Passive Income with crypto
There are so many ways to make money with crypto. The most popular way is trading. Depending on your strategy though it might involve a lot of your time and stress. Fortunately it’s possible to be profitable without much involvemenet. In this article: am going to describe three different passive profit strategies:
- mining
- staking
- lending
Mining
Cryptocurrency mining is the process of creating new cryptocurrency by solving extremely complicated math problems that verify transactions in the currency. When a problem is solved, cryptocurrency is mined, the miner receives a predetermined amount of cryptocurrency.
Mining can be done using GPU (Graphics Card), CPU (processor) or a dedicated hardware call ASIC. The speed or power of mining is measured using hashrate. First step is to determine what you are trying to mine. https://www.cryptocompare.com/ is a great resource to check profitability of mining based on your hashrate. I tried mining several years ago and bought a dedicated machine with 6 GPUs that I was using to mine Etherum and Ethereum Classic.I called her `babe`. Babe broke even after a few months and even made nice net gains overall but so many people joined the mining that my machine in a short time wasn’t profitable and right now is dusting off
Pros
- Generating Passive Profit
Cons
- It’s for more technical users
- It’s most profitable when you have access to cheap energy
- Generates a lot of heat and noise
- You have to upgrade your equipment to compete with increased hashrate
Lending
Lending is one of my favorite ways to make passive profits with crypto. You become a bank and let people use your money and pay you interest on it. Why would anyone want to lend your money? Some of the platforms allow traders to trade with leverage (described in this chapter). Leverage traders need to borrow assets to perform their trades. Some of the centralized and decentralized platforms automate the process of lending for a fee (usually not very big). Depending on the platform you can make multiple traditional interest accounts just like shown in a table below. Keep in mind that lending is not risk free. There are a lot of bad players on the market. Several risks are involved:
- The platform will control your assets, if they go bankrupt or are bad actors you might lose everything
- Decentralized solutions might be prone to hacks
Figure 1: Lending platforms and returns
*Interest is subject to change
Staking
The takeaway is that staking is a form generating passive profits where you are getting rewarded for holding or locking for a period of time of currency that supports that model. It’s comparable to a savings account or closer analogy would be dividends from stocks. But with one big difference, your APR is multiple of any kind of centralized interest. How to find those currencies? One of my favorite websites https://www.stakingrewards.com/ is showing which currencies can be staked and their APR. The table below shows annual returns you can get from staking:
Figure 2: Staking yields
You might ask how come cryptocurrencies can come with so much better returns than centralized banking? It does require some technical explanation. Blockchains have different models of how to verify if the transaction is legitimate. It’s called a consensus model. In case of coins that allow for staking, the consensus model is called a Proof of Stake. The tokens you are staking are delegated to one of many validators. Each transaction that has a place on blockchain has to be validated. Also it’s not free, users have to pay a transaction fee. The validator that successfully processed a transaction is receiving this fee as a reward for his work. Investors that staked/delegated tokens to this delegator will receive part of this fee proportional to their staked value. Regarding security that really depends on how the staking mechanism is implemented on the chain so it has to be reviewed individually. In some cases it’s very straightforward and can be done in just a few simple steps, in others we use a third party for the staking which is always associated with some risks. A lot of times
Pros:
- Not overly complicated to get started in most of the cases
- High returns
- There are a lot of coins with Proof of Stake
Cons:
- The value of the coin might drop and so are your rewards
- The more people will join the staking the less rewards you will get
- Inflationary project
Favorite projects to stake
What are my favorite projects to stake?
Binance Coin (BNB)
- BNB powers the Binance ecosystem and is the native asset of the Binance Chain. Binance and related to it exchanges are the biggest exchanges in the world with billions of dollars of daily volume and millions of users around the world
- Besides its on-chain functions, BNB has multiple additional use-cases such as fee discounts on multiple exchanges (e.g., Binance.com), payment asset on third-party services, and participation rights & transacting currency on Binance Launchpad.
- At the core of the economics of BNB, there is a burn mechanism leading to period reductions in its total supply (~ every three months). From its initial maximum supply of 200 million, burns are expected to continue until the supply reaches 100 million.
- Additionally to quarterly burn BNB introduced on-chain mechanism to burn crypto where 10% of each transaction fee is burnt. That mechanism will work continuously passed the initially set 100 million coins in circulation
- Current APR fluctuates between 5% to 30%
- Binance and Binance.us can be used to stake Binance Coin make staking BNB token very easy even for non technical users
Ethereum (ETH):
- Second largest cryptocurrency,recently switched to proof of stake!.
- The annual yield is estimated to be up to 5%
- Switching Ethereum network to staking and other upgrades potentially will make it a deflationary, its supply will be constantly reduced which most likely will cause price growth
If you like this content and would you like to learn more please consider getting my book: Retiring with Bitcoin and Real Estate It covers many practical investment advises for combining investing in different assets classes.
Source: Retiring with Bitcoin and Real Estate https://www.amazon.com/Retiring-Bitcoin-Estate-Janusz-Chudzynski-ebook/dp/B0B84HFZFL
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