Top 10 Ways for Earning Passive Income with Crypto

Earning passive income with crypto is growing fast. More people now invest in crypto to earn steady returns. In 2024, millions are staking, lending, and mining for income. Over 10 million people now invest in crypto to earn steady returns, and the crypto staking market alone is worth over $45 billion in 2024. More investors are turning to crypto for passive income. This trend is changing how we grow wealth.

In this article, you’ll discover the top 10 ways to earn passive income with crypto. Each method offers unique benefits and opportunities. Let’s explore how you can boost your earnings with minimal effort.

What is Passive Income in Crypto?

Passive income in crypto refers to earning money without constant effort or active involvement. You can generate this income by staking, lending, mining, or holding certain crypto assets that reward you over time. It’s a way to grow your investments passively, like earning interest in a bank but with higher returns.

More and more people are exploring passive income opportunities in crypto. In 2024, the total value locked in crypto staking alone is over $45 billion. This growing interest is due to the combination of higher returns, ease of access, and technological advancements in decentralized finance (DeFi) platforms. People see crypto as a new and exciting way to grow wealth without actively trading or working.

Following are 10 ways to earn passive income from crypto:

1. Staking

Staking is a way to earn rewards by holding and locking your crypto. You help secure a blockchain network by staking your coins. In return, the network rewards you with additional coins. It’s similar to earning interest on a savings account but with crypto.

How It Works
You lock your cryptocurrency in a blockchain wallet for a set period. The blockchain then uses your staked crypto to validate transactions. This helps keep the network secure and efficient. In exchange, you earn rewards, usually in the form of the same crypto you staked.

Best Cryptocurrencies for Staking
Several cryptocurrencies are popular for staking, each offering different returns and risks. Some of the best examples include:

• Ethereum 2.0: Ethereum’s move to proof-of-stake offers great staking rewards.
• Solana: Known for fast transactions, it’s popular for staking.
• Cardano: Offers steady returns with a low-risk staking option.

Potential Earnings
Staking rewards vary depending on the cryptocurrency and network. On average, you can earn anywhere from 2% to 10% annually. For example, Ethereum 2.0 offers about 2% to 8% returns, while Solana and Cardano offer between 6% to 12%.

Pros:

• Earn rewards: You can earn rewards by simply holding and staking your crypto.
• Support the network: By staking, you help secure the blockchain network.
• Low effort: Once set up, staking is hands-off, requiring little to no management.

Cons:

• Lock-up periods: Staked funds are often locked for a specific time, limiting access.
• Market volatility: Crypto prices can drop, reducing the value of your staked assets.
• Not all cryptos offer staking: You are limited to coins that support staking.

2. Crypto Lending

Crypto lending lets you lend your crypto to others. In return, you earn interest on your loaned assets. It’s like a bank loan but with cryptocurrency instead of cash. Platforms like Aave and Compound help users lend or borrow crypto easily.

How It Works
You deposit your crypto into a lending platform’s pool. Borrowers take loans from this pool by using their assets as collateral. While they use your crypto, you earn interest on it. The platform manages everything automatically. Once the borrower repays, you get your crypto back with the added interest.

Top Platforms for Crypto Lending

Several trusted platforms are popular for crypto lending. Aave, Compound, and BlockFi are known for their reliability and security. These platforms support a wide range of cryptocurrencies for lending and borrowing. Each platform offers different interest rates, or APY (Annual Percentage Yield), based on the demand for the crypto being lent.

• Aave: APY ranges from 3% to 10% depending on the coin.
• Compound: Offers 2% to 8% APY on major cryptocurrencies.
• BlockFi: Provides APY up to 9.5% on stablecoins like USDC.

Potential Earnings
Crypto lending can yield anywhere between 2% and 12% annually, depending on the platform and asset. Stablecoins often offer higher returns, around 8% to 10%, while major coins like Ethereum offer 3% to 6%.

Pros:

• Earn interest: You can earn interest by lending out your crypto.
• Flexible terms: Many platforms offer short-term and flexible loan options.
• Passive income: Once the loan is issued, you earn without much involvement.

Cons:

• Borrower risk: There’s a risk the borrower may not repay the loan.
• Platform risk: Lending platforms can face hacks or go bankrupt.
• Locked funds: You may not be able to access your crypto while it’s loaned out.

3. Yield Farming

Yield farming involves earning rewards by providing liquidity to decentralized finance (DeFi) platforms. Users lend or stake their crypto in liquidity pools. In return, they receive rewards, often in the platform’s native token. It’s like earning interest but with higher risks and rewards.

How It Works
You deposit your crypto into a liquidity pool on a DeFi platform. This pool supports the exchange of tokens between traders. By providing liquidity, you help the platform function. In return, you earn a portion of the trading fees or platform rewards. The rewards are usually in the form of additional tokens.

Top Platforms for Yield Farming
Several platforms are popular for yield farming, offering different rewards and opportunities:

• Uniswap: A leading decentralized exchange with liquidity pools for many tokens.
• PancakeSwap: Known for high yields on Binance Smart Chain (BSC).
• SushiSwap: Offers rewards similar to Uniswap but with unique farming incentives.

Potential Earnings
Yield farming can offer high returns, often between 5% to 50% annually. Some high-risk pools even offer over 100% annual percentage yield (APY).

Pros:

• High returns: Yield farming can offer high rewards compared to other methods.
• Multiple opportunities: Many decentralized finance (DeFi) platforms offer yield farming options.
• Earn in different tokens: You can earn rewards in different cryptocurrencies.

Cons:

• Complex setup: Yield farming can be complicated for beginners.
• High risk: It comes with high risk due to market volatility and smart contract failures.
• Impermanent loss: You may lose money if the token prices fluctuate a lot.

4. Liquidity Mining

Liquidity mining involves earning rewards by supplying liquidity to a decentralized exchange. You provide a pair of tokens to a liquidity pool. This helps facilitate trading on the exchange. In return, you earn rewards, often in the form of the platform’s token.

How It Works
By adding tokens to a liquidity pool, you help traders exchange assets. The pool collects trading fees from these transactions. As a liquidity provider, you receive a share of these fees. Rewards are usually given in the platform’s native token or a portion of the fees.

Top Platforms for Liquidity Mining
Several platforms are well-known for liquidity mining:

• Balancer: Allows you to create and participate in custom liquidity pools.
• Curve Finance: Specializes in stablecoin liquidity pools with low slippage.

Potential Earnings
Liquidity mining can offer annual returns from 5% to 20%. Rewards vary based on the platform and pool’s popularity.

Pros:

• Earn fees: Liquidity providers earn a share of transaction fees on decentralized exchanges.
• Passive income: Once you provide liquidity, income can be earned automatically.
• Supports DeFi ecosystem: You contribute to the smooth running of decentralized finance.

Cons:

• Risk of impermanent loss: Price fluctuations can cause you to lose funds.
• Smart contract risks: The platform’s smart contracts could have bugs or be hacked.
• Market volatility: Crypto prices are unpredictable, affecting your earnings.

5. Earning Dividends from Crypto Tokens

Some cryptocurrencies pay dividends to their holders. NEO and KuCoin Shares (KCS) are popular examples. These tokens distribute earnings to investors regularly. It’s similar to receiving dividends from stocks.

How it Works
To earn dividends, hold dividend-paying tokens in your wallet. The platform or project distributes dividends based on the amount of tokens you hold. Dividends are usually paid in the same or a different token. Simply by holding these tokens, you can receive regular payments.

Top Platforms for Dividend-Paying Crypto
Several platforms support dividend-paying tokens:

• NEO: Earn GAS tokens, which are used for transaction fees.
• KuCoin: KuCoin Shares (KCS) holders receive trading fee rebates.

Potential Earnings
Dividends from crypto tokens can vary widely. For example, NEO holders might earn 2% to 5% annually in GAS. KuCoin Shares (KCS) can offer around 10% to 15% annually in trading fee rebates. Earnings depend on the token’s performance and platform fees.

Pros:

• Regular payouts: Some tokens pay dividends regularly, similar to stock dividends.
• Ownership benefits: By holding certain tokens, you can benefit from the project’s profits.
• Low effort: Earning dividends doesn’t require active participation.

Cons:

• Limited token options: Only a few crypto projects offer dividend-paying tokens.
• Market risk: The value of your tokens can decrease along with market drops.
• Variable payouts: Dividend amounts can vary based on the project’s performance.

6. Masternodes

Masternodes are special servers in a blockchain network. They perform advanced functions beyond regular nodes. These functions can include transaction verification and network governance. Running a masternode requires a significant amount of cryptocurrency.

How It Works
You set up a masternode by locking a large amount of cryptocurrency. The masternode then helps manage and secure the network. In return, you receive rewards for your contributions. Rewards are usually paid in the network’s native cryptocurrency.

Best Coins for Masternodes
Several cryptocurrencies are popular for running masternodes:

• Dash: Known for its fast transactions and privacy features.
• PIVX: Focuses on privacy and decentralized governance.
• Zcoin: Offers privacy-focused features and regular rewards.

Potential Earnings
Masternodes can offer annual returns from 5% to 20%. For example, Dash masternodes might earn around 6% to 12% annually. Earnings depend on the cryptocurrency and the number of masternodes.

Pros:

• High rewards: Running a masternode can provide higher returns compared to staking.
• Network participation: Masternode owners help validate transactions and secure the network.
• Consistent income: Masternodes typically pay rewards at regular intervals.

Cons:

• High initial investment: Setting up a masternode requires a significant amount of capital.
• Technical skills needed: Managing a masternode requires some technical knowledge.
• Locked funds: You need to keep a certain amount of crypto locked in the masternode.

7. Cloud Mining

Cloud mining lets you mine cryptocurrencies without hardware. You rent mining power from a provider. It’s an easy way to mine without owning equipment.

How It Works
You sign up with a cloud mining provider. Choose a mining plan and pay for it. The provider uses their hardware to mine for you. You receive a share of the mined crypto based on your plan.

Best Cloud Mining Providers
Several well-known cloud mining providers are:

• Genesis Mining: Offers various mining contracts for different cryptocurrencies.
• HashFlare: Provides mining contracts with competitive pricing and easy setup.

Earnings Potential
Cloud mining earnings depend on the plan and crypto prices. Average returns range from 5% to 15% annually.

Pros:

• No hardware needed: Cloud mining allows you to mine without buying expensive equipment.
• Easy setup: It’s simple to start as you only need to sign up for a service.
• Passive income: Once set up, you can earn without active involvement.

Cons:

• Scam risk: Many cloud mining platforms are fraudulent or unreliable.
• Low profitability: After fees, the earnings can be lower than expected.
• No control: You rely entirely on the cloud mining company’s performance.

8. Affiliate Programs and Referrals

Crypto affiliate marketing lets you earn by referring new users. You promote crypto platforms and receive a commission for successful referrals. It’s a way to earn passive income through your network and influence.

How It Works
Sign up for an affiliate program on a crypto platform. Get a unique referral link to share. When someone signs up or makes a trade using your link, you earn a commission. Earnings are usually based on the user’s trading fees or deposits.

Top Affiliate Programs
Several major crypto platforms offer affiliate programs:

• Binance: Offers commissions on trading fees and referrals.
• Coinbase: Provides referral bonuses for new user sign-ups.
• Kraken: Offers rewards for bringing in new users.

Potential Earnings
Affiliate programs offer passive income through referrals. You earn a commission whenever referred users trade or deposit. Earnings can be substantial depending on your network size. For example, Binance and Coinbase offer commissions up to 50% of trading fees. The more referrals you have, the higher your potential earnings.

Pros:

• Low effort: You can earn by sharing referral links with others.
• No upfront cost: You don’t need to invest money to participate in most affiliate programs.
• Flexible income: The more people you refer, the more you can earn.

Cons:

• Earnings depend on referrals: You only make money if others sign up or invest.
• Platform limitations: Some platforms have strict rules or caps on referral payouts.
• Not truly passive: You need to actively promote the affiliate links to earn consistently.

9. Play-to-Earn Games

Play-to-earn games allow players to earn cryptocurrency or NFTs as they play. The concept blends gaming with blockchain technology, where players are financially rewarded for their in-game activities.

How It Works
Players engage in various in-game tasks like battles, quests, or creating digital assets. They earn tokens, cryptocurrencies, or NFTs that hold real-world value. These can be sold or traded on exchanges or NFT marketplaces for profit. The more time you invest, the higher your potential earnings.

Best Game Providers

• Axie Infinity: A leading play-to-earn game where players battle and breed Axies (digital creatures) to earn tokens.
• The Sandbox: A virtual world where users can create, own, and trade in-game assets like land.
• Decentraland: A metaverse where players can build, buy, and sell virtual land, property, and art.

Earnings Potential
Play-to-earn games can be highly profitable depending on time spent and skill. For example, Axie Infinity players have reported earning $200 to $1,000+ per month. However, earnings can fluctuate due to token price volatility and competition within the game.

Pros

• Earn While Playing: Players earn crypto or NFTs just by playing.
• Ownership of Digital Assets: Players own their in-game items, which can be sold for real-world value.
• Community Engagement: Many games have active, supportive communities.
• Potential for High Returns: Some players earn significant income, especially with popular games.

Cons

• Initial Investment: Many games require upfront purchases, like Axies in Axie Infinity.
• High Competition: As games grow, it becomes harder to earn substantial rewards.
• Volatile Earnings: Token prices can fluctuate, affecting income stability.
• Time-Consuming: Significant time is often needed to earn meaningful rewards.

10. NFT Royalties

NFT royalties ensure creators earn a percentage of sales every time their NFT is resold. This provides artists and creators with ongoing income from their work, even after the initial sale.

How It Works
When an artist or creator mints an NFT, they set a royalty percentage, typically 5% to 15%. When the NFT is resold, the blockchain’s smart contract automatically sends the royalty payment to the creator. This ensures creators benefit from future sales without manual involvement.

Best NFT Providers

• OpenSea: The largest NFT marketplace, allowing creators to set up to 10% royalties on each resale.
• Rarible: A decentralized platform that lets creators customize their royalty percentages for every NFT they mint.
• SuperRare: A platform focused on high-end digital art, offering built-in royalty mechanisms that benefit artists long-term.

Earnings Potential
NFT royalties can provide creators with substantial passive income. For example, if an NFT sells multiple times, the creator continues to receive their set royalty percentage on each transaction. High-demand NFTs can generate 5% to 15% in royalties per sale. However, the profitability depends on the popularity of the NFT, its resale value, and the market’s overall interest.

Pros

• Passive Income: Creators earn royalties from every resale of their NFT.
• Smart Contracts: Automatically ensures creators get paid without manual tracking.
• Ongoing Revenue: Continuous earnings from a one-time creation, unlike traditional art sales.
• High Profit Potential: Popular NFTs can generate significant royalties over time.

Cons

• Market Dependency: Income relies on resales, which depend on market demand.
• Fluctuating Value: NFT prices can decrease, reducing the chances of resale.
• Oversaturation: The growing number of NFTs makes standing out more difficult.
• Risk of Low Demand: If no one resells the NFT, creators may not earn additional royalties.

Taxes on Passive Income from Cryptocurrency

Now for the downside—your passive income from crypto is likely taxable.

Although tax authorities like the IRS haven’t provided specific guidance on many crypto investments, such as those mentioned here, they have made it clear that cryptocurrency can be taxable. The way your earnings are taxed generally depends on how you’re making them.

For example, if you’re earning new tokens, such as through staking, this is typically considered additional income. In such cases, you’ll likely owe Income Tax on the value of those tokens in fiat currency at the time you receive them.

On the other hand, activities like liquidity provision, lending, or yield farming may be treated as crypto-to-crypto trades. Gains made from these trades are usually subject to Capital Gains Tax in most cases.

Final Thoughts

We’ve discussed 10 ways to earn passive income with crypto, including staking, crypto lending, and yield farming. Each method offers unique opportunities and risks. You should choose the best one based on your risk tolerance and goals—lower-risk options like crypto savings accounts might suit some, while others may prefer higher returns from yield farming. You can start exploring these strategies today to begin earning passive income. Do your research thoroughly and select the method that aligns with your financial goals.

Frequently Asked Questions (FAQs)

Disclaimer: The information in this article is for educational purposes only. Cryptocurrency investments carry risks, and returns are not guaranteed. Always research and seek professional advice before making financial decisions.