You have probably heard about cryptocurrency, and, although crypto value is highly volatile and deeply misunderstood by the masses, crypto’s have maintained fair growth and interest despite volatility (source), thus piquing interest as a passive income idea.
Can you earn passive income with Cryptocurrency? It is possible to make passive income with different cryptocurrencies. Some popular ways of earning passive income with crypto include mining coins, buying and reselling coins, taking part in cryptocurrency buybacks, staking coins, masternodes, exchanging divided crypto, or just holding coins until they increase in value to sell them in the future.
Due to volatility and uncertainty, investing in crypto remains risky. In this guide, we provide some general cryptocurrency ideas and how you could turn them into a passive income source. Like most passive income ideas, making money from crypto currency requires dedication, research, and good financial skills. If you are a complete beginner, here is a detailed list of popular terms used when dealing with cryptocurrency, some of which we will use in this article. Let’s dive right in.
What are Cryptocurrencies?
Cryptocurrencies are digital currencies that are not regulated by any centralized authority, such as a Government or Bank. They are created via mining, which is a process where ‘miners’ (or developers with the right software and hardware) sell processing power to the currency’s server in exchange for an amount of the currency. Every transaction is stored on a distributed ledger using a technology called “blockchain.” (source)
Cryptocurrency Stats & Projections
The blockchain revolution is just beginning (source). Harvard Professor of Economics Kenneth Rogoff predicts, “Market capitalization of cryptocurrencies could explode over the next five years, rising to $5-10 [trillion].”(source). As more countries, people, and businesses accept cryptocurrency as a medium of exchange, the value of the industry will probably rise making it a viable currency.
Since its debut in 1983, cryptocurrency, and the entire blockchain solutions industry has grown tremendously in value, usage, and popularity. There were over 40 million Blockchain wallet users globally in June 2019, and spending on blockchain solutions is projected to grow to $4.2 Billion by 2022 in the U.S alone (source). Some of the most popular cryptocurrencies include Bitcoin, Bitcoin Cash, Ethereum, Ripple, and Litecoin.
Countries with the highest cryptocurrency users include the US, Turkey, Brazil, Colombia, Canada, and Australia (source). However, despite its growing popularity, crypto remains a ‘new’ idea amongst many people. Growing concerns about the legality of crypto and increased cases of theft and fraud have affected its growth and popularity (source). Cryptocurrency remains banned (source) or restricted (source) in some countries including Bolivia, Egypt, Iraq, China, Russia, Taiwan, Qatar, Iran, Kuwait etc.
Deciding if the Business Works for You
Investing in crypto can be both a lucrative and high-risk idea. In 2017 the price of Bitcoin increased from about $900 to $16,500 within a year. Most people joined the hype to make quick profits from the booming venture. However, in December 2017, the crypto market took an 80% plugne which Bloomberg quoted as being “worse than the dot-com crash” (source).
To make the most from virtual currencies you have to understand how they work. You should be ready to learn about them, carry out your own due diligence, take calculated risks and only put in as much money as you can afford to lose. Also, remember there are many different types of cryptocurrencies so go for the one that best works for you.
Budgeting Before Investing In Cryptocurrency
Investing in crypto can be both a lucrative and high-risk idea. In 2017 the price of Bitcoin increased from about $900 to $16,500 within a year. Most people joined the hype to make quick profits from the booming venture. However, in December 2017, the crypto market took an 80% plugne which Bloomberg quoted as being “worse than the dot-com crash” (source).
Having a good budget goes a long way in ensuring you are comfortable with your investment. This means of making money has financial risks associated with it so no matter the amount you decide to invest, you should be comfortable with potentially losing all of it. Let’s have a look at some of the most popular coins below.
Bitcoin
Bitcoin is one of the most popular cryptocurrency in the digital financial market. It has a market capitalization of $205.40 Billion in Q1 2019 (Source). It’s subsidiary product, Bitcoin Cash, has a market capitalization value of about $7.29 Billion in Q2 2019 (source). The virtual currency has been around for over a decade and has a growing popularity among different users since it is the most spoken of in mass media. On average, a full Bitcoin Cash coin sells for around $300 (source) while a full Bitcoin has a price range of more than $9,500 (source) in 2019. Keep in mind that you do not have to buy a whole coin. You can buy fractions of a coin.
Ethereum
Ethereum is a popular virtual currency, it has a strong financial standing with an average price if $168 over the last three years (source). The crypto has a current market capitalization of $20 billion and is well accepted in various cryptocurrency-trading platforms (source).
Ripple
Ripple is quickly becoming a popular choice. It has a digital payment network and a cryptocurrency. It was first released in 2012 (source) after which it has grown to become a worthy competitor to the more commonly known currencies (source). As of August 2019, Ripple was the third-largest cryptocurrency by market cap of $13.37 Billion.
Taking Precautions Before Investing in Crypto
Investing in crypto is risky due to volatility, pump and dump tactics, risks of fraud and general lack of knowledge with regards to this new market. However, you can safely invest in crypto by taking some basic precautions. Using an impersonal email, a strong password and protecting your account with two factor authentication (via your phone or an encrypted app) can protect you against potential data breaching and other hacking practices.
As for most financial investments, diversification can be a good way to dilute risk. Keeping your investments low to start until you get used to using these platforms can also be a good precaution. Other ways you can take precautions when deciding on your budget and spending include ignoring the hype around new coins, avoiding bad investments (pump and dump tactics), performing your own due diligence, and being careful when holding your coins in a mobile app due to the risk of losing your phone (source).
Cryptocurrency Passive Income Ideas
Here is a list of passive income ideas with cryptocurrency.
1. Holding Cryptocurrencies for Future Sale
This is one of the easiest things to do as a beginner. Simply purchase some crypto and hold it until they increase in value. But, if for example you purchase $500 worth of Bitcoin, you hold it for a couple years and the value increases to $800, you will have made $300 without any effort. Of course, the value has to actually increase for you to make money, and there is a risk that the coin could never gain any value, and you lose your investment.
2. Stacking Cryptocurrencies
You can make passive income through cryptocurrency is by stacking your virtual currency to a platform that offers the service. It allows you to bind your cryptocurrency to their site. Other currencies include Dash that allows you to stack a minimum of 1,000Dash units for you to be able to operate a master node. A Dash unit has a price range of about $320 making your total stack worth $320,000 (source).
3. Buy Backs on Tokens
Crypto companies will buy back their tokens from the market (source). You can earn passive income by buying crypto and then holding it for the companies to buy back their products at a higher price. Learn more on Medium here.
4. Crypto (Mining)
The upfront costs of mining are extremely high. Time and energy expenses can be enormous for crypto mining. Mining the blockchain, Bitcoin, Litecoin, Monero, or Ethereum requires expensive and powerful equipment like ASICs and GPU rigs. These will allow you to mine quickly to make a profit. However, other costs are tied to cooling your equipment, which can substantially increase your electricity bill. As there are many upfront costs for crypto mining, the field is not saturated. However, the returns remain low. For example, after expenses, this miner is only making .20 cents per day. He thinks this can be a great way to make passive income in the future and that is why he is still mining.
5. Masternodes
Similar to Bitcoin’s full nodes, masternodes are a full node that holds a full copy of the blockchain. These nodes are always running because they keep the blockchain in real-time. Masternodes perform special tasks for specific cryptocurrencies, and masternode owners are paid so others can access these tasks. Upfront costs are needed for creating a passive income with masternodes and include purchasing the required amount of coins for each crypto, getting a VPS or server so you can host the wallet 24/7, owning a dedicated IP address, reserve storage space so you can save the blockchain and so on. These can have high costs. When working with masternodes, it is essential to extensively know what you are doing to avoid scammers. Not all coins are worth enough to run a masternode.
6. Crypto Lending
If you have already amassed a lot of Bitcoin, Ether, or some other crypto, then you can join the centuries-old process of lending. As Bitcoin allows you to be your ‘own bank’, you can lend Bitcoin or other crypto with little or no interference from brick and mortar Banks. Many companies can help you successfully lend your crypto, including peer-to-peer lending communities.
7. Bitcoin Arbitrage
Each Bitcoin exchange displays a different price per currency, which prompted arbitraging. Arbitraging allows you to purchase bitcoin at a lower price in one exchange and sell it for a higher price in another exchange. There are many upfront costs associated with bitcoin arbitraging, such as fiat and bitcoin deposit fees, fiat and bitcoin withdrawal fees, and transaction fees. To find higher exchange prices, you can compare Bittrex prices to Bitstamp.
It can be challenging to create a passive income using bitcoin arbitraging since it requires active maintenance and a lot of upfront coin, but if you find the right gap between two platforms and calculate your costs with due diligence, the payoffs can be interesting.
8. Trading Bots
Hiring employees for 24/7 work is expensive, and companies are trying to cut their costs. The fact is excellent news for you because it means these companies could use trading bots. Crypto trading bots are mostly created to discover and report back differences in exchange prices. Like other elements of cryptocurrency, they have a significant upfront investment, but for some people with the right skills, they can be profitable. When creating, selling, or using trading bots, keep an eye out for scamming developers and flash crashes. To make a passive income from trading bots, you will want to work hard and be open to high-risk investments.
9. Other Ideas
You can also decide to blog on cryptocurrency sites such as Steemit where you earn steam coins from your blogs. YoGamers can also get coins through platforms such as storm play. Other niches you can capitalize on include micro-jobs, Airdrops, Bounties, Reward Tokens and affiliate marketing.
How Passive is Cryptocurrency?
Cryptocurrency can be a passive way of earning passive income with the right choices. Making passive income from crypto will require a lot of your time, patience, skill and knowledge. Some of the currencies will require a lot of initial research on their popularity and advantages.
Scalability
Scalability of your crypto currency passive income depends on how much money you have to invest. But always keep in mind you can lose it all.
Start-Up Costs
Your startup costs will depend on how much money you are willing to invest. For example crypto mining is very expensive due to the hardware costs and ongoing electricity costs. No matter what, you should be comfortable with losing all the money you invest in crypto. All of it.
Difficulty
You will experience a few difficulties at the beginning of your venture. You will need to do due diligence, identify and choose the cryptocurrency you would like to invest in as well as how much money you would like to invest in that coin. However, buying your first fractions of coins is not difficult. Just open an account with CoinBase to learn more (receive $10 when you spend $100 following that link).
Time
You might take a couple of months to years before your crypto investments becomes profitable. They may never be profitable and may lose money. If you carry out well-researched arbitrage, you may make money a bit faster. But if long-term arbitrage is the game you would like to play, you may have to hold your coin until it gains more value in the future (which of course is not guaranteed).
Risk
Cryptocurrency carries with a high degree of risk due to the lack of mainstream knowledge about it, volatility, and risks related to theft and hacking. It is easy to lose a large amount of money within a short amount of time if you are not careful when investing in crypto. However, all businesses have a certain degree of risk. Take basic precautions (use a complex password, two factor authentication on your crypto accounts, save your keys in dedicated hardware etc) and carry out your own in-depth due diligence before diving in.
Return on Investment
Many people believe that crypto is a long term game because the technology has so much potential but has not yet met mainstream popularity. It is possible that crypto will gain in value in the future once more and more people start to use it as a common way to transact. It is becoming increasingly popular in the global market as the sector grows continually with more projected growth in the next decade (source).
Related Questions
Why are people buying cryptocurrency? Digital currency is becoming very common in the online community. People are finding it easier to conduct their transactions with cryptocurrency mostly because it is not controlled by any established financial body and it is fully dependent on the market. It is also useful in developing countries by reducing transaction costs and transfer time.
How do I choose the best passive income idea for crypto? There is no such thing as a perfect passive income idea, even for crypto currencies. Try choosing an idea you are interested in and comfortable with regarding costs, time, and risk. Holding coins can be less expensive and complex than mining coins for example, which has high initial and ongoing costs.
