Ways to earn passive income through blockchain and crypto

By Edul Patel

According to Google Trends, “passive income” has been one of the most searched keywords since the Covid-19 pandemic. Passive income refers to income where you do not constantly have to spend your time earning the income. It is the income that requires minimal labor to earn and maintain. One of the most famous economists in the world, Benjamin Graham, believed that intelligent investors do not work for money, but make their money work for them.

Most investors become wealthy when the asset classes they have invested in increase in value. While that’s true for most asset classes, it doesn’t necessarily have to be the only way to grow your crypto investment wealth. Passive income opportunity is one of the best features of this asset class.

It can be argued that there are other asset classes that provide the opportunity for passive income. An example here is rental housing. Although they are one of the most prominent passive income sources, such sources usually require a huge initial investment to generate income.

Cryptocurrency and blockchain technology have advanced modern finance so that passive income opportunities are now available to everyone. They do not require large capital investments. And that’s not even the best part. With crypto and blockchain, investors do not need to depend on financial institutions for access to sophisticated financial products.

One of the earliest and most common approaches to generating passive income through crypto is Bitcoin mining. Cryptocurrency mining refers to the act of contributing to the blockchain network by providing the computing capabilities of one’s computer. Various contributors pool their computational power to solve complex cryptographic problems. Once the problem is solved, the solver, also known as the miner, is rewarded with crypto. Around 4-5 years back, cryptocurrency mining was a passive income source for several Bitcoin miners.

However, this path did not remain profitable for the retail participants for long enough. Competition increased, and individual miners lost out to large institutions that had massive computing power. It gave way to another similar concept called cloud mining. It involves paying seed capital to these institutions that mine cryptocurrencies. These institutions then reward the depositors in an appropriate ratio of their investments with crypto.

Several crypto investors prefer to hold their investments for a long time. It is commonly referred to as ‘HODL’ in the cryptosphere. One of the most popular ways to earn passive income through these holdings is to invest them. Staking refers to committing cryptoassets to support a blockchain network and verify the transactions that take place in the network. Staking is available for cryptocurrencies that follow the Proof-of-Stake (PoS) consensus mechanism. Bitcoin cannot be staked as it does not follow the PoS mechanism.

Staking will temporarily lock your assets for a short time, depending on the network. Participants who stake their crypto tokens are called stakers. These participants are usually rewarded with crypto-tokens based on their stake amount. Cryptocurrency exchanges offer users betting opportunities directly in the exchange. However, it is usually wise to bet on the official mainnet of the blockchain. Staking helps provide liquidity and helps secure the blockchain network as well.

Crop farming

Another popular strategy to earn passive income is through yield farming. It is an extended version of staking where the crypto holder earns returns either through lending or staking. Stakeholders or lenders, in this case, are known as liquidity providers (LPs). These LPs earn returns on their locked-in holdings in the form of annualized percentage returns (APY).

‘Aave’ is a decentralized lending and borrowing protocol where users can borrow assets and earn compound interest for lending in AAVE tokens. Some other popular platforms are Compound, Curve Finance, Uniswap, Pancakeswap, etc.

Earn fixed interest

Some platforms offer users the option to earn fixed interest on their digital idle assets. It can be thought of as an interest-bearing bank account.

These are some of the passive income opportunities from your crypto holdings. It should be noted that none of these options are risk-free. It is always advisable to do one’s due diligence before taking any of these opportunities.

The author is co-founder and CEO, Mudrex

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