cryptocurrency investment and trading. But, cryptocurrency investors must contend with various problems, such as the constant changes in the value of cryptocurrency.
Furthermore, you must track your cryptocurrency investments, keep track of your diversification, and focus on managing your investments.
It is clear how investing in crypto isn’t an easy task at all! The first thing to remember is that you risk losing the money put into cryptocurrencies. In addition, there is a need to be aware of the difficulties involved in investing in crypto to get the highest return. The only option for actively participating in investing in crypto would be passive income.
You can earn passive crypto income by adhering to a particular investment plan or investing your crypto assets on a particular platform. There are fantastic ways to make your cryptocurrency assets perform for you with the proper strategies and methods.
A well-known way to earn passive profits from crypto assets that do not require involvement is to “HODL,” which is holding your cryptocurrency.
However, holding a cryptocurrency with the hope of a boost in its value in the future is an investment strategy for the long term.
In general, those who choose to “HODL” their crypto assets are required to keep their assets for anywhere from 6 months to 5 years. So, it is impossible to think of ‘HODL’ as an income source for passive crypto.
1: Yield Farming
Yield farming is depositing crypto money into yield-generating pools on decentralized financial (DeFi) platforms to make interest. These are typically two types of pools: those that are based on borrowing and lending protocols and pools that use various yield management software.
Yield farming is a well-known method of earning passive cryptocurrency income. However, with the vast range of DeFi protocols and available pools, it could need more investigation and active control of funds compared to stakes.
The most commonly used pool utilized to increase yield includes the liquidity pool found in borrowing and lending protocols.
You can put your money into these pools as a lender for protocols, then earn the interest you earn from your investments. The full protocols in this field include Aave (AAVE), JustLend (JST), and Compound (COMP).
Mining is one of the oldest ways of earning passive earnings from cryptocurrency. This method lets you earn a cash reward for the network’s security with computing power. There is no need to use to keep a crypto wallet to make passive mining revenue.
At first, people would mine Bitcoin using regular computers or general-purpose mining equipment. But, as Bitcoin increased hash rates, miners began to utilize higher-powered computers. Currently, mining equipment uses ‘Application-Specific Integrated Circuits (ASICs) with integrated chips tailor-made for mining.
Setting up and maintaining mining equipment requires capital investment and technical knowledge, even more so in the present mining hardware. This is why mining is now a corporate enterprise and is increasingly difficult for ordinary people to utilize to earn passive income.
However, there’s an alternative to conventional mining cloud mining. Cloud mining permits you to lease all the power and computing capabilities of specific mining equipment anywhere in the world.
The typical model requires paying an agreed-upon amount to the third party managing the mining technical aspects and the daily maintenance cost for managing the mining rigs.
Since you’re renting out an entire pool with much computational power and a high probability of winning, you’ll have a better likelihood of winning a hash than miners with less powerful equipment.
3. Liquidity Pools
This is a reliable method to make money online with cryptocurrency since liquidity pools are the foundation of DeFi. DeFi ecosystem, even though there are some risks involved. Additionally, a wide variety of services related to crypto rely on liquidity pools.
4: A few of them include
Automated Market Makers (AMMs): Being the most important element in the ecosystem of DeFi, AMMs permit the automated trading of cryptocurrency via liquidity pools.
Borrow/Lend protocols: Borrowers and lending institutions The lenders and the borrowers use this protocol to lend or borrow digital items in a distributed way. This is possible thanks to smart contracts, which allow people to lend their assets at any time.
Yield farming: Yield farming can be described as a cryptocurrency investment strategy that involves lending or staking digital assets and receiving benefits through transaction fees or interest.
Synthetic Assets: These represent tokenized derivatives that serve as the illustration of digital assets that one can’t purchase. However, one could profit from price fluctuations for these assets using these synthetic or derivative assets.
On-Chain insurance gives insurance against the risk associated with the DeFi industry and crypto-related companies, i.e., hackers or losses.
Blockchain Gaming: This approach is based on collecting non-fungible tokens (NFTs) that are stored as digital assets on the blockchain. These are the various digital items utilized in popular video games, i.e., weapons, dresses, collectibles, etc.
The concept of liquidity pools is simple. It is collectively contributing funds into a vast digital stack, and each asset is secured using a smart contract. The pools allow loans, decentralized trading as well, and other tasks.
The liquidity providers on the platform or users build markets by adding the same worth of two cryptocurrency tokens in an existing pool. As a reward for providing their money, liquidity providers make passive income from fees for trading, which come from a portion of the trade fee derived from the trading activities in the pool.
But, a liquidity provider is also liable to irreparable loss as it occurs if the crypto asset that is transferred into the pool of liquidity is different from its original value.