passive income

How to earn passive crypto income with Ethereum?

Passive income opportunities allow ETH investors and traders to offset losses during periods of market volatility.

The cryptocurrency market is incredibly volatile, which can be both good and bad for investors and traders. Volatility creates opportunities for making profits, but it can also lead to losses. Passive income strategies, however, could be handy in offsetting these losses.

Passive income strategies offer investors and traders opportunities to earn profits, even during challenging market conditions such as bear markets. For those investing in Ether (ETH), or any crypto in general, earning passive crypto income provides a way to cover market crashes and downturns.

Hodling used to be the primary way to earn interest on one’s crypto assets. But, with the rise of decentralized finance (DeFi) protocols, there are now many ways to earn interest on Ether and DeFi protocols. This article is a guide on how to make money with Ethereum for beginners and those already familiar with the space.

What is Ethereum and how does it work?

Ethereum is a decentralized blockchain network that runs smart contracts. These are applications that run exactly as programmed with no possibility of fraud or third-party interference. Ethereum’s native token, Ether, allows users to carry out several functions on the network such as making transactions, staking, trading, storing nonfungible tokens (NFTs), playing games and more.

Ethereum is also used to build decentralized applications (DApps), which are open-source software that run on the blockchain. DApps can be built on Ethereum’s network by anyone with the skills and expertise to do so, making it one of the most popular platforms for developers.

Ethereum once used a proof-of-work (PoW) consensus algorithm, which rewards miners for validating blocks of transactions. However, Ethereum officially shifted to a proof-of-stake (PoS) consensus algorithm on September 15, 2022, at 1:42:42 am EST.

The historic transition is part of what Ethereum co-creator Vitalik Buterin, dubbed The Merge, noted as the first part of many in the network’s multi-year scaling roadmap. The move to PoS is designed to make Ethereum more scalable and energy-efficient by eliminating the need for miners who use high amounts of electricity to secure the network.

How to make passive crypto income with Ethereum?

Here are some of the popular ways to make passive income with Ethereum:

Staking

Staking is the process of locking one’s funds on a PoS blockchain (such as Ethereum) to help validate transactions and earn rewards. When users stake their ETH, they are essentially putting their skin in the game and helping to secure the network. In return for their efforts, stakers earn rewards in the form of ETH or other tokens.

Ethereum staking is a popular way to earn passive income from cryptocurrency, although it might be too expensive for amateur investors. The new PoS version of Ethereum requires at least 32 ETH — roughly over $50,000 — to run a full validator node and participate in staking.

Apart from direct staking, one can also use service providers like StakeWise and Lido. These are DApps that provide Ethereum staking services without having to run a full node, allowing network participants to stake with minimal amounts. These services usually charge a fee on rewards upward of 10%, which might cut into one’s profits, but at least they won’t need to invest 32 ETH upfront.

Hodl

Hodl, a derivative of “hold,” also “hold on for dear life,” is a crypto slang term used to describe the act of holding onto cryptocurrency for long-term investment purposes. When Ethereum investors hodl their Ether, they are essentially betting that its price will go up in the future and that they will be able to sell it for a profit. It’s one of the simplest and most popular ways to earn passive income from cryptocurrency. And, while this strategy does not offer any immediate or guaranteed returns, it can be profitable in the long run if the price of Ether does indeed increase. Given that, Ethereum has seen a tremendous amount of growth since its inception and is currently one of the most valuable cryptocurrencies in the world, so there is a good chance that its price will continue to rise in the future.

However, it’s important to keep in mind that cryptocurrency prices are highly volatile and can fluctuate rapidly. This means that there is always the potential for loss when hodling crypto, so investors should only put in as much money as they’re comfortable losing.

Automated trading

Another way for users to generate passive income through their Ethereum investment is by using a bot for automated Ether trading. Automated trading bots are software programs that use pre-programmed algorithms to buy and sell cryptocurrency on exchanges 24/7.

These bots can be set up to place trades automatically under certain market conditions, such as price changes or volume. Coinrule and Bitsgap are just some examples of automated trading software that allow users to set up trading rules, either by using premade templates or customizing them based on risk preference.

If successful, automated trading can provide a steady stream of profits, although it does come with some risks. Bots are not perfect and can sometimes make mistakes, such as selling too early or buying too late.

Moreover, the cryptocurrency market is highly volatile and can experience sudden changes that a bot might not be able to anticipate. As such, investors need to monitor their automated trading activity closely to avoid any major losses.

Lending

Lending is another popular way for investors to generate passive income from their ETH investment. Typically, investors make a profit by lending crypto to borrowers with a high-interest rate. This can be done either through centralized or decentralized lending platforms.

On centralized platforms, users typically don’t need to worry about technical issues such as security, data storage, bandwidth usage or authentication. The platform manages all technical details and provides the potential for investors to optimize their assets’ yield.

Centralized platforms usually have higher interest rates than decentralized lending platforms. One drawback, however, is that centralized platforms are more susceptible to hacks and data breaches.

On the other hand, decentralized lending platforms allow users to enjoy a higher level of security, transparency and customizability, allowing experienced investors to tweak settings to maximize their profits. The downside is that these platforms are often more complex to use and require a higher level of technical expertise. Interest rates also tend to be lower on decentralized platforms.

Liquidity mining

Liquidity mining or yield farming is also an alternative to generate passive income from Ethereum. Here, users lend their Ether or other assets to liquidity pools on decentralized exchanges like Yearn.finance, SushiSwap and Uniswap to earn rewards.

Many yield farming platforms include the ability to exchange a token for another in a liquidity pool. Traders pay a fee when they trade cryptocurrency, and this fee is then divided among the farmers who have contributed to the liquidity of that pool. The size of the reward depends on how much of the total pool’s liquidity is provided by the farmer.

Yield farming can be a great way to generate passive income, but it is important to remember that it is a relatively new practice and is, therefore, subject to change. Moreover, it can be a risky investment, as the price of the underlying assets can fluctuate rapidly, leading to losses.

How to earn passive crypto income with Bitcoin

Here are some ways to generate crypto-powered passive income with Bitcoin while steering clear of inherent volatility.

Bitcoin (BTC), along with other cryptocurrencies, has provided people with a venue to earn passive income, making money without any active involvement. One doesn’t need to take unnecessary trading risks or spend time reading and analyzing reams of information.

While the concept of passive earning isn’t new, cryptocurrency has undoubtedly added new dimensions to it. Concepts like compounding interest or reinvesting dividends are also applied in the cryptocurrency market, creating an ecosystem where one can earn passively.

Let us discuss various ways to earn passive income with Bitcoin. This article includes interest accounts, lending, mining, trading and liquidity pool.

Bitcoin interest accounts

Keeping Bitcoin in a cryptocurrency savings account is similar to having regular savings accounts. These accounts offer fixed interest on the crypto assets deposited. One may choose flexible savings plans, which allow the depositor to withdraw assets whenever they wish or fixed savings plans, where the assets remain deposited for a predetermined period.

Interest rates are usually higher when one deposits funds for a fixed-term than in a regular savings account. The tenure for fixed term deposits is considerably less than that of conventional bank accounts. On some protocols, there is no minimum deposit requirement as well.

One can also rope in a financial adviser to implement investment strategies like dollar-cost averaging (DCA). The strategy involves investing the same amount of BTC in a target security regularly over a definite period, lowering their average cost per share and bringing down the impact of volatility on their cryptocurrency holdings.

Bitcoin lending

Bitcoin lending occurs when anyone holding BTC lends the cryptocurrency to borrowers through a centralized, decentralized or peer-to-peer (P2P) platform. In return, the borrowers pay daily, weekly or monthly interest. The lending platform usually takes a fee for the service.

The three factors influencing the earnings are the total value of Bitcoin being lent, the duration of the loan and the interest rate. Users need to trust a third party for the Bitcoin lending infrastructure and terms on centralized lending platforms. Most platforms require users to deposit their BTC with the lending platform. While this brings expert-level help to users, their Bitcoin lies in the custody of platforms.

On the other hand, no intermediaries are involved in decentralized lending platforms. Smart contracts automate the lending process, setting aside any human role. Interest rates are finalized autonomously, and the contract is executed once the relevant conditions are met.

On P2P platforms, users can define their individual terms. For example, they can determine the interest rate and the amount of Bitcoin they want to lend. The platform’s role is to provide the necessary infrastructure for completing the deal, and they usually take a fee for their services.

Bitcoin mining

Mining enables one to attain a reward for using computing power to secure the Bitcoin network. Bitcoin is a proof-of-work (PoW) protocol that requires the network participants to solve an arbitrary mathematical puzzle to prevent any unauthorized person or even an insider with mala fide intentions from initiating any changes detrimental to the network.

In earlier days, users mined Bitcoin on regular PCs and then on general-purpose mining rigs. With the growth of the network, however, the complexity of mining increased, and miners were forced to use specially manufactured mining equipment called application-specific integrated circuits (ASICs), which have integrated chips designed for mining.

Miners could set up and maintain mining rigs to bring down their costs. Doing so, however, requires them to have the initial capital necessary along with some technical expertise as they need to maintain Bitcoin mining hardware. This has enabled people to mine Bitcoin without having to invest a great deal of money. Being part of a pool with a lot of computational power gives one a higher chance of generating a winning hash than miners who lack such advanced equipment.

Bitcoin trading

As is the case with all financial assets, the price of Bitcoin is influenced by the laws of supply and demand. Anyone holding BTC can take advantage of the inherent volatility of the cryptocurrency to make money with Bitcoin trading, either by going long or short. Going long refers to selling BTC when prices are going up while going short is the act of selling when prices are going down.

To time the market precisely for making profits is practically impossible for anyone. The basic idea, when going long, however, is to buy BTC when one expects its price to go up and sell it later with a profit margin. For example, if BTC is trading at $20,000 and one guesses it could move to $25,000 or upward, they could buy Bitcoin or swap any other cryptocurrency with BTC, wait for the price to go up and then sell the cryptocurrency, making a clear profit of $5,000.

A shorting strategy is usually implemented by traders when cryptocurrency prices go down. For instance, suppose the price is currently at $20,000, and the trader expects it to drop to $17,000. The trader may sell their BTC right away and later repurchase it when the prices get to the desired level, making a profit of $3,000. The shorting of Bitcoin can be done through its derivatives like futures and options. One could also participate in prediction markets for shorting Bitcoin.

For simplifying trade and minimizing any chances of loss, exchanges allow one to place stop-limit orders. If the prices fall below a certain level, the system will execute the trade independently and limit the losses. To fully automate the trading of Bitcoin, one could use algorithmic trading. Pre-programmed trading instructions are issued based on time, volume and price. When the market triggers the set instructions by the trader, the software executes the orders.

Bitcoin liquidity pool

Liquidity pools, the lifeline of decentralized exchanges (DeXs), can also be a venue for anyone having BTC to make some passive earning. A Bitcoin liquidity pool refers to a digital pile of cryptocurrency locked in a smart contract, thus creating liquidity for quicker transactions.

Users of various crypto platforms, called liquidity providers (LPs), are rewarded with a part of fees and incentives in exchange for the amount of liquidity they have supplied to the liquidity pool. They get paid in the form of LP tokens, which can be used across the decentralized finance (DeFi) ecosystem. UniSwap, SushiSwap and PancakeSwap are some popular DeFi exchanges.

A liquidity pool has cryptocurrencies in pairs, such as BTC-USDT, ETH-USDC, etc. Here is an example to help understand how it works on SushiSwap, with one investing $5,000 in a BTC-USDC liquidity pool. The steps are:

Keep tabs on the changing ecosystem

An ability to make passive income from Bitcoin enhances the value of one’s holdings. Investing in cryptocurrencies always has a risk quotient because of volatility. Still, a passive income enables one to make money steadily without active exposure to the sharp ups and downs in prices. Before deciding on how to make money with passive earning, one needs to do adequate research on expected returns, risk factors, etc.

The cryptocurrency ecosystem is evolving, and new use cases for Bitcoin might emerge, making it imperative for one to keep a constant vigil on the emerging opportunities. Local regulatory sanctions are also an important aspect to consider. Cryptocurrencies, including Bitcoin, are under the watch of regulatory authorities, and one needs to be aware of what they approve and disapprove.

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How to build a passive income stream from cloud mining?

Cloud mining is a far safer way to invest in cryptocurrencies and get consistent passive income without directly using mining equipment or hardware.

Cloud mining is the process of mining cryptocurrency without the direct use of mining equipment or hardware. The process allows users to mine Bitcoin or altcoins without having to manage their own resources.

In traditional crypto mining, cryptocurrency is produced through a computational process. Miners need to solve complex mathematical problems using mining hardware to be rewarded with coins. The process of cloud mining is similar, but instead of using their own resources, miners rent or buy resources from a service provider.

As more players entered the cryptocurrency scene, mining became more complex, requiring more computing power. For this reason, many people who used to mine crypto using their own hardware now find it unsustainable due to high electricity costs and the wear and tear on their hardware. Cloud mining has therefore become an attractive option.

How does cloud mining work?

In cloud mining, third-party providers rent out computing power to miners. This means miners don’t have to invest in their own resources, which generally requires a large upfront investment. Cloud mining also removes the need for miners to maintain and update their own equipment.

How it works is that the service provider buys or builds a mining rig and then rents out the hashing power to miners. The cryptocurrency mined is then sent to the miner’s wallet. In most cases, the service provider will also offer a mining-as-a-service solution, which allows miners to outsource the management of their mining equipment.

As for the mining process itself, it’s pretty similar to how cryptocurrency mining works. Transactions are verified and added to a blockchain, thereby creating new coins. Each time a transaction is validated and added to the blockchain, a new block is created. Miners are then rewarded with crypto by adding verified blocks to the chain.

Many cloud mining websites offer cloud services for miners. Among these are StormGain, BeMine and ECOS. Most cloud mining sites take a small portion of your earnings as commission. Some platforms, like ECOS, offer monthly plans with no commission.

Cloud mining models and types

There are two common models for cloud mining:

Both of these models have their advantages and disadvantages. It’s important to choose the right model for your needs before getting started with cloud mining.

Hashing power leasing

Hashing power leasing is a popular model for cryptocurrency cloud mining. With this model, you lease a certain amount of hashing power from a cloud mining provider, so you can mine cryptocurrencies. The advantage here is that you do not have to invest money to set up your own mining rig.

The mining provider provides rented cloud computing power from a mining farm, which means you also don’t have to worry about the upkeep of mining equipment. All you need to do is pay for the hashing power you want to lease, and you can start mining.

A miner has to register for an account with a cloud mining provider and provide certain details during signup. These include details such as the hashing power needed, as well as their desired contract period.

Hashing power is determined by the amount of mining power you need. It’s important to choose the right amount of hashing power, as this will determine how much you’ll be paying for the service.

A hash refers to the mathematical function used to mine cryptocurrencies. The hash rate is the speed at which a miner can complete this function. This means you’ll need to pay more for a higher hash rate. However, a higher hash rate also means you’ll be able to mine more cryptocurrencies.

The contract period is the length of time for which you want to lease hashing power. Most providers offer short-term and long-term contracts.

Hosted mining

With hosted mining, miners rent physical equipment from a cloud mining provider. Since the cloud mining hardware will be located in your home or office, you’ll need a good internet connection. You also have to ensure it’s in good working condition for mining by providing adequate cooling and ventilation.

One of the advantages of this model is that you don’t have to worry about the cost of maintaining the mining equipment. However, a downside is that it can be quite noisy. Keep this in mind if you’re planning on setting up a hosted mining rig in your home.

You’ll also have to shoulder the electricity costs when using this model. However, many hosted mining providers offer discounts if you opt for a longer contract.

In addition, the replacement of old equipment won’t be at the cost of the miner. A provider will typically replace it at no extra cost, provided the equipment was used responsibly and not damaged due to improper use.

Many miners go this route because they want better control of their mining rigs without needing to spend thousands of dollars on brand new equipment.

Cloud mining for earning passive income

Cloud mining can be a great way to earn passive income. This is because you can mine cryptocurrencies without putting much effort. Additionally, you can typically reinvest your earnings into the cloud mining service to increase your hashing power or lease more resources.

Cloud mining may be a good option if you are looking for a way to build a passive income stream from cryptocurrency mining. Just be sure to research and understand the costs involved in cloud mining before getting started.

Those who want to mine Bitcoin for passive income, for example, can use a platform like StormGain to do so.

StormGain

StormGain is a good example of a cloud mining service that allows miners to earn passive income by mining Bitcoin. All users have to do is download their application, register and start mining. They charge reasonable commissions and have low trading fees as well. How much you earn will depend on your mining speed, as well as the trading volumes reached:

ECOS

ECOS is another trusted cloud mining provider. It supports Bitcoin mining and offers a wide range of flexibility when it comes to cloud mining contracts:

ECOS also has a wallet and exchange, so interested miners only need to sign up for an account and download the ECOS mobile app to start mining. Mining contracts range from 24 months to 50 months.

Advantages of cloud mining

There are several advantages of cloud mining that make it an attractive option for miners:

You don’t need to be tech-savvy: You don’t need to be a tech expert or cryptocurrency guru to start cloud mining. All you need is an internet connection, a computer and a good understanding of the cryptocurrency you wish to mine.

You can start small: You can start with a small investment and gradually reinvest your earnings to increase your hashing power. You can also spread your investments out across different cryptocurrencies to mitigate risk.

Sense of security (through contracts): When you lease hashing power, you typically sign a contract. This means the provider is legally obligated to give you the agreed-upon amount of hashing power. This gives miners a sense of security, as they know they won’t be cheated out of their money.

Cloud mining disadvantages

Cloud mining also has its drawbacks, which you should be aware of before getting started:

Risk of scams: There have been some scams associated with cloud mining, so ensure you only invest in reputable services.

Crypto volatility: Cryptocurrency prices are volatile, and cloud mining may not always be profitable. Be sure you understand the risks before getting started.

Limited control: When you lease resources from a cloud mining provider, you don’t have complete control over the operation. This can be a risk if the provider is not reputable.

How to start crypto cloud mining?

If you’ve decided that cloud mining is right for you, there are a few things you’ll need to get started:

A computer with an internet connection: You’ll need a computer or other device with an internet connection to access your cloud mining account.
An account with a cloud mining service: You’ll need to create an account with a reputable cloud mining service provider.
Bitcoin or other cryptocurrencies: To mine cryptocurrency, you’ll need to have some Bitcoin or other cryptocurrency to begin with. You can use this to pay for your resources or reinvest them into your operation.
A crypto wallet: You’ll need a cryptocurrency wallet to store your mined coins. Be sure to choose a wallet that supports the coin you wish to mine.

Is cloud mining profitable?

This depends on a number of factors, including the type of mining you’re doing, the cryptocurrency you’re mining and the size of your operation. The fees and commissions charged by your cloud mining service provider will need to be factored in as well.

So, can you make money with cloud mining? Yes, typically, you can expect to earn more from cloud mining than you would from traditional mining. This is because you’ll save a lot of money since you do not have to purchase expensive hardware, cooling and ventilation equipment. You’ll also save on electricity and maintenance costs.