The modern world is moving rapidly, and more and more people fancy the idea of earning more while working less. The key is to set up a source of passive income. It can come from a business that can run itself. But to get to that point can take years. Much easier is to have money working for you.
Are you ready to start making money while you sleep with crypto?
Check out these fifteen ways to generate passive income that allows you to live the life of your dreams.
1. Crypto Staking
Staking is a way of earning periodic rewards while holding certain cryptocurrencies.
Cryptocurrencies that allow staking uses a consensus mechanism called Proof of Stake. These networks use the staked crypto to validate transactions and maintain the blockchain.
If you decide to become part of the process, you will receive staking rewards, which are additional coins.
This type of passive income is great because it offers a great balance between risks and rewards. It is also very beginner-friendly; thanks to staking options offered by many centralized exchanges, you can stake with just one click directly from your dashboard.
| Expected Earnings | Avg. across all assets: 5.5% APY (ranging from ~2-140%) |
| Risks | Low if you stick to known platforms |
| Expenses | No additional expenses other than buying coins |
| Scalability | Infinite |
| Misc | A lock-in period is often present. This could be viewed as a downside, but it’s there to ensure the security of the network. |
If this interests you check out our guide on Staking XRP here.
2. Running Masternodes
Blockchain is a network of computers, also known as nodes. Nodes are responsible for running software for the blockchain and implementing all the functionalities of the network.
However, not all nodes are equal. When you decide to become a part of the network, and your computer becomes a node, you won’t receive any monetary reward.
But a masternode is a node that serves specific, important functions that support a network and allow it to run smoothly. And for that, you are rewarded with coins or tokens.
The rewards are distributed in a similar way as with staking, but the masternode model can be used on both proof-of-stake (PoS) and proof-of-work (PoW) blockchains.
This can be a great passive income method if you really like a certain network, especially because you are often required to have a significant stake. Not to mention that your computer needs to have enough power to run the node.
| Expected Earnings | ~ 7% annual block rewards |
| Risks | You can lose your tokens for acting maliciously. This can be risky if you are not technically skilled. |
| Expenses | Substantial stake in the blockchain, computer, and network that will be able to run the masternode |
| Scalability | Low. Only a very limited number of networks use masternodes |
3. Liquidity Provision
Providing liquidity to decentralized exchanges (DEX) like UniSwap or PancakeSwap allows you to earn a share of the trading fees.
Liquidity pools are a critical part of every Automated Market Maker exchange. Decentralized exchanges make the price and trading happen not based on matching sellers with buyers but based on the ratio of tokens in the liquidity pools.
The motivation for users to lock their tokens in the pool is the passive income it offers.
| Expected Earnings | Often well over 100% APY |
| Risks | You can’t use your tokens while in the pool. A wrong pool can lose you all your assets. |
| Expenses | No additional expenses other than buying coins |
| Scalability | Infinite |
| Misc | You have to lock in your tokens for a predetermined time. |
These few guides will get you started - How to Check if a Token’s Liquidity is Truly Locked - How to Provide Liquidity on SundaeSwap - How to join Liquidity Pools on PancakeSwap
4. Yield Farming
Yield farming is in many ways similar to liquidity mining but offers higher APYs.
To make it simple, you also provide liquidity to a pool, but the pool yields extra rewards from the rewards. As you provide liquidity, you receive an LP token representing your stake, and the LP token itself gives additional passive income.
The biggest downside is that yield farms are usually activated only for a limited time to attract investors to something new. Once the period of yield farming on a liquidity pool concludes, the pool continues to exist as a liquidity pool without the additional yield farming incentives.
| Expected Earnings | Providing liquidity with additional bonus |
| Risks | You can’t use your tokens while in the pool. A wrong pool can lose you all your assets. |
| Expenses | No additional expenses other than buying coins |
| Scalability | Finite, yield farms are usually time-limited |
5. Automated Trading Bots
The time when trading is a job for highly skilled professionals is long over. Nowadays, anyone can learn and trade completely online. But if that’s not for you and want to turn your capital into passive income, you can opt for a trading bot.
Trading bots are software programs that execute trades on your behalf based on predefined strategies. By using automated trading bots, you can trade cryptocurrencies 24/7 and potentially earn profits while you sleep.
| Expected Earnings | Depending on trading strategy |
| Risks | Low, you can set your risk/reward ratio |
| Expenses | Capital to trade with + bot fee between 0 and 0.04% |
| Scalability | It is not the best idea to put your whole capital into trading |
6. Crypto Savings Accounts
Several platforms offer crypto savings accounts where you can deposit your cryptocurrencies and earn interest over time. These accounts work similarly to traditional savings accounts but offer higher interest rates.
These accounts also often offer high yields on stablecoins, pegged to the US dollar. By holding USD stablecoins, you mitigate risks while earning considerably higher yields compared to those from banks.
| Expected Earnings | Up to 20% on stablecoins, other cryptos can yield more |
| Risks | Depending on the platform |
| Expenses | No additional expenses other than buying coins |
| Scalability | High, dozens of platforms you can sign up for |
7. Aidrops
For those who like to stay on top of things and participate in the freshest projects, airdrops could be a great fit.
There are many different airdrops for all sorts of crypto projects happening at all times. Some projects will give you crypto tokens immediately, and others may ask you to invite a few people first. Some airdrops are also distributed automatically for all wallets holding a certain coin.
| Expected Earnings | Low compared to other mentioned methods |
| Risks | None |
| Expenses | None |
| Scalability | Chances for multiple genuine airdrops often are low |
Here is our complete guide on collecting airdrops on MetaMask wallet.
8. Crypto Mining
Verifying transactions on proof-of-work (PoW) networks involves solving complex mathematical problems. This process is called mining, and miners are rewarded with new coins for their efforts.
It can turn into an awesome passive income stream. Nowadays, you don’t even have to own an expensive piece of hardware and the latest graphic card to be able to participate. There are companies that offer cloud mining, lending out their hardware to the public—all managed from your home.
| Expected Earnings | Highly dependent on your mining hardware |
| Risks | High competition means lower earnings |
| Expenses | Very high; mining hardware, repairs, electricity costs or costs of lending cloud miners |
| Scalability | Low; scaling means buying a piece of expensive equipment with a long ROI |
9. Crypto Lending
A lot of companies offering crypto savings accounts will also allow you to lend your cryptocurrencies to borrowers and earn interest on your holdings. The interest rates vary based on the lending platform and the chosen cryptocurrency.
All deposits are usually insured, so the risk of the debtor not paying lies on the company—just collect passive income.
| Expected Earnings | Depending on the lending platform and coin |
| Risks | Depending on the platform; risks are mitigated with a trusted platform |
| Expenses | No additional expenses other than buying coins |
| Scalability | High, dozens of platforms you can sign up for |
10. Investing in Crypto Stocks
Another great way to earn passive income with crypto is by investing in companies involved in Bitcoin and other cryptocurrencies.
Companies like Coinbase ($COIN), Marathon ($MARA), Block ($SQ), and others build their business model on mining, exchanging, or in any other way manipulating crypto. Their financial results are, to a certain degree, linked to movements in the crypto market, making them a great way to earn passive income while diversifying the risks.
| Expected Earnings | Depending on the market and your capital |
| Risks | Volatility |
| Expenses | No additional expenses other than buying shares |
| Scalability | High |
11. Crypto Cashback Rewards
Cashback rewards are not always about credit cards.
Certain platforms offer crypto cashback rewards for using their services or making purchases with specific cryptocurrencies. These rewards nicely accumulate over time from your day-to-day transactions, creating a nice income stream.
12. NFT Royalties
If you create and sell NFTs (non-fungible tokens), you can earn passive income through royalties.
Royalties, often called creator earnings, are paid to you forever whenever your original artwork is sold. When a holder decides to sell something you created, you receive a percentage of the sale price, providing a continuous income stream.
NFT royalties are manually set, and you can decide whether to collect 0 or 50 percent from every sale. The sweet spot for most collections is around 5%.
| Expected Earnings | Depends on the popularity of your collection |
| Risks | You have to actively engage in marketing your collection to sell something |
| Expenses | None |
| Scalability | High |
Learn how royalties work and how to set them on OpenSea, the biggest NFT marketplace.
Final Thoughts: Best Options for Passive Income on Crypto
Whether you want to simply collect interest on your investments or awaken the creative spirit in you and create NFTs, there are plenty of options to create a passive income stream leveraging cryptocurrencies.
There are a few initial investments you might have to make. But once it’s all set, you can enjoy a steady income day after day, even while you sleep.