How To Earn Passive Crypto Income With Ethereum
The volatility of the crypto market is a fact that has proven itself over time and it has its advantages and disadvantages for investors and traders.
The volatility of the crypto market causes prices of cryptocurrencies to rise and fall rapidly at an uncontrollable pace which can create good opportunities for traders to make more profits when the market is favourable. In the same way, traders can incur huge losses from an unfavourable volatile crypto market.
No matter how bad the market might seem, there’s always an opportunity to earn money from the market. One only needs to develop the right strategies to thrive in such market conditions.
During unfavourable market conditions, some passive income strategies can help investors earn passive income from their crypto holdings which helps in mitigating the losses which could have been naturally incurred from the such market condition.
For Ethereum traders abd investors, earning passive ETH income gives a hedge against the Ethereum market losses.
Formally, the most common way of earning extra income through interest on crypto assets is through Hodling. People held their crypto assets through the rough market time until a favourable market condition is restored which in return, drives up the crypto prices.
However, since the surge of decentralized finance (DeFi) protocols, many ways of earning interest on Ether and DeFi protocols have emerged.
This article gives insight into how to earn passive crypto income with Ethereum for beginners and Ethereum users.
Table of Contents
What Is Ethereum And How Does It Work?
Ethereum is a decentralised blockchain network used for building most crypto projects, NFTs projects and also running smart contracts.
Smart contracts are programmed applications that run exactly as they have been programmed without any third-party intervention or any possible fraud.
Ethereum network is utilized for building decentralised applications (DApps), open-source software that runs on the blockchain, by experts with the skill to do so.
Ethereum’s native coin, Ether serves as a key to many functions on the Ethereum network such as staking, making transactions, playing games, trading, storing NFTs and many more.
Before the transition to a proof-of-stake (PoS) consensus mechanism on September 15th, 2022, Ethereum was functioning with a proof-of-work (PoW) consensus mechanism.
The PoW rewarded miners for their role of validating transaction blocks in the network but the new PoS rewarded validators for validating transactions and securing the network.
Ethereum co-creator called this transition “The Merge” and he affirmed it to be the first step in achieving more scalability and energy efficiency in the network by eliminating the need for miners and the high energy they consume.
How To Earn Passive Income With Ethereum
Having understood the meaning of Ethereum and how the Ethereum network works, here are some ways you can make passive income with Ethereum.
Hodl is simply a crypto slang which means the same thing as “hold”. This term is used to describe the art of holding on to a cryptocurrency for a long time for investment bases.
This strategy is the most popular and oldest method of earning passive income with cryptocurrencies like Ethereum.
If an Ethereum investor hodl his Ether, he is very optimistic that the price will surge in the future and when it does, he will sell it for a profit.
Hodling is popularly known as a long-term investment strategy, hence, it does not always offer immediate profits. It can only yield a long-term profit if the price of Ether increases significantly.
While there is no assurance that the price of Ether will surge to a significant level in the future, investors can only be optimistic about the huge growth of Ether since its birth and how rapidly it has grown over the years. So, there’s still a good chance that the price will increase and hodling will pay off.
It is also important to remember the volatility of the crypto market while hodling ETH because prices can fluctuate negatively and there is always room for loss.
2. Automated Trading:
Automated trading is a process of using trading bots which has been programmed with trading algorithms to buy and sell cryptocurrency on different exchanges.
Investors who want to earn passive income with ETH can use software programmes that have pre-programmed trading algorithms to execute their trades and make profits.
Examples of automated trading software programs are Coinrule and Bitsgap. Users can programme their trading rules on the platform either with the available templates or a customised one. The bots are programmed to place automatic trades under some market conditions like price changes.
Automated trading can be a profitable and steady income stream if done successfully but it is not a perfect trading strategy which does not have risks.
The bots can make mistakes sometimes and execute the wrong command. Additionally, due to the volatility of the crypto market, the bots may not be able to anticipate some sudden changes. Therefore, automated trading without supervision from investors is not enough.
Generally, lending with interest is a way of generating more money.
Cryptocurrencies can be lent out to borrowers with an interest rate as fiat money.
Ideally, crypto investors can make a profit by lending crypto to borrowers with interest rates through both centralized or decentralized platforms.
Centralised lending platforms manage all technical issues like data, security, storage, and bandwidth authentication for the users. This type of platform offers higher interest rates than the decentralized one but a major threat is that the centralized platforms are more vulnerable to hacks and attacks.
On the contrary, decentralized lending platforms enable experienced users to tweak settings to maximize their profits. It also gives security and transparency to users but the drawback is that they offer lower interest rates and are very complex to use.
4. Yield Farming:
Yield farming is a good way to earn passive income from Ethereum by lending Ether to some liquidity pools on decentralised exchanges (DEX) like Uniswap and SushiSwap to earn rewards.
Yield farming platforms give users the ability to trade multiple tokens in a liquidity pool. Fees paid by crypto traders are divided among the farmers in the pool who have contributed to the liquidity of such a pool. However, a farmer’s reward depends on how much pool liquidity he provided.
Yield farming is a new strategy for earning passive income in the crypto market, so it is not yet completely proven to be very effective and it can be subject to change. It can also be a risky venture when the price of the assets fluctuates rapidly.
Staking is simply the process of locking one’s crypto to earn extra crypto in the form of rewards. In the strategy, crypto investors are required to lock up their funds in the Ethereum PoS blockchain to help validate transactions and secure the network and earn rewards in the form of ETH for their efforts.
Ethereum staking can be quite expensive for beginners and amateurs as the new PoS consensus mechanism requires at least 32ETH staked in the network to qualify for staking and running a full validator node.
Aside from this, one can use the services of some service providers like Stake Wise and Lido. Some DApps also provide staking services which allow users to stake with little amount and run a partial node.
In the end, they charge up to a 10% fee on the rewards which may include part of one’s profits. The major good news is that they must not have 32 ETH before they invest.
There is a pool of opportunities and strategies in the Ethereum network which when properly utilized, one can start earning passive income from ETH. However, given the volatility and risks of the market, it is always safer to tread carefully and also invest what can afford to lose.
All the above-mentioned strategies can be a good way to start earning passive income with Ethereum.