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November 07, 2022

How To Make Passive Income Through Crypto

Of all the different ways money allures people, the idea of making passive income is perhaps the most appealing. After all, who wouldn't want to make money without having to do much work? Moreover, in our fast-paced, stressful, and overstimulated world, the appeal of something that can generate cash flow seemingly without any effort on our part seems too good to be true.

The internet is rife with stories of people who have made money through passive income streams. Through research, luck, and timing, some individuals have been able to tap into lucrative sources of passive income that have helped them achieve financial freedom.

Perhaps the most burgeoning area for passive income generation in recent years has been through cryptocurrency. While it may not be entirely hands-off, it's a method that could potentially provide you with a stream of revenue that requires less work from you than other methods.

What Is Passive Income?

Imagine this: You're a writer. You have a knack for fitness and nutrition. So you wrote an e-book distilling all of your knowledge about health and wellness into one convenient, easy-to-digest guide. You sell it online for $4.99 a pop. 

Every day, you wake up, make your bed, brew a hot pot of coffee and sip it silently, greeting the morning sun. After your morning of either relaxation or morning routines, you check your sales. Lo and behold, 20 people bought your e-book. You've made $100 while you slept.

That's passive income.

While not everyone can write an e-book — more specifically, not everyone can write an e-book that people will want to read — passive income streams are available in many different shapes and sizes. 

Here's a quick list of the most common forms:

  • Investing in stocks or index funds

  • Renting out a room in your house

  • Starting a blog and selling advertising space or products

  • Creating an online course

  • Writing an e-book or white paper

  • Creating and selling digital downloads, such as templates, fonts, graphics, etc.

  • Designing and selling T-shirts or other clothing items 

Creativity and effort limit passive income streams, so the options are virtually endless. And once you establish your income stream, the revenue it generates can provide you with income that requires little to no maintenance. 

But don't be fooled — just because it's called "passive income" doesn't mean it's easy money. To create a stream of passive income, you must put in the work — in most cases.

Enter cryptocurrency.

What Is Cryptocurrency?

Cryptocurrencies are technologies that marry monetary systems with cryptography to create secure, decentralized, and often anonymous digital assets. Cryptocurrencies leverage superior digital security and mathematics to create assets that cannot be duplicated or counterfeited. 

The first and most famous cryptocurrency is Bitcoin, but there are now thousands of different types of cryptocurrencies, each with their own characteristics and purpose.

There are a few main classes of cryptocurrencies:

  • Currency — Bitcoin (BTC) is the most famous example of a payment token. Bitcoin's primary goal is to act as a digital peer-to-peer payment system, using code as a monetary policy for its immutable, finite, and global currency.

  • Utility tokens — These are cryptocurrencies used to purchase goods or services within their blockchainecosystem. Utility tokens have specific functions within a particular blockchain and are often required to perform specific actions on that blockchain. Ethereum is the most famous example of a utility token, as it is necessary to interact with decentralized applications (DApps) and smart contracts on the Ethereum network.

  • Security tokens — Security tokens are digital assets backed by real-world, tangible assets. They derive value from an underlying investment, such as real estate, bonds, or a company's revenue stream. 

  • Exchange tokens — Cryptocurrencies that exchanges use to facilitate trade on their platform. Binance Coin (BNB) is an excellent example of an exchange token lowering fees for trading and transactions on Binance.

  • Stablecoins — Stablecoins are digital assets seeking to peg their value to another asset, such as the US dollar, to minimize price volatility. The most famous stablecoins are Tether (USDT) and USD Coin (USDC), which are pegged to the US dollar.

  • DeFi Tokens — Decentralized finance (DeFi) tokens are newer cryptocurrencies that have sought to create decentralized financial systems without the need for banks or other third-party intermediaries. DeFi projects and their respective tokens offer lending, borrowing, and other financial services on blockchains like Ethereum. The "DeFi Summer" boom of 2020 brought DeFi tokens to center stage as people chased high yields, with some yield farmers earning thousands of percent on their investments.

  • NFTs — Non-fungible tokens exist to establish ownership of digital or physical assets in the form of cryptographic tokens. NFTs can represent anything from digital art to in-game items, and because each NFT is unique, buyers can be confident that they are the sole owner of the asset. 

How Can You Make Passive Income With Crypto?

While theoretically, any time of cryptocurrency can appreciate and offer holders a return on their investment, there are certain types of cryptocurrencies (or cryptocurrency-related ventures) that are more likely to provide a steady stream of passive income. 

Mining

Mining is the process of validating transactions on a blockchain and earning a reward for doing so. Miners compete to validate transactions by solving complex mathematical problems, and the first miner to do so receives a block reward. This block reward is paid out in the cryptocurrency of the blockchain being mined and can be a significant source of income for miners. 

Bitcoin mining is considered the most profitable type of mining. Still, because the competition is so high, individual miners often join forces in mining pools to increase their chances of earning a reward. 

Some criticize mining as an environmentally unfriendly way to earn cryptocurrency, as mining often requires a lot of energy. Still, others argue that energy expenditure is necessary to secure a decentralized network. Furthermore, some go so far as to say that cryptocurrency mining could help the environment byincentivizing the use of renewable energy. 

Staking

Staking is the process of holding cryptocurrency funds in a wallet to support the operations of a blockchain network (Proof-of-Stake). When you stake your assets, you are essentially voting with your currency to confirm transactions, support protocol upgrades, and uphold the general health of the network. 

In return for staking and maintaining your position, you will receive rewards from newly minted coins or transaction fees. Staking incentivizes pro-social behavior and promotes network security. 

There's an incentive to act in the network's best interest instead of selfishly trying to game the system. Staking incentives mirror mining in that they both offer rewards to people who support the network and help to secure it.

While some criticize Proof-of-Stake as being too centralized (as those with the most money can have the most power), others argue that it uses far less energy than mining, making it the most sustainable way to earn cryptocurrency. 

Liquidity Pool Mining

Liquidity pool mining is a process by which traders can earn rewards for providing liquidity to exchanges. When you add your cryptocurrency assets to a liquidity pool, you are essentially making those assets available to be traded. 

Therefore, the more liquidity you provide, the greater the rewards you can earn. Protocols desperately need liquidity to gain traction as a means of exchange, so adding liquidity to these markets is essential for their success. 

While some argue that liquidity pool mining isn't actual "mining" because you're not validating transactions or supporting the network, others see it as a necessary part of the ecosystem that helps to keep exchanges running smoothly. 

In any case, it's a great way to earn passive income with crypto without putting forth much effort. 

Lending

You can also earn passive income with crypto by lending your assets to others. Many exchanges offer peer-to-peer lending services that allow you to lend your cryptocurrency to others in exchange for interest. 

Peer-to-peer lending functions the same as any other lending service — you take on the role of a lender and earn interest on your deposited funds over a period of time. The big difference? You can earn much higher interest rates with crypto lending than with a traditional bank. 

DeFi tokens likeCompound,Aave, andMaker offer lending platforms on the Ethereumblockchain that allow you to lend your crypto assets and earn interest. These protocols are decentralized, so you don't have to worry about a central authority controlling your funds like in the case of a savings account or checking account. 

Airdrops and Forks

Airdrops — Airdrops are essentially free giveaways of cryptocurrency tokens or coins. They're usually done to promote a new project or to increase awareness of an existing one. For example, a new cryptocurrency might do an airdrop to all holders of another cryptocurrency, such as Bitcoin, to increase its adoption. 

Airdrops bootstrap a new project's community by giving early adopters a chance to get involved and earn complimentary tokens. They also help create awareness of the project, as people are more likely to pay attention to a project if they get free money. 

Ember Fund airdrops free Bitcoin for participating in their crypto tournaments, answering survey questions, and referring friends to mine bitcoin or invest. 

Forks — A fork is a change to the protocol of a blockchain that creates two separate versions of the blockchain. Forks can be soft forks or hard forks. A soft fork is a change to the protocol that is backwards compatible, meaning that the new chain can still interact with the old chain. A hard fork is a change to the protocol that is not backwards compatible, meaning that the new chain cannot interact with the old chain. 

Forks are frequently contentious, creating the fork in the first place. For example, the Bitcoin Cash fork resulted from disagreements among the Bitcoin community about how to scale the blockchain. As a result, the hard fork created two separate blockchains — Bitcoin and Bitcoin Cash — that now operate independently of each other. 

What Are the Best Cryptocurrencies for Passive Income?

Interest rates, staking rewards, and mining profitability all change daily, making it difficult to say which cryptocurrency is the best for passive income broadly. So instead, we think it's best to take the pulse of the industry and see which cryptocurrencies are currently offering the best returns. 

That can be difficult, so a little help can go a long way.Ember Fund is an app that allows you to invest in a basket of top cryptocurrencies without researching or selecting them yourself. Why? Because our crypto industry veterans choose the best cryptocurrencies for you andrebalance the portfolio to ensure it always stays on the cutting edge. This happens passively, so you can sit back and watch your investment grow, knowing it's adapting to the broader market.

The Bottom Line

There are many ways to earn passive income with cryptocurrency. Whether you're staking your coins, lending them out, participating in airdrops, or simply holding them, you can make a return on your investment. 

The key is finding the method best suits your risk tolerance and goals. In addition, each technique requires its level of commitment and technical know-how, so be sure to do your research before diving in. 

Ember Fund can help you get started with earning passive income from cryptocurrency without having to put in the extra work. With Ember Fund's app, you can invest in a basket of the top cryptocurrencies and receive rebalancing and diversification without having to do it yourself. 

So if you're looking for a hands-off way to earn passive income from cryptocurrency, Ember Fund is a great option.

To learn more about Ember Fund, download the app here.

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