How To Make Passive Income Daily With Cryptocurrency

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Coinmonks

12 min readFeb 14, 2022

I think it’s about time that we talk about the holy grail of building wealth, investing, and financial independence, and that would be passive income but with a slight twist.

Most of us already know how to make passive income with stocks, dividends, Reits, and real estate. But very few people realize that they can make passive income with cryptocurrency, and even fewer people realize just how much money they could make.

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Let’s go over a few of the ways that you could begin earning passive income with cryptocurrency as a complete beginner, that you could start doing immediately and even better.

The entire cryptocurrency space is full of a whole bunch of sketchy people. I have zero financial interest in any of these companies or strategies that I’m talking about. I’ll do my best to break everything down as much as possible.

So first, the easiest and most straightforward way of making passive income with cryptocurrencies is through what’s called an interest bearing account. This is likely the quickest way anyone could get started.

Just like you could go to the bank to deposit your money and get a lovely half a percent interest rate, you could deposit your cryptocurrency throughout several exchanges and earn a preset return depending on the amount you hold.

And believe it or not, the return is actually pretty good. Like I said, none of this is sponsored but as a few examples, blockfi pays as high as four and a half percent interest on bitcoin, five percent on Ethereum and nine percent on usdc.

Celsius pays even more at up to eight percent on bitcoin, seven percent on Ethereum, and nearly eleven percent on usdc. And Voyager pays the same interest rate regardless of how much you hold on the platform.

For myself, my thought is that if I’m planning to hold on to the underlying cryptocurrency, I may as well earn some interest in the process. Otherwise, I’m leaving money on the table for what probably amounts to just a few minutes worth of work.

It would be kind of like choosing to keep your money in cash under a mattress instead of moving it over to a bank to get paid interest. The concept is the same but the money you make is drastically different.

Now usually at this point, the go-to question is how are they able to pay out such high interest rates when banks are barely able to pay out anything? And that I have to say is worth discussing.

When you deposit money in one of these platforms, they’re going to take that money and then lend it to retail and institutional investors at a higher interest rate than they pay you.

It’s really no different than me saying give me your money, I’ll pay you a five percent interest rate, and then I could lend that money to somebody else at eight percent while I keep the difference as profit.

Stable coins pay significantly more than the rest. There’s universal demand for a stable coin that’s pegged one to one to the us dollar. They’re a lot less volatile and in a way they could be riskier.

For example, most exchanges pay a little bit more if you stake tether. That’s likely because it’s not audited and guaranteed to actually be backed by real currency, and there’s a chance it’s all just funny money being printed out of thin air.

There’s also the risk that with stable coins, they’re not as strictly regulated or backed by fdic insurance. And there’s very little transparency about the inner workings of each token.

So in the event something happens, there’s a chance your money could all be gone. There’s also a chance that the entire cryptocurrency market could collapse, or you become too reliant on an exchange that could halt transactions and withdrawals with no advanced notice whatsoever.

And then your money is stuck until you reach customer service at which point, uh good luck for me. This is a risk that I’ve accepted with less than eight percent of my entire net worth.

But with risk comes rewards and when you see these places offering you two to fourteen percent interest annually just for moving your money on the platform, and then doing absolutely nothing, it’s going to work quite well as long as nothing goes wrong.

Personally, I think most platforms are relatively safe but nothing is risk-free. And that’s a factor you have to remember even though it could be a great way to earn passive income through cryptocurrency that you were planning to hold anyway.

The second option for earning passive income with cryptocurrency is what’s known as staking. Now it’s important to mention that with cryptocurrencies, since there’s no central authority overseeing all the activity, these transactions are processed in two ways.

One is proof of work and the second is proof of stake. Proof of work relies on computing power to solve complex algorithmic problems that reward users with cryptocurrency.

These are typically the intensive mining rigs you see set up in large warehouses, people’s basements, or even in a Tesla. And yes, people could make a lot of money doing this depending on the price increases, the cost of energy, and whether or not they live in Puerto rico.

Although, the problem with proof-of-work is that it’s energy-intensive and it could take a lot of money to start up. And as algorithms get more and more difficult to solve, it could take longer and longer to get paid.

So that is what takes us to the second passive income solution and that would be proof of stake. Like I mentioned, since there’s no central authority overseeing every transaction, there needs to be checks and balances put in place to make sure everything is working as it should.

And as a way for no one person to have central authority over the entire system, users could stake their cryptocurrency to receive rewards without having to do the computing power to mine the cryptocurrency itself by doing this.

Transactions are validated by users who deposit their cryptocurrency on the network and in a way, the amount you stake translates into the amount of vote you have on the blockchain.

When the majority of those votes all move in the same direction, the transaction is confirmed and those who stake their coins get the reward. In this case, the more money you stake, the higher the chances of validating the next transaction, and the higher the chances you’ll get paid.

You could also join what’s called the staking pool which combines forces, and then shares the collective reward of placing more money within the network. In the most simple form, just imagine staking as though you’re putting money in a CD for 1 to 24 months, and in return for that, you get a slightly higher yield.

The easiest way for most beginners to get started is by simply signing up for a reputable exchange like FTX, Coinbase, Binance, or variety of other options, compare the differences between the interest rates, up period, and the amount you want to invest, and then just follow their instructions.

If you want to take this a step further, you could also become what’s called a validator which is where you stake your coins directly on the blockchain.

However, doing this usually requires much more money to be invested and you have to run your internet 24/7. So for beginners, it’s usually a little bit more advanced but the payouts are much higher.

Now the downside though is that there are risks. Namely, that you’ll hold your money in the blockchain for sometimes an indefinite period of time, during which the market could fall and you’ll be unable to sell.

Overall, though it could be a great way to earn passive income with cryptocurrency that you were planning to hold for the long term anyway, as long as you don’t need to sell anytime soon.

The third way of making passive income would be lending under this business model. You would lend your cryptocurrency to someone else who pays you back with interest over a set period of time, but unlike other loans that are unsecured, and the borrower risks nothing in the event they don’t pay it back.

Besides ruining their credit score, cryptocurrency lending is sometimes backed by the borrower’s own cryptocurrency. So in the event they fall behind, you could get some or all of your money back.

It would be no different than me wanting to borrow ten thousand dollars from you but as a cause in the agreement in order to do that, I need to lock away ten thousand dollars of my own bitcoin just in case something goes wrong, and you need to get your money.

Because these loans are built around smart contracts, the blockchain takes care of all the terms for you. So the process is entirely automated and you never have to worry about trying to track somebody down for payment.

You know, even though this is a website that I’ve not personally used, Aave seems to be one of the more popular platforms which matches borrowers and lenders together in one place, and then pays users back in interest with the Aave cryptocurrency.

As a borrower, you’ll be able to take out a loan an equivalent to the amount of money that you hold on the platform. For example, if you have a hundred dollars worth of Ethereum, you would be able to borrow a maximum of $82.50.

Now if your hundred dollars worth of Ethereum drops below a value of $85, that position will automatically be sold off to pay back the lender and reduce the risk of a default.

But as an investor, you’ll be able to issue a collateralized loan paying an interest rate that constantly fluctuates by supply and demand. In this case, the more supply there is, the more people want to lend out their cryptocurrency, the lower the interest rate you’ll get paid.

The less supply there is and the more people want to borrow cryptocurrency, the higher the interest rate you’ll get paid. The risk, however, is that borrowing and leverage only works so well until it doesn’t.

And in the event of a market crash, things could go south pretty quickly. Also as far as I’m aware, there’s nothing stopping anybody from doing what’s called an infinite leveraged loop.

This is where they deposit a thousand dollars in Ethereum, borrow $800 worth of tether, convert that into Ethereum put that back on the platform, then borrow another $640 of tether and then repeat this process a dozen times, until eventually they have five thousand dollars worth of purchasing power with a deposit of only a thousand dollars.

I personally think that cryptocurrency leverage is going to be an issue at some point, especially if the market sees a large sell-off that sparks all these leveraged positions to be sold off. And that causes the price to drop even further.

The fourth way of earning passive income with crypto is if lending isn’t quite your thing, you can take a different approach and offer liquidity. Now even though it sounds kind of complicated, the premise is rather simple.

At any given point, there’s an unequal amount of buyers and sellers out there who are willing to exchange or trade their cryptocurrency for another cryptocurrency, or sometimes just selling it for cash.

But the issue is that there’s not always a ready and willing buyer at the precise time that you want or even worse, this gets significantly more difficult if you want to exchange one coin for another like Ethereum for gangsta bet.

So as a solution, a liquidity pool is born. This allows investors to buy sell or exchange different pairings of cryptocurrencies at any day or anytime on a moment’s notice no matter what the price is without having to wait for a buyer or seller to appear.

In this example, you could provide liquidity by depositing $500 worth of Ethereum and $500 worth of Shiba inu into one platform allowing other investors to easily exchange their cryptocurrency between pairings and paying a small fee.

In order to do so, where does the fee go? you might ask. Well, since you were the one who provided liquidity between the pairings, that fee goes to you over and over and over again depending on how many people use it.

With Uniswap for example, they’ll charge a 0.3% fee on each trade which is proportionally distributed amongst liquidity holders and could add up to a significantly ridiculous return.

However, the downside is that by becoming a liquidity provider, there’s the risk of what’s called an impermanent loss which is where you would have made less money by investing in a liquidity pool than you would have made by just holding on to the cryptocurrency to begin with.

For example, imagine if you invested $500 worth of Ethereum and $500 of gangsta bet into a liquidity pool but during that same time, the price of Ethereum tripled and your $500 would have been worth $1500 had you just held onto it. Normally, the same could also be said if the value of either currency falls in relation to the other, thereby costing you more money.

So as usual, there’s not a risk-free way of making passive income but through websites like Uniswap and Quickswap, you can earn liquidity fees passively. But the more people that do this, the less money you will end up making, and there’s a chance you could lose money. But the reward might be worth it.

Fifth way to earn passive income with cryptocurrency is even though I’ve yet to participate in this, there are people making passive income through Nfts. And for the record, I’m not associated with any of these websites.

But Renft offers a protocol where Nft owners could lend their Nfts to someone else for a set period of time and price, with the assurance that after that time frame is up, the person gets their asset back.

Why would anyone do this? you might ask. Well, just like people rent the
Lamborghini for a day to show off to their friends or even rent a Rolex for an entire month, people could rent nfts to display.

There’s also the possibility of renting out gaming nfts to different players as a way to level up their character. There’s also the chance to earn nft royalties anytime it changes hands in the secondary market.

For example, if you make some digital artwork, the original creator might receive five percent of the sale price every single time their artwork is resolved. The process is entirely automated and if you’re in the business of minting nfts, it could be quite profitable.

However, just like with anything, the bigger the reward the bigger the risk. And arguably, nfts are that much more difficult to liquidate in the event you need the money quickly, or in the event the market drops.

So overall in terms of my own thoughts, personally I think these strategies are worth exploring. But for most people, simply staking or holding your coins in an interest-bearing account would be the easiest approach while maximizing the amount of work and minimizing the risk involved.

Of course nothing is risk-free and there’s always a chance you could lose money. Although, to lessen those odds it’s always a good idea to use multiple exchanges, spread your money throughout as many different places as possible, and insulate yourself in the chance that something happens to one of them.

But as a way to earn a little bit more money without being actively involved in all of these, I think the methods are at least worth looking into. And this is how I’ve been able to make an extra buck a day every single day 24/7 just for holding on to my cryptocurrency and staying invested.

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How To Make Passive Income Daily With Cryptocurrency

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Written by Bernard Okoth