Today people are using cryptocurrencies for more than just purchases or transactions. Using new consensus algorithms and smart contracts allows you to carry out operations with digital assets to obtain profit.
Let us consider in more detail how to make money in a passive way. In this article we will take a look at the most attractive crypto options for generating a passive income.

Earning with Proof-of-Stake

Unlike the Proof-of-Work (PoW) mechanism, where each miner must actually prove that his node performed the calculations, in the PoS (Proof-of-Stake) mechanism miners, which are called validators, have to prove their share of the cryptocurrency ownership in this blockchain. The larger the share, the more likely it is that the node will receive the right to mine the next block.

At the same time, the income of validators consists solely of commissions from transactions. The PoS algorithm has several significant advantages over PoW – this mechanism is more resistant to attacks and not so expensive in power consumption.

In order to make a passive income from PoS, you need:

  • To keep your computer turned on.
  • An activated PoS cryptocurrency wallet, capable of confirming transactions on the network.

Among the key advantages of this type of passive income:

  • It is less energy consuming than Proof of Work mining
  • You can delegate your share of ownership to another validator and collect a share of the reward

Among the shortcomings, experts note that:

  • PoS can lead to the concentration of funds in the hands of one or a group of validators, which will negatively affect the decentralization of the network.
  • Depending on the cryptocurrency, the entry threshold can be quite high and large deposits will be required to make a substantial income. However, the number of cryptocurrencies supporting the PoS consensus algorithm is constantly growing, so the number of mining options is also growing.

The best cryptocurrencies for staking are EOS, NEO, ATOM, etc. You can learn more about coins to stake in 2020 by reading our article.

Passive income from the launch of a masternode

Masternodes are special nodes in the cryptocurrency network, which provide its high speed and decentralization. One of the main working conditions of a masternode is having a certain number of coins on an account.

Masternodes help the network perform functions that miners cannot perform: confirm instant transactions, ensure decentralization of the control mechanism, and conduct private transfers.

A masternode wallet must have a certain number of coins as collateral to confirm ownership. The network automatically rewards masternodes in exchange for supporting the network and blocking a certain amount of cryptocurrency. Masternodes can support both PoS and PoW algorithms.

As for earnings on a masternode, it depends on the type of cryptocurrency, on how this cryptocurrency works with a masternode, and how stable the rate of this cryptocurrency is. You can find the full list of cryptocurrencies working with masternodes on these sites:


Earning on mining

Many still believe that mining is the best way to earn Bitcoin. But it is not suitable for everyone as it requires expensive special equipment, technical knowledge and a huge amount of energy. As a result, the industry has become very competitive, with large corporations dominating it. Mining is no longer as profitable as before, and not very realistic as a source of passive income for most people. However, some people still do make good profits, mining coins with a PoW algorithm with a lower hashrate and higher potential reward.

Earning with forks, airdrops and burns

Taking advantage of a hard fork is a relatively simple strategy for crypto enthusiasts. To do this, you just need to keep coins on your wallet that already have a hard fork date (usually determined by the height of the block). The fork will split the chain in two networks and the holder balance will receive coins for a new blockchain.

Airdrops are similar to forks in that you only need a wallet. Some services periodically conduct airdrops for their users. Please note that during this promotion, you will never be required to provide your private keys. If someone asks you for your keys, this is a clear sign of financial fraud (scam).

Another way to earn crypto is by monitoring burns and buybacks. Sometimes developers purchase back their crypto and burn (destroy) them to increase the price of the coin. Using this information you can speculate on the rate of these coins and profit from trading.

Cryptocurrency faucets

This is probably the easiest way to earn cryptocurrency without buying it. Cryptocurrency faucets are web-sites where you can earn a small amount of money for watching ads, installing apps and doing other easy tasks.

There are plenty of services that are ready to pay you some small rewards. But you should choose them carefully, because there are a lot of scam platforms out there that won’t pay you.

Please note that the potential profit you can make from faucets is relatively small and even if you do tasks non-stop you won’t get rich or make a significant amount of money on this. Consider these sites as a starting point and educational tool for cryptocurrencies and blockchain.

If you want to learn more about cryptocurrency faucets – check out this blog post where we review the most popular faucets for Bitcoin, Ethereum, Litecoin, etc.

Earning on lending

Lending is a passive way to earn interest on your cryptocurrency assets. There are many peer-to-peer (P2P) lending platforms that allow you to block part of your funds from moving for a certain period of time to make profit. The interest rate can be fixed (determined by the platform), or set by you based on the current market rate.
This method is ideal for long-term holders who want to increase the amount of funds they have without putting in much effort. It is worth noting that blocking funds in a smart contract always implies the possibility of errors and bugs occuring.

Cryptocurrency Passive Income Risks

Buying low-quality assets. Artificially high or misleading profitability ratings can provoke traders to buy an asset that actually has a very low value. Some stakeholder networks use a multi-token system in which rewards are paid in the form of a side token to generate constant selling pressure.

User error. Since the blockchain industry is still at an early stage, the creation and maintenance of such sources of income requires technical knowledge and nuanced thinking. For some holders, it is better to wait until these services become more convenient, or use only those that require minimal technical knowledge.

Blocking periods: To start working on some types of lending or staking, you have to block the necessary part of the funds for a certain period. This makes your assets not liquid while you are blocking them, leaving you vulnerable to price swings.

The probability of bugs and errors: Blocking your coins on a wallet for staking or through a smart contract always involves the risk of encountering various bugs. As a rule, there are several options to block crypto, with different levels of quality. For this reason, it is extremely important to carefully consider each of your options before making a choice. Open source software can be a good starting point because it usually involves various checks from the community.


0 / 5. 0