Crypto is known for its outsized gains, but buy-and-hold strategies aren’t the only way to earn money with crypto. You can earn crypto passive income in a variety of ways, often being paid to wait for future gains. In this guide, we’ll discuss how to make passive income with crypto, detailing the top 10 tried and tested methods.
We’ll look at strategies that require low initial investments, as well as those that can be more capital intensive — but perhaps more lucrative. Let’s find out what’s available for crypto passive income fans in 2024.
Top List of Ways to Earn Passive Income in Crypto
Methods to earn crypto passive income range from simple strategies such as crypto savings accounts to more technical methods like mining or running a master node. The broad range of options allows you to diversify your income streams, safeguarding against market risk for specific income streams.
Crypto Games: Play-to-earn games let you earn tokens and trade NFTs for profit.
Claiming Airdrops: Claim free crypto tokens to complete specific tasks.
Crypto Lending: Choose from centralized or decentralized lending platforms to earn a yield on your crypto.
Running Master Nodes: Earn up to 18% to provide blockchain data with crypto nodes that pay block rewards.
Best Crypto Passive Income Methods Reviewed
For most of the income strategies reviewed below, you’ll need to start with some seed money. However, you can start with a small initial investment or choose a method that doesn’t always require money, such as gaming. Then, you can use your earnings to build toward additional income streams. Alternatively, if you have a few thousand dollars or more in crypto you want to put to work, you have more options.
1) Yield Farming Platforms
Most yield farming platforms typically require locking your tokens in a smart contract to earn tokens for that platform or other tokens. For example, you might use your USDC tokens to lend on the Seamless Protocol, earning SEAM tokens in the process along with an interest rate paid USDC. Yield farming can be lucrative but can also require more maintenance. You may need to move your funds to other protocols frequently.
Criteria
Score Out of 10
Comments
Effort Required:
7
Users may need to move funds or swap assets to earn the best yields.
Level of Risk:
5
Well-established protocols likely bring less risk, but untested platforms can be riskier.
Staking, in this context, refers to using your crypto as collateral to help secure proof-of-stake networks like Ethereum or Solana. Typically, yields from staking rewards range from 3% to 6%, although some cryptos offer higher yields based on demand.
However, you can also stake cryptos in other ways. For instance, some crypto staking platforms like OKX offer staking in which the exchange deploys the assets in DeFi or lends the assets, paying a yield if you lock for a specific duration.
Criteria
Score Out of 10
Comments
Effort Required:
8
Usually just takes a few clicks to stake.
Level of Risk:
6
Proof-of-stake protocols may be safer than other staking opportunities.
Potential Reward:
8
Solid yields are available with minimal risks.
Investment Requirements:
8
Minimum staking amounts may apply.
Pros
Stake with just a few clicks on centralized platforms.
Help support network security for your investment assets
Available on centralized and decentralized platforms
If you’ve ever wondered how you could earn Bitcoin passive income, crypto savings accounts may be worth a closer look. Platforms like Nexo and YouHodler offer crypto savings accounts where you can deposit and start earning interest. To be clear, these and similar platforms are lending your crypto to earn interest and sharing the interest income with depositors.
Criteria
Score Out of 10
Comments
Effort Required:
9
It’s easy to deposit funds and start earning. However, users should research the platform’s financial strength before making a deposit.
Level of Risk:
6
Two large crypto lending platforms collapsed in 2022.
Potential Reward:
6
Yields can be attractive, but lower yields can be expected on blue-chip cryptocurrencies like BTC.
Liquidity mining refers to using liquidity pools to earn a yield on decentralized exchanges. In this crypto passive income strategy, you deposit crypto into a pool, usually in pairs like USDC and USDT, for example. As other traders swap tokens using the liquidity pool, you earn swap fees. You might even earn farming tokens for incentivized pools on decentralized exchanges.
Yields can be impressive for high-volume pools. However, you’ll want to research impermanent loss (IL) before depositing dissimilar assets, such as ETH and USDC. Price volatility on either side of the equation can leave you with less value than if you just held the assets.
Criteria
Score Out of 10
Comments
Effort Required:
7
Users should research IL and concentrated liquidity before making deposits.
Level of Risk:
6
IL risk and changing demand make liquidity mining income less predictable.
Proof of stake is becoming more popular, but the leading cryptocurrency (BTC) and many others still use crypto mining to secure the network and bring new coin supply into circulation. You have the option of mining with your own hardware for certain assets that support CPU or GPU mining. However, more competitive assets like Bitcoin are more commonly mined with specialized hardware called ASICs.
This one is best suited to more technically inclined users, although there are some newbie-friendly cloud mining programs available. Be sure to research before you buy. Cloud mining has a sketchy reputation.
Criteria
Score Out of 10
Comments
Effort Required:
5
Mining setup and fine-tuning can be technical.
Level of Risk:
6
Mined coins may not cover mining costs.
Potential Reward:
8
If your mined crypto increases in value, returns can be outstanding.
Investment Requirements:
6
Mining for top cryptos like BTC requires a significant investment in equipment.
Pros
Potentially outstanding returns if you can hold
Help secure the network with proof of work
Possible to mine some cryptos with CPU or GPU
Cons
Complicated setup
Expensive electricity costs
Costly equipment for BTC and other ASIC-mineable cryptos
Much like dividend stocks, select cryptocurrencies can pay a dividend without lending. However, some, such as KCS, require staking to earn yields. Well-established dividend-paying cryptocurrencies include KCS, VET, and NEO.
KCS pays holders a share of trading fees on the Kucoin platform with daily payouts. NEO pays a yield in GAS tokens, with typical yields of about 2%, although yields are time-based. VET pays a yield of about 1.4%, distributing VTHOR tokens quarterly to VET stakers.
Criteria
Score Out of 10
Comments
Effort Required:
8
Getting started is easy but requires some research on staking procedures.
Level of Risk:
7
Smaller market cap coins may see more price volatility.
Potential Reward:
5
Dividend-paying cryptos provide lower yields compared to other strategies.
Investment Requirements:
9
Typically, only a low investment is needed to start.
Imagine getting paid to play games. Play-to-earn crypto games offer a myriad of ways to earn crypto rewards, trade NFTs, or even earn from providing in-game services. Titles like CryptoKitties and Axie Infinity started the crypto game craze. Now, more advanced projects like Star Atlas offer game-studio graphics quality and immersive gameplay. Metaverse projects like Decentraland also rank high in the crypto game space, allowing players to create nearly anything they can imagine.
Criteria
Score Out of 10
Comments
Effort Required:
6
Gameplay is often easy, but earning can take some time to learn.
Level of Risk:
7
Some games require an investment to get started, and game token prices can be volatile.
Potential Reward:
6
Earning potential ranges from a few dollars to a full-time income.
Investment Requirements:
7
There are usually inexpensive ways to get started.
Many of today’s popular crypto tokens began circulating as crypto airdrops. As the name suggests, it’s almost like crypto falling out of the sky. For example, ARB, the governance token of the Arbitrum blockchain, was airdropped in March 2023. When the token started trading, much of the price action was around $1, but ARB went on to reach a short-term high of more than $2.
To qualify, users had to complete certain activities on the Arbitrum blockchain, each of which earned qualifying points. Other crypto airdrops are sent to wallets that interact with similar protocols.
Criteria
Score Out of 10
Comments
Effort Required:
6
Expect to invest some time (and tokens) interacting with protocols.
Level of Risk:
8
Airdrops are profitable; just beware of scams.
Potential Reward:
9
Speculative airdrop hunting costs money, but rewards may be massive.
Investment Requirements:
7
Active airdrop hunting can cost considerable gas fees.
Pros
Airdrops are free money
Profits from airdrops can finance other investments
Airdrops highlight projects you may not know about otherwise
Cons
Hunting for airdrops can be time-consuming
Some airdrops have participation requirements
May not be available to US residents due to regulatory concerns
Earlier, we discussed crypto savings accounts, which often means the platform is lending your crypto. However, crypto lending isn’t limited to centralized platforms. DeFi platforms like Aave, Curve, Compound, and dozens of smaller protocols often offer higher yields compared to centralized platforms and are available from anywhere in the world.
Crypto lending platforms use algorithms to limit the risk of losses for lenders. Borrowers are also depositors on the platform, using their deposits as collateral to borrow from lending pools. Yields are variable based on demand. When demand spikes, lenders can make impressive double-digit yields.
Criteria
Score Out of 10
Comments
Effort Required:
8
If you know your way around a crypto wallet, you can lend crypto easily.
Level of Risk:
8
Defaults on leading platforms are rare due to over-collateralization.
Potential Reward:
7
Expect average yields of 3%, with occasional spikes to 40% or higher.
Mining can be expensive and often requires specialized equipment. However, you can also consider running crypto nodes for passive income. Nodes hold blockchain data, and master nodes hold the entire blockchain, serving that data to other light nodes and crypto wallets. If you’re technical or can follow instructions, running crypto nodes that pay offers a more energy-efficient method of helping to secure crypto networks compared to mining.
You’ll need to make an investment, however. Master nodes typically require that you hold a minimum amount of the cryptocurrency for the blockchain. For example, to run a Dash master node, you need to own 1,000 DASH, about $30,000 at current prices. Other projects have lower requirements. Yields can range from a few percent to double-digit percentages annually.
Criteria
Score Out of 10
Comments
Effort Required:
6
Running a master node can require technical acumen.
Level of Risk:
6
Crypto requirements bring price risk.
Potential Reward:
8
Yields can be respectable, particularly if you plan to hold the crypto anyway.
Investment Requirements:
5
Minimum holdings can be much higher than other strategies, such as staking.
Pros
Solid yields
Low maintenance once up and running
Support the network of cryptos you’re holding
Cons
Technical setup
High minimum holding requirements
What is Crypto Passive Income?
Passive income refers to income you earn without additional labor. In the analog world, for example, you can earn interest in a money market account or bank savings account. Just deposit funds and watch the interest income roll in while you do other things.
Earning passive income with cryptocurrency follows a similar premise, although the methods may differ. Some passive income strategies also require some setup work or even a bit of hands-on ‘farming’ to maximize your gains.
How to Pick a Platform for Earning Passive Income
In a later section of this guide, we discuss the risks of earning passive income with crypto, some of which involve the platform you choose. Here are some factors to consider before making a choice.
Trustworthiness and Reputation
Do some research on the platform you’re considering. Look for unbiased reviews and weigh well-reasoned criticisms of the platform.
If you’re using a centralized platform, you can often find user reviews on sites like Trustpilot. You may also want to consider regulatory oversight, if applicable, as well as features like proof of reserves.
For decentralized platforms, again, look for unbiased user reviews. However, and more importantly, also look for information on audits. Reputable projects often undergo one or more smart contract code audits by a third-party firm.
Centralized vs Decentralized
In many jurisdictions, you can choose either centralized or decentralized platforms for yield opportunities, such as crypto lending. However, in some countries, such as the US, you’ll find fewer opportunities through centralized providers like exchanges.
Centralized platforms may have more regulatory oversight, whereas decentralized platforms are generally unregulated. However, decentralized platforms may be accessed from nearly anywhere in the world.
Interest Rates and Yields
Consider the yields available, although it’s also essential to research how the platform provides the yield and the associated risks. For example, if yields come from token inflation, your reward tokens may lose value quickly.
Total Value Locked (TVL)
You can use tools like DefiLlama, TokenTerminal, or GeckoTerminal to see the total value locked in the DeFi protocols you’re considering. Higher TVL doesn’t make a protocol 100% safe. However, a higher TVL suggests more people have looked at the smart contract code. This could include independent researchers or firms like PeckShield, famous for finding potential flaws in live smart contracts.
Advantages of Earning Passive Income from Crypto
The primary advantage of earning passive income from crypto is that you don’t have to do anything. You’ll invest some time in research, of course. After you choose a strategy, there usually isn’t much left to do.
High Potential Income
As you build your portfolio, and with the right choices, you can earn a healthy crypto passive income. If your portfolio is large enough and if you can find ways to put it to work, you may not need to work at all.
Diversified Income Streams
Passive income strategies are wide-ranged, offering healthy diversification. If one stream stops performing, you have income from other strategies while you plan your next move.
Portfolio and Income Diversification
Crypto assets help diversify your investment portfolio and your income. Maybe you work full-time or part-time while your crypto creates additional income and a safety net.
Permissionless Access
If you use decentralized strategies, anyone can participate to earn passive income with crypto. Decentralized applications (dApps) use your wallet address as your identity, allowing anyone to use the app.
Grow Into Larger Opportunities
If you have a limited budget, you can start small and use your earnings to branch out to other crypto income streams.
Drawbacks of Passive Income from Crypto
Of course, crypto passive income comes with some risks and drawbacks as well. Crypto market price volatility can put your principal and earnings at risk. Earning passive income with crypto also requires some extra work when preparing your taxes.
Price Volatility
The same price volatility that sends crypto assets to the moon also causes prices to crash back to earth occasionally. Many passive income strategies involve holding a cryptocurrency for an extended period, which may affect your ability to sell if the market gets jittery.
Smart Contract Risks
Several methods to earn passive income with crypto utilize smart contracts, which are computer programs that run on blockchain networks. Exploits against smart contracts led to over $3 billion in losses in 2022, an increase of more than $1 billion compared to the prior year. Reputable projects use third-party auditing companies to crawl through the code and test for potential exploits. However, there still may be risks.
Platform Risks
If you choose to use a third-party provider, like an exchange, to earn passive income, the provider itself may be the largest risk. Several large exchanges and crypto platforms crashed in 2022, including FTX, a leading exchange, as well as Celsius and BlockFi, both of which offered crypto lending.
Regulatory Uncertainty
Crypto assets still exist in a grey area in regard to regulation. Regulators like the US Securities and Exchange Commission (SEC) have filed charges and lawsuits against some crypto projects and exchanges while passing over others. For example, the SEC vs. Ripple (XRP) case caused several top-tier exchanges to stop supporting trading for XRP.
Additional Tax Preparation
Crypto passive income strategies can generate a lot of income over time. However, the income often arrives in small increments, all of which must be tracked for tax purposes. Certain strategies, such as yield farming or liquidity mining, can be particularly challenging to track.
Paying Tax on Crypto Passive Income
In the US and many other tax jurisdictions, passive income from crypto is treated as ordinary income for tax purposes. This differs from the tax treatment for selling crypto, which is treated as capital gains (or losses). If you’re staking crypto, for example, your staking rewards are income and are subject to income tax in many jurisdictions. Similarly, airdrops, interest, yield farming tokens, mining rewards, and play-to-earn rewards are all treated as income and are likely taxable.
If you’re active in the crypto space, accounting for taxable transactions can be challenging. Fortunately, it’s all on the blockchain, which means documenting taxable transactions can be automated. A growing number of providers now offer crypto tax software to make the process easier. Many crypto tax software apps can collect your exchange data as well as blockchain data for the wallet addresses you provide.
Conclusion
If you’ve been wondering how to make money with crypto, you can consider crypto passive income strategies such as lending or staking. The best ways to earn passive income with crypto offer a balance of yield and safety.
If the numbers look too good to be true, do some research to understand why. It may just be a demand spike, or there may be a valid reason to steer clear. Also, research the platforms you’re considering to understand the risks. Play it safe to protect your profits.
FAQs
Can you make passive income with crypto?
Yes. You can lend crypto to earn a yield or stake crypto to earn staking rewards. Other passive income strategies include mining, running a master node, or funding a liquidity pool on a decentralized exchange.
Is crypto mining a good passive income?
Crypto mining can offer solid returns but comes with some upfront costs for equipment as well as ongoing costs in the form of electricity. Dozens of well-established projects use proof-of-work mining and many even support mining with a CPU or GPU.
Which crypto is best for passive income?
Measuring risk versus reward, established stablecoins like USDC and USDT offer the highest yields with the most stable price ($1). Many crypto investors use these two tokens in liquidity pools or in crypto lending due to the fixed price and high demand.
What is the best method for earning passive crypto income?
Lending crypto through an established DeFi platform like Aave is likely the best method for beginners or safety-minded investors. However, you’ll need to use a self-custody wallet and interact with smart contracts, which comes with a learning curve. As another relatively safe option, you can consider staking leading crypto like Ethereum, although ETH prices can be volatile.
Eric Huffman's background includes a decade plus in business management as well as personal finance industry experience in insurance and lending. A strong understanding of consumer finance combined with a consumer advocate stance brought Eric to the crypto industry, where he writes articles and guides aimed at making crypto easier to understand.
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