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The primary objective while investing your money in the market would be to see a growth in your net worth. Investing in numerous investment niches and types is one approach to diversify your portfolio. Ideally, you’ll be able to sleep soundly at night, knowing that your investment decisions are generating additional capital for you. Design your portfolio in a way that creates passive income (if you want to do so) and let your money work for you.
However, in an uncertain economy, establishing a passive income source might be challenging. Due to the wide swings that can develop in any form of investment, you must establish a reliable source of income. To build a successful passive income strategy, you must first define what it means to be passively wealthy.
Passive income is money earned by your investments without your intervention. This might include revenue from a rental property, evergreen automated sales for a business, dividends from stock investments, or any other kind of income.
Another form of passive income is the interest you get on your bank deposits and, more lately, your cryptocurrency assets. Essentially, any investment that earns money on its own is considered passive.
Historically, the only way to profit from digital assets was to buy low and sell high, but that is no longer the case. Several platforms now even pay interest on your cryptocurrency holdings, and that is only the tip of the iceberg. The best part is that you don’t have to sell anything to grow your assets. All of this is made possible by the constantly innovating crypto sector.
How to generate Passive Income with your Crypto holdings?
I like to call the cryptocurrency industry a land of opportunities for the millennials. Our generation might have missed the opportunity to invest in previous generation innovations like Google and Facebook – Now, we have an even bigger opportunity ahead of us. The blockchain realm has made investing a lot more easy and inclusive. Here are some of the most popular services that the crypto industry has to offer to generate substantial passive income.
Blockchains are essentially transaction databases that are maintained by no single authority. Proof of work (PoW) blockchains, such as Bitcoin rely on mining to address the challenge of securely verifying transactions. Mining involves powerful computers competing to solve cryptographic problems. However, because mining involves expensive hardware and significant power consumption, it is out of reach for the majority of the population.
Proof of stake networks like Polkadot, Cardano, and Ethereum 2.0 replace all of it with a staking mechanism. This is perhaps the easiest and the safest that is profitable for both new and experienced traders alike.
Like miners earn crypto for their labour (all that gas-guzzling computation), validators get crypto when they stake crypto. Every staker that delegated crypto to the validator obtains a share of the payouts (less the validator’s cut).
As a result, staking may be a financially appealing alternative for crypto investors who want to hold assets rather than day trade them, no matter how tiny they may be. While staking is based on sophisticated mathematics, it needs relatively minimal technical understanding.
According to the July 2021 study “The State of Staking” by the US firm Staked, there is about $171 billion in assets locked in staking across PoS cryptocurrencies as of Q2 2021.
Yield rates differ between platforms and might alter based on the amount of validators in the network. In general, there are two methods of staking.
The first option is to act as a validator, operating your own node. This approach needs some bootstrapping. To host your own validator node, you must have a safe and dependable technological infrastructure as well as the necessary knowledge. The minimum quantity of coins required to bet is sometimes rather high as well. You must have a minimum of 32 ETH to become an Ethereum 2.0 validator!
But, more typically, staking is accomplished by delegation—you delegate your coins to a validator with the necessary setup. Validators will undertake the grunt work of running a node for you in return for a cut of your staking earnings. Simple as that!
There is now an entire business called staking-as-a-service that has evolved (SaaS). Some of the biggest SaaS providers are:
- Figment Network
- Stake Capital
You usually don’t have to do anything with your incentives because they are automatically reinvested. If you don’t like the concept of your rewards compounding, certain staking systems enable you to opt-out of that.
The second option is staking via cryptocurrency exchanges like WazirX. Most cryptocurrency exchanges run validators, which enable clients to stake with them via the exchange’s user interface.
Staking on exchanges is frequently comparable. However, the staking options of different exchanges vary in terms of which cryptocurrencies are accessible for staking, their fees, and the locking time (if any).
Some exchanges have staking on their main menu, making it easier to locate. Others, such as Binance, will feature it under “Generate,” which also includes other methods to earn passive income from cryptocurrency, such as lending.
Lending allows you to earn interest on your cryptocurrency assets. Many peer-to-peer (P2P) lending services allow you to lock up your funds for a certain period in exchange for interest payments later on. The interest rate might be fixed (set by the platform) or variable (determined by you depending on current market rates).
This option is natively accessible on the platforms of numerous exchanges that allow margin trading. This strategy is appropriate for long-term investors who want to build their portfolios with minimum effort. It is important to note that safeguarding money in a smart contract is inherently risky.
Mining is the use of computer resources to secure a network in exchange for a reward. Despite the fact that it does not need cryptocurrency holdings, it is the oldest way of generating passive income in the cryptocurrency industry.
In the early days of Bitcoin, mining with a normal Central Processing Unit (CPU) was a viable alternative. As the system hash rate increased, most miners upgraded to more powerful Graphics Processing Units. As the competition intensified, it became almost completely a game of Application-Specific Integrated Circuits devices that use mining chips explicitly built for this purpose.
Running a Lightning Node
The lightning network is a second layer protocol that is constructed on top of a network, such as the blockchain of Bitcoin. It is an off-chain payment system network, which means it may be used for fast transactions that do not require immediate transmission to the underlying blockchain.
Most transactions on the Bitcoin network are one-way, which means that if Alice sends a bitcoin to Bob, Bob will not be able to send the same coin back to Alice via the same payment channel. On the other hand, the Lightning Network uses bidirectional channels that need prior agreement between the two parties on the terms of the transaction.
People that operate Lightning Network nodes can charge fees for processing transactions over their Lightning channels, earning tiny sums of BTC in the process. For example, depending on network activity, a single Lightning node might route $10,000 in transactions per month and earn a 0.25 percent fee, making $25 per month.
The variety of possibilities to generate passive income in the blockchain industry is growing. Some of these techniques have been implemented by blockchain companies that provide generic mining services. As cryptocurrencies become more dependable and secure, they may eventually represent a viable option for a steady source of revenue.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.