Generating passive income through crypto trading is a recent trend visible among traders. This is mainly due to the simplicity of these techniques and the low requirement of an initial investment.
If you, too, are looking forward to increasing your passive income using crypto coins, keep reading to know how you can do so.
10 Tips for passive income through crypto investments
Below are a few tips that can be extremely helpful if you want to scale up your income passively through crypto investments:
1. Varying types of lending
In crypto trading platforms, coins are often used as collateral while borrowing money. The interest rate is usually high, so lenders can make sufficient money by lending coins. However, this involves high risk as it becomes a problem if the borrower fails to repay the amount. This technique is hard and requires a lot of funding. Being a long-term commitment, crypto traders must study the risks carefully before opting for this passive income technique.
There are several types of lending techniques available in the crypto world. These are:
- Centralised: In this exchange platform, a third party is usually involved in monitoring the trade. Hence, there is comparatively less lending risk as you can easily approach the third party if anything goes wrong.
- Decentralised: No third party is involved; hence, a lender can directly borrow money from the blockchain. A smart contract automates the interest rates.
- Peer-to-peer: This lending takes place directly between lenders and borrowers. Hence, lenders decide the interest rates and the amount they want to lend to a borrower.
- Margin: Here, traders use the borrowed money in trading and repay the loan using the money they earn from that trade.
2. Using various dividend tokens
Dividend tokens are one of the cryptocurrencies in the limelight recently. The main reason for its popularity is that several companies share these tokens back. Additionally, they offer a specific amount to the person purchasing these coins quarterly. This can be a lucrative source of passive income worth exploring.
3. Installing a lightning node
A lightning node facilitates cheap and instant transactions of top cryptocurrencies such as Bitcoin. Individuals running these nodes to facilitate micropayments using these coins receive a commission whenever a transaction occurs through their nodes. You can use this technique to generate passive income even if these commissions are small.
4. Using proof-of-stake mechanism
This type of consensus mechanism in a blockchain chooses traders with the highest number of coins as the vendor for that coin. This vendor has the power to authorise a transaction in crypto and, in return, can receive a commission. Thus it is a low-investment passive income technique you can benefit from.
5. Opening an interest-bearing digital asset account
In crypto trading, traders can leverage money using their stablecoins. Like savings accounts, crypto traders can deposit their coins and earn interest. However, you must know there is an initial ‘lock-up’ period before you cannot access those coins. Again, this technique does not require substantial funds and only involves minimal risk.
6. Investing in the liquidity pool
Maintaining liquidity is essential in crypto trading to avoid sudden changes in the price of a coin. Traders generally lock their crypto coins in a smart contract to earn a commission from other traders investing in that coin. This process is referred to as ‘yield-farming’. Although the process is complicated, it has gained quite popularity in recent years. Individuals looking forward to using this technique must research thoroughly to avoid risks and gain maximum benefit.
7. Using the buy-and-hold technique
In this method, you can buy a coin of your choice when the price drops and sell it at a high profit. However, this is risky since if the price does not rise as expected and you encounter a fakeout, you might also suffer from heavy losses. The buy-and-hold technique is a long-term commitment and requires high funding. Hence you must study the indicator charts carefully before investing.
8. Using master nodes
There are several nodes in a blockchain for a few specific coins that verify new transactions for that particular coin. These are referred to as master nodes. These nodes also play a key role in monitoring a particular blockchain. Individuals verifying these nodes can receive a great amount of money that can serve as an authentic source of passive income. However, you must be the largest holder of the currency for that coin to leverage money.
9. Benefitting from the affiliate market
It is a popular passive income method among crypto traders as it is easy, risk-free and does not require any investment. You can easily generate a unique link and post it on social media, your blog or any website. When a trader uses your link to purchase a coin, you will receive a commission. A marked advantage of this method is that you can earn money lifelong without added effort.
10. Opting for cloud-mining
Setting up an online cloud-mining platform is easy and time-saving. Miners can easily rent cloud computing power at cheap rates. This is advantageous as they can use this platform to mine more than ten cryptos without paying maintenance fees. For a larger group of people, cloud mining is beneficial and more profitable since it is easily accessible and affordable. Cloud mining saves the burden of directly installing any related hardware and, at the same time, allows users to mine cryptos remotely.
Drawbacks of passive income through crypto investments
If you want to generate passive income through cryptocurrencies, you must remember that passive income techniques have several drawbacks. These are:
- Difficult to use:A few abovementioned techniques can seem complicated to some traders. Hence, there are chances to make mistakes while using them as a source of passive income.
- Involves risks:Several techniques listed above involve monetary risks. If an individual does not research these techniques well, there are chances of facing grave financial problems and losses.
Bottom line
Using the above tips, you can maximise passive income using cryptocurrencies with almost minimal investment and encounter lower risks.
