In just a few years, crypto adoption has accelerated with participation from retail and institutional investors. Major companies like Tesla, Square, and MicroStrategy have all added crypto to their treasuries. This growth has led to incredible cryptocurrency innovations and decentralised finance (DeFi). As a result, crypto presents exciting opportunities for passive income. From staking rewards, crypto lending, liquidity pools, and more, the options to generate profits in decentralised finance keep expanding. However, crypto comes with its own set of risks.
Comparative Analysis: Best Ways To Earn Passive Income From Crypto
There is no single best yield generation method in crypto. Based on risk appetite, time horizon, and capabilities, one can choose which crypto passive income method best fits them.
Here’s a high-level comparison of key passive crypto income strategies:
| Passive Income Methods | Potential Risk | Potential Benefits | Difficulty |
| Staking Crypto | Network vulnerabilities and Market volatility. | Earn rewards on crypto holdings and reliable earnings. | Easy |
| Running Lightning Crypto Nodes | Hardware costs and skill requirements. | Consistent returns for providing infrastructure. | Hard |
| Participating in the Liquidity Pool | Impermanent loss, high volatility and complex strategies. | Potentially, very high rewards, and you can earn governance power. | Medium |
| Yield Farming | Smart contract risk, impermanent loss and high gas fee. | Additional tokens or fees by providing liquidity and maximum yield across protocols. | Medium |
| Decentralised Crypto Lending and Borrowing | Counterparty risk, smart contract vulnerabilities and insolvency of borrowers. | Earn interest on idle crypto holdings. | Medium |
| Earning From Crypto Cloud Mining | Scams and contract risk. | Earn coins without running your hardware. | Medium |
| Crypto Mining | High upfront costs, competition from larger mining operations and a decline in rewards over time. | Earn newly minted coins and transaction fees. | Hard |
| Collecting Airdrops | Depends on external projects. | Get free coins and tokens from promotions. | Easy |
| Playing Crypto Games | Unproven model and token volatility. | Play games and earn tradeable tokens and NFTs. | Easy |
| Earning Interest With a Crypto Saving Account | Technical glitches, platform failure risk and market volatility. | Earn interest on crypto holdings. | Easy |
| Earning Dividends with Governance Tokens | Project failure and token price fluctuation. | Regular dividend income from token ownership. | Easy |
| Providing Infrastructure With Masternodes | High upfront capital requirements, loss of collateral due and market volatility. | Higher returns compared to other passive income methods | Hard |
| Participating in Crypto Affiliate Programs | Dependent on the platform. | Easy to start, recurring payouts on referred activity. | Medium |
Top 13 Methods To Earn Passive Income In Crypto
Here are 13 of the most popular methods for earning crypto passive income.
1. Staking Crypto
Want to earn passive income from crypto assets? Crypto staking is one of the most popular and beginner-friendly ways to earn passive income from idle crypto assets. It involves locking up the cryptocurrency to help validate transactions on proof-of-stake (PoS) blockchains.
Staking participants earn compounding block rewards for providing resources to the network. In networks like Ethereum, annual staking yields typically range from 3-6%. A simpler option is available for staking crypto, like centralised crypto exchanges.
The risk factor is the volatile market and the inability to withdraw funds during the lockup period.
How To Get Started
- Choose a cryptocurrency that supports staking, like Solana (SOL), Cardano (ADA), or Polkadot (DOT).
- Head over to the staking or Earn section of your crypto platform
- You can choose pool or stake independently, following network-specific instructions.
- Select the duration, such as 30, 60, or 90 days, for your tokens and begin staking.
To help you get started, we’ve got awesome guides to check out:
2. Running Lightning Crypto Nodes
The Bitcoin Lightning Network relies on nodes to facilitate faster BTC transactions. This method generates passive income for node operators who earn fees for routing transactions through their nodes.
Returns are generally modest but relatively hands-off. The only downside is that running nodes requires some level of technical expertise.
How To Get Started
- Set up and install Bitcoin Core.
- Installing Lightning Network Daemon (LND).
- Fund your crypto wallet and establish channels with peers.
- Regularly update your software, monitor logs, and back up your wallet and channel data.
Here are the hardware requirements for running a lightning node:
- 4 GB RAM
- 500 GB storage for running a Bitcoin Core full node.
- 5 GB storage for running a pruned Bitcoin Core node or connecting to Bitcoin Core remotely.
- A reliable network bandwidth.
3. Participating In Liquidity Pool Or Liquidity Mining
The liquidity mining method has become popular due to the rise of decentralised platforms (DEXes) and swap pools.
In liquidity mining, users provide liquidity to cryptocurrency swap pools on DEXs. Users are known as liquidity providers (LPs).
Liquidity mining allows users to earn governance tokens by providing crypto liquidity to DeFi protocols. Tokens are distributed as rewards and can be sold or used to vote on protocol changes.
How To Get Started
- Pick a DeFi platform.
- Link your crypto wallet to the DeFi platform.
- Choose a liquidity pool that fits with your cryptocurrencies and offers good returns.
- Deposit your tokens into the liquidity pool as per instructions.
Some of the most popular platforms to provide liquidity on include:
- Uniswap
- SushiSwap
- Balancer
Checkout: Short-term liquidity and its working
4. Yield Farming
Yield Farming is the way to earn passive income in crypto by providing liquidity to the decentralised platform for lending and borrowing services and earning interest from it. It’s a popular method to earn crypto income but requires research due to the wide variety of DeFi protocols and pools.
Yield farming provides higher returns than traditional savings and other passive income methods and can be highly volatile, leading to potential losses if the value drops significantly.
How To Get Started
- Choose a trusted DeFi platform.
- Use a secure wallet such as MetaMask or Trust Wallet.
- Transfer and link your wallet to the DeFi platform.
- Select a liquidity pool of your choice and deposit your assets into the pool.
Some of the reliable Defi platforms are:
- Uniswap
- Aave
- Compound
5. Decentralised Crypto Lending And Borrowing Platforms
Crypto lending is one of the popular methods for users to earn passive income through cryptocurrencies. Multiple centralised and decentralised platforms allow lending and borrowing.
However, many peer-to-peer (P2P) lending platforms like Aave, Compound, Bake, etc., enable users to lend crypto to an individual directly.
Users have to deposit their cryptocurrencies into lending platforms. These platforms lend money to borrowers. In return, users will get the interest in the form of rewards.
How To Get Started
- Choose a popular crypto lending platform.
- Transfer your cryptocurrencies to the lending platform.
- Select the lending based on the duration and the amount to lend.
- Start the lending by following the instructions. Your cryptocurrencies will be lent out to borrowers, and you’ll start getting interest.
Popular crypto lending platforms include:
- Centralised platforms – KuCoin, Blockfi, Bake
- Decentralised platforms – Compound, Aave, MakerDAO
6. Earning From Crypto Cloud Mining
Crypto mining requires expensive hardware to mine crypto profitably. One easy option is to turn to cloud mining. Cloud mining allows investors to participate in crypto mining without needing technical expertise and such equipment.
In cloud mining, investors pay a monthly or yearly fee to the service providers to rent their mining hardware and resources. The service provider mines the crypto on the investor’s behalf and pays back the proportion of the mining rewards.
How To Get Started
- Choose a cloud mining platform.
- Select your desired cloud mining plan.
- Adjust the hashrate to purchase and choose the currency to use, like USDT, FDUSD, USDC.
- Check the total payment amount, estimated start time, and duration.
- Verify details and click on confirm.
Some of the popular cloud mining platforms in the industry are:
- Binance
- Genesis Mining
- NiceHash
Checkout: 10 best cloud mining platforms
7. Crypto Mining
Traditional crypto mining is a common way of earning passive income. Blockchain networks, such as Bitcoin, use the proof of work (PoW) mechanism to validate transactions. It involves solving complex mathematical puzzles to add new blocks to the blockchain and earn rewards through transaction fees.
Unlike cloud mining, crypto mining requires expensive hardware and software. It also requires a high cost and some technical knowledge to mine cryptocurrency.
How To Get Started
- Choose the crypto you want to mine.
- Buy your mining equipment as per your budget and goals.
- Set up a crypto wallet to get rewards from mining.
- Configure your mining device.
- Join a mining pool and start mining.
To help you get started, here are mining guides to check out:
8. Collecting Airdrops
Airdrops are one of the popular methods to earn free crypto tokens. Crypto projects and exchanges give out free tokens (airdrops) to get more attention and increase trading.
Projects distribute free coins or tokens to wallet holders as a promotional activity. Users must perform some tasks to get these free tokens, such as linking their wallets and following projects on social media pages.
How To Get Started:
- Look for reputable crypto platforms where good projects are listed.
- Choose projects that have promising teams and good investors.
- Signup for the project and complete the tasks
- Transfer back the airdrop to your crypto wallets.
Here are some of the trusted websites to get new airdrop information:
- CoinMarketCap
- Airdrops.io
- Airdrop Alert
9. Playing Crypto Games
Play-to-earn (P2E) is a new form of gaming that rewards players to earn cryptocurrency for playing games. There are many P2E crypto games available today.
Games like Axie Infinity reward users with tokens and NFTs for playing games. These tokens and NFTs can be traded on marketplaces.
How To Get Started:
- Choose the game you want to play.
- Sign up and connect your wallet to the game.
- Buy NFT, as most play-to-earn games require you to buy NFTs to play the game like Axie Infinity requires three Axies.
- Start playing and winning the game to earn rewards.
Some of the more popular ones are:
- Axie Infinity
- Sandbox
- Decentraland.
10. Earning Interest With Crypto Savings Accounts
This crypto passive income method is similar to traditional banks. Crypto saving platforms allow users to deposit crypto. Users earn interest on the amount they deposit.
These crypto platforms or exchanges lend, stake, or invest crypto funds that users deposit and profits earned are paid to users as interest.
How To Get Started
- Pick a crypto savings account provider like Binance.
- Log in or sign up for an account on your chosen crypto savings platform.
- Complete verification processes, such as KYC (Know Your Customer) requirements.
- Transfer your cryptocurrencies into your savings account.
- Select saving types such as flexible rates with variable interest rates or fixed terms with higher rates and confirm.
Popular crypto savings account providers are:
- Binance
- BlockFi
- Celsius
Checkout: Best crypto to invest in for long-term
11. Earning Dividends With Governance Tokens
As the name suggests, dividend-earning tokens are similar to traditional stock dividends, where dividends are paid out to cryptocurrency holders—some tokens like BNB and KCS share fees, buybacks, or revenue earned by projects.
How To Get Started
- Choose a decentralized finance (DeFi) platform or blockchain projects that offer governance tokens.
- Buy tokens on cryptocurrency exchanges like Coinbase, Binance, or Kraken.
- Participate in activities like staking, lending, or providing liquidity to earn tokens as rewards.
Some of the popular dividend earning tokens include:
- KCS
- NEO
- ASD
12. Providing Infrastructure With Masternodes
Masternode is a dedicated server that supports the operations of a network. Maintaining a master node requires locking up large amounts of coins and technical expertise. The operators receive rewards in the form of coins or transaction fees.
How To Get Started
- Pick a cryptocurrency that supports masternodes, like DASH.
- Set up a dedicated server to run the masternode, such as a physical server or a cloud server.
- Download the official masternode software and configure the software on your server as per instructions.
- Transfer the required tokens to your wallet and initiate the masternode setup.
- Start operating the masternode and earning rewards.
Top cryptocurrencies that support masternodes:
- DASH
- PIVX
- Zcoin
13. Participating In Crypto Affiliate Programs
Affiliate programs are part of marketing strategies for companies to get more customers. Various exchanges, wallets, DeFi platforms and crypto companies have adopted the affiliate marketing model like traditional businesses. By referring a user to these platforms, users can earn crypto income.
How To Get Started
- Sign up for an affiliate program.
- Once your application is approved, use your affiliate link in your videos, blogs, podcasts, or social media and promote the product to your audience.
- Once your audience signs up and makes a purchase, you will earn a commissio
Some of the industry’s most popular programs are:
- KoinX affiliate program
- Binance
- Ledger
Emerging Trends In Crypto Passive Income
Several emerging crypto trends are expanding possibilities for earning yields, including:
1. Real-World Asset Tokenisation
Tokenisation refers to issuing tokens that represent ownership of real-world assets like real estate, commodities, or debt. This unlocks liquidity and allows fractional ownership.
2. Automated Portfolio Management In DeFi
As decentralised finance is expanding, automatic portfolio management tools are created. This tool and platforms optimise investment methods using algorithms.
3. Expansion Of DeFi Opportunities
DeFi aims to recreate traditional financial services in a decentralised manner. New protocols are launched frequently, providing growing options for lending, trading, derivatives, and more.
Want to set up crypto wallets? Read our beginner’s guide on how to get up crypto wallet: hardware, software, and hosted options
Conclusion
While crypto is still in the early days, it is opening new opportunities to earn passive income. The opportunity to earn attractive APYs (annual percentage yield) on holdings of cryptocurrencies.
However, risks remain substantially higher in crypto passive income options. Loss of funds is possible, and crypto requires proactive management. Research, continuous learning, and diversifying are key principles to combine.
Moreover, as you explore these crypto passive income methods, you will earn profit. Remember that earning from cryptocurrencies is subject to tax in most countries. While calculating tax from earnings on different exchanges and platforms is complex, you can use KoinX to calculate and generate tax report. KoinX is an automated crypto tax report-generating platform where you can integrate over 180 exchanges, wallets, and blockchains. It also automatically categorises transactions based on their nature of occurrence, such as airdrop, mining, and staking
So what are you waiting for? Sign up today on KoinX to make your crypto tax filing journey easier!
Frequently Asked Questions
Can I Make Passive Income With Crypto?
Yes, there are various methods by which passive income in crypto can be made. Investors can earn passive income from staking to lending and from airdrops to affiliate programs.
Which Strategy Is Riskier, Margin Or Options Trading?
Margin trading carries higher risk as losses can exceed your initial investment, whereas options have limited risk.
Is Crypto Passive Income Taxable?
Yes, crypto income is taxable. You can use KoinX to calculate your taxes.
Is Crypto Good For Passive Income?
Yes, crypto can help you earn consistent passive income from your investment. You can generate 3- 40% depending upon the passive income methods you choose.
Which Coin Is Best For Passive Income?
The best coins for passive income change from time to time. However, the most common coins to get passive income are USDT, SOL, and ETH.
