How To Make Passive Income With Crypto
Cryptocurrency is a unique financial instrument that enables anyone with an Internet connection to participate in a distributed economy—including the opportunity to earn passive income. There are unique risks associated with investing and earning with cryptocurrency, even though it may seem like a bank account or social lending platform.
Here’s a closer look at a few ways to make passive income using crypto.
What is the takeaway?
Cryptocurrencies can be used to earn interest through a distributed finance economy.
Anyone in the world can participate with the right account or technical knowledge.
Cryptocurrency lending and earning platforms feature unique risks and are not insured or endorsed by any government agency.
All methods have the risk of losing significant capital through volatile price changes, theft, scams, counterfeiting, and more. You can earn by downloading this app.
Some decentralized finance (DeFi) platforms and decentralized exchanges (DEXs) allow users to directly participate in the lending process to make money like a bank. Yield farming techniques allow users to link their cryptocurrency wallets and commit coins and tokens to a loan pool with others.
That pool is then used to lend to others for interest and fees. Users are sometimes paid for participating in the lending process or given interest on the amount of shares or holdings in their account. The amount earned from crypto lending depends on three factors: loan tenure, loan amount, and interest rate. The top lending platforms in 2023 were Uniswap, Curve, and Balancer.1
Index
Cryptocurrency
Strategy and learning
How To Make Passive Income With Crypto
Cryptocurrency is a unique financial instrument that enables anyone with an Internet connection to participate in a distributed economy—including the opportunity to earn passive income. There are unique risks associated with investing and earning with cryptocurrency, even though it may seem like a bank account or social lending platform.
Here’s a closer look at a few ways to make passive income using crypto.
What is the takeaway?
Cryptocurrencies can be used to earn interest through a distributed finance economy.
Anyone in the world can participate with the right account or technical knowledge.
Cryptocurrency lending and earning platforms feature unique risks and are not insured or endorsed by any government agency.
All methods have the risk of losing significant capital through volatile price changes, theft, scams, counterfeiting, and more.
Cultivation
Some decentralized finance (DeFi) platforms and decentralized exchanges (DEXs) allow users to directly participate in the lending process to make money like a bank. Yield farming techniques allow users to link their cryptocurrency wallets and commit coins and tokens to a loan pool with others.
That pool is then used to lend to others for interest and fees. Users are sometimes paid for participating in the lending process or given interest on the amount of shares or holdings in their account. The amount earned from crypto lending depends on three factors: loan tenure, loan amount, and interest rate. The top lending platforms in 2023 were Uniswap, Curve, and Balancer.1
Many DEXs also offer liquidity pools, where users share their cryptocurrency in a pool. These pools allow other users to trade quickly so they can take advantage of fluctuating prices. Liquidity providers typically earn a percentage of the cryptocurrency they have locked in the pool.
Some of the exchanges that you can provide liquidity to firms are Uniswap, Pancakeswap, and Sushiswap.
mine
The backbone of cryptocurrency is the blockchain, and it takes many computers working in parallel to create a secure, functional chain. Behind many popular currencies, including Bitcoin and Litecoin, is a process called Proof-of-Work (PoW). Proof-of-work is essentially a race where miners compete against each other to find the encrypted solution to a block. The winner gets a prize of cryptocurrency.
If you have a spare computer at home, you can turn it into a miner and join a mining pool. This usually requires a dedicated graphics processing unit (GPU) and some computer and programming skills. Some pools provide executable programs that guide you through the setup process.
To have a chance to earn any cryptocurrency, you need to join a pool and take advantage of its collective processing power.
Many minable cryptocurrencies have periodic events where block rewards are reduced. Bitcoin rewards are cut in half roughly every four years; Litecoin is on a similar schedule but reduces its rewards by 20%. This means that mining becomes less profitable as time passes because operating costs stay the same (or increase) even though less coins are available.
staking
Proof of work isn’t the only way to get new coins. Proof-of-stake (PoS) blockchains exist, where cryptocurrency owners “stake” their coins to participate in the network’s validation and consensus process. Stackers receive a fee for work done in exchange.
You don’t need the same technical knowledge of how to stock crypto as you do with other methods. Some exchanges allow you to earn shares and rewards if you have an eligible currency in your account. For other currencies, you only need to hold the crypto in a compatible software or hardware wallet.
In some blockchains, such as Ethereum, you can entrust your Ether to a validating node, which earns rewards and pays those who have entrusted their Ether. You can join staking pools, which pay out depending on the pool’s rules. These functions are not built into the blockchain but are provided by other parties who have built these capabilities.
Earning games from playing
You can also earn passive income by playing online games. There are many play-to-earn crypto games available today and each one is unique. Some of the more popular ones are Axis Infinity and Decentraland. 23 In the Philippines, these games became so popular during the pandemic that they became a source of income for those who lost their jobs. 4
Crypto Passive Income Risk
As with all investment opportunities, there are risks involved in generating passive income using cryptocurrency.
safety
Digital currencies are a favorite target for hackers and thieves because they are new and valuable, and the technology supporting them is still under development. The exchange is under constant attack by hackers and thieves.
Attacks can be directed at exchanges, but not always. For example, in July 2022, a liquidity provider on the Uniswap platform fell victim to a phishing scam and authorized transactions in fraudulent positions.
restlessness
It’s no secret that cryptocurrency prices are volatile and subject to the same risks as traditional high-risk investments. Prices sometimes swing by thousands of dollars per day, affecting your invested capital or profitability.
Crypto markets have responded wildly to news and regulatory developments in the past—press releases resulting in large price swings from euphoria and fear.
loss
Cryptocurrencies may not give you the returns you expect, so you may need to invest more to appreciate the returns. If you invest enough in crypto to get valuable returns, you could lose a lot of capital if the price drops suddenly and doesn’t recover.
Associated costs
Competitive mining equipment is expensive, as are the energy costs associated with running it. Even if you try to mine Bitcoin or other mineable cryptocurrencies, you will never break even because huge mining farms corner the mining networks. Pool payouts are usually shares per job done, so unless you have a strong miner contributing a lot of work to the pool, your share will be minimal.
fake
Many DEXs offer yield-farming opportunities, but it’s hard to tell if the tokens are real because they and the exchanges aren’t regulated. You need to do your research to make sure you invest in something real, and even then you can be fooled.
Some of these fakes are very credible, with websites, white papers, chain explorers, metrics, and seemingly active development communities.
How do you turn crypto into passive income?
There are several ways to generate passive income with cryptocurrency, including yield-farming by lending or providing liquidity on the Diffie platform.
Is Crypto Passive Income Safe?
There is a high risk of loss if price, volume, locking in total value, or various other factors change. Cryptocurrency remains a volatile opportunity, so it’s best to use what you can afford to lose trying to make passive income using cryptocurrency.
Can you earn $100 a day with crypto?
Making $100 a day is possible, but there is no guarantee or specific strategy you can use to ensure it. Trading, lending, staking and investing in cryptocurrency all carry significant risks as it is a volatile and unpredictable asset.
Bottom line
You can make passive income using crypto as an opportunity to diversify your investments and earnings. At rates much higher than what you get from banks, you may be drawn to the excitement of the cryptocurrency world. If you time it right and your crypto investment grows in value, you’re double-dipping with interest and investment gains.
However, there is also a significant risk of loss, and many investors have felt the pain of cryptocurrency platform bankruptcy and devaluation of their overall crypto portfolio. Everyone’s risk tolerance and investment goals are unique, so it’s up to you and perhaps a trusted financial professional to decide the right balance of crypto income investments—if any—that makes the most sense for your portfolio.
Comments, opinions and analysis published on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more information. As of the date of writing this article, the author does not own the cryptocurrency.
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