Making money on cryptocurrency. Advantages of staking.
First crypto technologiesTo have a clearer idea of how to make money on cryptocurrencies, let`s do a quick recap on what cryptocurrency is and where it comes from.
The story began long before the Bitcoin revolution. In 1983, American cryptographer David Chaum presented the first anonymous cryptographic electronic money named eCash. It was designed to secure the privacy of individuals who used the Internet for micropayments. The invention was to stir up the digital and financial world over time, although initially, it was pretty complicated to apply. Users had to download their electronic money from a depositary bank and designate specific encrypted keys before they could send the payment to a recipient. When preparing to make an online purchase, they would use their ‘digital wallet’ to transfer funds to the merchant. Generally speaking, eCash served as a payment method, whereas ways to take profit from crypto were yet to be discovered.
Despite the complexities, eCash attracted people for being untraceable by the issuing bank, the government, or any other third party. The platform sparked interest among large banks, but it never took off, and DigiCash filed for bankruptcy in 1998. The parent company was eventually sold off along with its eCash patents. But the foundation for making money on cryptocurrency was here to stay.
The Bitcoin revolutionIn 2008, an anonymous person under the name of Satoshi Nakamoto introduced Bitcoin. The new cryptocurrency was destined to become a game-changer, inspiring a new generation of traders in attempts to make money on crypto. But how did it work?
Bitcoins emerge as a reward for crypto mining – a record-keeping process carried out using the processing power of a computer. It means anyone may earn the cryptocurrency without having to put down money for it. However, the process requires technical expertise and upfront investment in specialized hardware.
When Bitcoin appeared, it was unique for its entirely decentralized character. Unlike its predecessor, Bitcoin works on peer-to-peer transactions, making a revolution in payment methods. After being verified by the network, each transaction is added to the public ledger, comprising a blockchain. Thus, users got a payment tool, which didn`t need approval from a bank or any other regulator. Nowadays, Bitcoin may be exchanged for other cryptocurrencies and fiat (regular money), products, and services.
Despite downfalls, Bitcoin is still leading among other coins and attracting those who seek experience in making money with cryptocurrencies. Its market capitalization went over $1,1 trillion this year. The exact number of users is unknown, but some sources say there are 172 million addresses where transactions in Bitcoin are processed regularly. However, only 25 million addresses are believed to be economically active wallets belonging to private people on the network.
Modern blockchain systemsBitcoin played a significant role in the global economy. It worked to advance the digitalization of trade and essentially improved financial transactions, but the platform has become old. Now it fails to overcome challenges with energy consumption and speed. To solve these issues, developers have introduced modern blockchain platforms, which have already been adopted by multiple enterprises. Businesses seek solutions for some of their application needs, as well as multi-party cooperation, data exchange, and supply chain tracking.
Among modern blockchain frameworks, which are expected to improve efficiency and transparency, experts and business executives particularly emphasize R3 Corda, Hyperledger, and Ethereum, with EOSIO and Quorum gaining ground. Other options include IBM Blockchain, Tezos, Stellar, and Quorum.
How to make money on cryptocurrencyThe crypto industry is still in its early stages of development, but the number of methods to make money on cryptocurrency has grown considerably. It's no longer limited to the 'buy low, sell high' scheme. Sophisticated traders and investors look deeper to secure a sustainable source of income with crypto.
Strategies to make money on cryptoWhen all is set, it's time to consider which strategy fits your purposes (you do that for a good reason, right?). Here is a quick guide into working solutions, which help to make money on cryptocurrency.
InvestingOne of the basic types of crypto operations is similar to investing in fiat. It is the process of buying assets that increase in value over time and provide returns in the form of income payments or capital gains.
Depending on the quality of your analysis, investing is potentially quite a lucrative strategy to make money on crypto. But don`t forget to weigh risks thoroughly. Ultimately, cryptocurrencies, by nature, are a speculative and non-productive asset, which makes it not the best long-term investment.
Buying and holdingMost coins may not cost much upon being released, but they eventually grow in price if a project or a company is viable. Some crypto projects may skyrocket over the long term (sometimes even instantly), and tokens become in high demand. So the thing is to find a legit project which attracts you, buy a desired amount of tokens, and keep them in your crypto wallet. In the crypto community, they call it hodl, which is believed to originate as a drunken misspelling from the word 'hold'.
As projects may suddenly decay for internal or external factors (or, God forbid, both), keep tracking tokens that you bought for holding.
TradingTrading is another proven way to make money with cryptocurrency. Although the daily average volume of cryptocurrency trades is just 1% of the foreign exchange market, there is a lot of volatility in crypto. With the fluctuating rate movements, good timings occur to buy and sell tokens within a day or a short period of time. Unlike holding, here you may multiply your funds instantly, but on the other hand, risks are high, too
To secure maximum profit from your crypto assets in the long run, it is way better to reduce transactions to a minimum. The fewer operations you do, the less is a risk to stumble badly.
Skill contributionAs blockchain is creating bold possibilities across multiple industries, players are facing the necessity to go public to raise brand awareness, attract users and investors. To accomplish these and other strategic goals, blockchain-based companies always need experts: marketers, creators, engineers, etc. Here is where you may acquire coins and grow your crypto.
If you have relevant skills and experience to offer, you may opt for contributing to a company of your preference with your writing, content management, or whatever you`re good at. As a reward, they may share their native coins or pay with basic cryptocurrencies like Bitcoin or Ethereum. It`s a real job, which you may find online.
Crypto miningConsider mining as a real business project, where you need complicated hardware and a good place to install it. With decent technical expertise, investments, and a team, you may turn it into a formidable income funnel. However, to some crypto entrepreneurs, it may become a challenging work with stress and all the fun. On top of that, mining crypto consumes a lot of electricity, which imposes an additional burden on the environment. Guess it`s not what you`re up to for a piece of additional income.
Airdrops and forksAirdrop is a way of distributing tokens for free. Companies do that to expand brand awareness and increase the user base with the idea that a particular token will rise in price over time.
Whereas a cryptocurrency fork is an instance when developers modify a platform's existing code with an old version remaining on the network while the new version is created. If you hold coins on the original chain, you will typically get free tokens on the new network.
With that said, both options relate more to luck rather than strategy, what's making them not that attractive in terms of making money on cryptocurrency.
Non-fungible tokens (NFT)A non-fungible token (NFT) is a unique digital asset representing ownership of real-world items like art, video clips, music, and more. NFTs use the same blockchain technology that powers cryptocurrencies, but they're not a currency. However, you can still stake your NFTs to earn rewards and incentives on special platforms — one of them being Rplanet.
If you make digital art or like to buy and sell it, you can make your own token and earn cryptocurrency for your works. It's a good option as a source of additional income in crypto. But as any creative activity, it can hardly be considered a strategy.
Why stake crypto? Pros and cons.Similar to mining, staking is the process of participating in transaction validation. It involves holding funds in a cryptocurrency wallet to support the security and confirm transactions of a blockchain network. Simply put, staking is the act of locking cryptocurrencies to receive percentage-rate rewards. In most cases, you'll be able to stake your coins directly from your crypto wallet, such as Trust Wallet or MetaMask.
Some companies offer 10-20% yearly, which is quite generous for a relatively simple and safe option for passive income. On top of that, users may also upgrade their status or get access to exclusive features of the networks that use staking procedures.
Not all cryptocurrencies allow staking. Many coins are supported by a proof-of-work model, whereas only those which are based on the proof-of-stake model will work. It provides an opportunity to validate transactions to anyone with a minimum-required balance of a specific cryptocurrency. Currently, they include Tezos, Cosmos, Ethereum (via the new ETH2 upgrade), and some others.
Proof-of-stake is a consensus mechanism where a network chooses validators depending on the volume of their stake and the length of time they've held it. If transactions in a new block appear invalid, users can have a certain amount of their stake burned by the network. They call it slashing.
Benefits of cryptocurrency staking
- Source of passive income. Keep coins in your wallet and get rewards.
- Risk hedging. Gains may seem moderate, but so are the risks.
- A variety of tools are available. Reach Stakero to find out more.
Potential risksWith all the benefits which you may have with staking crypto, there are a few risks to be aware of.
- Volatility and sudden price drops.
- Your coins will be locked for a long time. You`ll be unable to do anything with them till it ends.
- Unstaking may take time. Some companies take seven days or longer to complete the final procedure.
ConclusionTo sum up, staking represents a proven solution, which helps to make your crypto assets work with much less effort and investments compared to other strategies.
However, you need to keep in mind that rewards are determined not only by conditions offered by the blockchain. The market volatility also plays a considerable role in the process.
Results may vary depending on the number of asset holders willing to hold and stake, the share of coins already at stake, alternative ways of using the assets, and other factors.
To figure out how to find proper staking opportunities, explore Stakero. Here you can stake crypto in 1 hour with a trusted expert’s oversight and start earning without stress. Join Pro membership to become a defi expert in 3 months.