The primary purpose of getting into the crypto market is to secure a return on investment or attain financial freedom, but not everyone succeeds. Some people lose money mainly due to a lack of patience, self-discipline, and knowledge in the crypto industry. Yet others make millions by identifying potentially a solid crypto project, investing, and holding for the long term. While trading or investing cryptocurrencies by buying at low prices and selling high over a short or long period is the most obvious strategy to make money in the crypto market, many other ways exist with varying risks and returns that provide a stream of passive income. They include staking, lending, mining, and participating in airdrops.
Investing in cryptocurrencies is usually a long-term strategy. Investors buy and hold crypto assets typically for over a year in the hope that the value of their digital currencies will increase in the future. Investors believe in the long-term potential of their coins and never sell, no matter what the market conditions are. A typical investor buys a cryptocurrency asset based on its deep-rooted potential, hoping to sell it for a decent profit after perhaps a few years. Recommended reading: how to buy cryptocurrencies.
Trading is similar to investing but involves buying and selling over a short period. It can be as short as minutes and as long as a few days and sometimes a few weeks and months. Trading leverages the short-term volatility of crypto assets price changes to make a quick profit off the difference between the buy and sell prices. Although rewards are faster, trading crypto requires a lot of effort and constant monitoring. Cryptocurrency daily trading can be profitable for those who have the time and skills. To be a successful trader, you should have analytical and technical skills.
Lending offers to earn passive income opportunities in the form of interest in the crypto markets. Several crypto decentralized finance (DeFi) applications lend your crypto deposit to others who want to borrow it. These applications create lending pools where you can deposit your crypto to earn interest without a locked period. The lending pools determine the then set an interest rate, which varies depending on the cryptocurrency you loan. Some of the most popular DeFi lending and borrowing applications include Aave, Compound, and makerDAO. You can also lend your crypto to borrowers through centralized applications such as BlockFi.
Previously we discussed centralized and decentralized finance applications that match lenders with borrowers. In liquidity mining, users deposit their crypto in a liquidity pool to support and facilitate the operations of decentralized crypto exchanges such as Uniswap and Pancake. For example, for Uniswap to perform its role as an exchange automatically without a third party through deploying smart contacts, it has to have liquidity reserves for the trading pairs. As a result, Uniswap and other decentralized exchanges create liquidity pools where crypto holders can deposit their crypto to provide liquidity for specific trading pairs. In return, the liquidity provider earns a trading fee on every transaction that involves the trading pair.
Staking is depositing or locking up a specific token or a coin to earn its stake reward. You can only stake coins or tokens that operate on their own blockchain and use the proof of stake consensus mechanism, such as Etheruem and Cardano. Proof of stake is the mechanism by which nodes or devices validate transactions on their respective networks. For example, validators on the Ethereum network must stake (lockup or deposit) 32 ETH before they can participate in the transaction’s verification process.
The problem is that not everyone has both the technical and financial means to run a node. However, interested crypto holders can join a staking pool to earn a staking reward according to the size of their share in the pool. For beginners, the easiest way is to stake through a centralized exchange like Binance or Coinbase, where participants earn rewards based on the number of coins or tokens they stake.
Such exchanges use your crypto to run their nodes so you can get a portion of the staking reward. This way, you get your coins or token, which you plan to hold for the long term, to work for you by earning rewards in the crypto you stake.
If you stake on the Ethuerem blockchain, you earn a reward in ETH, and if you stake on the Cardona blockchain, you earn ADA. Rewards and locked-up periods vary from one token or coin to another. You should be aware of the terms and conditions of each stake.
Earning income in coins or tokens through mining is similar to staking. Just like staking, mining is a consensus mechanism for validating transactions but based on proof of work. Mining occurs only on blockchains that use the proof of work consensus mechanism, such as bitcoin, dogecoin, and Litecoin.
In mining, validators are called miners. Miners earn transaction fees and newly minted coins for every block of transactions they successfully validate and add to the next block in the chain.
Mining also requires technical expertise and upfront investment in sophisticated hardware. However, as a beginner, you can participate in reputable mining pools where you get a portion of the reward according to your percentage allocation to the pool.
To learn more, read: miners of bitcoin.
It is possible to make money in the crypto market without an initial capital or investment through AirDrops. AirDops are free coins or tokens given to the community by new crypto projects as a marketing tactic to raise awareness about the project.
If you are interested in earning passive income through upcoming airdrops, you can check out airdrop aggregators such as coinmarektcal.com. Also, price-tracking websites for crypto-assets, such as, coinmarketcap.com, have a section for upcoming and ongoing free airdrops in which interested users can participate by following simple instructions. To learn more read: what is an AirDrop?