What is passive income?

Trading or investing in projects is one way to make money in the blockchain industry. However, that typically requires detailed research and a substantial investment of time – but it still won’t guarantee a reliable source of income. 

Even the best investors can experience prolonged periods of loss, and one of the ways to survive them is to have alternative sources of income.

There are other methods than trading or investing that can help you increase your cryptocurrency holdings. These can pay ongoing income similar to earning interest, but only require some effort to set up and little or no effort to maintain.

This way, you can have several streams of income that, in combination with each other, can add up to a significant amount.

This article will go through some of the ways that you can earn a passive income with crypto.


What are the ways you can earn passive income with crypto?

Mining

Mining essentially means using computing power to secure a network to receive a reward. Although it does not require you to have cryptocurrency holdings, it is the oldest method of earning passive income in the cryptocurrency space.

In the early days of Bitcoin, mining on an everyday Central Processing Unit (CPU) was a viable solution. As the network hash rate increased, most of the miners shifted to using more powerful Graphics Processing Units (GPUs). As the competition increased even more, it has almost exclusively become the playing field of Application-Specific Integrated Circuits (ASICs) - electronics that use mining chips tailor-made for this specific purpose.

The ASIC industry is very competitive and dominated by corporations with significant resources available to deploy on research and development. By the time these chips arrive on the retail market, they are likely already outdated and would take a considerable amount of mining time to break-even.

As such, Bitcoin mining has mostly become a corporate business rather than a viable source of passive income for an average individual.

On the other hand, mining lower hash rate Proof of Work coins can still be a profitable venture for some. On these networks, using GPUs can still be viable. Mining lesser-known coins carries a higher potential reward, but comes with higher risk. The mined coins might become worthless overnight, carry little liquidity, experience a bug, or see themselves hindered by many other factors.

It is worth noting that setting up and maintaining mining equipment requires an initial investment and some technical expertise. 


Staking

Staking is essentially a less resource-intensive alternative to mining. It usually involves keeping funds in a suitable wallet and performing various network functions (such as validating transactions) to receive staking rewards. The stake (meaning the token holding) incentivizes the maintenance of the network’s security through ownership.

Staking networks use Proof of Stake as their consensus algorithm. Other versions of it exist, such as Delegated Proof of Stake or Leased Proof of Stake.

Typically, staking involves setting up a staking wallet and simply holding the coins. In some cases, the process involves adding or delegating funds to a staking pool. Some exchanges will do this for you. All you have to do is keep your tokens on the exchange and all the technical requirements will be taken care of.

Staking can be an excellent way to increase your cryptocurrency holdings with minimal effort. However, some staking projects employ tactics that artificially inflate the projected staking returns rate. It is essential to investigate token economics models as they can effectively mitigate promising staking reward projections. 

Binance Staking supports a wide variety of coins that will earn you staking rewards. Simply deposit the coins on Binance and follow the guide to get started.


Lending

Lending is a completely passive way to earn interest in your cryptocurrency holdings. There are many peer-to-peer (P2P) lending platforms that allow you to lock up your funds for a period of time to later collect interest payments. The interest rate can either be fixed (set by the platform) or set by you based on the current market rate.

Some exchanges with margin trading have this feature implemented natively on their platform.

This method is ideal for long-term holders who want to increase their holdings with little effort required. It is worth noting that locking funds in a smart contract always carries the risk of bugs.

Binance Earn offers a variety of options that let you earn interest in your holdings.

 

Running a Lightning node

The Lightning Network is a second-layer protocol that runs on top of a blockchain, such as Bitcoin. It is an off-chain micropayment network, which means that it can be used for fast transactions that aren’t immediately transferred to the underlying blockchain.

Typical transactions on the Bitcoin network are one-directional, meaning that if Alice sends a bitcoin to Bob, Bob cannot use the same payment channel to send that coin back to Alice. The Lightning Network, however, uses bidirectional channels that require the two participants to agree on the terms of the transaction beforehand.

Lightning nodes provide liquidity and increase the capacity of the Lightning Network by locking up bitcoin into payment channels. They then collect the fees of the payments running through their channels.

Running a Lightning node can be a challenge for a non-technical bitcoin holder, and the rewards heavily depend on the overall adoption of the Lightning Network.


Affiliate programs

Some crypto businesses will reward you for getting more users onto their platform. These include affiliate links, referrals, or some other discount offered to new users that are introduced to the platform by you.

If you have a larger social media following, affiliate programs can be an excellent way to earn some side income. However, to avoid spreading the word on low-quality projects, it is always worth doing some research on the services beforehand.

If you are interested in earning passive income with Binance, join the Binance Affiliate Program and get rewarded when you introduce the world to Binance!


Masternodes

In simple terms, a masternode is similar to a server but is one that runs in a decentralized network and has functionality that other nodes on the network do not.

Token projects tend to give out special privileges only to actors who have a high incentive in maintaining network stability. Masternodes typically require a sizable upfront investment and a considerable amount of technical expertise to set up.

For some masternodes, however, the requirement of token holding can be so high that it effectively makes the stake illiquid. Projects with masternodes also tend to inflate the projected return rates, so it is always essential to Do Your Own Research (DYOR) before investing in one.


Forks and airdrops

Taking advantage of a hard fork is a relatively straightforward tactic for investors. It merely requires holding the forked coins at the date of the hard fork (usually determined by block height). If there are two or more competing chains after the fork, the holder will have a token balance on each one.

Airdrops are similar to forks, in that they only require ownership of a wallet address at the time of the airdrop. Some exchanges will do airdrops for their users. Note that receiving an airdrop will never require the sharing of private keys - a condition that is a telltale sign of a scam.


Blockchain-based content creation platforms

The advent of distributed ledger technologies has enabled many new types of content platforms. These allow content creators to monetize their content in several unique ways and without the inclusion of intrusive ads.

In such a system, content creators maintain ownership of their creations and usually monetize attention in some way. This can require a lot of work initially but can provide a steady source of income once a more substantial backlog of content is ready. 


What are the risks of earning passive income with crypto?

Buying a low-quality asset: Artificially inflated or misleading return rates can lure investors into purchasing an asset that otherwise holds very little value. Some staking networks adopt a multi-token system where the rewards are paid in a second token, which creates constant sell pressure for the reward token.

User error: As the blockchain industry is still in its infancy, setting up and maintaining these sources of income requires technical expertise and an investigative mindset. For some holders, it might be best to wait until these services become more user-friendly, or only use ones that require minimal technical competence.

Lockup periods: Some lending or staking methods require you to lock up your funds for a set amount of time. This makes your holdings effectively illiquid for that time, leaving you vulnerable for any event that may negatively impact the price of your asset. 

Risk of bugs: Locking up your tokens in a staking wallet or a smart contract always carries the risk of bugs. Usually, there are multiple choices available with various degrees of quality. It is imperative to research these choices before committing to one. Open-source software might be a good starting point, as those options are at the very least audited by the community.


Closing thoughts

Ways to generate passive income in the blockchain industry are growing and gaining popularity. Blockchain businesses have also been adopting some of these methods, providing services commonly referred to as generalized mining.

As the products are getting more reliable and secure, they might soon become a valid option for a steady source of income.

It’s not often in crypto that you can say “this time is different” in good faith. But this time it really is different for Bitcoin’s halving, slated for next month. As Bitcoin historian Pete Rizzo noted recently, this is the first time bitcoin {{BTC}} has rallied before the programmatic slashing of block rewards — all three prior halvings (2020, 2016, 2012) preceded a major runup in crypto prices.

This column is part of CoinDesk’s “Future of Bitcoin” package published to coincide with the fourth Bitcoin “halving” in April 2024. It also published in The Node newsletter, a daily rundown of the most pivotal stories and why they matter. You can subscribe to get the full newsletter here.

No one can say for certain how the Bitcoin halving will affect the cryptocurrency’s price; we’re in uncharted territory in terms of technical analysis. Whether the halving accelerates bitcoin’s run-up or terminates it is historic, and a challenge to popular belief that crypto is locked into four-year market cycles of booms and busts anchored to these events.

However, there are a few other ways this Bitcoin halving, the fourth in the network’s lifetime, is already unprecedented.

Transaction fees

Not only is this the first halving when bitcoin’s price has climbed before the event, but it’s also the first time when transaction fees represent a significant portion of bitcoin miners’ revenues. Transaction fees are tied to network use, and ever since the launch of the Ordinals protocol — which enables users to “inscribe” arbitrary data on-chain to make NFT-like assets — network usage is way up.

See also: What the Bitcoin Halving Means for Miners and Prices | Opinion

While this doesn’t say anything about BTC’s price, it could impact how many and what kinds of mining equipment remain active following the halving. Typically the halving is like a wildfire that clears out outdated ASICs that are no longer profitable to run after the “block subsidy” is cut in half.

Most valuable block ever?

The halving will occur at block height 840,000 (a count of how many blocks have been hashed to the blockchain), and already people are predicting that will be the most valuable block to be mined to date. This is related to the point above: Ordinals works by assigning serial numbers to individual satoshis (or sats, the smallest denomination of BTC), which turns a fungible asset like bitcoin into something with provenance, identity and scarcity.

Tristan, the founder of Ordiscan.com, which tracks Ordinals projects, predicts that collectors of these “rare sats” could value the data in block 840,000 at $50 million dollars. Under the “Rodarmor Rarity” system, which assigns value to Bitcoin protocol events like difficulty adjustments and halvings, the first satoshi in the block alone could be worth upwards of $1 million, he wrote in a blog post.

Runes

Because the halving is such a momentous moment for the community, many companies plan launches or announcements that coincide with it. This year is no different in that regard, except what’s being announced is another new token primitive for Bitcoin: Casey Rodarmor’s latest protocol design called Runes.

See also: Bitcoin Halving Is a 'Show Me the Money' Moment for Miners

In short, Runes is an alternative way to launch Bitcoin-based tokens (not dissimilar to altcoins that are launched on Ethereum). There is a lot of attention on the protocol given the success of Ordinals, and already a number of projects have announced intentions to launch their Runes tokens on the first sat of the halving block.

'Mother of all reorgs'

Furthermore, because the halving block is potentially so valuable, Tristan predicts that there will be a lot of competition for miners to acquire it by any means necessary. “Block 840,000 is worth at least 2 orders of magnitude more than any other block before it,” he writes. “This has never happened before, and dangling that huge money pot in front of miners will make it extremely hard for them to play by the usual rules.”

What this all adds up to is that miners could potentially try to front-run another to acquire the block, in a process known as miner extractable value (MEV). Tristan isn’t the only one to predict a possible “reorg” of the chain. The idea of transaction sniping also came up on Will Foxley’s “Mining Pod” recently, with the “rare sat” in question being valued at a more conservative 10 BTC.

The Binance Square 'Trade and Tell’ Community Drive is taking off in the new Square Community Blog, right from your trading page!
It's an open stage where every crypto trader gets to voice their insights and stand a chance to win an equal share of the 5,000 USDT Reward Pool and weekly traffic rewards for standout content contributions.
No KOL status needed, your opinion is what counts here. 
Promotion Period: 2024-01-16 00:00 (UTC) to 2024-02-02 23:59 (UTC) 
How to Participate: 
Share your trading thoughts and opinions in the Square Community tab under any of the trading pairs featured in the Binance App. Use #TradeNTell in your posts. To qualify, each post should be no shorter than 50 characters. Make at least 7 posts on 7 different days during the Promotion Period.

Rewards:
All qualifying participants earn a share of the 5,000 USDT token voucher reward at the end of the Promotion Period. Additionally, each week, the 15 most compelling pieces of content will be rewarded with 100K traffic vouchers. 
Standout Content Selection Criteria:
Relevance: Contributions should provide insightful analysis or discussion on posted trading pairs. Originality: Entries must be unique, not copied or generated by AI tools (e.g. ChatGPT). Clarity: Content must be easily comprehensible, providing clear advice or insights.Creativity: Innovative takes on the subject, such as humor or storytelling approaches, are highly favored. 
Accessing Square Community Blog:
Presently, the Square Community Blog is available exclusively on the Binance App. For guidance on accessing and using it, please refer to this short video tutorial.
Terms & Conditions
This activity may not be available in your region. Eligible users must be logged in to their verified Binance accounts whilst completing tasks during the Activity Period in order to qualify for rewards.Only original, new content qualifies. Previous submissions are ineligible.The USDT rewards pool will be divided equally among all qualified users. Rewards from the token voucher prize pool are capped at 10 USDT in token voucher per user.Winners will be notified via a push notification under Creator Center > Square Assistant. The USDT token vouchers and traffic vouchers will be distributed within 15 working days after the activity ends. Users may check their token voucher rewards via Profile > Rewards Hub. The validity period for the token voucher is set at seven days from the day of distribution. Learn how to redeem a token voucher.Illegally bulk registered accounts or sub-accounts shall not be eligible to participate or receive any rewards. Binance reserves the right to cancel a user’s eligibility in this activity if the account is involved in any behavior that breaches the Binance Square Community Management Guidelines or Binance Square Community Platform Terms and Conditions.Binance reserves the right at any time in its sole and absolute discretion to determine and/or amend or vary these terms and conditions without prior notice, including but not limited to canceling, extending, terminating or suspending this activity, the eligibility terms and criteria, the selection and number of winners, and the timing of any act to be done, and all participants shall be bound by these amendments.Binance reserves the right of final interpretation of this activity.Additional promotion terms and conditions can be accessed here.Where any discrepancy arises between the translated versions of this announcement and the original English version, the English version of this announcement shall prevail.
About Binance Square

Binance Square, formerly known as Binance Feed, aims to be the one-stop social platform for the latest trends in Web3. With a vast selection of content from renowned crypto experts, avid enthusiasts and trusted media sources, the platform serves as a bridge between content creators and their followers, customizing users’ feeds based on their respective engagement history.
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2024-01-16