How to Earn Income From Crypto

*DISCLAIMER* This is not investing advice. It is an  overview of some of the more popular ways people use  cryptocurrencies and decentralzied finance. Please remember to do your own research before investing in any cryptocurrency or depositing money onto any platform.

We’ve all heard the term “Bitcoin Millionaire.” Bitcoin’s explosion on the market in the early 2010s   changed a lot of lives forever. Since then, cryptocurrency has often been seen as an alternative or complement to traditional financial markets and investment products.

Bitcoin mining was the public’s first introduction to earning money via cryptocurrency. But now, there are many more blockchains, tokens, platforms, and methods in the crypto ecosystem that can provide income.

Typically, there are three mechanisms to make money with crypto:

1. Invest in a tokwn to HODL or trade with  
2. Use a coin or token you already own to stake or lend
3. Receive rewards  for participation in a blockchain-based system

Each mechanism has its own set of pros,cons, and risks, which everyone must assess on their own and evaluate based on their own profile.  That said, let’s dive into the most common crypto income strategies:

1. Investing and HODLIing

Investing is a long-term strategy in which you  buy assets and hold (HODL) them for a period of time, hoping the asset’s price rises over time. You hopefully sell  after the price rises  to earn a profit.

There’s a reason that you see the term “early adopters” often in the crypto space. tThey often see  the most success investing in cryptocurrencies. Some projects offer  initial pre-sales of tokens before they are released to the public when you can purchase the token at a discounted price. When it’s finally released, it might see a large jump in price which can net early adopters a large profit.

To use the most obvious example, when bitcoin began trading in 2008, 1 BTC was worth $0.0008. Compare that to its current price of $21,154 at the time of writing. That’s a 6,369.24% return! Even if you bought into Bitcoin in 2018,  when the price plunged near $3,000, just hodling the coin until BTC increased again could earn you signicant money. Similarly, Ethereum was $0.75 per token when it was first released. Investing early and  during dips can net some serious gains. (This is where the phrase “buy the dip” comes from.)

Investing and hodling require strategy, patience, discipline, and sometimes luck.

Start by identifying coins that you feel will not only become popular, but also have long-term utility that can facilitate a long-term valuation. Tokenomics (the distribution of tokens and incentives around it)  also play a huge role in determining the long-term prospects of a token. Read our in-depth article on tokenomics for more detail.

Pros: Investing and hodling can net huge profits. New coins are constantly being released and there are plenty of opportunities to invest. It’s also the simplest way to get started: simply create a wallet and buy a token.

Cons: An investment requires you to store your money in that asset, making it illiquid for any other uses. Hodling takes patience, often for periods of years or more.  As always, you risk losing your money if the coin dips in price or never increases, which can certainly happen.. Even the best investors lose money sometimes.

How to Get Started: If you wish to invest in a coin, you will need to find an exchange that lists that coin and open an account. Once your account is set up, you can purchase the coin, but we would recommend looking into safer ways to store your purchased crypto,  like an external cold wallet or a non-custodial wallet.. After that,  simply watch patiently, and watch for a good time to sell and take profit.

2. Trading

Trading is a process where you actively buy and sell digital assets, taking advantage of the dips and upswings in the prices of assets. Not everyone has the patience necessary for long-term investing, which is where trading comes in. The crypto market is known for its volatility, and trading takes advantage of short-term opportunities on the market. (This same volatility can also work against you, causing large losses!)

Day traders buy and sell cryptocurrency pairs, like ETH/UDST. When trading, you take a long position when you expect the price of an asset to rise. You buy the asset at a lower price and when it rises, you sell it for a profit. You can also take a short position when you expect the price of an asset to decrease. You borrow an asset, sell it, and then wait for the price to lower. Once it does, you buy back the asset, repay the lender, and then pocket the profit.

Both positions are utilized in day trading, in which  traders often enter and exit several positions throughout the day and avoid keeping a trade open longer than a day. In order to day trade, you will need a very strong understanding of how to analyze markets. Proper analytical and technical skills will allow a trader to make accurate predictions about price movements.

‍Pros: You can make a large profit. Profits can be made daily.

Cons: This strategy is one of the most difficult, recommended only for experts.  You will have to learn how to analyze markets and make predictions. Trading is risky and can cause large to losses, especially when using leverage.  

How to Get Started: First, you should learn how to perform technical analysis and read charts. Then, you will need to open an account on a trading platform. Many centralized exchanges offer their own trading platforms, such as Coinbase’s Coinbase Pro. As a rule of thumb, you want to choose a platform with lower trading fees, as higher fees cut into end profits. Once you learn how to operate your chosen trading platform and develop a strong strategy,  you can deposit crypto and start trading.

3. Staking

Proof-of-stake is a blockchain consensus protocol that uses validators to maintain network security and validate transactions. Validators are selected at random to create and confirm new blocks created by others. In order to incentivize their honest participation, they “stake” tokens which can be taken away as punishment,.These locked assets are held as collateral against malicious actions and spending too much time “offline,” not creating and confirming blocks. In return for locking these assets and helping to validate the network, validators receive rewards in the form of the blockchain’s native tokens

In September 2022, Ethereum upgraded from a proof-of-work to a proof-of-stake blockchain in a process known as as The Merge. (Check out our  article for more!) In order to become a validator for the Ethereum 2.0 network, you will need to stake 32 ETH. Rewards are distributed for voting on new blocks, proposing new blocks, and participating in committees. APY is around 4.9% for validators.

Ethereum is just one example.  Numerous other blockchains like Cardano, Aptos, and Polkadot also employ the PoS consensus mechanism. You can stake your coins and become a validator for any of these chains, provided you meet the respective chain’s requirements.

Pros: Steady returns that you can deploy for other  earning strategies. Low risk, as long as you keep up with the requirements of the network. Requires less active effort and constant attention, making it a passive income option.

Cons: Generally requires  a large sum of crypto to do, unless you join a staking pool (a group which pools resource to qualify as a validator.) Returns are generally lower than other methods and can take longer to cash outl.

How to Get Started Staking: Choose the network you would like to become a validator for and research the requirements.  Look into the amount required, equipment needs,  and your obligations as a validator. Download any necessary software and stake your sum, then keep up with your obligations. Typically, your rewards can be accessed via the same platforms you use to stake.

4. Liquid Staking

Liquid staking allows regular users to participate in staking, plus the option to re-invest  their assets at the same time. This effectively negates one of the biggest downsides of staking: the opportunity cost.  Liquid staking protocols collect user funds and use them to run validator nodes. In exchange, the user receives “liquid tokens” in proportion to their deposit, which entitle them to their deposit and their share of the validator rewards. These liquid tokens can be used simultaneously to earn more profit through other yield-earning DeFi opportunities, such as farming or lending protocols.

In order to receive their staked assets back, users trade in the liquid tokens for the original asset via a built-in liquidity pool.

Pros: Passive income.  You earn in multiple ways as you can re-invest the liquid tokens you receive while earning on your stake. Doesn’t require a large sum to start. Rewards are paid out quicker, normally every 24 hours.

Cons: Liquid staking protocols can be vulnerable to hacks. The protocol must provide yield-earning tools to make the liquid tokens worth it. Fees are charged on rewards, so APY is lower.

How to Get Started: Research liquid staking platforms and choose one. Deposit your crypto asset and wait for returns!

5. Providing Liquidity

Liquidity pools (LP) are an element of decentralized exchanges (DEXs) that are vital to keeping the platforms functioning smoothly. Liquidity pools maintain a constant supply of tokens, to ensure swaps can be made without large price swings (known as “slippage.”) Users deposit their own crypto in pairs into a liquidity pool. When other users want to make a trade between those tokens on the DEX, it is pre-funded by the pool of liquidity, which allows for near-instant exchanges.

In exchange for providing their own tokens, users receive a portion of the transaction fees relative to how much liquidity they provided. Some platforms also offer LP tokens that you can use to re-invest in other yield tools on the platform, similar to a liquid token.

Pros: Passive income. You can re-invest your LP tokens. Doesn’t require a large sum to start.  

Cons: Protocols can be hacked. Must deposit a crypto pair, meaning you must have or purchase an equal amount of two tokens. Impermanent loss, which can happen if one asset in a pair is particularly volatile, changing the price ratio of the two tokens, causing your losses to be worse than if you had just held both tokens.

‍How to Get Started: Join a DEX platform, such as Liquidswap, deposit a crypto pair, and start earning!

6. Lending

Crypto lending is a popular way to earn money from crypto. The idea is simple: you lend out coins you plan to hold so that they earn passive income while you wait for the price to appreciate. You can do this by depositing your coins into a crypto interest account, whichmany centralized exchanges offer. You will earn APY on your deposited assets as the exchange uses them to lend out. (This is the same method by which you earn interest at a bank.)

When lending, it is crucial to do your own research to find the right platform for you. Each platform offers different APY, withdrawal terms, and more. Terms also vary based on the specific coin you wish to deposit.

Pros: Passive income. Earn interest while hodling.

Cons: Platform risk of exploits or malfeasance. Assets could be lost if borrower does not repay their loan.

How to Get Started: Research the different lending platforms you can deposit your coins in and compare them. Choose one or more that suits your needs, open an account and deposit your assets. Wait for interest to accrue!

7. Airdrops, Faucets, Play-to-Earn,Games, and more

There are several ways to earn money from crypto that don’t involve any initial investments or risk to your own money. The first is airdrops. Newly launched tokens often distribute their tokens for free in exchange for completing a simple task, such as following the project on social media or reading about the project and taking a quiz. Once you own the tokens, you can either sell them and pocket that money, or wait for the coin to hopefully appreciate and sell it then. (Be careful: malicious airdrops are one of the most common crypto scams.)

The second way is faucets, which are websites that offer free digital tokens for completing tasks. This could be anything from completing captcha forms or playing newly launched games. These rewards are often miniscule, sometimes worth only a few cents. But it is a simple, low-risk way to earn crypto.

The third way is by playing play-to-earn crypto games. The idea is to reward players for putting time and effort into playing a game. These games are built on the blockchain and backed by smart contracts. Players earn in-game NFT assets, like weapons or armor, that they then own. They can hold the NFT and see if it appreciates,or they can trade it for crypto on a marketplace. Either way, time, not  money, needs to be spent to obtain these items.  

Pros: Relatively risk-free, because no initial investment is needed, and your own money is not at risk. All tasks are relatively simple to complete and provide you with crypto you did not have to buy yourself.

Cons: Provides relatively little income. Requires time and effort.

‍How to Get Started: Find a new token that is being distributed, learn how to participate in the airdrop, complete the task. Find a reputable faucet website, sign up, and start completing tasks. Find a blockchain game that offers play-to-earn options and start playing the game regularly and completing whatever requirements must be met to earn in-game assets.