Generating an income from cryptocurrencies usually conjures up images of Bitcoin day trading. Unfortunately, becoming a successful day trader or crypto investor requires a long-term commitment. Statistics say most crypto traders and investors lose money or break even. Thankfully, day trading is not the only way to earn in the cryptocurrency universe. Arguably, the most consistent crypto revenue stream can be found in crypto passive income. But what is crypto passive income, and how to start earning one?
Passive Income in a Nutshell
Let’s begin with understanding passive income. Income can be of three types — active, passive, and portfolio-generated. As the name implies, passive income is a regular stream of income derived with little or no effort on part of the investor. The most common sources of passive income are rental property, stock dividends, interest-bearing investments, royalties from books or music, trust funds, revenue from oil wells or solar windmills, etc.
How to Generate Passive Income from Cryptocurrencies?
So, now you know what is passive income and what are its possible sources. But we are here to make a fortune with crypto, right? So, let’s examine the most popular forms of crypto passive income.
Bitcoin mining was the first form of passive income within the cryptocurrency industry. In the early days of BTC, miners could use a simple CPU to carry out their mining tasks. However, as the crypto industry matured, mining became more complex, thus requiring greater computing power. During the past few years, the vast majority of passive income derived from BTC mining has been captured by professional miners. The mining industry has become highly specialized in favor of a small group of well-capitalized mining companies. Passive income is still available through BTC mining. However, only for a select few.
Staking is a less resource-intensive alternative to mining. It involves keeping funds in a certain wallet and performing various network functions to receive staking rewards. An example of a network function would consist of validating transactions. The stake (i.e. token holding) incentivizes the maintenance of the network’s security through ownership.
People tend to prefab staking because it is a simple way of generating income. It requires nothing more than establishing a staking wallet and holding the coins. The process involves adding or delegating funds to a staking pool, which is a method for allowing stakeholders to combine their computational resources.
Staking is an excellent way to increase your crypto holdings with minimal effort. In terms of passive income, staking is definitely one of the most popular methods of earning crypto passive income. For instance, the DGTX Staking Program will allow users to generate a healthy passive income for earning rewards.
Lending is the least effort-consuming way to generate crypto income. The vast majority of crypto lending is conducted on a peer-to-peer platform known as P2P lending. What is P2P lending? In its basic format, P2P lending enables individuals or businesses to obtain loans directly through online services, matching lenders with borrowers. This type of format eliminates financial institutions as the intermediary. Essentially, P2P lending is an alternative method of financing. This is particularly true for those who are unable to obtain financing from a traditional bank or lending institution.
P2P lending allows crypto owners to earn interest by lending their tokens and coins through the P2P platform. The income is passive because the crypto owner is not responsible for soliciting borrowers or servicing the loans. Instead, the owner of the P2P platform is responsible for managing the loans. Crypto lending is probably the most popular form of passive income.
Dividend-paying tokens have increased in popularity during the past few years. This is particularly true among passive crypto-income earners. Currently, the main type of digital tokens that pay a dividend is exchange-traded tokens. Several digital asset exchanges have issued their own tokens, which allows the exchanges to provide users with discounts on trading fees.
To earn dividends on these types of tokens, holders are usually required to hold them on the issuing exchange. The staking of dividend-paying tokens has also increased in popularity during the past few years.
Dividend-paying tokens are another example of how the crypto community has taken a product from the legacy financial services industry (i.e. dividend-paying stocks) and improved upon the original concept. This is another reminder that the cryptocurrency community is incredibly innovative and constantly introducing cutting-edge products.
Brief Summary of Crypto Passive Income
- There are three types of income — active, passive, and portfolio.
- Passive income is derived with little or no effort on part of the investor.
- Crypto passive income includes mining, staking, lending, and dividends.