3 Passive incomes enabled by cryptocurrencies
Ray Dalio, founder of Bridgewater Associates, once said that the Holy Grail of investment or personal finance is to find 15 or more uncorrelated income streams. Most of us are familiar with employment, stocks gains/dividends, real estate gains/rental yields and other traditional income streams. However, not many know about the opportunities for new income streams from cryptocurrencies.
Cryptocurrencies and blockchains enabled many new innovations. Some of these innovations allow us to earn passive income. In this article, I will be going through a few of these.
Cryptocurrency Mining (Proof-of-Work)
Proof-of-Work (PoW) is a consensus algorithm for cryptocurrencies. The beauty of decentralized cryptocurrencies is that common people can participating in the security of cryptocurrencies' ledger. One of the ways is to participate in proof-of-work aka cryptocurrency mining.
By engaging in PoW, miners get rewarded with the cryptocurrency which they are securing. There are plenty of resources online to teach you how to mine popular cryptocurrencies like Bitcoin or Ethereum. Mining typically requires your mining machine to be quite powerful. While it is technically possible for you to mine with individual machines, the chance of you solving a block (successfully mine a block) is very low. Hence, for most of us, we will likely need to join a mining pool to participate in crypto mining. Mining pools band together and combine computation powers from multiple individuals. When a block is solved by a pool, the rewards will be split among the participants of the pool.
It is important to note that mining is not always profitable as it requires electricity. It is therefore important to use a mining calculator to calculate your potential profit. Personally, I choose to mine coins that are more obscure. The reason in doing so is that competition is not so stiff now and I will likely be able to mine more coins as compared to mining a popular coin. In addition, there is also a chance that these less popular will increase in price much faster than the popular ones.
Right now, I am mining Turtlecoin. It is one of the smaller projects that I believe have big potential. Of course this is a bet that may not play out. But since I am only mining on a part-time basis, the cost incurred isn't high and the risk is acceptable.
Proof-of-Stake
Another popular consensus algorithm is the Proof-of-Stake (PoS). In PoS, the more you have at stake, the more you earn; hence the name. Unlike PoW, PoS typically does not require you to own a powerful machine to start mining. However, it does require you to put in some initial investments by buying the coins that you are staking.
There are 2 common ways to in making money out of PoS. One is simply just by passively HODLing your coins, locking them up into a smart contract or switching to "staking" mode from your wallet. Examples are NEO, LOOM, QTUM and NAV. My personal favorite is LOOM right now, as I find it an essential project for gaming dApps on blockchain. I am staking LOOM through a smart contract and that allows me to get up to 15% ROI depending on how long I lock my tokens.
The other method is to run a masternode. For most projects, a minimum number of coins is required to setup a masternode. Masternode are trusted nodes in the network that process transactions and commit them to the blockchain. Examples are DASH, PIVX and something very familiar to us, STEEM. STEEM is a delegated PoS and the masternodes are called witnesses. While you can technically buy sufficient STEEM Power to allow you a place in the top 100 witnesses, most of them relies on votes from other Steemians to stay the top of the list.
Currently I am running a node for a project called DADI. For now, only a few hundreds nodes are allowed and it is not fully available to the public. However, it will likely be opened to public as the project progresses.
Cryptocurrency Lending
The other innovation brought to us by blockchain is the availability of smart contracts. With smart contracts, a whole new era of DeFi (Decentralized Finance) is born. Through smart contracts, borrowers can lock up some cryptocurrencies as collateral to borrow cryptocurrencies. The typical use case is to lock up some Ethereum and borrow DAI, which is a stablecoin.
When there are borrowers, there need to be lenders. So with DeFi, you can now lend out your cryptocurrencies and earn an interest in a fully decentralized manner. One popular platform is "Compound". It allow borrowers and lenders to transact simply through smart contracts without intermediaries. As it stands, you will get 9% ROI by lending out DAI if you have some.
Because most of such DeFi platforms are Ethereum-based, usually only Ethereum and its ERC20 tokens are available for loans. If you are open to more centralized platforms, the Celsius Network is another alternative that allows loans of other cryptocurrencies like BTC, Dash and LTC.
Bonus: Content Creation and Curation on Steem
Last but not least, blockchain and cryptocurrencies also enabled the development of Steem platform, which allows you to earn cryptocurrencies by creating and curating content. This is more of a bonus as it technically does not count as a "passive" income.
Content creation and curation requires active participation but on Steem, it can be incredibly rewarding. Writing on Steem is a side hustle that many of us can work on a part-time basis. If you are not doing it yet, what are you waiting for? :)
Thanks for reading and do share your thoughts on these opportunities on passive income. Let me know if I missed anything out.
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Some great options. A helpful post!
Thanks!
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Steem is my favorite passive income Blockchain :)
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