It’s likely that you’ve heard of cryptocurrencies by now, and you may even have a general understanding of what they are all about. Nevertheless, unless you are deep into this world, many things can come across as confusing. Though you are probably aware that you can exchange your regular money for crypto as an investment and watch it increase in value over time, you might not be aware that specific tokens can actually earn passive income for you. This article will give you a quick refresher of what cryptocurrency is and explain in detail how it can earn you passive income.
What Are Cryptocurrencies?
Unlike traditional currencies, cryptocurrencies are created and managed without a central authority. Cryptocurrencies do not require any central authority to operate. Unlike conventional fiat currencies like the US dollar or the Euro, cryptocurrencies have no physical form, and instead, they exist digitally only. Despite the lack of a financial institution, you can transfer them electronically between individuals and businesses.
They function by using what is known as a blockchain, with each token having its own blockchain or piggybacking off that of a more prominent one (usually Ethereum). Blockchains are open, decentralized ledgers that record transactions efficiently and in a way that’s verifiable and permanent. The database is not stored in a single location but is spread across multiple computers, and anyone with access to the internet can access it. That latter point is what will enable you to earn passive income and will be explained later in the post.
What Does “Passive Income” Really Mean?
Many people want to earn money without working all day long, and passive income is the holy grail. You can accomplish this in various ways, but some of the most popular involve investing in real estate, stocks, and other financial assets. In essence, passive income is income that does not require active effort on the owner’s part. A way to achieve this is to invest in something that creates a revenue stream on its own. So with this in mind, how can you use your crypto assets to create a sustainable income stream?
Use A Wealth Management Platform
A wealth management platform is an online financial services company. It provides clients with various investment products, from stocks to bonds to cryptocurrencies. The typical process of investing can be complicated and time-consuming, especially if you are not an experienced investor or not financially literate. A wealth management platform makes it easy for anyone to invest by providing professional financial advice and education on investing in various assets efficiently.
When it comes to crypto, you can earn some serious income by simply placing your assets on a specific platform and allowing them to use your crypto to make more. You transfer your assets to their platform and lend them to big institutions and exchanges at a specific rate. Wealth management platforms such as the Celsius network make money by using a large cryptocurrency pool to leverage more significant results. They take their cut and then pass the rest to their clientele, which can be substantial in some cases.
Assume The Role Of A Liquidity Provider
Liquidity providers are the people that provide liquidity to the markets. They serve as a source of cash when either investors or corporations need it. Your role as a liquidity provider in the market includes providing currency (or, in this case, easily tradable cryptocurrencies) to investors and corporations when they need it. Liquidity providers also offer market-making services by executing trades to ensure prices remain in balance with supply and demand. Cryptocurrency liquidity providers are individuals who provide cryptocurrency to other users in exchange for a fee. The amount you earn directly correlates to how much liquidity you are prepared to provide.
Find Cryptocurrencies That You Can Stake
In recent years, crypto has split into two different ways of “mining’ or creating new coins. These can be categorized as:
- Proof of work: Proof of work is a decentralized consensus method requiring work before a block is created. Proof of work is an energy-intensive process, requiring computers and graphics cards to solve complex mathematical problems. This has been used since the inception of Bitcoin to create new coins without falling prey to inflationary issues.
- Proof of stake: Proof-of-Stake is a consensus algorithm that governs the creation and management of cryptocurrencies. Mining is replaced by a process called minting in the Proof-of-Stake algorithm. By locking up their coins in a stake, coin holders can create new blocks and add them to the blockchain.
The main advantage of proof-of-stake mining is that it requires less energy and computing power than proof-of-work mining. It is, therefore, more environmentally friendly and more cost-effective. Furthermore, proof of stake offers other benefits such as faster transactions, reduced risk of double spending, and increased security in the long run.
However, the ability to increase the number of assets you own over time is what creates passive income. The advantage of this method is that you don’t get a direct cash source; instead, you are able to increase your wealth over time using compounding. In other words, the more you own, the more you will earn via staking. The more you add to your initial amount, the more you will receive from the PoS concept, which you can exchange for fiat cash when you need it (or if the token is devaluing, which is another story).
Invest In Yield-Bearing Tokens
Tokens that yield a profit are types of cryptocurrency whose value is derived from the utility of a network. Miners, stakers, and developers are rewarded for participating in the network. Any organization or company can issue tokens with a blockchain project, and they are traded just like cryptocurrencies on exchanges. These kinds of tokens are primarily intended to reward people who contribute to a project’s success. Those individuals are rewarded with, usually in the form of a dividend, in exchange for their efforts.
So there you have it, some exciting ways that you can utilize to earn a passive income on various crypto assets. Investing in crypto can be fun, but earning an income just for the privilege of doing so makes the whole deal even sweeter!