Looking for new passive income opportunities for 2018? Well, look no further.
We are going to show you some incredible passive income opportunities involving blockchain and cryptocurrencies. To start, we’ll show you ways to buy and hold a particular cryptocurrency to produce a completely passive return. This return takes the form of additional cryptocurrency that can then be sold on an exchange for fiat dollars (USD/AUD). There are now dozens of these cryptocurrencies and we are going to explore some of the top coins that give you a chance to earn some nice passive returns.
What Exactly is Passive income?
Check our video below which covers all the topics in this article, or continue reading if that suits you better!
Let’s begin by first explaining how you can earn passive income. We’ll tell you what it means and how it works with passive income opportunities using cryptocurrencies.
According to Investopedia, there are three main categories of income: active, passive, and portfolio income. Passive income generally means money people earn regularly with little-to-no effort on the part of the person earning it. People who fall into the above category tend to be from a work-from-home and be-your-own-boss professional lifestyle. Some examples of passive income include stocks, interest-bearing savings accounts, lottery winnings, and capital gains.
Passive income is simply money or value generated through a mechanism that rewards owners for little to no effort.
Cryptocurrencies and Passive Income
Cryptocurrencies are enabling a new and incredibly exciting way to earn passive income. By using something called PoS consensus, or ‘Proof of Stake’, holders of a particular cryptocurrency may earn dividends in the form of either that cryptocurrency itself, or a branch of it.
There is also a new and emerging class of cryptocurrencies called security tokens, which automatically distribute revenue from a company based on quarterly earnings.
In all examples, the process is nearly fully automated and also occurs on the blockchain, so it’s verifiable and immutable.
These cryptocurrencies are enabling a whole new kind of economy. One in which income is earned by simply holding a cryptocurrency. The amazing part is you don’t have to do any physical work to receive the reward. It can be completely passive.
How Do I Earn Passive Income with Crypto?
The way it works is that each person is entitled to a share of the rewards generated for the network’s performance and security. Each cryptocurrency is slightly different, with some performing as ‘masternodes’, some using ‘staking’, and others distributing rewards from something called, ‘delegates’. These concepts will be explored further throughout the passive income series here on our website, and also on our YouTube channel.
Passive income works by storing tokens in a special wallet, with the owner acting as a network ‘staker’. Tokens are used to help validate transactions on a blockchain protocol, or as a voting mechanism for delegates. In these ways, the owner is rewarded with cryptocurrency tokens.
Staking has been designed so that you are ‘staking your tokens’ and receiving a reward for good behaviour. If you’re following the rules and not trying to duplicate transactions, fool the network or act maliciously, your tokens are safe. However, if you are trying to change the source code, duplicate transactions or otherwise act maliciously, your staked tokens could be at risk of being lost. Staking incentivises users to act in a way that benefits the system.
If you’re an everyday person who is simply storing their tokens in a wallet, don’t worry. It’s actually quite difficult to engage in malicious behaviour in this way!
How Can I Start Earning?
For the crypto novice, this process can be a bit on the technical side. Maybe you have experience with tech from your daily life or work. In that case, you shouldn’t have a problem.
Creating passive income with cryptocurrency begins with choosing a cryptocurrency coin that actually lets you stake. Then, there are a few ways to purchase your cryptocurrency. You might try visiting an exchange such as Coinspot or Binance, where you can set up your account, and make your buy.
Check out our exchange guide if you’re new to cryptocurrency
Once you’ve made your purchase, you then send your cryptocurrency to a special wallet that can accept that coin. These wallets are designed to issue the dividends, and there may be several types of these depending on the cryptocurrency you choose.
Once you’ve sent your cryptocurrency from the exchange to the receiving wallet, that’s it! Just remember to back-up your wallet and store your private keys somewhere safe. Your tokens will now be staking on the network earning you passive income!
How Much Can I Earn?
While passive income opportunities with crypto have some similarities, how much you can earn varies slightly between each cryptocurrency protocol. Generally, you can be eligible to earn between 5% and 10% annually based on the quantity of the token you hold.
For example, by holding 1000 Lisk, you may be entitled to 10% more cryptocurrency per year. So by storing this 1000 LSK in the Lisk Hub wallet, up to 100 additional coins would be deposited automatically into your wallet, generating a passive income.
Crypto Income and Secondary Markets
Passive income in cryptocurrencies always pays out in the form of cryptocurrencies. As a result, there are several important considerations when looking into passive income with crypto:
- You will need to store the token in a wallet that is capable of producing dividends. Not all of them are.
- Some exchanges support dividends. But it is not good practice to leave your crypto on exchanges, as you do not control the private key. You can move them to cold storage or other wallets.
- If dividend tokens are left in the wallet, there is an opportunity for rewards to compound over time.
- To cash in on your crypto passive income, transfer the dividend token amount to an exchange. There you may sell it for fiat.
- The token is subject to secondary markets, meaning it could go up or down in value depending on the market.
- Passive income generated through dividends, like all income, is taxable and will need to be declared to your jurisdictional tax office after selling your cryptocurrency on an exchange.
- The technology behind Proof of Stake (PoS) dividend paying cryptocurrencies is still relatively new, experimental, and may be vulnerable to bugs or malicious hackers.
How Much Does it Cost to start earning?
This depends on the cryptocurrency you are considering. Some passive income opportunities with cryptos like DASH require a very large investment up-front; around $184,000 USD, based on the current market rate of a single DASH token. That’s because you need 1000 DASH tokens to be eligible to run a masternode. This is well beyond what 95% of people can afford.
Others like Lisk, NEO or PivX, have no minimum initial amount. The market and the price of the token at the time of buying will dictate how much you would purchase. This is important because the rewards are based on the quantity of the cryptocurrency you are holding, and not the cost to purchase the tokens. This tends to favour people who bought in early when the token price was cheaper than what it is today.
What are the risks involved?
As with any investment, there are risks. In fact, the risk with staking and earning passive income with cryptocurrencies is very high. Here are a few of some of the key risks you need to be aware of if you are considering staking coins.
- Cryptocurrency prices are wildly volatile, moving up or down by orders of magnitude 10x that of regular stocks or more traditional assets.
- Your dividend or passively generated coin could be worthless if the market price drops lower than that of the initial purchase, thus diminishing returns.
- Proof of stake technologies are still in their infancy and have really only been used for a few years. They then must be treated as potentially vulnerable to malicious attacks until the technology is battle proven in the years to come.
- Passive income coin dividends may sit in grey areas in some jurisdictions in regards to securities laws. We are of the opinion they don’t, as it is a network commodity. However, regulators may see it differently.
- In transferring coins to a wallet and leaving them there, you may lose your private key, subsequently losing access to your funds forever.
The opportunities are quite incredible in these early days of proof of stake protocols. However, the greater the opportunity, the greater the risk. We strongly urge readers to spend the time researching, studying, and understanding the risks before many any investment decision.
Passive Income Opportunities and Token Price
Cryptocurrencies work by rewarding miners, stakers, and nodes in more of that token for securing the network. This is how blockchains stay safe. By providing a monetary incentive to secure the network and validate transactions, you have a strong network.
The process of rewarding miners, stakers and nodes means that more tokens are created, or ‘minted’ over time. A token’s circulating supply thus increases as more rewards are distributed. Following supply and demand economics, it may appear that a token’s price may drop as a result. However, there are some very important considerations we must cover:
- Lisk programs most rewards (dividends) to reduce over time. For example, Lisk reduces its node reward by 1 LSK per confirmed Block, per year for 4 years, until just 1 LSK will be rewarded per block. NEO’s reward, which is GAS, has a limit of 100M and is used as a utility token for transactions. As NEO is used more, the demand for GAS should rise with that increase in usage.
- The blockchain that produces these cryptocurrency tokens should get used more over time as the ecosystem matures, signaling a higher demand. No one guarantees that, but if a particular blockchain does see an increase in adoption by developers and users, demand for the token should rise.
- The inherent, built-in characteristics of staking tokens are designed such that people are inclined to hold them long-term, due to dividends and the hope for speculative value increase. The more people holding those tokens, the lower the available supply is for trading on markets.
So which Cryptocurrencies Pay Dividends?
There are many passive income opportunities where cryptocurrencies pay dividends, and we are going to explore them in this series one by one. We will be looking at cryptocurrencies like NEO, Lisk, DASH, PivX, ARK, EOS, Neblio, Komodo, NavCoin, Spectre, Ethereum, and more. We are even going to explore the new and emerging dividend paying cryptocurrencies that are securitized, and even Binance’s BNB coin, and KuCoin Shares, which pay dividends in fees generated through users’ transactions on the exchange.
This series is going to cover multiple passive income opportunities with cryptocurrencies one coin per episode and blog post. We’ll also show you exactly how each of these cryptocurrencies works. So get ready to learn everything you need to know about becoming a passive income machine using crypto!
|Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators’ websites before making any decision. Cryptocurrency Australia Media, or the author, may have holdings in the cryptocurrencies discussed.|
Beau is the Founder & Chief Editor at Cryptocurrency Australia Media, an educational platform designed to help anyone learn about cryptocurrency investment and blockchain technology. Beau is also the Founder & Principal Consultant of Blockchain Management Solutions, a specialist technical and project management consultancy, is an advisor with Masternode Ventures, a blockchain incubator, and is an advisor with THORChain, a new decentralized exchange protocol.