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The fast growing crypto ecosystem enables people around the world to earn passive income in digital currencies and tokens. Read on to discover six ways to earn passive crypto income.
Cryptocurrency deposit on the CeFi loan platform
Arguably the easiest way to earn passive income in bitcoin (BTC) and other digital assets is to deposit them on a centralized lending platform.
While more experienced cryptocurrency users recommend avoiding depositing cryptocurrencies with third-party providers, the ease-of-use of the CeFi (centralized finance) lending platform has generated billions of dollars in transmission of cryptocurrencies to CeFi loans. Once funds are deposited, users earn interest (usually paid on deposited assets).
Popular CeFi lenders include BlockFi and Nexo.
Cryptocurrency Deposit in a DeFi Lending Protocol
The more decentralized alternatives to those of BlockFi and Nexo are autonomous lending protocols, such as Compound (COMP) and Aave (AAVE). DeFi loan apps allow crypto holders to fund pools of contract-based smart loans to earn interest.
The main difference between CeFi and DeFi loans is that the latter gives users full control over their funds and does not require any KYC (know your customer) documentation or onboarding processes.
Returns are dependent on supply and demand and vary from platform to platform. Also, some DeFi loan applications are riskier than others. The high returns found in DeFi also carry a higher level of risk.
Provide liquidity in groups of liquidity and yield production
In addition to loans, DeFi markets also allow people to earn passive income by depositing cryptocurrencies in decentralized trading pools, called liquidity pools.
As a reward for providing liquidity to an autonomous trading pool, depositors are rewarded with trading fees and Liquidity Provider (LP) tokens. For additional return on deposited digital assets, users can stake LP tokens on so-called “yield farms”.
Yield farming has become a popular way to earn passive crypto income, but like DeFi loans, it is one of the riskiest ventures in the crypto markets.
Popular liquidity pools include Uniswap (UNI), SushiSwap (SUSHI) and PancakeSwap (CAKE).
Staking of crypto assets based on PoS
Alternatively, you can hold and stake Proof-of-Stake (PoS) coins for passive income in the form of wagering rewards.
PoS-based crypto networks require validators to “lock” a share in the network’s native asset to secure the blockchain. The incentive to contribute to a crypto network in this way is to earn a portion of the block reward in the form of freshly minted coins.
The participation process differs from network to network, with some requiring advanced software configurations and a continuously running validation node, while others simply require you to keep assets in the official wallet.
Running a masternode
If you want to step up your gambling game for more crypto passive income, you can run a masternode.
Masternodes, also known as linked validation systems, are a special type of nodes that perform specific functions within a cryptographic network.
On the Dash (DASH) network, for example, masternodes power the PrivateSend and InstantSend functions of the network and provide government voting rights to operators. However, to run a Dash masternode, traders must stake DASH 10,000 ($ 1.6 million), so receiving returns (in the form of freshly minted tokens) on their holdings is a capital intensive affair.
Fortunately, there are masternodes that require a much lower capital investment while offering double-digit returns, paid in the network’s native token.
Running a Lightning node
If you are a bitcoiner and prefer to keep Bitcoin for passive income, you can set up and run a Lightning Network (LN) node.
By supporting the fast-growing Lightning network through operational payment channels, you can earn a few sats every time someone makes a transaction using your channel. While earnings may not be something to brag about on #BitcoinTwitter, running an LN node means you are contributing to the world’s most powerful open currency network that will potentially end up banking the unbanked. And on top of that, you can accumulate sats by contributing.
Before you rush out and explore each of the methods on this list, remember that each carries varying degrees of risk. Do your own research and never invest more than you can afford to lose.
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