New year, new me — the phrase has become a cliche of sorts, but it doesn’t lose its relevance over time. We continue to make resolutions, promise to start with a clean slate, implement new habits and eliminate the harmful ones. Cliche or not, it seems to be quite a nice tradition — to revise the way you live once a year is a healthy thing to do.
This year this Big Overhaul of Attitudes is taking place during the crypto winter, and this coincidence may give us additional ground for reflection. While this tedious bear market is in full swing, it is a perfect moment to reconsider your financial habits and think about making the coins you hodl, humbly waiting for their moment of rise and glory to come, work.
There are many ways to make passive income with crypto, but in this article, let’s look at the three most popular options providing the lowest threshold – suitable even for people who are not tech-savvy and don’t have a coffer full of money in their bedroom.
Mining! The term is closely associated with the crypto itself – probably even your grandparents have heard of this word. The idea of Proof-of-Work was invented in the distant 1992 by Cynthia Dwork and Moni Naor, who suggested it to combat spam. It was first implemented in 2009 by Satoshi Nakamoto in his creation called Bitcoin.
Without going into details, blockchain mining is the method by which cryptocurrencies based on the Proof-of-Work consensus mechanism are generated, and the transactions involving new coins are verified. People use the power of their computers to solve problems and receive coins as a reward. The main issue with mining is that to start exercising it, you need to have super powerful hardware, money to buy it and to pay for the huge electricity bills.
Cloud mining resolved this problem. Cloud mining is passive cryptocurrency mining by renting computing power from third-party sources. The user rents computing power for a fee in a remote data center and receives a part of the money in return. It makes mining more accessible to people without technical skills and the opportunity to buy and maintain special hardware.
But you have to be careful and beware of scams. Since you can’t see the mining farm with your own eyes, you have to understand that it may not exist — there were many situations when such services couldn’t prove that they actually have mining rigs. So you may inadvertently end up being dragged into a fraudulent scheme.
Сloud mining usually requires you to commit to a fixed contract, according to which you pay for hash rate and electricity over a set period of time. If you decide to invest in this, we strongly recommend researching and correctly calculating the cost-effectiveness before purchasing contracts for cloud mining: such companies usually charge an extra maintenance fee, and in many cases, profits may be lower than costs.
Staking — that’s what first comes to mind when discussing ways to make passive income with crypto. There’s been a lot of buzz around this technology since its inception, especially during the last five years.
The proof-of-stake technology is the main alternative to proof-of-work. It suggests a type of mining where instead of the computing power of participants, you need to store crypto assets in your account. Thus, instead of using a large amount of electricity, PoS participants have a limited percentage of possible transaction checks. Sunny King and Scott Nadal introduced the concept in a 2012 whitepaper for PPCoin.
There are different risks associated with staking, one of which is slashing. Slashing means that validators have the chance of penalties, up to 100% of the money they have staked, if they submit inaccurate information or if their computers go offline unexpectedly.
The risk of centralization is also high — the bulk of assets can get into the hands of large players. Such a situation is most likely for new cryptocurrencies traded at a relatively low price. Also, since users tend to keep coins in their accounts for as long as possible to maximize profits, there is a high risk of decreasing cryptocurrency turnover.
Crypto Lending Platforms
Previously people used to compare staking to bank deposits and considered it the most profitable option to get passive income with crypto. Today, this honor passed to crypto lending, outperforming staking on all fronts.
On crypto lending platforms, you deposit your money in return for regular interest payouts, usually made in the form of deposited currency. The popularity came to the lending platforms three years ago, and they have grown to billions in TVL over this time.
Unlike staking and cloud mining, crypto lending does not limit you to investing coins based on PoS and PoW algorithms — the only restriction is the choice of coins on a specific platform. Some projects even started offering stablecoin deposits for those wary of high volatility and wanting to stay close to the fiat but remain within the crypto space. Yes, now you can have the penny and the bun! In this regard, the HEXN.IO company puts forward a unique offer: among all cryptocurrencies available for depositing on the platform, seven are stablecoins: $USDT, $USDC, $DAI, $BUSD, $EURS, $USDP, and $TUSD — all but the last one can be deposited at 22% APY.
As for the risk issue, in 2022, several crypto lending platforms fell like dominoes after the FTX collapse, including BlockFi, one of the world’s largest crypto lenders. From this seemingly terrible chain of events, we have learned a priceless lesson: the platform you trust with your money must be open and transparent about its balance sheet and have holdings in predominantly highly liquid assets.
Before investing, figure out how a particular company manages its funds — trustworthy financial services providers will aspire to offer that information to their customers as HEXN does. Full balance sheets are revealed; the list of the company’s addresses, the value of its assets, and liabilities — all the data is freely accessible on the platform’s Proof-of-Reserve page and is updated monthly. This is the kind of transparency you should seek for.
New Year, New Financial Habits
Not letting your assets lie idle is a good financial habit to consider this year. Crypto winter can be exhausting, but a stable high passive income can become your chill pill – you take it and peacefully wait for the spring to come to the markets, gathering the fruits of your investments. Choose an option that suits you, DYOR, make your first nerve-wracking investment, and here you go!