Cryptocurrencies are a relatively new asset class that is about a decade old. In about a decade, there are now more than 20,000 cryptocurrencies on the market, and many more are coming online on a daily basis. While digital currencies are known for their volatility, it is still possible to make a living in the industry. This article will explore how to make money with crypto.
How to make money with cryptocurrency: Mining
There are two main types of cryptocurrencies. First, there are proof-of-stake coins like Solana, Avalanche, and Near Protocol that use validators to confirm transactions. Second, there are proof-of-work (PoW) coins that rely on mining. Examples of these coins are Ravencoin, Bitcoin, Kadena, and Litecoin.
It is possible to make money mining Bitcoin and other cryptocurrencies. All you need is a powerful computer that is able to verify transactions at a fast pace. Some of the best Bitcoin mining computers to use are AntMiner, AvalonMiner, and DragonMint among others.
After buying a Bitcoin mining machine, you just need to install the recommended software and then start mining. You will then sell your coins to exchanges or directly to individuals through peer-to-peer exchanges.
The challenge of mining is that its profitability depends on the prices of cryptocurrencies. Since mining is energy-intensive, lower crypto prices mean that you will have lower margins. Another con is that mining equipment is usually quite expensive.
Crypto investing is another way to make money with digital coins. It involves buying and holding coins in hopes that their prices will continue rising. This process is known as “hodling” in the crypto sector. For example, an investor who bought Bitcoin in 2009 experienced remarkable returns when it soared to $67,000. Bitcoin has outperformed other assets like the S&P 500 and gold in the past decade.
The disadvantage of investing in cryptocurrencies is that these coins are usually highly volatile. For example, Bitcoin dropped by more than 80% in 2018 and by over 65% in 2022. Other coins like Shiba Inu, plunged by over 90% from their peak.
An alternative to investing is trading. It is a process where you buy and sell crypto with a short horizon. It allows you to make money when cryptocurrency prices are rising and falling.
Staking is a popular way of making money in cryptocurrencies. It is a process that is common in crypto projects using a proof-of-stake (PoS) approach like Avalanche and Cronos. Staking is the process of locking your coins for a certain period with the goal of supporting the blockchain. It is mostly done using an accredited crypto exchange like Binance or Coinbase.
Stakers receive their rewards on a monthly basis. These rewards typically come from the network’s fees. For example, if you staked 2,000 AVAX tokens that are yielding 8.60%, you will be making about $145 per month.
Like with company dividends, staking does not protect you from the overall decline of the coin price. Also, you will only earn your rewards if you hold your assets for the required period, which is typically a month. You can solve this challenge by using liquid staking platforms like Lido and Rocket Pool.
You can also make money by lending your cryptocurrency using some of the most popular decentralized finance (DeFi) platforms, like Aave, Maker, and Compound. These platforms make it possible for you to deposit your crypto into a liquidity pool and then generate a return when they are lent to other people. Depending on the platform, it is possible to earn an APY of more than 10%.
In this article, we have looked at some of the best ways to make money with crypto. To become successful in them, you need to first learn how cryptocurrencies work and the risks associated with them. You should also learn risk management strategies to reduce your chances of losing money. For example, you should only allocate a small portion of your portfolio to crypto.