Have you ever thought about using your crypto to earn a passive income? Let’s look at passive income, how it works, and 4 ways to earn a passive income on your crypto.
What is passive income?
Passive income is money you earn regularly without needing to put in a significant amount of effort to create it. It’s often referred to as making your money work for you.
Generally, you invest your money in something that will generate an income.
4 ways to make a passive income with crypto
1. Yield farming
In simple terms, yield farming involves placing crypto assets to work in liquidity pools to generate returns.
Note that yield farming isn’t simple, and the most successful strategies are highly complex. If you don’t understand exactly what you’re doing, you could lose a significant amount of money.
Sites like yearn.finance make earning a yield in DeFi simpler.
2. Staking
Staking involves holding funds in a crypto wallet to support a blockchain network’s security. In return, stakers earn rewards.
Staking cryptocurrencies is the process of locking up a portion of your funds to help maintain a particular network. These networks are typically Proof of Stake (PoS) blockchains like Ethereum or Polkadot.
In return for helping to secure and maintain the network, stakers receive staking rewards in the form of interest. The annual interest rate or APR can be anywhere between 0.05% to 100% a year. Usually, a higher interest rate comes with higher risks, so it’s important to do extensive research before staking your funds.
It’s also important to note that every coin has different rules. If you choose to stake Ethereum, for example, you’ll have to lock up your funds for an extended period of time. However, other coins come with shorter staking periods.
The simplest way for a beginner to stake is to use an exchange or a wallet. However, this does come with risks as you’re giving the exchange control of your funds. Also, most exchanges charge a fee for their staking services.
3. Mining
Crypto mining is how transactions are verified and added to the blockchain by a network of computers. The process involves a worldwide network of computers that act as virtual ledgers.
As a reward for their computing power, the miners on the network receive new coins. However, crypto mining has become a highly competitive business in recent years.
4. Crypto savings account
A crypto savings account allows users to generate interest by depositing crypto. Such accounts are provided by companies that will pay you interest for holding your funds on their platform.
However, this is not without risk, as you’ll have to give up control of your crypto to the account provider.
Examples of crypto savings accounts include Celsius Network and YouHodler.
Click here to read more about earning a passive income on your ETH.