The idea of passive income seems very attractive to many crypto investors. But most of them never care to go beyond simple buying and holding. Let’s take a look at less obvious, but more profitable ways to earn passive income with crypto.
Well, of course buying and holding isn’t the only option that has become popular.
Many crypto investors are already in crypto staking.
And some are trying all the charms of DeFi staking and lending.
But that’s just the tip of an iceberg.
Let’s take a look at some other ways of getting passive income in crypto. Less obvious, maybe, but potentially much more profitable.
How to earn passive income in crypto
First of all, let’s make it clear.
When you make passive income, you are able to earn money on your assets without active involvement on your part.
The concept is the same as compounding interest or reinvesting dividends in the traditional financial world or earning rent on investment properties.
So now we will talk about how to earn passive income with crypto.
Interest-Bearing Digital Asset Accounts
This one is simple. It looks very much similar to usual fiat money savings and allows you to earn passive income with crypto.
You deposit something for a specific period of time and earn a yield on it. Many crypto exchanges have started offering this kind of account lately. And it has become an attractive product for many investors because traditional cash savings accounts yields have fallen so low in recent years.
But, as always, there are some restraints.
For instance, some exchanges like Binance offer you a chance to deposit Tether (USDT) and earn as much as 10% profit in a year. But, it is possible only if your deposit is under $2,000. You can deposit more, but then your interest rate gets lower.
Other exchanges and service providers may vary the interest rate depending on the period of time you deposit your assets.
Also deposits are available only with selected cryptocurrencies. Most often stablecoins have the best interest rates. There might also be a lockup period involved, where users can’t access their funds for a fixed amount of time.
Yield farming for passive income with crypto
You might have already heard this term. It became popular in 2020 with the rise of decentralized exchanges.
DeFi is actively using technologies that are not available to traditional banks. Take smart contracts for example. They allow seller and buyer to carry out a deal without third parties involved.
DeFi technologies also allow for liquidity to be provided by investors. Liquidity is achieved by attracting additional flows of tokens inside the network.
So how does yield farming work? Investors deposit tokens into a special smart contract called a liquidity pool.
Those who provide liquidity in this way receive a portion of the fees generated through traders accessing the pool.
Yield farming often requires ETH tokens or USDT, but mostly is done with special DeFi tokens like UNI.
Yield farming might seem a bit more complicated than simple holding of crypto. It might require some research. But at the moment of writing, it can also be one of the most lucrative options available to make passive income with crypto.
Masternodes
Many people have actually heard something about masternodes (Dash was the first coin to introduce them) but mistakenly think it is actually something the same as Proof-of-Stake model.
That’s not true.
While there is something in common between masternodes and validators in Proof-of-Stake, the differences are immense. However, masternodes can be an effective way to earn passive income in crypto.
Despite the name Masternodes are not the main nodes of the network. You should consider masternodes as a secondary security system for the network.
Masternodes are not solely responsible for the creation of new blocks in the blockchain. They accompany the actual nodes that create new blocks. But masternodes oversee the network and have the power to reject new blocks and verify transactions. And it is possible to find masternodes along with Proof-of-Work (Dash) or Proof-of-Stake (PIVX).
In Masternodes you are not simply staking coins and securing the network just like in Proof-of-Stake. Instead masternodes provides extra service to the network. Masternodes are maintaining the entire blockchain and enabling instant transactions, private transactions etc.
How masternodes help to earn passive income with crypto
So basically masternode holders are not rewarded for just securing the network but for enabling these extra services on the blockchain.
That’s why masternodes are often referred to as Proof-of-Service or Proof-of-Commitment and not Proof-of-Stake.
Actually those who run these masternodes can receive large payouts. Masternodes receive a portion of the block rewards each time a new block is mined.
This won’t be available to the average person, however, as running a master node often requires holding a significant sum of the network’s native tokens.
For example, to run a DASH masternode costs 1,000 DASH. It’s about $130,000 at today’s prices.
The downsides of running a masternode to earn passive income in crypto include a much more profound knowledge of technologies that you need in Proof-of-Stake networks and penalties that might occur if your masternode goes offline. But the actual rewards of running masternodes in some cases may be significantly higher than those in Proof-of-Stake.
Sources: Sofi Learn, CoinGuides
Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of cryptolife.report. Every investment involves risk, so you should always perform your own research prior to making important decisions. We do not recommend investing money you cannot afford to lose.
