Cryptocurrency is a virtual or digital currency secured by cryptography, which makes it nearly impossible to counterfeit. The word “cryptocurrency” is derived from the encryption techniques used to ensure that the network is safe and secure.
For many, the appeal of cryptocurrency lies in their decentralised networks meaning they are immune to government interference or manipulation. However, a large reason for their popularity is down to investors looking to make money.
With digital currencies experiencing wild fluctuations in price, many people are understandably wary of investing. But there are opportunities to reduce that risk and still make crypto work by generating a passive income.
What Is a Passive Income?
Buying and selling currencies is time consuming, risky and requires a lot of research. However, there are ways to gain a reliable income through cryptocurrency holdings without all that effort.
By utilising passive income producing schemes, investors are able to gain a regular income with little effort on their part. This type of investment isn’t for everybody, so before you start dealing in digital currencies there are some important things to remember.
Do’s and Don’ts of Crypto Investing
Do Your Research
Doing your research and due diligence on the whichever currency or scheme that you’re investing in is crucial. The more information you have, the better your investment decision will be.
Things to consider are currency demand, performance to date, liquidity and the technology behind it. Sites such as Free Money are a great tool when it comes to making informed decisions on cryptocurrency.
Do stick to a plan
Have a long-term strategy that suits your appetite for risk. Creating a set of key performance indicators or investment targets removes emotion from decisions, especially important during times of high volatility.
Do keep a balanced portfolio
A balanced investment portfolio is vital in order to level out the inevitable fluctuations in the market. Just as you would hold a variety of stocks in a normal portfolio, a mix of volatile coins and more stable coins are key.
Don’t get over overconfident
It’s easy to get carried away and make rash decisions, especially when you’re making a lot of money. Cryptocurrencies have made some people a lot of money, but others have lost fortunes.
Don’t buy into the hype
When you see a digital currency going through the roof and people getting rich, it’s hard not to jump on board. But it’s important not to act on impulse, so do your research and use your head.
Don’t put all your eggs in one basket
A variety of crypto assets and products help spread your portfolio risk. But you don’t want to be tied to an exchange that offers no option to expand your cryptocurrency portfolio. Transferring from one platform or exchange to another can prove costly, so an all-in-one platform is preferable.
How to earn a passive income with cryptocurrency
Mining cryptocurrency involves using computers to solve complex mathematical problems and verify transactions. The quickest miner to achieve this work receives crypto coins or tokens as a reward.
This may sound like an easy way to earn a passive income, but historically investors would have been better off holding digital assets. Payback can take over a year, during which time the value of the currency may drop below a profitable price.
Mining is resource intensive and costly for an individual to undertake and comes with a substantial amount of risk due to fluctuating prices. Make sure you conduct thorough research and beware of scammers.
The increased expense of crypto mining has led to rise in the widespread use of proof of stake (POS). When individuals stake their coins, they are essentially lending their coins to a network to validate transactions.
In exchange for lending coins to the network, new cryptocurrency is offered as a reward – effectively earning interest. The more coins you stake, the greater your ability to validate transactions and therefore earn more currency.
Crypto staking requires a minimum investment although investors can participate in a group pool where users combine coins to receive a larger reward.
Crypto lending is an attractive option because it pays a passive income but avoids the volatility of the market. This is a more hands-on approach but offers the potential to earn much higher levels of interest.
The fundamental principles of lending digital currencies are no different to traditional money lending, with the borrower paying interest to the loan company. In peer-to-peer lending, a platform pays a fixed interest rate for your crypto coins – much like a savings account.
They then lend those assets to borrowers who aim to use their expertise to make even higher returns. Lending digital currency is risky as borrowers may default, so sure to use a trusted platform and do your research before committing.
Research and risk
It is important to remember that while crypto offers some great opportunities to earn a passive income, none of them are risk free. Make sure you do your research and learn more about the opportunities before committing your hard-earned money.
Interesting Related Article: “What Is Cryptocurrency Mining?“