Earn While You Sleep: The Power of Cryptocurrency To Earn Passive Income

Cryptocurrency has been a hot topic the past few years as speculators have made — and lost — fortunes while academics and pundits argue about the long-term viability of the asset class.

Learn More: 8 Best Cryptocurrencies To Invest In for 2024
Try This: Do This To Earn Guaranteed Growth on Your Retirement Savings (With No Risk to Your Investment)

Every time crypto seems to be on the way out, resurgent demand seems to flood the market yet again. In late February, for example, Bitcoin topped $60,000 yet again, bringing it to within striking distance of its all-time high of $68,789.

With any asset that’s increasing in value, investors want to know how they can profit. While cryptocurrency is volatile and not for everybody — even supporter Mark Cuban says crypto is a “Hail Mary” — there are ways you can use it to generate passive income while you sleep. Here’s what you need to know. 

Sponsored: Owe the IRS $10K or more? Schedule a FREE consultation to see if you qualify for tax relief.

Mining

Cryptocurrency miners are the backbone of the entire network. Miners validate transactions and are essential to keeping the blockchain secure and decentralized. But it requires specialized equipment, such as application-specific integrated circuits or graphics processing units, and a whole lot of energy computing power. However, if you’re successful at it, your machines can effectively do the work for you, providing rewards in the form of cryptocurrency itself.

Make no mistake about it, mining cryptocurrency for passive income requires a lot of money and machinery and it’s not for everyone. But if you’re successful at it, you could earn a lot. ZipRecruiter says the average miner earns about $56,000 per year, but if you’re the one putting in all the energy and computing power and you expand as you become profitable, you could theoretically earn a lot more. Just know that there are lots of barriers to entry for smaller producers.

Read More: I’m a Financial Advisor — These 5 Index Funds Are All You Really Need

Staking

Crypto staking is a much easier and less-intensive way to earn passive income than through crypto mining. If you want to stake crypto, all you have to do is hold a certain amount of specific cryptocurrencies in your wallet. If you agree to “staking” your crypto, the blockchain puts it to work, verifying transactions via a consensus mechanism known as “proof of stake.”

Story continues

Even without fully understanding the ins and outs of how crypto staking works, you can earn passive income in the form of additional coins. A blockchain network may offer a reward of, say, 5%, meaning if you stake 100 coins, you’ll be rewarded with five additional ones.

Yield Farming

Cryptocurrencies need liquidity in order to function properly in terms of their applications. Yield farmers provide that liquidity by depositing tokens into a protocol. By essentially lending your tokens to a protocol, you’re rewarded with a yield, hence the term “yield farmer.”

However, yield farming does involve risk. Any time you physically part with your tokens and place them into a protocol, there’s a chance they get hacked via smart contract flaws. Add in the price volatility inherent in most cryptocurrencies and it can be hard to predict how much you’ll earn out of yield farming, if anything. But it’s one way that you can use your tokens to generate passive income.

Other Ways To Earn Via Cryptocurrency

If you want to take a more active role in your cryptocurrency earnings, or if you simply prefer capital gains, there are other ways to invest in the asset class to meet your financial goals.

Play-To-Earn Games

Play-to-earn games are essentially video games that provide you with real-world rewards for your achievements within the game. For example, if you accomplish certain tasks within the game, you might be rewarded with various NFTs, which you can then sell or trade for real money.

You also can earn the native token of the game itself by reaching certain levels or goals within the game. This income is more active than passive, but it is a way that you can earn digital assets within the crypto world.

Capital Appreciation

Many investors are attracted to cryptocurrency not to earn passive income but to capture potentially huge capital gains. While plenty of people have lost money investing in cryptocurrencies, those who have held big names like Bitcoin and Ethereum since their origination have done quite well.

Caveats

Cryptocurrency is still an emerging asset class, and opinions are divided on what the future holds for it. For every passionate supporter who thinks crypto will eventually replace traditional currency, there are knowledgeable investors who think the whole asset class will go to zero.

Regardless of your opinion on cryptocurrency, its inherent volatility means that you should be careful about investing too much of your portfolio in it, even if you’re just using it to generate passive income. In other words, understand your own personal risk tolerance before you bet too big on crypto.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Earn While You Sleep: The Power of Cryptocurrency To Earn Passive Income