In this day and age, generating passive income has become a lot easier than you would’ve ever expected. You must have heard about crypto, and I am going to explain in this guide how you can generate a passive income from crypto without being actively involved.
I have written this guide keeping in mind my personal experiences as an investor in crypto. I was never actively involved, and I am going to make this guide as simplistic for you to learn if you want to make big bucks using crypto without any direct involvement.
3 Things You Should Know Before Investing In Crypto
#1 Defi & Blockchain
I will begin with Defi or more popularly known as decentralized finance. It’s a mechanism for carrying out transactions without the aid or access of central intermediaries e.g. brokers, banks, etc. Defi is powered by a digital database technology i.e. blockchain.
Blockchain is a digital ledger – only, in this case, it’s distributed across the entire network of connected systems having transaction data. It’s never under the control of a centralized system, therefore, no single authority. It independently stores transaction data thus decentralized.
Blockchain enables decentralized networks for the users to contribute to the governing, processing, and validation of transactions.
#2 How it All Works?
In a blockchain, transactions are replicated and distributed across connected systems. The term block points at the record of specified transactions just like in an accounting ledger. Now I’m going to explain the whole process of the transaction using blockchain.
Supposedly, I make a transaction. After it takes, the first step is verification. Once verified, my transaction will be clubbed with other transactions in a single block. This block will then be added to a chain. And so on so forth, a blockchain will be formed.
#3 How Secure Are These Transactions?
Every transaction that takes place on the blockchain gets updated regularly. This collective system keeps a record of every single transaction.
It removes any ambiguity or suspicions to any deception, fraudulent activity, or even cheating in the system.
How to Invest in Crypto?
For starters, I would invest my money or whatever digital assets I’ve got in a crypto platform. And then I would just watch my investment generate profit. Usually, the earnings I would make are predictable and fixed. But there may be cases where things may not be in my control.
One way that I find useful in making a return is by buying and holding crypto. I find it useful because it requires hardly any involvement. All I do is purchase a digital asset, and remain optimistic about its price rising significantly in the future.
Check out my winning Bitcoin strategy:
You may require patience when buying and holding a digital asset. It could take up to months to years but I would recommend that with such an investor mindset, it is worth the wait.
You can make a lot of profit, and you don’t have to be active during this duration.
Storing Assets With Crypto
Now, I would like to talk about storing a digital asset. When you buy a digital asset, you can store it in a wallet. The wallet that I’m referring to here is a digital, non-custodial, and secure wallet.
These wallets are apps where you would have special access. You can store your private key, which provides you with special access. This access enables you to get hold of your crypto investments and digital assets.
In terms of security, wallets are more secure than 3rd party applications. Wallets are easily installed on your devices e.g. mobile, or computer. Moreover, you can also have a customized purpose-built wallet application/device.
A 3rd party application has control over your private keys, hence your digital assets are also under their control.
Methods to Generate Crypto Passive Income
#1 Staking a.k.a PoS
Staking or more popularly known as proof of stake (PoS) is a blockchain mechanism that lets new users agree on entering new data into the blockchain in a distributed network. This allows users to validate the transaction process.
As it’s a distributed network, thus it involves users’ participation like in a social community. This social community-like approach is an alternative to the centralized approach like in the banks. Thus, users become the relevant market forces in this regulatory process.
I would also like to point that blockchains can also randomly select users and give them the authority to validate i.e. as validators, and in the end, reward them through a financial incentive or rebate in form of crypto for their efforts.
The process of selecting validators varies with the blockchain network. Usually, blockchain networks expect users to financially commit to the network. In simple terms, financially put their stake with the network for its validity.
Then, the blockchain picks out validators from users who have staked a specified sum of the network’s native digital asset. In turn, the selected validators can earn interest on the staked funds for their contribution to the network’s validity.
This validation mechanism makes up the proof-of-stake. Now let me further brief you about how this will help in generating passive income.
This mechanism allows the holders, who are in it for a longer run to make passive income. However, the process of staking is highly technical, but here’s the catch!
With PoS, the blockchain network allows you to delegate to other users or participants who can comprehend the technical requirements of staking.
Some of the PoS blockchain staking platforms include Ethereum, Solana, and Polkadot. Having used Ethereum, I deposited a fraction of my digital assets. The minimum required is 32 ETH to become a validator, and 5 ETH to accrue interest.
Lending is a very popular method to generate passive crypto income. I will quote you a simple example to show how lending is done: Suppose I am an investor in the crypto industry. Whatever my digital assets are, I will lend some of them to a borrower.
This will give the borrowers a chance to earn interest. Now I’ll discuss different lending strategies:
Peer to Peer Lending
Platforms that do Peer to Peer Lending give users the decision to set their terms and conditions i.e. decide the amount to lend, and the expected interest.
Then platforms match the lenders with borrowers just like trading platforms do with buyers and sellers. It provides the users control to a certain extent. As a user, you have to make a pre-deposit of your digital asset on the custodial wallet of the lending platform.
Platforms with centralized lending have fixed interest rates along with fixed asset lock-up periods. The user has to rely on the lending platform of 3rd parties with centralized lending.
Moreover, you are bound to transfer your crypto asset to the platform to start earning interest.
In this lending strategy, there are no intermediaries involved. As a user, you can directly do the lending on the blockchain. Here the role of smart contracts becomes very crucial.
Both the lender and the borrower interact using smart contracts. A smart contract is autonomous and sets interest rates periodically.
#3 Crypto Mining
Crypto Mining is a computing process that helps in the verification of past Bitcoin transactions on the blockchain.
Miners receive Bitcoin as a reward for assisting in the maintenance of the network. Other mineable cryptos, such as Ethereum, are mined using the same method.
Crypto Mining using the cloud allows anyone to mine. You have to remotely sign up and be a part of a group of miners i.e. “mining pool”. You’ll rent a set amount of hashing power to mine Bitcoin. The proceeds are divided among the members.
The amount of computer power utilized to solve algorithms in the Bitcoin mining process is referred to as hashing power.
Some platforms for crypto mining include Slushpool, Bitfly, Ethermine, StormGain, Ecos, etc.
#4 Yield Farming
Yield farming is a Defi investing strategy. It entails lending or staking your bitcoin coins or tokens in exchange for transaction fees or interest in the form of transaction fees.
You’re essentially lending money to the bank, so it’s akin to getting interest from a bank account. Compared to keeping money in a bank, yield farming can be riskier, and more difficult.
You can start earning a passive income with Yield Farming by becoming a liquidity provider (LP) on a Defi exchange platform e.g. Uniswap, Aave, or PancakeSwap to begin earning passive money through this mechanism.
You must deposit a certain ratio of two or more digital assets into a liquidity pool to begin earning. Once you’ve deposited liquidity, the decentralized exchange will provide you with a portion of your total funds in the liquidity pool.
You can then use supported decentralized lending platforms to stake these LP tokens and earn additional interest.
You can use this strategy and earn two separate interest rates from a single deposit.
Top 6 Platforms for Crypto Passive Income Investing
Many platforms are in the race for passive income using crypto e.g. Luno, Youhodler, Trustwallet, and Atomic wallet, here is my review on the top 6 platforms for crypto passive income investing.
I will begin with BlockFi. You can earn a passive income with the least effort using BlockFi. I was able to earn a passive income with 8% interest yearly with my crypto assets using BlockFi. This platform calculates interest monthly and pays me out at the start of every month.
The sign-up process is easy and simple. The verification is quick. Moreover, all I did was a deposit, and I started earning interest immediately. The interest earned is compounded i.e. interest previously is added to the total sum.
This platform pays interest monthly. If needed, I could withdraw my holdings. The platform allows me one free withdrawal every month.
Watch the video below to learn how I earned 100% passive income by holding Bitcoin in the BlockFi wallet!
Crypto.com is a cryptocurrency platform that deals with many cryptocurrencies including its own. It allows users to earn interest from staking. This interest earned is the passive income.
You as a user have a choice to receive payments in the native cryptocurrency (CRO coin) or other stable coins (150 different cryptocurrencies).
You can increase your interest yield up to 20 times through swapping or staking with CRO.
Also, you can use this platform to load your crypto earnings into Visa cards. This automation process converts the crypto into USD, and you can use that from your earnings to buy physical goods.
Nexo is a leading regulated financial institute for digital assets. It offers the cryptocurrency platform to help users earn passive crypto income based on an interest that can go up to 12%, given 10% of your portfolio is in Nexo.
The edge of using Nexo is that the interest is compounded daily, so you can earn interest daily. There is no lockup period. Moreover, you can add and withdraw anytime. However, the crypto withdrawal is limited depending on your loyalty tier.
#4 Celsius Network
Celsius is a lending platform that uses blockchain. It has issued its own coin i.e. CEL. It allows you to borrow money or cryptocurrency on the platform for lending.
You’ll receive an interest in exchange which counts as your passive income.
You can earn over 17% of the annual percentage yield (APY) with Celsius.
You can trade, buy, and store cryptocurrency on Binance. You can choose between basic and advanced trading services. Binance also has a volume-based pricing structure for institutional trading.
The Binance Coin, or BNB, is Binance’s own blockchain and coin. BNB trading will be less expensive than other alternatives.
There is a 25% saving on trading fees if you use BNB.
Binance provides its US customers with staking (with annual payouts ranging from 0.5% to 10%). There are mining pools in addition to crypto trading.
Binance has also developed its Trust Wallet. Although you aren’t obligated to use it. You have complete freedom to shift your funds to any cryptocurrency wallet you like.
Binance charges a 0.1% spot trading price. The trading charge for immediate buy/sell transactions is 0.5%.
Coinbase is one of the largest cryptocurrency exchanges. Using this platform, you can trade in various cryptocurrencies including Bitcoin, and Ethereum, without converting from your base currency to any other cryptocurrency.
Using Coinbase, you’re required to pay a spread fee of 0.5%. You’ll also have to pay transaction fees for each cryptocurrency.
If your attitude is up for strong volatility, then go for Coinbase. Else, I’d suggest you stay away from it. The crypto holdings even on a well-diversified investment portfolio are very small – almost less than 5%.
I have given you an open overview of the easiest way to make passive crypto income for free. However, the crypto passive income options that I have described in this guide are only a few of the various ways you can profit from your idle digital assets.
It’s important to note that none of these chances are without risk. As a result, it’s a good idea to study further, seek expert advice from a certified financial advisor, and figure out what’s the best strategy that could meet your investment goals.