Can you imagine an investment growing by about 20,000 times? Those who bought Bitcoin in 2011 accomplished this milestone by the close of 2017. Around this time, the value of BTC shot from less than $1 to about $20,000. So, a person who invested $10,000 enjoyed huge returns on investment by simply holding the coins in his/her wallet. Although the crypto world started on a bumpy ride, with most governments advising their citizens against buying cryptos because of the involved risks, things are now changing, and you have the opportunity to make quantifiable returns from cryptocurrencies.
Unlike about ten years ago, when the only way to make money with cryptocurrencies and blockchain was through buying and holding, multiple methods are now available for you. So, which one is the best? If you are new to cryptocurrencies, keep reading as we dig deeper to determine how they work and the relationship with blockchain technology. We will also highlight the top ways to make money with cryptocurrencies and blockchain.
A Closer Look at Cryptocurrencies and Blockchain Technology
When many people hear of cryptocurrencies, what comes into their minds is Bitcoin. Sure, Bitcoin is a cryptocurrency, but that is only one. Cryptocurrencies are digital currencies that were developed as an alternative form of currencies to make the process of payment or sending value easier, faster, and more convenient. Although you might have different impressions of coins such as Bitcoin (BTC) and Ethereum (ETH), they only exist virtually. After buying BTC, what you receive is a string of codes that show ownership in the blockchain network.
A blockchain network is a decentralized public ledger designed to store information electronically in digital formats. When a transaction, such as sending cryptocurrencies from one person to another, the data is captured and stored on the network in the form of blocks. Ultimately, the blocks link up together, forming a growing chain, which made them get the name blockchain.
The first blockchain network, Bitcoin, was released in 2009 by Satoshi Nakamoto and hosted the pioneer cryptocurrency BTC. Indeed, other later blockchains and cryptos have somehow borrowed from the Bitcoin blockchain design. By mid-2021, there were more than 6,000 cryptocurrencies in circulation.
Are Blockchain and Cryptos Legal?
In the early years of blockchain technology, many governments were skeptical about cryptocurrencies and blockchains because they are decentralized and permissionless – this means that there is no single owner or third party that is involved in processing transactions. Therefore, a person sending money, whether within the same country or outside, would be able to do it instantly without going through third parties such as banks or credit card companies. So, banks feared that they could end up losing business, and governments denied revenue.
Despite the concerns, the idea of cryptocurrencies and blockchain was conceived out of necessity. For example, sending money through a bank transfer can take days or weeks to reach the recipient. Again, traditional transactions expose people’s details to a long list of third parties and are also costly. Well, no matter the resistance to cryptos and blockchain, it is now dawning to most administrations that blockchain is an idea whose time has come. The evolution of cryptocurrency has driven different banks and governments of the world to design and develop blockchain technologies. Also, countries such as El Salvador, Venezuela, Nigeria, and Switzerland, to mention a few, are already embracing blockchain in different areas.
In most countries across the globe, governments have not outlawed cryptocurrencies. They only caution citizens to be extra careful when investing and using them. Therefore, whether you are in Asia, Europe, or America, among other places, buying, using, and making money with cryptos should be possible. However, you need to be vigilant because some countries such as China have already banned some activities like mining.
The Best Ways to Generate Crypto Passive Income
Now that we have highlighted how cryptocurrencies work, it is also important to note that they have become an excellent way to make some returns on investment. Next, we are going to look at the ways you can use to generate passive income with cryptos:
1. Invest in Cryptocurrencies
Investing in cryptos is perhaps the most common method with most people. This method works just like buying and holding other assets, such as property, stocks, and forex, waiting for it to appreciate and sell when the price hits a climax.
How does Investing in Cryptos Work?
You only need to buy the coins and hold them awaiting the price to grow to use this method. Spotting the right currency to buy calls for good analysis to foster understanding of the expected movement of the selected crypto. For example, the COVID-19 pandemic made people broaden their thoughts about finances, which is the fact driving the fast-growing demand for crypto coins today. You might also want to look at individual cryptos to make an informed decision. For example, this might be an excellent moment to invest in Ethereum because its price is expected to skyrocket after completing the shift from proof of work (PoW) to proof of stake (PoS) consensus protocol.
Remember that even with analysis; it is a good idea to work with several coins to diversify your crypto portfolio. For example, you might want to put a significant portion of your investment in ETH and another chunk in Bitcoin.
What You Need to Invest in Cryptos
To invest in cryptos, you need to start by deciding the coins of interest. Then, acquire the right crypto wallet to hold them. Finally, buy the coins from crypto exchanges or trusted firms such as hi.com and store them in your wallet until such a time when you want to sell. Make sure to keep your private keys as safe and secret as possible because revealing them to anyone is like giving away your coins.
Benefits of Investing in Cryptos
The main benefit of investing in cryptos is the freedom it gives its investors. You can continue with your daily routine and only check the price movement once in a while, probably weekly or monthly. If the price of the selected coin grows, you can make some impressive returns on your investment.
While we sing the praises of how investing in crypto has liberated some early investors, we must indicate that the risk of making some losses also looms. If the price of the selected coins goes down, it is possible to end up with some losses on your investment.
2. Crypto Staking
In the first method of making passive income with cryptos, we have looked at buying the coins and holding them, now, we have a better idea. Instead of just holding the coins, why not stake them for more income? Here is how it works.
What is Crypto Staking?
Crypto staking is a method of locking your crypto coins on a blockchain network to help with forging new blocks and governance. In return, you are rewarded with some of the fees that people pay to use the crypto network or tokens if the crypto network uses staking to release new coins. Staking works only on cryptocurrencies that use proof of stake (PoS) consensus protocol.
Although staking has been around since 2014 when Dan Larimer, the founder of BitShares, it is only recently that it has gained a lot of preference after it emerged that mining is energy-intensive. Mining is the method used by crypto coins, such as Bitcoin and Bitcoin Cash, for releasing new coins. The biggest challenge is that it uses a lot of power and, therefore, is not eco-friendly.
The Two Methods of Crypto Staking
You can use two main methods to stake your coins: staking the coins right from your wallet and using a pool. If you opt to stake your coins on your own, this process requires you to have the right equipment and some technical expertise. Using Ethereum as an example, it is required of you to have a high-performance computer or set of computers and install an Eth2 mainnet client on them. Then, ensure the computer stays on and online 24/7 throughout the staking period. A lot of people find this really challenging, which is why they opt to use pools.
A staking pool means that your coins are pooled together with those of other stakers to increase the chances of forging more blocks and earning higher rewards. Again, those running these pools are experts, and you can count on them to optimize the returns on your investment. Simply put, you can relax and only wait to get some returns at the end of the staking period.
What Coins Can You Stake?
Before you can start staking cryptos to make passive income, the first step is identifying the right coins. These are the cryptocurrencies that rely on PoS protocol, implying that only the users who own some coins can confirm transactions or participate in its governance. Here are some of the leading coins that you can use and the expected returns:
- Cardano (ADA): This is a powerful PoS network that can only be compared to Ethereum. The returns from staking ADA are between 5-9%.
- Solana (SOL): This is one of the leading blockchain networks you will get out there. It was designed with scalability in mind and also delivers very high staking returns of 7-11%.
- Tezos (XTZ): This cryptocurrency uses an advanced model of proof of stake (PoS) protocol referred to as liquid proof of stake (LPoS) model, which brings on board optional delegation. The annual average return of staking XTZ is 6-10.5%.
- Ethereum (ETH): Ethereum, the second most popular crypto after Bitcoin, is considered one of the best options for staking. Previously, Ethereum relied on proof of work (PoW) protocol but is in the process of shifting to PoS protocol. The minimum number of coins you should have to stake Ethereum is 13ETH.
What is the Process of Crypto Staking Using a Pool?
The process of crypto staking is pretty simple. First, you need to select the right coins and buy them. Remember that you also need the right wallet to store the coins. Then, identify a good crypto pool, create an account, select the timeframe, and send your coins. In most decentralized finance (DeFi) platforms, the process is simplified so that it only takes a few minutes to get started. When the selected staking time is over, your crypto coins plus interest are returned to your wallet.
Benefits of Crypto Staking
Now that you know the main staking coins and the process of staking, ‘let’s look at the benefits to anticipate. The most notable of these benefits is the ability to earn some passive income from your cryptocurrencies instead of letting them lie idle. Other advantages include:
- It is an easy way to generate revenue from your coins.
- There is no equipment required if you opt to use a staking pool.
- You help to maintain the efficiency and security of the selected blockchain.
- It is less energy-intensive compared to mining.
3. Crypto Lending
At the height of the COVID-19 pandemic, many banks were reluctant to give people loans because they are considered high-risk parties because of extensive loss of income. At this point, people found an alternative way of accessing funds: crypto loans. This type of investment means that people commit their coins as collateral for loans. Then, they get their coins back after paying the loan plus interest. If you have some money, crypto lending can be an excellent idea to earn passive income. The best way to do this is to work with an excellent decentralized finance platform.
Crypto lending has been made easier by smart contracts that self-execute when all the preset conditions are met. For example, if the borrower repays the loan on time, the coins are reverted immediately.
Crypto staking and lending are excellent ways to make revenue using your cryptocurrencies. Instead of leaving them idle in your crypto wallet, why not let them generate some passive income for you? To get it right on making crypto passive income, make sure to work with experts, such as hi.com. They can help you with everything you need to know, from crypto wallets to staking and exchanging coins. You can never go wrong with an expert on your side.