Earning money while sleeping. Making money while on a holiday. Getting paid repeatedly after the work had already been done. This is what many people want, and there are all kinds of approaches to achieving it. How to get passive or residual income from cryptocurrencies?
Cryptocurrencies have been around since 2009 when the Bitcoin blockchain was first started. Currently, there are thousands of crypto assets on the market. To make money in crypto, you can, for example, trade your assets, trying to buy low and sell high. You can look out for promising ICOs (Initial Coin Offering). Or you can use some of the below-mentioned ways where your cryptos can provide some passive income.
Ways to Enjoy Passive Income from Cryptocurrencies
Let’s have some examples of how to get residual earnings from cryptos. This overview could be helpful to see all kinds of possibilities in this fast developing field.
A cryptocurrency airdrop is a marketing process during the Initial Coin Offering (ICO) when you can receive free coins or tokens to your wallet. This way, the issuer increases the recognition of their new virtual currency. For example, the DEXFIN Exchange will be conducting airdrops for some newly listed assets. Anybody with DXF tokens at this exchange will be eligible to receive these airdrops.
Why would the issuer give out their tokens for free? There are hundreds of new tokens and hundreds of ICOs each year. A new project might invest a lot of money into advertising (with very unsure results) or they can give out some of their tokens for free in an airdrop, automatically getting the attention of fans apt to spread the word to others. Apart from generating awareness, this motivates the users to learn more about the project.
The issuer can also send these rewards to inspire loyalty: Some airdrops are designed in such a way that the more tokens you have in your wallet, the more you receive during an airdrop. So, loyal users with a substantial amount of tokens in their wallets, can be rewarded with more tokens from the company. This way, airdrops can inspire loyalty among users since they are now actually motivated and incentivized to buy and keep tokens.
Airdrop also serves for a much wider distribution of tokens. The idea behind cryptocurrencies is decentralization. Thus, the majority of a crypto asset shouldn’t be held just by a few people. Airdrops serve to achieve a wider and more even distribution of such an asset.
The value of airdrops can vary a lot, from a pittance, to several dollars per airdrop, all the way to some real gems worth dozens of USD. Quality airdrop can be an interesting source of extra income.
Limited volumes of these new coins or tokens are sent to wallets for free or in return for a small service. For Ethereum airdrops, you will typically need an ERC-20 compatible wallet (e.g. MyEtherWallet). The airdrop issuer might want you to complete some tasks, such as sharing a post prepared by the company issuing the currency or inviting friends to this opportunity. Some crypto exchanges will carry out airdrops for their users.
A hard fork takes place when a blockchain splits into two separate chains. After that, a new cryptocurrency is created. The owner of a cryptocurrency on the original blockchain can receive the same amount of assets on the new chain. There can be several reasons for a fork: A planned fork, a disagreement (split) in consensus, etc. A fork can take a form of a contentious hard fork (i.e. Ethereum vs. Ethereum Classic); a planned hard fork (SegWit); a soft fork (Litecoin). An example of a hard fork is Bitcoin vs. Bitcoin Cash. After a fork on Bitcoin blockchain, Bitcoin Cash emerged. Holders of Bitcoin (BTC) could obtain the same amount of Bitcoin Cash (BCH):
- Bitcoin Cash (BCH): Forked at block 478558 on 1/8/2017; for each Bitcoin (BTC), an owner got 1 Bitcoin Cash (BCH).
- Bitcoin Gold (BTG): Forked at block 491407 on 24/10/2017; for each Bitcoin (BTC), an owner got 1 Bitcoin Gold (BTG).
- Bitcoin Diamond (BCD): Forked at block 495866 on 24/11/2017; for each Bitcoin (BTC), an owner got 1 Bitcoin Diamond (BCD).
- Super Bitcoin (SBTC): Forked at block 498888 on 14/12/2017; for each Bitcoin (BTC), an owner got 1 Super Bitcoin (SBTC).
- Bitcoin SV (BSV): Forked at block 556766 on 15/11/2018; for each Bitcoin Cash (BCH), an owner got 1 Bitcoin SV (BSV).
But Bitcoin (BTC) saw many more minor forks. Another interesting example is that of Bitcoin Private (BTCP). This hard fork from ZClassic (which in turn is a fork of ZCash) took place on February 28, 2018.
Another example is Ethereum. Thanks to Ethereum’s malleability, the chain is much easier for developers to work with. Some forks on Ethereum are Ethereum Classic (the fork took place in 2016) and EtherZero (the fork took place on block 4936270, on January 20, 2018). There were also some Ethereum minor forks, e.g. Ethereum Modification (EMO), Ethereum Fog (ETF), Expanse (EXP), Ether Gold (EG).
The prices of the new forked coins and tokens can vary substantially from the price of the original asset, as you can check online. Nevertheless, if you own a cryptocurrency on the original blockchain during the hard fork, you can receive the same amount of assets on the new blockchain – all for free.
You can earn interest from your assets that you lend out. The provision can be interesting for holders who are just keeping their crypto assets in a wallet and not using them. To this end, you send your coins to a crypto exchange where you enter your assets to a chosen lending program. For instance, you can lend your assets to traders. You can lend out your Bitcoin, Ether or Altcoins, using a smart contract. There are peer-to-peer (P2P) lending platforms where you can lock your funds up for a period of time to collect your interest payments later on.
Depending on the platform, the interest rate can either be fixed (determined by the platform) or set by you based on the current market rate. Some exchanges with margin trading have this feature as part of their platform. This approach is suitable for holders who don’t want to put in too much effort but still want to enjoy their passive income. As with any lending, it is important to make sure that the lending platform is safe, what kind of assistance will be available in case of disputes, how to deal with the volatility of your crypto asset, etc.
The blockchain has two layers: Layer 1 – an application layer and Layer 2 – an implementation layer. The lightning network belongs to Layer 2 – the implementation layer. The Lightning Network is a payment protocol that was created on top of blockchain-based cryptocurrencies (e.g. Bitcoin). It reduces the number of interactions on the blockchain and thus enables faster transactions and higher levels of scalability. It is possible to make small earnings by running these Lightning Nodes, although setting up a Lightning Node requires some investment and technical knowledge that an average Bitcoin user might not have.
At this time, the profit per transaction can be just a fraction of a cent (e.g. $0.001 per transaction). Thus, the node has to route many payments for other users to be really profitable. To put it simply, the more a lightning node is utilized, the bigger the returns can be.
Cryptocurrency mining is a process in blockchain technology that involves confirming transactions and minting new coins to miners. With Bitcoin, miners receive newly minted cryptocurrency in return for performing computational work to help the network run according to its rules. With Ethereum, miners earn by staking coins (or holding them in a special wallet) and verifying transactions.
To perform mining, you will need a mining rig, typically a dedicated computer hardware, specially designed to perform “mining” (such as ASICs). To be really profitable, a mining farm might be needed – data center with mining rigs (dedicated machines) to mine Bitcoins or other cryptocurrencies. Mining farms came up as a result of the demands of the mining process, which requires ever better technical equipment, more energy and financial resources.
Running a Master Node
A master node, like any other node, is a server within a decentralized network. Nodes are important because they can process transactions and store the blockchain. However, masternodes are able to perform tasks that a normal node cannot, among others they can process anonymous and confidential transactions, they are entitled to participate in governance and have voting rights, etc. These processes can be sources of income.
The token issuer buys back previously issued tokens, effectively reducing supply, increasing demand and market price. In this manner, the issuers are investing and showing trust in their own projects. Some examples of buybacks in crypto that were planned and/or that took place: VeChain (VET), TRON (TRX), EOS (EOS). There is also a downside to buyback: In case the company ends up owning a major volume of their asset, such a project might become too centralized, which goes against the main idea behind cryptocurrencies.
Some ICOs reward their early adherents for sharing the news about their project through affiliate links, referral programs or similar offers. An affiliate might earn tokens for bringing new clients to the company – a predetermined amount of tokens or a certain percentage from the tokens such a new client buys. If used, affiliate programs typically run during a pre-sale phase of an ICO.
At least one more possibility needs to be mentioned:
Staking is the process of holding funds in a cryptocurrency wallet or at an exchange to support the operations of a blockchain network. The coins or tokens you deposit are locked for a certain period. Staking can be nearly as profitable as the mining or trading of cryptocurrencies, and without risk. For example, staking with DEXFIN Token (DXF) gives you 8 to 11% per year on your locked volume.
What Is The Best Passive Income from Crypto
It is clear that some of the above-mentioned methods are not absolutely passive, meaning that you still will have to do something. A good idea is to weigh all the pros and cons, and conduct at least a SWOT Analysis (see the Strengths / Weaknesses / Opportunities / Threats). Crypto is a volatile field that is developing extremely fast. Thus, it makes sense to follow the news with all the current trends and act on the most recent information.