Passive income arises from ventures in which an individual is not actively engaged. Essentially, it requires you to allocate your capital or digital assets towards a specific crypto investment strategy or platform, and then wait for it to generate a profit. Sometimes, the earnings are predetermined and predictable. However, in other cases, several uncontrollable factors may intervene.
One popular way of obtaining a return on investment in the crypto industry without active participation is through the purchase and holding of digital assets, which is colloquially known as “HODLing.” An investor who engages in this strategy hopes that the price of the digital asset will increase significantly in the future.
Such investors are willing to be patient, as this long-term strategy may require them to retain their positions for anywhere from six months to five years. During the investment’s duration, an investor does not have to be proactive in the crypto market; they only need to buy the digital asset and store it in a secure, preferably non-custodial wallet.
However, merely purchasing and holding a crypto asset for any length of time is not a guarantee of profit. In reality, it is entirely possible that you could lose money. As a result, exclusively relying on HODLing crypto cannot be regarded as a genuinely passive income generator.
Some specific tokens provide their holders with a portion of the income generated by the company responsible for their issuance. Simply by possessing the token, you become automatically eligible to receive a certain percentage of the company’s revenue. The quantity of tokens you possess determines the portion of the income you would receive. An instance of this can be observed with KuCoin Shares (KCS), wherein holders receive a daily portion of the transaction fees accumulated by the KuCoin blockchain asset exchange. The received amount is directly proportional to the number of KCS tokens staked by each holder.
Proof-of-stake (PoS) staking
Proof-of-stake serves as a blockchain consensus mechanism specifically designed to facilitate agreement among distributed network participants regarding new data entering the blockchain. It’s important to note that blockchains operate on decentralized networks where participants actively contribute to the governance and validation processes of transactions, eliminating the need for centralized authorities like banks. In most cases, participants are randomly chosen by the blockchain to become validators and are rewarded for their contributions.
The selection process for validators varies across different blockchain networks. Some blockchains require users to commit or deposit their financial resources into the network. Validators are then chosen from a pool of users who have staked a specific amount of the blockchain’s native digital asset. As a result, validators earn interest on their staked funds while contributing to the network’s validity. This mechanism is known as proof-of-stake and provides an opportunity for long-term holders to generate passive income.
Recognizing the technical complexity involved in transaction validation, you have the option to delegate your stakes to other participants who are willing to handle the technical requirements of staking. It’s worth noting that validators typically receive slightly higher rewards compared to delegators. Several proof-of-stake blockchains you might consider include Cardano, Ethereum 2.0, Polkadot, and Solana.
For added convenience, you can explore various staking services available today. These platforms allow you to deposit a fraction of the required digital assets set by the blockchain. For instance, while the Ethereum 2.0 blockchain typically requires a minimum deposit of 32 ETH to become a validator, utilizing a third-party Ethereum staking service allows you to begin earning interest with as little as 5 ETH.
Contrary to the explanation of the proof-of-stake mechanism, certain blockchains, such as Bitcoin, choose a more computationally intensive approach. Users are required to prove their eligibility as validators (commonly known as miners) by engaging in a competitive race to solve intricate mathematical puzzles. This process, known as crypto mining, demands substantial computational power and incurs hefty electricity expenses.
Undeniably, this undertaking is time-consuming and technical. Consequently, investors often turn to an alternative method known as cloud mining. With cloud mining, you have the option to delegate the technical aspects of crypto mining to third-party service providers. Essentially, you make a lump-sum payment to a platform that offers such services to rent or purchase mining machines from their facilities. Following the initial payment, you may be required to pay a daily maintenance fee, enabling the cloud mining service provider to assist in managing your mining rigs.
While this may sound enticing, it is important to recognize the accompanying risks. Cloud mining has been a topic of controversy ever since its widespread adoption. Numerous instances of scams have occurred due to the remote nature of this mining venture. Therefore, it is crucial to conduct thorough research and exercise caution before considering this option.
Lending has emerged as one of the most sought-after crypto services within both the centralized and decentralized realms of the cryptocurrency industry. As an investor, you have the opportunity to lend your digital assets to borrowers and potentially earn interest. There exist four primary lending strategies for you to consider:
Platforms offering such services facilitate a system that empowers users to establish their own terms, determine the amount they wish to lend, and specify the desired interest for their loans. The platform acts as a matchmaker, connecting lenders with borrowers, similar to how peer-to-peer trading platforms bring together buyers and sellers. These lending systems grant users a level of control over their crypto lending activities, although you are required to deposit your digital assets into the lending platform’s custodial wallet beforehand.
This strategy revolves around relying solely on the lending infrastructure provided by third-party entities. Here, interest rates and lock-up periods are predetermined. Like peer-to-peer lending, you must transfer your crypto to the lending platform in order to begin earning interest.
Decentralized or DeFi lending
This approach enables users to engage in lending services directly on the blockchain. Unlike peer-to-peer and centralized lending strategies, DeFi lending operates without intermediaries. Instead, lenders and borrowers interact with programmable and self-executing contracts, known as smart contracts, which independently and periodically establish interest rates.
Lastly, you have the option to lend your crypto assets to traders who seek to leverage borrowed funds for trading purposes. These traders magnify their trading positions through borrowed funds and repay the loans with interest. Crypto exchanges take on most of the responsibilities in this scenario, requiring you only to make your digital assets available.
Interest-bearing digital asset accounts
Investors have the opportunity to capitalize on interest-bearing crypto accounts, which allow them to earn a fixed interest rate on their dormant digital assets. This concept is akin to depositing money into an interest-earning bank account, with the distinction that these services exclusively support crypto deposits. Instead of keeping your digital assets in wallets, you can choose to deposit them into these accounts and receive earnings on a daily, weekly, monthly, or yearly basis, depending on the predefined interest rates. Several crypto service providers offer such products, including: Nexo, Celsius Network, SwissBorg, BlockFi, RoboFi and Sanitatis
Yield farming presents an alternative decentralized method, known as DeFi, for generating passive income from cryptocurrencies. This is made feasible by the dynamic functionalities of decentralized exchanges, which serve as trading platforms where users rely on smart contracts (programmable and self-executing computer contracts) and investors to provide the required liquidity for executing trades. In this setup, users do not engage in trading against brokers or other traders; instead, they trade against funds deposited by liquidity providers into specialized smart contracts called liquidity pools. As a result, liquidity providers receive a proportionate share of trading fees from the pool.
To initiate the process of earning passive income through yield farming, one must first assume the role of a liquidity provider (LP) on a DeFi exchange such as Uniswap, Aave, or PancakeSwap. To begin earning these fees, it is necessary to deposit a specified proportion of two or more digital assets into a liquidity pool. For example, when providing liquidity to an ETH/USDT pool, both ETH and USDT tokens need to be deposited into it.
Once the liquidity is deposited, the decentralized exchange will issue LP tokens that represent your share of the total funds locked in the liquidity pool. These LP tokens can then be staked using supported decentralized lending platforms, allowing you to earn additional interest. This approach enables you to earn two distinct interest rates from a single deposit.
The crypto passive income opportunities highlighted in this guide represent only a few of the numerous ways you can generate extra profits with your idle digital assets. It is important to note that none of these opportunities are entirely risk-free. Therefore, it is advisable to conduct thorough research, seek guidance from qualified financial advisors, and determine the options that align best with your investment goals.
Robofi is a Defi platform that envisions a marketplace for revolutionary Dao crypto trading bots. Through its IBO (Initial Bot Offering) system, community members can maximize their earnings in an easy, simple, and secure way. We create a safe and transparent environment based on blockchain technologies that help developers bring crypto trading bot platforms to the market. In addition, individuals will have easy access to these bot applications, thereby generating more earning opportunities. RoboFi ecosystem is fueled by the VICS token.
VICS token has a distinctive and enticing concept. VICS is the BEP-20 token, built on the Binance smart chain. It is a core utility token in the RoboFi ecosystem, the reliable crypto trading bot marketplace. One important utility is to own the governance token of DABots and participate in an IBO (Initial Bot Offering) to receive additional incentives. VICS is available on major exchanges for trading.
I'm Carina, a passionate crypto trader, analyst, and enthusiast. With years of experience in the thrilling world of cryptocurrency, I have dedicated my time to understanding the complexities and trends of this ever-evolving industry.
Through my expertise, I strive to empower individuals with the knowledge and tools they need to navigate the exciting realm of digital assets. Whether you're a seasoned investor or a curious beginner, I'm here to share valuable insights, practical tips, and comprehensive analyses to help you make informed decisions in the crypto space.