How to generate passive income with cryptocurrencies

Different ways of generating income are possible with cryptocurrencies. One way is to invest your money and efforts. The income generated in such a manner is 'active income' because you put in your efforts to earn. On the other hand, your investment can generate income without playing an active role in it. This earning model is known as 'passive income' generation. Same as in the general market with fiat currency, generating passive income with cryptocurrency is also possible.

Methods to Generate Passive Income With Cryptocurrency.

Here are the different ways of generating passive income with cryptocurrencies.

Cloud Mining

Mining is one of the oldest techniques in the cryptocurrency environment, which helps generate income. In crypto mining, you employ computational power and secure a network to get paid in the form of cryptocurrencies.

While mining requires you to put in much effort, cloud mining can generate income for you by using the computing power from a third party. You place your cryptocurrency funds with a cloud mining service provider, and it does the physical mining on your behalf. You get a portion of the rewards they receive as cryptos. Some of the examples are Bitfurry's Hashing24, etc. However, you must DYOR (Do Your Own Research) and do due diligence before investing in any authentic cloud mining venture.

Lending

Lending cryptocurrency can also help you earn passive income in the form of interest at a predetermined rate. You have P2P platforms where you can lend directly to others. Alternatively, in some venues, you can invest your cryptos, and it does the lending for you in return for a fee. Either way, your cryptocurrency balances earn income for you without any effort from your side.  

Lending is similar to placing your crypto assets in an interest-earning account. Such platforms offer exciting interest rates and other features like Preferred Interest Payout and Token Swap. In addition, these platforms provide consistent returns without you putting much effort into managing your investment.

Staking

Staking is yet another way of earning passive income with cryptocurrency. Staking is a reserve-conserving version of mining used in Proof-of-Stake (PoS) models. Staking involves storing your cryptocurrency in an appropriate wallet to support blockchain activities and confirming transactions. It helps generate income from your cryptocurrency holdings. You maintain the ownership (stake) of your cryptos that you can usually withdraw.

Running a Lightning Node

A Lightning Network is a second-layer protocol built on an existing network, like a Bitcoin Blockchain. It is an off-chain payment network used for quick transactions that do not require sending them to the underlying Blockchain. By setting up a lighting node to facilitate transactions between senders and receivers of Bitcoin, you can earn incentives as passive income. 

Liquidity Providing

Liquidity providers are individuals or market participants who use their cryptocurrency deposits (assets) to provide liquidity to a specific liquidity pool and enable underlying DeFi protocols to function. These liquidity pools allow crypto traders to access DeFi markets.

Liquidity providers earn income in incentives as a percentage of the exchange's transaction fees. The rewards are in proportion to their share in the liquidity pool. Decentralized exchanges use smart contracts or Automated Market Makers (AMM) to facilitate a trading activity for a specific crypto pair.

Masternodes

Masternodes are another technical option to earn passive income with cryptocurrency. They are servers that operate in a decentralized network that can perform activities that other nodes in a network do not. However, it can involve sufficient upfront investment and technical knowledge for setting up a masternode.

Masternodes can generate high income in return for high token holding requirements. However, as the investment required is significant, you should do your research and understand the procedures well before investing. Once similar example is Terra Luna's validator node which allows participants to earn higher staking rewards.

Holding Dividend Paying Currencies

Holding on to high dividend-paying cryptocurrencies can also generate good passive income. However, an investor should do proper research before investing. Specific tokens also offer discounts to users on the trading fees and entitle them to receive shares on the platform's profit. The key to earning passive income using this technique is HODL (hold on to dear life).

Affiliate Marketing

Affiliate marketing works with cryptos the same way as in other markets. Such programs generate income for introducing other people to the network. In addition, you can earn incentives and discounts through affiliate marketing by bringing in more people. Generally, affiliate marketing is ideal for those who have a significant social media following or have the power to influence other people to invest.

Forks

A blockchain protocol can undergo a change that could necessitate a new blockchain to run parallel with the original for some time. Such a situation is referred to as a hard fork in cryptocurrency. One such example is the 2017 Bitcoin Fork. During such occasions, the value of the underlying cryptocurrency changes, and existing investors get compensation in additional tokens.

Airdrops

Similarly, an airdrop is when the issuer deposits crypto tokens in the users' wallets as a part of a promotional campaign. Forks and airdrops can help you earn significant passive income. However, the recipient should assess whether to hold, sell, or reinvest the assets. For example, you can stake or hold Luna (Terra Station wallet) or Ethereum (MetaMask wallet) in their respective wallets. If a new project is launched, users may receive a few tokens in the form of airdrops in their holding wallets. Similarly, you can have DeFi or NFT airdrops too.

Blockchain-based Products & Services

The Blockchain also offers good scope for earning passive income. For instance, content providers can use the DLT (Distributed Ledger Technology) to monetize their work without intrusive advertisements. It can be a time-consuming process in the initial stages, but after building up a good log of material, it can result in a reliable income-generating source. Of course, the best part is that the content producers retain the ownership of their works, and the attention they generate is monetized.

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Generating income from your investments is the most sensible thing to do when you're looking to reach a particular stage of financial independence. As a result, generating passive income from cryptocurrency holdings is growing because it presents viable opportunities to earn income by incurring minimum risks.

While there are hundreds of ways of generating income from your assets, earning passive income on your cryptocurrency holdings is gradually becoming one of the most dependable and safest ways to create alternative income sources. You can start generating passive returns using any of the above methods according to your investment size, risk appetite, and how long you're willing to stay invested, among other factors.