Some cryptocurrencies pay out ongoing income similar to earning interest. It can be a great way to put otherwise passive capital to work. Keep in mind though that due to the volatile price of most cryptocurrencies, the returns may not make up for the initial investment.
Platforms that pay passive income on cryptocurrency
Interest: Create value with your cryptocurrency
Much like you can earn interest by holding your money in a savings account for the bank to lend out, you can earn interest by holding your money in a crypto savings account for people to borrow.
This is one of the easiest and most straightforward ways of earning a passive income from your cryptocurrency, and it’s also the safest in some ways. But it also comes with risks that other types of lending don’t.
Read the full guide to cryptocurrency lending and make sure you understand how it works and the risks involved before you commit your funds to a lending platform.
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’ll 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’ll 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, characterized 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 of dollars, or even tens of thousands, 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.
Cryptocurrencies with masternodes include the following:
|Cryptocurrency||How it works||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|
|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.|
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.
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