Here are some of the most common ways of earning a passive income with cryptocurrencies.
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How to earn passive income with cryptocurrency
Cryptocurrencies can pay dividends, but beware of the extra risks.
Most of the money in cryptocurrency has come from enormous price swings, and from buying low and selling high. But beyond that, there are some cryptocurrencies that can pay out ongoing income similar to earning interest.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
Places that can pay passive income on cryptocurrency
Staking tokens: Get paid to HODL in an online wallet
Staking cryptocurrencies will offer ongoing payouts to those who hold their cryptocurrencies in suitable wallets. These token balances will typically then perform important network security functions.
Essentially, they act as a tangible “weight” for securing a network, the same way a bitcoin miner’s electricity consumption and mining gear acts as a tangible weight to secure bitcoin. There are some factors to consider, though:
- You will typically need to hold your funds in an online wallet.
- The setup procedures may vary, and there might be ongoing costs involved such as staying online.
- There will generally be a maturity period, where you will need to stake your tokens for a certain amount of time before you can start earning rewards.
- Be aware of whether your rewards are being paid in a token other than the one you’re staking. Sometimes these secondary tokens are much less valuable than the primary token.
- Rewards may vary based on factors such as how much you’re staking, or how long you’ve been continuously staking for.
Popular staking coins
The following are some of the most liquid and widely-traded staking coins, characterised largely by having a low barrier for entry and requiring little or no technical knowledge.
| Cryptocurrency | How it works | Learn more |
|---|---|---|
| NEO |
| How to buy |
| VeChain |
| How to buy |
| Neblio |
| How to buy |
| Komodo |
| How to buy |
| Nav Coin |
| How to buy |
| PIVX |
| How to buy |
| ReddCoin |
| How to buy |
| Pundi X |
| How to buy |
Masternodes: Earn more crypto by getting serious about staking
If staking is like being a cryptocurrency worker, then masternodes are like being the manager. Compared to staking, masternodes:
- Pay more. Masternodes will typically pay proportionally more than staking. Sometimes a cryptocurrency will even have highly-paid masternodes alongside regular stakers.
- Require larger holdings. You might be able to stake with any amount, but masternodes sometimes require holdings worth thousands, or even tens of thousands of dollars, to get started.
- Have higher overheads. The costs of staking, if any, tend to be minimal. Masternodes will typically require renting or owning a dedicated server and all the expenditure associated with that.
- Are more difficult. Staking is designed to be easy, but masternodes are intended for technically experienced users.
- Are more active. Staking can be a set-and-forget activity, but masternodes typically require more active involvement. Masternodes are seen as active contributors to a cryptocurrency.
Want to be a masternode? Read the complete guide and find more masternode coins here.
Cryptocurrencies with masternodes include the following:
| Cryptocurrency | How it works | Learn more |
|---|---|---|
| Dash |
| Learn more |
| Stratis (STRAT) |
| Learn more |
| Zcoin (XZC) |
| Learn more |
| PIVX Coin (PIVX) |
| Learn more |
| NEM (XEM) |
| Learn more |
| VeChain (VET) |
| Learn more |
Exchange dividend cryptocurrencies: Get a share of the profits
Many cryptocurrency exchanges will run systems where holders of exchange tokens are rewarded based on traders using the exchange.
- Rewards are most commonly based on the exchange’s trading volume, as they take the form of a share of the trading fees earned by the exchange.
- By using the exchange whose tokens you are staking, you may earn minor “cashbacks” on trades you make.
- Exchange tokens that pay dividends will often have additional benefits beyond that, such as offering fee discounts.
These are some of the exchanges whose tokens share profits with holders:
| Cryptocurrency | How it works | Learn more |
|---|---|---|
| KuCoin Shares (KCS) from the KuCoin exchange |
| KuCoin exchange review |
| Bibox Tokens (BIX) from the Bibox exchange |
| Bibox exchange review |
| BridgeCoin (BCO) from the CryptoBridge exchange |
| CryptoBridge exchange review |
| COSS from the COSS (Crypto One Stop Shop) exchange |
|
Airdrops, forks, burns and buybacks: Get paid to be in the right place at the right time
Many cryptocurrencies will have regular or irregular buybacks, token burns, airdrop arrangements and more.
- Airdrops. Get new cryptocurrencies dropped into your wallet based on your current holdings. These are often arranged ahead of time and are seen as a way of seeding a new cryptocurrency onto a field of users. Airdropped cryptocurrency will usually be worthless, but can often do quite well for something that’s completely free.
- Forks. When a cryptocurrency’s blockchain is forked, it sometimes creates a snapshot of a user’s holdings on the chain. The user will then get commensurate holdings on the new fork of the blockchain while keeping their old holdings.
- Burns and buybacks. Your cryptocurrency is purchased back by smart contract or the creator company and is typically destroyed afterwards, often growing the value of the token in the process.
You will typically need to hold the cryptocurrency in your own personal wallet to take advantage of forks and airdrops. If you have the funds on an exchange, the exchange will get the funds instead.
How to benefit from forks and airdrops
The vast majority of forked or airdropped cryptocurrencies will end up being worthless, but a few have bucked the trend.For example, NEO holders received free Ontology (ONT) in an airdrop in February 2018, at a rate of 0.2 ONT per NEO. ONT reached its all-time high of prices above US$8 in May 2018 and at the time of writing (February 2019), it’s ranked number 26 by market cap. All that beneficiaries had to do was hold NEO at the time of the airdrop and ONT showed up for free.
Others require more preparation. Polymath, for example, gave airdrops of 250 free POLY tokens to people who signed up for it in advance. At its peak that free airdrop was worth hundreds of dollars. Today it’s worth about $25.
And the largest airdrop in crypto history – a $125 million giveaway – is still ongoing as of February 2019 and it only requires you to download the Blockchain.com wallet.
Forks are similar and just require you to hold your own keys. For example, longtime bitcoin “HODLers” have grown accustomed to money out of nowhere, with Bitcoin Cash and then Bitcoin SV, Bitcoin Gold and dozens more obscure forks creating free money for them.
New airdrops and forks are being announced all the time and the best way to profit from them is to prepare ahead of time to be in the right place at the right time. Protocol-level cryptocurrencies such as Ethereum, EOS and Stellar tend to experience the most airdrops and forks.
The following cryptocurrencies have buybacks and token burns as a feature. Note that although coin burns do affect the circulating supply, historically they’ve tended to have no immediate price impacts. Some of these are regularly planned buybacks, while others are periodic or one-off buybacks.
| Cryptocurrency | How it works | Learn more |
|---|---|---|
| Binance Coin (BNB) | Binance buys back at current market prices (if necessary) and burns 20% of the remaining BNB circulating supply each quarter. It will continue doing so until 50% of the original BNB supply is bought back and destroyed. | How to buy |
| Iconomi (ICN) | Iconomi performed an ICN buyback scheme in 2017 and may have plans for similar efforts in the future. | |
| CoinEx (CET) | The CoinEx exchange performs quarterly buybacks of its CET tokens, with amounts being based on its profits from that previous quarter. |
Interest: Create value with your cryptocurrency
Some cryptocurrencies will pay users to create value, much like how banks pay interest because by keeping your money there, you’re helping create value for them.
The same principles are found in some cryptocurrencies, where you can lend out your crypto for profit, use it as collateral for your own cash loans, use it as a valuable voting tool and more.
The following cryptocurrencies offer different returns for different services you can perform with your crypto. Earning interest by lending your crypto, or offering it as loan collateral, is popular.
| Cryptocurrency | How it works | Learn more |
|---|---|---|
| Nexo (NEXO) | NEXO offers crypto-backed loans for users, while also paying dividends to NEXO token holders. The loans can be used to unlock opportunities elsewhere, while the dividends take the form of 30% of Nexo’s net profits proportionally distributed. | |
| SALT (SALT) | SALT lets you use crypto as collateral for cash loans. It’s similar to staking in that the amount borrowed can be re-invested elsewhere, allowing for returns without necessarily needing to sell any crypto (unless the collateral gets liquidated). | How to buy |
| Ethlend (LEND) | LEND tokens, or others, can be used as collateral for accessing ETH, LEND or USD, which can, in turn, be used to participate in ICOs or elsewhere. It aims to give people a way of leveraging their crypto assets without selling. | How to buy |
| ARK | ARK tokens can be used to vote for delegates on the ARK blockchain. Voting involves staking your ARK behind a delegate. It can be profitable because delegates are very well paid and will typically tend to share the majority of that pay (often up to 95%) with their voters in order to make sure they stay elected. Essentially, you’re using your ARK to sell your vote. | How to buy |
The risks and downsides of passive income cryptocurrencies
It’s possible to make money from staking, taking advantage of airdrops and more, but there are also risks.
One of the main risks is the chance of buying a low-quality cryptocurrency because it pays dividends, not because it’s a high-quality project that pays dividends.
Staking income and similar benefits are typically paid in the same cryptocurrency, so if its price drops to zero, the passive income won’t be worth anything.
There are some other risks associated with trying to earn passive income, including:
- Risks of user error. Sometimes the steps for setting up staking wallets or using a cryptocurrency dividend function are complicated. Doing them wrong may result in a loss of funds.
- Lockup periods. There may be lockup periods for staking tokens. In some cases, you might not be able to withdraw your funds and sell them off even if markets are plummeting.
- Risks associated with staking wallets. Sometimes you’ll have to keep your funds in an online “hot” wallet to stake them, which is riskier than keeping funds in cold storage.
- Increased exposure to scams. If you’re trying to play a hard fork or set up for an airdrop you need to be especially aware of scams, because these occasions will often bring them out of the woodwork. There are also risks associated with fake staking wallets, on top of all the usual hazards of cryptocurrency.
If you want to earn passive income with cryptocurrency, it’s as important as ever to proceed carefully and make sure you do thorough research.
Find out more about some of the most common crypto scams and how to avoid them
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Picture: Shutterstock
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