Earning money usually involves locking into a 9-to-5 job and working five days a week. However, there are ways to easily bring in cash with very little technical expertise.
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Passive income is money you earn that doesn’t require your active involvement — like a salary would. While popular approaches to this involve purchasing real estate or selling, lesser-known methods, like those involving the volatile, yet potentially higher returns of crypto, can also be fruitful.
There are many user-friendly ways to grow your money and digital assets with even a basic amount of cryptocurrency, each with pros, cons and levels of risk. Here are four ways you can use crypto to create a passive income stream.
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Mining
According to Ashley Tison, Esq., founder of OZPros, crypto mining (the process by which blockchain networks finalize transactions) is “the ultimate passive investment.”
While it does require a significant amount of capital and resources upfront, Tison said the crypto mining machines generate crypto assets every minute of every hour of every day — becoming the definition of truly passive income, through crypto passive earnings.
HODLing
One tried and true method mentioned by our experts is known as “HODLing” — buying and keeping your coins until they increase in value. Since many markets are cyclical, buying the popular coins, like Bitcoin, and leaving them to increase in value, can be one of the safest methods of growing your money.
There are many pros to this method, including the potential for high returns and its simplicity. In addition, it enables investors to avoid short-term volatility and in turn, can help you avoid the stress and decision-making associated with constantly staying informed about short-term price fluctuations.
There are also some cons. For instance, while avoiding short-term volatility, HODLers are exposed to long-term market fluctuations. Cryptocurrency prices can be highly unpredictable, and the value of your holdings may decrease significantly.
Additionally, there is also a lack of diversification. If your assets underperform, you might miss out on opportunities to diversify your portfolio and reduce risk.
Staking
One of the easiest and most common ways to earn passive income with crypto is by staking rewards, said David Kemmerer, co-founder and CEO of CoinLedger.
“Staking is something that essentially helps to support the blockchain’s operations by confirming transactions. Those who help with this can then earn rewards, which is where that passive income comes from. It takes very little effort on your end,” said Kemmerer.
“All you really have to do is own cryptocurrency that specifically uses a proof-of-stake model, and then choose how much of that you want to stake.”
In other words, individuals can lock up their crypto on a blockchain, and earn rewards for doing this in the form of regular payments of a certain token that can be accumulated or sold on exchanges.
Yield Farming
Yield farming is the practice of earning crypto by depositing assets into liquidity pools on decentralized finance (DeFi) platforms and decentralized exchanges (DEXs), such as Uniswap. Jeff Owens, co-founder of Haven1, said it’s also another way to derive passive income from crypto.
As he explained, it usually requires two different assets to be deposited in a liquidity pool.
“The returns can be high — sometimes hundreds of percent — but the risks are also higher due to liquidations as a result of underlying asset volatility,” he said. “Yield farming was extremely popular during the DeFi boom of 2021, but the significant risks deter many crypto users from this practice.”
Caitlyn Moorhead contributed to the reporting for this article.
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Sources
Ashley Tison, Esq., OZPros
David Kemmerer, CoinLedger.
Jeff Owens, Haven1
This article originally appeared on GOBankingRates.com: 4 Ways To Create a Passive Income Stream With Crypto
