Crypto Income: The Ultimate Guide On How To Earn Digital Assets
It is perfectly okay to feel bad about failing to possess the insight and the conviction to invest in cryptocurrency before the start of the ongoing bull cycle. Merely thinking about the potential profit and the missed opportunities could demoralize and force investors to make hasty and bad investment decisions.
From what I have learned over the years, there is no bad timing when it comes to cryptocurrency. There are always new opportunities around the corner. The most important thing is to devise a viable strategy for generating crypto income and set up multiple fail-safes to minimize risks. But first, you ought to understand the various ways of earning cryptocurrency safely. In this guide, I will explore the popular income-generating activities peculiar to the crypto industry as well as their pros and cons.
Why Is It Advisable To Earn Cryptocurrency?
In the last decade, cryptocurrencies have showcased a variant of functionalities that somewhat elevates their value. Most digital assets incorporate deflation mechanisms to ensure that their value maintains an upward trajectory regardless of the prevailing economic realities. As you must have noticed, the purchasing power of 1 BTC in 2020 is nowhere near what 1 BTC can buy today. The same is true for most digital assets.
Therefore, if you had earned cryptocurrency for the better part of 2020, then the value of your earnings would have increased exponentially. In contrast, most fiat currencies are reeling from the effects of inflation. Therefore, the buying power of an individual earning in fiat currencies, especially those devalued for one reason or the other, would have reduced in that same time.
Understandably, this is one of the reasons for the high demand for crypto income opportunities. Just as large companies are adopting Bitcoin as a hedge against inflation, individuals are also increasingly exploring and implementing ways to preserve the value of their savings with crypto. The obvious solution for such individuals is the possibility of earning in digital assets.
Apart from the apparent inflation-hedging capability of cryptocurrency, they also unlock a thriving economy that borders on autonomy. The decentralized economy, as it is called, provides various means by which average investors can enjoy financial freedom and unlimited access to an inclusive financial landscape. With crypto, your background, educational status, or geographical location does not restrict the opportunities accessible to you. It also has a knack for reducing the overhead cost of processes by eliminating the input of third parties.
Hence, you can easily set up a profitable venture and have complete control over your investment such that you are not losing a significant share of the profit to intermediaries. Judging by the benefits of earning crypto, it is no surprise that a majority are looking to adopt profitable crypto ventures. While this is a given, it is important to mention that such ventures are either passive or active.
What Are Active And Passive Crypto Incomes?
An Active income is the earnings generated by providing services or actively engaging in the processes involved. More often than not, you have to invest your time, skill, and capital to generate an active income.
On the other hand, a passive income is the earnings resulting from ventures or businesses which do not require much of your input other than your funds. Here, all you are bringing to the table is your capital. Think of it as a form of investment, which is not time or energy-consuming.
With these definitions, I am sure that it is easier to differentiate between passive crypto income opportunities and active ones. The next two sections of this guide will discuss these two types of crypto income and the opportunities associated with each.
Active Crypto Income
As explained earlier, expect the requirements for earning active crypto to be a bit demanding. You are not just required to invest your time, but you also have to learn one or two skills and maybe set aside capital to start. Anyone planning to generate this type of income should be prepared to participate actively in the crypto economy. Sounds interesting? Here are some of the things or activities you can do to earn active income in the crypto sector.
Crypto Mining
Crypto mining functions as a security and coin distribution mechanism for blockchain networks, including Bitcoin, that use the proof of work consensus protocol. Such blockchains eliminate the need for a centralized authority by promoting a mining ecosystem where miners compete by using their computing resources to solve difficult puzzles.
At every given point, the first miner to solve the puzzle gets to verify and attach the next block of transactions to the blockchain. In return, the network rewards the miner with newly minted coins. The miner also earns the commission generated from each transaction entered into the new block.
In essence, miners are adequately incentivized to compete, solve mathematical puzzles and subsequently verify new transactions. The reward and the transaction fees are the active income associated with crypto mining. While this explanation aptly describes the fundamentals of crypto mining, there are way more technicalities required to run profitable mining operations.
For one, mining as a crypto income opportunity is increasingly becoming unprofitable to solo miners. This is due to the growing difficulty of crypto mining activities. Note that blockchains that support mining have set a fixed interval for the creation of new coins. When the total computing power of the mining hardware connected to the blockchain increases, the network will automatically increase the mining difficulty. The reverse is the case when there is a drop in the number of miners trying to find a new block.
And since the popularity of mining has surged over the years, the mining difficulty of most blockchain networks has maintained an uptrend. Therefore, miners have had to invest in acquiring more computing power to stand a chance of finding new blocks and earning income.
For instance, it was possible to mine Bitcoin with everyday computers in the early years of its existence. However, as the mining difficulty increased, miners were forced to opt for GPU mining rigs for a more efficient and profitable operation. Today, GPUs are no more in vogue. Now, miners use the Application-Specific Integrated Circuit (ASIC) that are tailor-made for mining cryptocurrencies. This machine is way expensive to acquire and maintain than the previous generations of mining hardware.
Not only are miners paying significantly high capital to buy and set up this hardware, but they also incur recurring expenses for running and cooling mining rigs 24/7. Therefore, if you intend to delve into the mining economy, you must consider the initial cost for purchasing mining rigs and the subsequent cost for maintaining them.
Another thing you need to consider is the time and technical requirements. As a solo miner, you need to run a node on the blockchain network and ensure that it is always online. The technicalities involved in operating a node, its time-consuming nature, and the capital and energy-intensive aspects of mining operations are potential barriers. Any of these factors, or a combination of two, can cause a miner to incur losses. Another potential barrier is the value of the cryptocurrency in question. Mining tends to be less profitable during a bear market.
As such, it comes as no surprise that mining is fast becoming a corporate venture as companies with enough funds, computing power, and technical prowess can only thrive. These entities often set up large crypto mining farms at locations with constant and affordable power supply. For those that do not possess this financial capacity but are still interested in actively partaking in the crypto mining sector, the next best option is a mining pool.
You may be wondering: what is a mining pool? Well, this is simply a network of miners that have agreed to combine their computing power and direct it towards a single mining node. In essence, solo miners understand that the only way to compete with large mining farms is to join networks that allow members to work together to achieve a similar goal of finding new blocks.
Since mining pools rely on the cumulative output of a network of miners, the revenue is shared among contributing members accordingly. Your share of the computing output of the mining pool would determine your share of the reward generated.
Crypto Trading
The second active crypto income-generating activity is trading. As practiced in traditional asset markets, you can capitalize on the price movements of digital assets and earn profits. As expected, this activity has its peculiar technicalities. To become a successful crypto trader, you must be versed in the art of predicting price movements and managing risks.
Note that the crypto market is popular as a trading terrain because of its inherent volatility. In the crypto universe, wild price swings of digital assets are normal occurrences. Therefore, traders often anticipate short-term price movements and enter trades in hopes of exiting their position with more coins than they started with. While this may seem speculative, professional crypto traders rely on quality technical and fundamental analyses to identify market trends and price movements. Wrong or poor analysis can potentially lead to significant losses.
it is also critical to access standard tools to ensure that all trading analyses are effective. This is why expert traders are often picky when it comes to exchanges. They prefer to use exchange platforms that come with all of the tools and systems necessary for entering and exiting positions without having to worry about liquidity or the effect of a poor trading terminal.
When trading cryptocurrency, there are certain precautions that you need to consider. The first is the negative impact of emotion when trading. The goal is to eliminate elements of greed or fear while making trading decisions. You do not want your emotions to skew your actions. Analytic-backed decisions should the basis on which your entire trading operations are being built upon.
Another factor that is worth mentioning is the transaction fees of your preferred crypto exchange. Since you are going to be trading frequently, you have to consider the long-term effects of accumulated fees on your profit. Then there are the risks that come with crypto trading. Remember that you are dealing with unprecedented volatility. Hence, the risk involved is quite high. Therefore, you must take risk management seriously. Implement stop loss when necessary and do not forget that the bigger the opportunity, the higher the risks involved.
You should also research the security architecture of your preferred crypto exchange. Since you are likely to hold a significant sum of digital assets on exchange wallets, you are therefore at the mercy of your trading platform’s security expertise. As such, when evaluating your risk management system, also remember to scrutinize the security measures adopted by your exchange and the fail-safes put in place to respond adequately to hacks.
Furthermore, there are various approaches to day trading. You can choose to focus on futures, instead of trading physical cryptocurrencies. Trading crypto futures contracts make it possible to profit off the price fluctuations of digital assets without having to take up the security risk of holding cryptocurrencies.
Alternatively, you can opt for margin trading. Here, you borrow cryptocurrency to increase your earning power when trading. Note that this trading strategy is way riskier than spot trading. Just as margin trading increases the potential profit, it also multiplies the potential loss. Hence, only dabble into this trading terrain when you are sure that you have acquired the level of skill and experience required to maneuver such a risky venture.
If margin trading seems to be too technical, then you can opt for arbitrage trading. The crypto market, thanks to the siloed nature of exchanges, offers arbitraging opportunities. More often than not, the prices of digital assets across exchanges are not uniform. You can therefore capitalize on market inefficiencies by buying a digital asset on one exchange at a cheaper rate and selling it on another platform with a slightly higher price rate. The difference between the buy and sell price would determine your profit.
However, note that the possibility of profiting off arbitrage opportunities shrinks as more traders increasingly take advantage of them. Hence, when it comes to crypto arbitraging, speed is the name of the game. You could also adopt trading bots to increase the probability of identifying market inefficiencies and executing the appropriate trades instantly.
Staking
Like mining, staking is another example of transaction validation and coin distribution mechanism used by some blockchain networks. Here, network participants interested in contributing to the validation process have to deposit or lock a specific amount of cryptocurrency on the blockchain to show their commitment to the network.
The network assumes that validators would not do anything that would put them at risk of permanently losing the deposited fund. In other words, such entities are momentarily stakeholders in the blockchain’s economy. Their actions or inactions as it relates to the validity of transactions would determine whether they get to receive a return on their investment in the form of newly minted coins and transaction fees.
From this explanation, it is clear that staking is a less resource-intensive approach than mining. Instead of requiring validators to pledge their computing power, staking only entails financial commitments. Note that the staking requirements differ across blockchains.
Also, staking your coin only indicates your intent for becoming a validator. This is similar to how the setting up of a mining operation does not necessarily elevate you to the status of a validator. It is only when you solve the mathematical puzzle before other miners do that you emerge as a validator and are eligible to receive rewards.
Likewise, staking only puts your name in a lottery system. It is the consensus protocol at play on the blockchain that randomly picks validators from the pool of nodes that have staked coins. In most cases, the protocol picks those with the highest stake. There is always a minimum staking capital set as one of the core requirements. Only investors that have staked coins equivalent to or more than the minimum requirement are eligible to join the blockchain’s staking economy.
Away from the financial stipulations of staking, there are also other prerequisites that interested investors need to be familiar with. The first is that they must run a blockchain node 24/7. It is worth mentioning here that running a blockchain node is a bit technical. You must acquire the right software and meet the hardware specification set by the blockchain.
And peradventure you become a validator, you must adhere to the rules set to govern the operations of validating nodes or risk losing all or part of your staked coins permanently. Some blockchains even go as far as banning defaulting nodes from taking part in the staking economy. Moreover, some blockchains impose lock-up periods. In other words, the investor can not use or withdraw the staked coins before a predefined duration. Conversely, we are increasingly witnessing a new generation of staking-enabled blockchains that do not impose lock-up periods.
From this short explanation, you can see why I have classified staking as one of the crypto ventures that generate active income. However, there are other variants of staking that tend to generate passive income. We will discuss these types of staking later in this guide.
Crypto Jobs And Freelancing
Today, lots more employers are willing to pay cryptocurrency as salaries to their employees. Therefore, if you are looking to earn in crypto, you can interview for jobs in such companies and hopefully start earning crypto. Interestingly, the crypto industry is big on remote offices and workforces. Hence, you do not need to limit your search to your present geographical location. You can live in Japan and secure a well-paying job in the US without having to relocate.
This is because a lot of crypto companies are looking to attract top talents regardless of their locations. In essence, if you are good at what you do, then securing a job should not be a problem. This is especially true for people with programming, marketing, and other core business development skills. Also, it helps that many crypto brands are trying to expand their businesses to the global scene. Therefore, the opportunities are there. All you need to do is visit the website of the crypto brand of your choice, search for the job opportunities available, and apply for a suitable position.
Another thing that seems to be trending in the crypto industry is freelancing. With this, you do not need to become a permanent employee to earn crypto. Instead, you can offer your skillset and time as you deem fit. In this way, your skill is not exclusive to a company or business. And you have more say over how you spend your time and determine the amount you get paid.
Understandably, you might be skeptical about the pitfalls commonly associated with freelancing, especially disputes and frauds. Luckily, we have begun to witness the emergence of initiatives designed by crypto freelance projects to limit the occurrence of such pitfalls. Some projects have begun to provide smart contract-enabled freelance platforms to ensure that employers and freelancers alike can engage with the gig economy securely and transparently. All this is made possible with the help of blockchain technology.
Passive Crypto Income
In contrast to active crypto income, passive crypto investment opportunities are generated from activities that do not require a lot of time or energy resources. You can easily set up such income-generating operations and still go about your daily activities. Interestingly, the crypto industry has a wide array of ways investors can earn income without having to sacrifice their time. In most cases, these opportunities also do not require particular skillsets. When it comes to passive crypto income, all you need is a deep understanding of crypto processes and how they tend to generate financial rewards when implemented correctly. Below are some of the profitable ways of earning passive income in the crypto industry.
Cloud Computing
Remember the difficulty and overhead cost that comes with crypto mining? There are proven ways of evading these limitations. As discussed earlier, one such method is pool mining. Another effective mining approach is cloud mining. Here, all you need to do is rent rigs on mining farms or buy a share of their computing power. In doing so, you have bypassed the setup and maintenance requirements. Instead, you are paying a company to do all the work on your behalf. Subsequently, you will receive the dividend when new blocks are found.
Although you may need to set aside a sizeable capital for running a cloud mining operation, it is still a more affordable and profitable option to solo mining. This is because cloud mining providers often implement means of optimizing their mining farms. For instance, they may situate the farm in countries with cost-effective electricity and cold climate. With this, the cost for cooling and running mining rigs is significantly reduced.
However, when choosing a cloud mining provider, ensure that you carry out thorough research. The cloud computing sector is a breeding ground for scammers. This is due to the overly digital nature of the service. Other than the pictures and videos submitted, it is almost impossible to ascertain that the advertised crypto mining infrastructure is real. Regardless, do all you can to confirm the validity of the cloud mining services. Additionally, it is advisable to ascertain that the cost for renting computing power is lower than your potential revenue. This is the only way you can guarantee that your mining venture would yield profit.
Crypto Lending
Instead of keeping all that crypto holdings of yours in a wallet, why not lend them out to interested borrowers and, in the process, generate interests? The simplicity of this crypto income opportunity is the reason why it is fast becoming a go-to choice for investors. Crypto lending allows holders to earn extra coins in addition to the potential profit generated from positive price swings.
With this, you do not have to hone special skills or dedicate your time to specific tasks. All you need to is make your holdings available for borrowers. Depending on the type of lending services you opt for, you may even have the freedom of setting a suitable interest rate. Speaking of lending services, there are three major variants of platforms that support crypto loans. They include centralized lending platforms, p2p networks, and decentralized lending protocols.
Centralized lending platforms utilize a central authority-controlled loan matching system. Here, the platform sets a fixed interest rate for each supported coin, determines the collateral required by borrowers, and processes the loan on behalf of the lender. As such, the lender only deposits crypto and waits for the platform to pay interests as promised.
In the case of p2p lending networks, the lenders are given a level of freedom to choose the interest rate, the collateral required, and the duration of the loan. Borrowers can search the list of lending offers and choose the one that is the most suitable.
Lastly, decentralized lending protocols use DeFi technology and rellies on smart contracts for the processing and matching of loans. These systems are fully automated and autonomous. Hence, lenders and borrowers alike can evade intermediaries and the fees associated with them. This is why DeFi lending protocols are considered more profitable options to other variants of crypto lending solutions.
Moreover, decentralized lending protocols often reward lenders and borrowers with additional tokens that give them exclusive rights to contribute to the governance of their ecosystem. In other words, you are not just earning interest in crypto. You are also receiving governance tokens that are independently valued and tradeable in the crypto market.
Non Fungble Tokens (NFTs)
The crypto sector is currently experiencing a long-awaited NFT renaissance. This technology brings new applications to the crypto scene and has quickly risen to become one of the most appealing functionalities of cryptocurrency and blockchain. With this, anyone can create and confirm the ownership of rare digital items on the blockchain. Already, NFTs have thrived in the art world, and it is popular as an ideal solution for buying and selling collectibles.
As an investor, you can join any of the reputable NFT marketplaces to search for hidden gems to buy. Once you purchase these items, you may be lucky enough to sell them at a higher price. As tempting as this sounds, be sure to confirm the genuineness of NFTs before purchasing them. Due to the popularity of NFTs, scammers have begun to look for ways to dupe unsuspecting investors. We advise that you try as much as possible to avoid NFT offerings from identity thieves who claim and pretend to be the original creators.
On the other hand, an artist or content creator could mint the NFT versions of their work and sell it on an NFT marketplace. We have seen NFTs sell for as high as $60 million. Hence, the demand is there. All that is required from your end is high creativity. While at it, always remember that the value of NFTs also depends on their rarity. As such, you can boost the value of your digital item by offering the potential buyer an exclusive right to the original copy or one of the limited numbers of copies.
Also, NFT offers the added advantage of a more enforceable royalty. In essence, you can create an NFT in such a way that you get to receive royalties whenever the item is resold. This means that you can receive continuous pay for your work as long as the ownership of the item is being transferred in return for money.
Yield Farming
Yield farming is another potent crypto income opportunity in the DeFi market. To earn passive income through yield farming, you need to provide liquidity to pools on decentralized exchanges. Once you deposit a specified amount of two or more selected coins as liquidity in a pool, the protocol sends you liquidity pool tokens that denote the validity and share of your investment. You can then use these tokens to generate extra passive income on DeFi lending protocols by using them as collateral or lending them out to borrowers.
Note that liquidity providers ordinarily receive a share of the commission generated by the pool in which they deposited liquidity. Therefore, in addition to the earnings applicable to liquidity providers, you can earn extra income from your lending operations on an external lending protocol.
CeFi Staking
As mentioned earlier, staking is an active source of generating crypto income. However, there are ways by which you can maneuver the technicalities involved. The simplest solution is to opt for a staking service that is in the business of pooling funds from investors and staking it on blockchains. With this, you can deposit an amount lesser than the minimum staking requirement of the blockchain of your choice and still partake in its staking economy.
Understandably, the interest promised by the staking solution is lower than what you could have generated if you had staked the coin yourself. Nonetheless, this does not seem to be a deal-breaker, considering that the platform has done you a favor by eradicating staking barriers and offered a more regular income-generating venture.
Notably, several exchanges have begun to offer this suite of services. It is advisable to research the staking duration and the lockup periods before investing in such opportunities.
Hodling Digital Assets
This is perhaps the most basic means of earning passive crypto income. You only need to buy one or several digital assets and hold your position for months or years. The goal is to profit off the long-term price movements of cryptocurrencies. Hence, you do not need to carry out as much analysis as a day trader would because the short-term price swings have no permanent bearing on the profitability of your investment in the long run.
However, it is worth mentioning that long-term investments are more profitable when you acquire digital assets during a bear market. Thus, you have to identify the best entry point. This simple analysis should complement comprehensive research on the long-term viability of the crypto assets you are looking to buy. Ensure that the crypto has the right level of innovation and application that are necessary to survive the fast-paced nature of the crypto ecosystem.
Earn Free Cryptocurrency
It is possible to earn free cryptocurrencies. There are several programs, including crypto faucets, affiliate campaigns, bounties, and crypto airdrops, that allow interested individuals to earn digital assets. In most cases, you are expected to perform specified tasks, like referring a platform to a friend, registering as a user, following their social accounts, and promoting their services.
Depending on the difficulty of the task, you can earn free tokens without having to hone a skill or invest capital. Here, it is your time and reputation that are on the line.
Final Thoughts
Having explored some of the popular ways of earning digital assets, it is clear that anyone can participate in the emerging crypto economy. However, note that a majority of these sources of crypto income are taxable in several countries. Hence, try as much as possible to determine the tax implications of earning crypto in your location before investing your money or time in any of the above-listed opportunities.
