To generate a steady stream of money with little effort, passive income (money not derived from active involvement such as a salary) can be the way to go. While popular approaches to this involve real estate or renting anything from a room to your car, lesser-known methods can also be fruitful.
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For instance, creating a passive income stream from crypto can end up being very beneficial.
“There are many ways to increase your holdings in crypto but each one has its pros and cons as well as always carrying some risk, so it needs to be thought of and calculated well,” said Kerel Verwaerde, Chief Marketing Officer of Cryptology.com.
Mining
According to Ashley Tison, Esq., founder of OZPros, crypto mining (the process by which blockchain networks finalize transactions) is “the ultimate passive investment.”
While it does require a significant amount of capital and resources upfront, the crypto mining machines generate crypto assets every minute of every hour of every day — becoming the definition of truly passive income, he said.
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Staking
One of the easiest and most common ways to earn passive income with crypto is by staking, said David Kemmerer, CEO of CoinLedger.
“Staking is something that essentially helps to support the blockchain’s operations by confirming transactions. Those who help with this can then earn rewards, which is where that passive income comes from. It takes very little effort on your end,” said Kemmerer. “All you really have to do is own cryptocurrency that specifically uses a proof-of-stake model, and then choose how much of that you want to stake.”
In other words, individuals can lock up their crypto on a blockchain and earn rewards for doing this in the form of regular payments of a certain token that can be accumulated or sold on exchanges.
HODLing
As Verwaerde explained, buying and keeping your coins until they increase in value (known as “HODLing”) is one of the most tried and true methods.
“With many markets being cyclical, buying the main coins — BTC, ETH, etc. — is one of the safest ways but it requires patience,” added Verwaerde.
There are many pros to this method, including the potential for high returns and its simplicity. In addition, it enables investors to avoid short-term volatility and in turn, can help you avoid the stress and decision making associated with short-term price fluctuations, said Verwaerde.
There are also some cons. For instance, while avoiding short-term volatility, HODLers are exposed to long-term market fluctuations.
“Cryptocurrency prices can be highly unpredictable, and the value of your holdings may decrease significantly,” Verwaerde said. In addition, there is also a lack of diversification and if your assets underperform, you might miss out on opportunities to diversify your portfolio and reduce risk.
Yield Farming
Yield farming is the practice of earning crypto by depositing assets into liquidity pools on DeFi (decentralized finance) platforms and decentralized exchanges (DEXs), such as Uniswap, said Jeff Owens, co-founder of Haven1 — and it is another way to derive passive income from crypto.
He explained that it usually requires two different assets to be deposited in a liquidity pool.
“The returns can be high — sometimes hundreds of percent — but the risks are also higher due to liquidations as a result of underlying asset volatility,” he said. “Yield farming was extremely popular during the DeFi boom of 2021, but the significant risks deter many crypto users from this practice.”
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This article originally appeared on GOBankingRates.com: How To Create a Passive Income Stream With Crypto
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