Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice.
Our economy is ever-evolving, with the next big trend always on the horizon. Cryptocurrency and non-fungible tokens (NFTs) were part of a trend but have become more permanent and unique opportunities to generate passive income. What is the potential to earn passive income from these digital assets? How can crypto and NFT holders put them to work? Let’s tap into the power of crypto and non-fungible tokens.
- What’s Passive Income in Web3?
- Earn Passive Income with Crypto
- Earn Passive Income with NFTs
- Risks of Making Passive Income with Crypto and NFTs
What’s Passive Income in Web3?
Web3 and web2 are terms we often hear nowadays as the digital landscape evolves. Web3 represents a new era of the internet, where decentralization, enabled by blockchain technology, allows users to have more control over their digital assets.
Passive income in web3 can be generated through strategies such as staking cryptocurrencies and earning royalties from NFTs. Unlike traditional methods, these digital avenues provide opportunities for consistent income generation while retaining control over one’s assets in a secure and transparent ecosystem.
Earn Passive Income with Crypto
There are a few things you can do to earn a passive income stream with cryptocurrency.
Staking is similar to earning interest in a bank account but in the crypto world. Participants would hold specific cryptocurrencies in a digital wallet and agree to use these funds to support activities like transaction verification on a blockchain network.
In return for locking up their tokens and helping to validate transactions, participants receive rewards from the network as a ‘thank you’. This method requires little effort and can provide steady returns, depending on the token’s price.
For yield farming, we have a more in-depth article here. To break it down briefly, yield farming is when participants lend their assets (crypto) to a liquidity pool and, in return, earn yield from the interest rates and trading fees. Yield farming can provide substantial returns, although it also carries higher risk due to the volatility of the crypto market. So before you dive in, DYOR (do your own research) and always verify.
Similar to yield farming, liquidity mining involves providing liquidity to a DeFi (decentralized finance) protocol. Users deposit their assets into a pool and receive Liquidity Provider (LP) tokens as a reward. These tokens can be staked to earn more rewards. Liquidity mining often offers higher returns, but also comes with increased risk, especially ‘impermanent loss‘.
Crypto lending platforms allow you to lend your cryptocurrencies to others in return for interest. This process is executed by smart contracts and eliminates the need for an intermediary. The interest rates can be significantly higher than traditional banks, but it’s important to consider the platform’s credibility and the unpredictable volatility of the crypto market.
Some cryptocurrencies offer dividends to holders, similar to traditional stocks. By holding these tokens in your wallet, you can earn a percentage of the token’s transaction fees or other profits. Dividend-earning cryptocurrencies can provide consistent income if the token performs well.
Cloud mining is a bit more advanced and it involves renting mining hardware from a cloud mining service. These services run the hardware and take care of maintenance while you receive the mining rewards. This is a less risky way to get involved in mining, but it’s important to research and choose a reputable cloud mining provider.
Crypto Savings Account
A crypto savings account is like a traditional savings account in a bank, but it comes with higher interest rates. Users would deposit cryptocurrency for it to gain interest over time. These accounts are offered by various crypto lending platforms and exchanges. However, the security of your assets and the platform’s stability are crucial factors to consider.
Earn Passive Income with NFTs
NFT owners can also earn passive income from NFTs. They can be a good way of generating passive income with the right ones.
NFTs are like real-world collectibles, but they are digital. Royalties are a way you make money whenever your NFT is sold again. For example, if you create an NFT art piece and it sells multiple times, you get a percentage of each sale. However, not all creators allow you to earn NFT royalties with sales on the secondary market.
NFT staking is similar to crypto staking. You would again lock up (or “stake”) your NFT in return for rewards, typically in cryptocurrency. It’s like lending your NFT to a platform, and while it’s there, you earn passive income.
Like renting property, cars, or movies, you can rent your NFT out to others for a fee. This often happens in metaverses (digital worlds) like Decentraland, where digital land and properties are the NFTs.
NFT farming is earning new NFTs as rewards for participating in a platform or game. It’s similar to a loyalty program where you get rewarded the more you participate. These earned NFTs can be pretty valuable and sold for a profit.
Risks of Making Passive Income with Crypto and NFTs
As with all investments, earning passive income with crypto or NFTs comes with risks. Below are the factors to consider before investing.
It’s no secret that the value of these digital assets fluctuates greatly and unpredictably, even more so than traditional index funds and currencies. You could be making money one day and the next day the value could plummet in worst-case scenarios. This is definitely something to keep in mind.
Just like fake designer items, there can be fake NFTs too. Someone might sell an NFT they claim is original or unique, but it could be a copy. You could fall into the scam by not doing your due diligence or being careful enough. Buying counterfeit NFTs means you might not be able to sell them at a profit.
Lack of Regulation
No clear regulations mean no protection if something goes awry. You could lose your investment if you stumble into a trap or are scammed with little to no recourse. The lack of regulation is because these markets are still pretty new and the world is figuring out how to manage them.
Like with traditional currencies and stocks, you can also earn passive income from NFTs and crypto. Earning money in your sleep sounds pretty awesome, but it does come with risks. The value of these digital assets is volatile and there aren’t a lot of rules in place to protect you. Our suggestion is to familiarize yourself with the digital economy and only risk what you’re comfortable with.