A great way to make your money work for you is to earn interest on your idle crypto investments. The following are six of the best ways to earn passive income from cryptocurrencies in 2022.
Most times, all you have to do is invest your money or digital investment in a crypto investment strategy or platform and watch the profits roll in. Most times, all you have to do is invest your money or digital investment in a crypto investment strategy or platform and watch the profits roll in. However, there are multiple factors out of your control.
Ways to earn passive crypto income
Proof-of-stake (PoS) staking
Proof of stake is a consensus tool used by distributed networks for allowing members to agree on joining new data to the blockchain. Blockchains allow for open, decentralized networks where participants participate in the governance and processes of validating transactions. This is crucial since this approach eliminates the need for central authorities such as banks.
Interest-bearing digital assets accounts
Cryptocurrency holders can earn fixed interest on idle assets using interest-bearing crypto accounts. Think of it as putting money into a bank account that earns interest. The only difference is that this benefit only supports cryptocurrency deposits. If you deposit digital assets into these accounts, instead of keeping them in your wallet, you will receive daily, weekly, monthly, or yearly income based on predefined interest rates.
Crypto lending has become one of the most popular crypto services across centralized and decentralized segments of the industry. You can lend your digital assets to borrowers and earn interest if you are an investor. There are four techniques you can use:
Peer-to-peer lending: The platforms that offer such services enable methods that allow users to set their periods and determine the amount they want to lend and the interest they want to earn on the loans. The platform combines lenders with borrowers, much like P2P (peer-to-peer) trading platforms that tie in buyers and sellers.
Centralized lending: In this process, you rely only on the lending infrastructure of third parties. Here, you have a fixed rate of interest, as well as a fixed locking period. P2P lending is similar in that you must transfer your cryptocurrency to the lending platform to earn interest.
Margin lending: Finally, you could lend your crypto assets to traders interested in using the borrowed funds to trade. Traders build positions with borrowed funds and repay the loans with interest.
While proof-of-stake mechanisms are currently widely used for Blockchains, including Bitcoin(BTC), some Blockchains offer a more computationally intensive method, in which users have to prove their legitimacy to become validators (more commonly called miners) by solving highly complex mathematical problems. This method is called crypto mining.
The token will automatically enable you to receive a certain amount of the company’s earnings if you hold it. The number of tokens you own decides the share of the earnings you would receive.
Yield farming is another method of generating passive cryptocurrency income that is decentralized or defi. Decentralized exchanges, which are basically trading platforms where users rely on a mixture of smart contracts (self-executing, programmable computer contracts) and investors to provide liquidity for users to execute trades, make this possible. Instead, they trade against funds deposited by investors known as liquidity providers in unique smart contracts called liquidity pools. The liquidity providers, in turn, receive a prorated amount of trading fees from the pool.