Passive income is earning without doing anything. However, this type of income generation is not automatic and requires a number of initial actions. For example, if you buy a property, you can earn passive income by renting it out. In addition, the book you write will sell and provide you with income for years to come. Since digital currencies have gained popularity in recent years, in this article on the Inox digital currency exchange, we will look at passive income from digital currencies and see how you can earn such income with cryptocurrencies.
Is it possible to earn passive income with digital currencies?
Digital currencies are a new asset class that often provides users with traditional financial services in a modern and decentralized way. Just as it was possible to earn passive income in traditional markets, it is also possible to earn passive income with digital currencies. Therefore, not only is it much easier to make such profits in the cryptocurrency market, but the market also offers you more opportunities to generate passive income.
Methods to generate passive income from digital currencies
Although it is possible to earn passive income from cryptocurrencies, the cryptocurrency space is more complex than traditional markets and users need to be well informed. Therefore, in this section, we will explain to you different methods of passive income from digital currencies.
Mining
The oldest method to generate passive income from digital currencies is mining. Cryptocurrencies are created based on blockchain technology. Each blockchain consists of several blocks that store information about cryptocurrency transactions. Since there is no central authority to verify these blocks and their information, thousands of computers around the world must verify this information in a decentralized manner. This process is called “consensus”.
The first blockchain consensus mechanism was the Proof of Work (PoW) algorithm. In this algorithm, all computers compete to be the first to solve a specific mathematical function, and the one that solves this function first creates a unique address. This address contains the address and key of the block to be added to the blockchain. Any computer that successfully creates a block will be rewarded for it. Receiving this reward is equivalent to receiving digital currencies used to generate cryptocurrencies such as Bitcoin and Ethereum. If you are interested in Bitcoin mining, the following article may be useful to you.
To mine coins, you need a miner and large amounts of electricity. In addition, you should compare the amount of your reward with your initial investment and electricity costs to ensure that you are earning passive income from cryptocurrencies.
Staking: One of the Ways to Earn Passive Income with Digital Currencies
The Proof-of-Work consensus mechanism consumes a lot of energy and causes serious damage to nature. To solve this problem, new blockchains have introduced another mechanism called Proof of Stake (PoS). In this process, called staking, users share a certain amount of blockchain-specific digital currency with that network. These people, called “nodes,” automatically review transactions and reach a consensus.
Therefore, the staking process is another method of passively earning digital currencies, less complicated than mining, and you can make this investment through many cryptocurrency wallets and exchanges. For example, the TrustVault software wallet allows you to stake ATOM tokens on the Cosmos network and earn passive income on digital currencies. If you are interested in this type of passive income with cryptocurrencies, the following article is for you.
Lending
Lending is another way to earn passive income with digital currency. In recent years, several platforms have emerged to decentralize the bank lending process. These smart contract-based platforms allow users to receive loans in cryptocurrencies. Additionally, through these platforms, investors can offer their cryptocurrencies to borrowers and earn interest.
Lending is very popular among digital currency users. Through platforms such as KuCoin and Crypto.com, you can lend your cryptocurrencies to lending pools and then receive the principal and interest. Additionally, platforms like Compound Finance offer you a double reward with your sovereign tokens in addition to the loan interest.
Yield Farming: Another Way to Earn Passive Income with Cryptocurrencies
Yield farming is one of the newest methods to passively earn digital currencies that aims to maximize your annual returns. Therefore, yield farming involves several complex processes to provide liquidity in the decentralized finance (Defi) space, which gives you more income. In this way, you have to share your tokens with the liquidity pools of DeFi platforms. Sometimes, passive income from yield farming cryptocurrencies includes the same income as that of crypto lending.
Sometimes, you connect your wallet to a decentralized exchange. This way, the tokens are still in your wallet, but you have increased the transaction speed for users by creating liquidity for the pools of the currency pairs in question. As a result, you will be rewarded for your contribution to improving stock market performance. To earn passive income from digital currency with yield farming, you can use the Uniswap, Pancakeswap, and Sushiswap platforms.
Dividend tokens
Some tokens are used to earn passive income from digital currencies. These tokens, called interest, are very similar to company stocks. In this way, by purchasing, you not only benefit from the price increase, but also generate regular returns. To earn passive income from digital currency, all you need to do is buy and hold such tokens. Of course, profitability depends on the token provider's platform.
For example, the AscendEX platform has rolled out the ASD Dividend token, which makes the company's dividends available to its users. In addition, the KuCoin platform offers passive crypto earnings on the KCS token.
Non-fungible tokens (NFTs)
NFTs are a unique type of token and serve as a document of ownership for a digital asset. Although these tokens are mainly used by artists, collectors, and gamers, there are some examples of generating passive income in cryptocurrencies. For example, you can use the reNFT platform to lend your NFTs to other users for a set period of time and thus earn passive crypto income. Typically, gamers rent these NFTs and use them in the blockchain gaming environment. Additionally, you can learn more about the best marketplaces to buy and sell NFTs in the article below.
Crypto Affiliate Programs
There are many software and platforms that allow you to earn money by promoting their products and services. Let’s say you are a blogger and you invite your audience to engage in a conversation in a YouTube video using your referral code. This way, every time these people trade on that exchange, you will also earn passive crypto income. For example, if someone buys a cryptocurrency tax report on the Coin Ledger platform with your invitation, their account will be credited with 25% of the processing fee.
Play to earn money
With the advent of blockchain technology, many games have also emerged in this field that offer players cryptocurrency benefits. In these games, you are rewarded for completing different stages. In this way, these games have managed to combine entertainment and income generation. Of course, some people do not consider gambling as a way to passively earn money with digital currencies; Because to get these rewards, you have to do something anyway. In this context, you can resort to attractive games like “Axie Infinity”.
Choose a platform to earn passive income with digital currency
The choice of a platform to generate passive income with digital currencies must be done with great care. Because some criminals try to steal your assets by promising you big benefits. In addition, each type of platform has its own advantages and disadvantages and must be carefully considered. In this context, be sure to pay attention to the following points:
- Centralized vs. Decentralized: There are many centralized and decentralized platforms to earn passive income from cryptocurrencies. In general, centralized platforms are less vulnerable to hacker attacks; however, if these platforms are taken down for any reason, your assets could also be destroyed. Decentralized platforms, on the other hand, are at a higher risk of being hacked, but since the coins are stored in your wallet, they will not be lost.
- Reputation and Trust: Always consider the reputation of the platform before investing in crypto passive income. A platform’s reputation and a strong community give investors more confidence.
- Gain Knowledge: Yield farming, staking, and lending are great ways to earn passive income with digital currencies; however, many of them are not intended for beginners. Therefore, before diving into any platform or protocol, make sure you learn how to use it and understand the process of generating passive income from cryptocurrencies.
- Protected Investments: Many centralized platforms offer a method called “Protected Capital Investments”. This means that you will continue to receive the specified minimum return regardless of market fluctuations and your investment will not cause any problems if the capital value drops.
Is Passive Income from Cryptocurrencies Taxable?
Passive income from digital currency is taxable in most countries around the world. There are still no clear rules on this; But you should pay attention to this issue and carefully record your income so that you can file an accurate tax return if necessary. In Iran, laws have been passed regarding taxes on mining and foreign exchange trading; So people working in this field should take into account their income tax.
Summary of how to generate passive income from digital currencies with Inox
There are several ways to earn passive income with digital currency, which we describe in this Inox article. Choosing the right method to generate income in this area should be done based on the amount of capital, technical knowledge, risk tolerance, and your mindset. Therefore, before generating passive income with digital currency, you should deepen your knowledge about the different methods of profitability and try to understand the infrastructure and processes of the crypto industry in order to achieve better results when investing. Remember that the promise of big profits also comes with higher risks, and a reputable platform will only offer you reasonable returns.
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