5 ways to earn a passive income with cryptocurrency | finder.com
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How to earn passive income with cryptocurrency

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Cryptocurrencies can pay dividends, but beware 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.

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.

CryptocurrencyHow it worksLearn more
NEO
  • Pays dividends in GAS tokens when you hold funds in a NEO wallet
  • No minimums
  • Returns of about 2-5% per year
  • Returns are based on NEO and GAS prices
How to buy
VeChain
  • Pays dividends for holding VET tokens
  • Returns vary depending on your holdings threshold
  • Dividends are paid in the VeTho (VTHO) token
How to buy
Neblio
  • Hold NEBL in an online wallet to stake
  • Staking rewards are paid based on a lottery system, averaging up to 10% per year
  • Staking rewards are increased over time for continuous staking
How to buy
Komodo
  • Hold KMD on any wallet (even offline) to accrue 5.1% per year rewards
  • Distribution will start automatically after one hour of coins being held
  • Rewards are distributed monthly (0.417% per month)
  • Distribution will continue until 200 million KMD supply limit is reached
How to buy
Nav Coin
  • Hold coins in an online wallet to start staking
  • Coins will start staking after two hours
  • Rewards are based on a lottery system
  • System-wide average returns are 5% per year
  • Your staking rewards increase the more coins you hold and the longer you hold
How to buy
PIVX
  • There are no minimums for earning staking rewards, but at 10,000 PIVX, stakers can start earning “masternode” rewards
  • Both PIVX and the secondary zPIV token can be staked with no set minimums
  • Rewards are largely randomized and vary based on the state of the network, such as the percentage of tokens being staked
  • On average, rewards are currently 3.6% APY for PIVX staking and 5.4% APY for zPIV staking
How to buy
ReddCoin
  • Hold RDD in the Reddcoin social wallet to earn staking rewards
  • Rewards start accruing after eight hours
  • Rewards vary based on how many coins you hold and how long they have been held
  • There is a “sweet spot” for how long to hold coins to maximize rewards under a month is optimal
  • Under optimal conditions, stakers earn 5-6% per year
How to buy
Pundi X
  • Hold NPXS in a suitable wallet to earn staking rewards
  • Rewards are paid as monthly dividends
  • Rewards are 7.316% of your stake per month
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.

Want to be a masternode? Read the complete guide and find more masternode coins here.

Cryptocurrencies with masternodes include the following:

CryptocurrencyHow it worksLearn more
Dash
  • 10,000 DASH is required as collateral
  • 45% of the reward for each Dash block goes to masternodes, while miners also get 45%
  • But because masternodes are relatively less numerous, the rewards tend to be higher
Learn more
Stratis (STRAT)
  • 250,000 STRAT is required as collateral
  • Masternodes pick up a portion of the Stratis network fees in return
Learn more
Zcoin (XZC)
  • 1,000 XZC is required as collateral
  • A set proportion of the block rewards go to masternodes and will vary based on how many nodes there are
Learn more
PIVX Coin (PIVX)
  • 10,000 PIVX is required as collateral
  • Rewards are divided between the numerous stakers and less numerous masternodes, and so will average higher for masternodes
Learn more
NEM (XEM)
  • NEM has different thresholds for its staking and masternode system, with different collateral requirements and rewards for each
Learn more
VeChain (VET)
  • VeChain has different node thresholds, with the highest requiring the most collateral but also giving the highest returns
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:

CryptocurrencyHow it worksLearn more
KuCoin Shares (KCS) from the KuCoin exchange
  • 50% of KuCoin trading fees are distributed among KuCoin Share (KCS) holders
  • Currently (January 2019) that’s equivalent to about 6% per year returns
KuCoin exchange review
Bibox Tokens (BIX) from the Bibox exchange
  • 45% of net trading fee profits are distributed proportionally to BIX holders
  • Account snapshots are taken each Friday and rewards distributed once per week
  • To earn the rewards you have to be holding the coins on the exchange and have traded at least once that week on the exchange
Bibox exchange review
BridgeCoin (BCO) from the CryptoBridge exchange
  • 50% of trading profits from CryptoBridge are distributed to BCO stakers
  • More tokens staked means higher rewards
  • Staking tokens requires choosing a lockup period tokens cannot be withdrawn from a lockup period and longer periods mean higher rewards
  • The staking options are 1 month (no bonus), 3 months (20% bonus), 6 months (50% bonus) and 12 months (100% bonus)
CryptoBridge exchange review
COSS from the COSS (Crypto One Stop Shop) exchange
  • 50% of trading fees are distributed to COSS holders
  • Rewards will take the form of a small amount of a wide range of cryptocurrencies
  • You can hold COSS tokens on the exchange for an easier collection of rewards or set up deposits to an external COSS wallet

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.

CryptocurrencyHow it worksLearn 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.How to buy
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.

CryptocurrencyHow it worksLearn 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
ARKARK 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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