Earning big in 2023: How to make passive income with cryptocurrency

In such uncertain financial times, passive income can be a strong differentiator for those living their best lives and those barely hanging on. One of the common ways to make passive income in the past few years is cryptocurrency. Cryptocurrency, sometimes called crypto is any currency that exists virtually and uses cryptography to secure the processes involved in generating units, conducting transactions and verifying the exchange of currency ownership.

The term cryptocurrency was derived from a combination of “cryptography” and “currency”. Crypto refers to the encryption algorithms and cryptographic techniques that entries and these include; elliptical curve cryptography, public-private key pairs, and hashing functions.

Understanding Cryptocurrency

Being secured by cryptography makes this encrypted medium of exchange nearly impossible to counterfeit or double spend. This means advanced coding is involved in storing and transmitting cryptocurrency data between digital wallets and public ledgers known as blockchain, a digital system that keeps track of cryptographic hash blocks.

Cryptocurrency is unlike fiat currencies such as a dollar bill or euro that can be carried around and exchanged in the real world, but rather it is a mathematical computation that purely exists as digital entries to an online database describing specific transactions.

A major feature of cryptocurrencies is the elimination of third parties since this digital assets are not issued by any government or central authority and therefore leverage a decentralized system to record transactions and issue new units. As a result, digital currencies are in theory safeguarded from government interference, inflation and manipulation.

In addition to the above, the digital payment system that is cryptocurrency does not rely on any banks but rather encryption to verify and secure transactions. It is a peer-to-peer system that enables anyone anywhere to send and receive payments without transaction fees and extra charges as long as they have access to the internet. When a cryptocurrency is created prior to issuance, or issued by a single user, it is generally considered centralized.

But digital currency is mostly implemented with decentralized exchanges control, meaning each cryptocurrency works through distributed ledger tech typically known as blockchain, that serves as a public financial transaction database. Individual crypto assets are often stored in a digital wallet which makes it easier to hold and keep track of the crypto assets.

Units of cryptocurrency are created through a process called mining, which involves using computing power to solve complicated mathematical problems that generate coins. Users also purchase cryptocurrency from brokers and cryptocurrency exchanges before going ahead to store, spend and keep track of them using cryptocurrency wallets.

How to use cryptocurrency

Although having crypto doesn’t count as owning tangible assets, users own a key that allows them to move a record or a unit measure from one person to another without a third party. Cryptocurrency can also be used (if accepted as a means of payment) to purchase cars, luxury goods, tech products and even insurance from companies like Swiss insurer AXA.

Some of the companies that sell tech products and allow to cryptocurrency transactions include; AT&T, Shopify, Microsoft, Newegg.com, Home Depot, Overstock, Rakuten, Burger King, KFC, Subway, Twitch, Norwegian Air, AMC, and Benfica among others.

Although cryptocurrencies have a reputation of being unstable investments due to the fact that some investors without technical knowledge have made great losses as a result of scams and hacking, the currencies still hold the attention of major financial institutions and are considered to be a better investment opportunity outside of forex, stocks and bonds.

Pros of Using Cryptocurrency

The pros of using cryptocurrencies for transfers and transactions include;

  • They are decentralized systems are private and secure meaning there is no danger of collapse at a single point of failure.
  • The use of blockchain technology prevents theft, double spending and counterfeiting.
  • Using cryptocurrency is straightforward, cheap and facilitates fast money transfers.
  • Digital assets put users in a conducive trading position, since they have neither time constraints nor trading fees since coins are being mined and transactions being recorded around the clock.

Cons of Using Cryptocurrency

Some of the cons that come with cryptocurrencies include;

  • Price volatility.
  • Although cryptocurrency is very secure, the decentralized exchange is not completely free of security since there is a danger hacking and scams.
  • The high energy consumption expended during the mining process.
  • Cryptocurrency is often used in illicit and criminal transactions since digital wallets make it hard to track How to make passive crypto income with Ethereum? users
  • In the event of a dispute between concerned parties or mistakenly sending coins to a wrong digital wallet, cryptocurrency does not facilitate refunds.

It is important to note however that although Bitcoin is the main pioneer in the industry considered to be the most popular and valuable, there are thousands of virtual currency. There include; Dogecoin, Litecoin, Ethereum, Ripple, Cardano, Monero, Stellar and others.

What is Ethereum and how does it work?

Ethereum is an innovative technology that is home to digital money, global payments and application. Ether, the cryptocurrency token for Ethereum network is currently the second largest cryptocurrency by market value after Bitcoin. Introduced in a white paper by programmer and creator Vitalik Buterin in 2014, Ethereum was ultimately launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys.

How does Ethereum work?

Ethereum as a decentralized software platform runs on blockchain tech, a public ledger that records all of a particular crypto’s account balances and transactions. The public nature of the ledger makes it difficult to cheat the system as transactions are anonymous, investors can buy and sell crypto without having to divulge personal information as it would be in a bank.

Cryptocurrency experts say that Ethereum is revolutionizing the financial industry via decentralized finance (DeFi). DeFi uses digital agreements called smart contracts to execute deals when certain conditions are met. Ethereum establishes a peer to peer network that securely executes and verifies application code. Smart contracts allow cryptocurrency participants to transact with each other in the absence of a trusted central authority.

Ethereum smart contracts are also known for powering NFTs which are pieces of digital art sold and bought for millions of dollars. Still, Ethereum has other uses and while it isn’t a popular Bitcoin, it is a widely accepted means of payment for major retailers such as Shopify.

Ether has also seen a major price surge over the years, going from below $1000 in 2020 to over $4000 in 2021, making it not just a means of payment, but an investment as well.

Tips on Earn Passive Income with Ethereum

With crypto markets booming, many are increasingly joining in with interests of making high returns on their investments. Earning passive crypto income is a possibility, highly dependent on the method chosen, market volatility and the amount of crypto available to start with.

However, it is important to weigh the risks of trying too earn a yield on your cryptocurrency, and its rewards, versus the risk/reward ratio of simply holding for potential long term gains. Here is a closer look at some cryptocurrency passive income opportunities.

Crypto Mining

Blockchains require all blocks to be validated before they finalized and this is known as achieving consensus. Crypto like Bitcoin and Litecoin use the Proof of Work mechanism, which necessitates miners to employ computers to solve complex cryptographic puzzles.

The first to arrive at a solution is rewarded for their time and this is referred to as block reward for mining. You can start earning a passive income with mining, simply by choosing a block chain to mine on and downloading the tools required, or joining mining pools which group computers and use their combined power to up the likelihood of earning interest.

Participate in Yield Farming

Yield farming is a lending service enjoyed by crypto users. This refers to earning interest from providing liquidity for lending and borrowing services. To yield farm, investors deposit tokens into special smart contracts of decentralized finance app known as liquidity pools.

The borrowers are usually traders and other DeFi applications that need to access quick liquidity, so the repayment of borrowed funds risk is relatively low. DeFi lending is also considered one of the best ways to earn passive, given their appealing interest rates.

That said, Yield farming is a popular and lucrative way to earn passive income with cryptocurrency, however, research and due diligence is an absolute necessity when choosing liquidity pools with a favorable interest rate to lock your tokens in.

Join Airdrops

These are marketing tactics by cryptos seeking to grow their popularity and circulation ahead of Initial Coin Offering. This involves distributing free tokens of the projects to prospective users at no cost. Such projects may require you to complete particular tasks or even grant you a digital token for linking your digital wallet to earn free crypto. While airdrops are not common or consistent, they are an interesting way to earn passive income through crypto.

Crypto Lending

Other than yield farming, there are various lending services that crypto investors turn to for crypto lending. As a crypto lender, you can use centralized or decentralized platforms to find borrowers and therefore earning from charging interest. The amount earned will depend on a few things including; loan duration, interest rates and the total value of crypto being lent out.

High rates, longer loan terms and larger loan quantities lead to more passive income crypto from the interest paid by borrowers. In some scenarios, the crypto lenders get to choose the terms of the loans including fixed interest rates while in other instances, a third party negotiates the terms ahead of time. The main forms of crypto lending are; margin lending, centralized lending, decentralized lending, and peer to peer lending.

Margin Lending

Margin lending is lending crypto to traders who want to use borrowed assets to increase their leverage through margin trading. This allows crypto users to increase their assets in order to be able to pay their loans off with interest. Crypto exchanges handle most of the details on the lenders behalf and all the user has to do is make their virtual assets accessible.

Centralized Lending

Centralized lending involves relying on the lending infrastructure and terms set by a third party. In this case, the interest rates and lockup periods will be fixed ahead of time. Users must deposit their cryptocurrency to the lending platform before earning interest.

Decentralized Lending

Decentralized lending, also known as decentralized finance (DeFi) lending involves using lending services directly through the blockchain. The lenders and borrowers interact through smart contracts that automate interest rates, hence eliminating intermediaries.

Peer to Peer Lending

Peer to peer lending platforms make it possible for the users to borrow directly from one another. Users start by depositing their crypto into the lending platform’s custodial wallet. They can then go ahead to set the interest rates, terms of loans and decide how much they are comfortable loaning out. This gives users some control over the crypto lending process.

Crypto Savings accounts

Having a crypt savings accounts is not only a way to safekeep your crypto asset, but also another one of the great passive income opportunities. Similar to saving accounts with a bank, some platforms offer accounts where your tokens funds are capable earning interest. Such platforms use the funds for lending to other users and staking or investments. As a reward, you earn passive crypto income through having a cryptocurrency savings account.

Cloud Mining

Cloud mining is a great way to generate passive income. This is a method under which you pay a service provider, to be able to use their hardware for mining crypto. Although standard crypto mining can take place on your personal device like a laptop, as more miners enter the process it gets increasingly difficult and expensive to keep up with the competition.

Making monthly payments to access top tier mining hardware from another ensures zero capital expenditure on your part, and with no hardware to maintain, there is no worry about hardware becoming obsolete. Cloud mining is a great way to earn passive income given that the average return from mining is much higher than the subscription fees.

Interest-Bearing Digital Asset Accounts

Some service providers allow cryptocurrency users to deposit digital assets and earn a yield from the, as they would as they would with depositing cash into a savings account.

In order to earn interest on your digital assets, users simply need to open up their respective Interest bearing crypto accounts and deposit their cryptocurrency or Stablecoins. In return for the depositing if their digital assets, users earn interest on their crypto funds, which they can later access having waited for the fixed amount of time set by the service provider.

Liquidity Mining

Although decentralized crypto exchanges enable peer to peer transactions in a fast and secure manner, operating solely on a P2P can lower volumes on the platform. This is where liquidity mining comes in. A liquidity pool provide coin swipe pools required for smooth functioning and market making as well as earning passive crypto income.

An assured way to generate passive income is by providing your digital tokens to a liquidity pool makes you one of liquidity providers, earning a portion of the network fees based on the liquidity you provide. A Liquidity provider may also choose to stake their earnings further to earn more returns which is a great way to earn passive income through crypto currency.

Earn Crypto by Staking

Staking allows you to earn crypto passive income by holding your crypto assets. Crypto staking is the process used to verify cryptocurrency transactions, which involves committing your crypto holdings to be used to confirm transactions and support the blockchain network. In return, you earn passive crypto income through the rewards for what was staked.

Depending on the crypto you can earn anywhere between 5 to 20% pa on the amount of crypto you staked. But you will need to stake a large amount of coins to make a high profit.

Dividend Earning Tokens

Tokenized stocks are crypto backed by shares of equity in a company. Sometimes these tokens offer dividend pay outs in the same way that share holders of a company receive dividends. They are received on a quarterly basis and qualify as crypto passive income.

Run a Lightning Node

The Bitcoin lightning network is a layer 2 solution that allows for lightning-fast affordable micropayments at scale. Lightning nodes facilitate such transactions, and those who manage the nodes receive a percentage of each transaction fee that gets routed through their nodes.

However, running a lightning node generates very little income because the transaction fees tend to be low, and those who run the nodes might end up making only a few dollars monthly or even less. Most users run lightning nodes to support the use of Bitcoin as a medium of exchange, therefore, as a lightning network grows and more transactions get routed through it, the income for node operators could possibly rise as well.

Learn to Earn

Some platforms offer bonuses for using their learning hubs, which is a great way for users to start earning passive income. Crypto passive income can be earned when such users reward users who watch videos and take quizzes. The content is typically focused on specific altcoins, and it is in these coins that the users earn passive income at the end of the lessons.

Affiliate programs

Such programs exist for many different business models, one of which being crypto related products. Some exchanges offer affiliate programs which reward participants for getting other users to sign in or open accounts. Users have to; sign up, submit an application, share an affiliate program link, introduce a platform or product to their friends, family or social media follower, and finally earn rewards when someone takes certain action like signing up.

Affiliate programs may not be the fastest way to grow your passive income with cryptocurrency but it is surely one of the easiest, given that you do due diligence and check out the program or company terms and services before bulk sharing an affiliate link.

Play Games to Earn (P2E)

Game financing operates a “play to earn” model that allows players to earn passive income which is one of the fun ways to earn passive for just playing games and moving up through the levels. This could be in form of NFTs, crypto and in-game tokens that can be converted into other other crypto like Bitcoin, Ethereum and even swapped out for physical currencies.

Proof-of-stake (PoS) staking

Proof-of-stake is a consensus mechanism used for processing transactions and creating new blockchains. It relies on actively involved users who own coins associated with the blockchain validating block transactions based on their staked coins. It requires multiple validators to agree that a transaction is accurate and once enough nodes verify, it goes through.

This consensus mechanism sees that a validator is chosen at random, based on how many coins they have staked in the blockchain. The staked coins act as collateral and when a participant is chosen to validate a transactions, they earn staking rewards. In addition, the system picks at random who gets to validate transactions and collect rewards, which is a great alternative to competitive reward based mechanisms like proof-of-work.

Different proof-of-stake mechanisms employ various methods. For example, when Ethereum introduces sharding, a validator will verify transactions and add them to a shard block, which requires at least 128 validators on a committee. Once shards are validated and a block is created, two thirds must agree that a transaction is shard, then the block is closed.

In Conclusion

Some of the different ways that investors earn passive income include; joining airdrop, affiliate programs, staking, lending and P2E games. Some methods of earning passive crypto income are simpler than others but regardless, it is worth the try to grow your digital assets.

Gerald Ainomugisha is a freelance Content Solutions Provider (CSP) offering both content and copy writing services for businesses of all kinds, especially in the niches of management, marketing and technology.