Putting your crypto to work: how to earn passive income demluo Follow Jan 13, 2018 · Unlisted

When people think about crypto investments, most think to the stellar increase in value of crypto assets. Not everyone is aware that like most forms of wealth, it’s possible to earn compoundable passive income from crypto.

In the current bull market these dividends may appear negligible compared to value gained by simply holding a coin. However they add up to something substantial over time so like any form of investing: the earlier you start, the better.

Lending

Poloniex runs a peer-to-peer margin trading system in which users are able to trade with funds borrowed by other users. There’s no additional risk to the lender due to margin call mechanisms. This passes all of the risk onto the borrower by liquidating their funds before they’re unable to pay back their debt.

By lending you’ll collect an interest rate on a periodic basis. The rate and duration of a loan is determined by an order book, giving you some control over how much interest you’ll earn.

I find lending exciting since it allows you to generate passive income from coins that otherwise wouldn’t.

Notes:

The market rate fluctuates with demand which tends to spike when volatility is high. Typical rates range from 0.0001% to 0.1% per 2 days. When prices are volatile, rates can go up a lot. Poloniex has more info here, and I highly recommended this informative blog post.

Poloniex takes a 15% cut of the fees, which is absolutely deserved given the work involved in implementing this feature.

Estimated annual return: 2%

Proof of Stake mining

Proof of Stake (PoS) secures the network similarly to how Proof of Work does. It’s essentially a virtual Proof of Work, with many benefits.

Ethereum

Ethereum will soon be moving to Proof of Stake mining with the Casper project.

Ethereum’s PoS will only be profitable if enough Ether is being staked due to gas costs. Parameters have not yet been finalized, but it’s been suggested by Vitalik that this figure could be 1000 to 4000 ETH. This is too much for most people, but staking pools like Rocketpool exist to overcome this.

Estimated annual return: TBD

Neo

Holding Neo in the Neon wallet will automatically produce Gas. Note that the Gas reward will decrease over time, eventually converging to zero. Only some exchanges will credit Gas to your account, like Binance which does it on a monthly basis.

Use neotogas to calculate how much Gas you’ll receive.

Estimated annual return: 7%

Masternodes

Masternodes were pioneered by Dash and have since been copied by other projects. Masternodes are special nodes which provide additional services to the network.

In general Masternodes work by running the special node software, and require some number of coins to be eligible.

Dash

Dash Masternodes primarily InstantSend and PrivateSend as a service to the network. To run a Masternode, 1000 DASH is required. Though it was feasible to accumulate this amount a year ago, it’s now much too expensive for a typical investor.

Masternode.me provides a masternode hosting service for those lucky enough to have 1000 Dash. They also provide a pooling service in which a Masternode is divided into 40 shares for 25 DASH each.

Check payout stats on dash-news.

Estimated annual return: 7%

Miscellaneous

Stellar

Stellar has an inflation mechanism that you can take advantage of to increase your holdings.

The Stellar distributed network has a built-in, fixed, nominal inflation mechanism. New lumens are added to the network at the rate of 1% each year. Each week, the protocol distributes these lumens to any account that gets over .05% of the “votes” from other accounts in the network.

(source)

The threshold for reaching that .05% of the votes is high considering the market cap of Stellar. This means you either have to be a whale, or join a pool. Here are some pools you can choose from:

These pools require you to provide your private key, so be weary. Decide whether or not to trust them with your funds by doing your own research.

Estimated annual return: 1%

Airdrops

Airdrops are slightly different but worth mentioning. Some distributed ledger projects distribute their tokens based on the current distribution of another Blockchain, usually Ethereum.

If you manage your private keys, you can claim free tokens (though sometimes there’s a bounty task involved.)

The most difficult part about this is staying up to date on which airdrops are happening.

Estimated annual return: N/A

Hard Forks

Hardforks went from being a dreaded contentious event to an anticipated event once people realized they were getting free money. The first major hard fork was Ethereum Classic.

Ideally you control your private keys, since exchanges and wallets are slow to credit accounts with forked currencies, if ever.

Once again, it’s difficult keeping track of which projects have significant upcoming hard forks.

Estimated annual return: N/A