Top 5 ways to earn on crypto: mining, staking, farming, trading, holding
Blockchain technology has opened up new opportunities for users to earn on cryptocurrencies that are accessible to everyone without exception, unlike traditional ways of earning. Unlike banks and traditional exchanges, DeFi has no requirements for users in terms of age, demographics, geographic location, and other factors.
Access to financial products themselves has been simplified: users of decentralized applications do not have to go through lengthy and complex registration or identification processes associated with KYC (Know Your Customer) procedures and AML (Anti Money Laundering) policies. All you need to do is create a crypto wallet, add funds, and connect it.
After that, you will be able to perform all available operations with cryptocurrencies and access unlimited opportunities to earn money using cryptocurrencies.
In this article, we talk about the five best ways to make money with digital assets, compare these methods and show their advantages and disadvantages.
Mining was the first way to earn cryptocurrencies and emerged with the launch of the Bitcoin protocol in January 2009. The first blockchain is based on the Proof-of-Work (PoW) consensus algorithm, the essence of which is that nodes (computers) in the network solve complex mathematical problems in order to produce the next block containing cryptocurrency transactions. PoW is embedded in the protocols of the first and second generation cryptocurrencies such as Ethereum, Litecoin, Dogecoin, Dash and others.
When the Bitcoin cryptocurrency first appeared, the processing power of a conventional processor (CPU) on a home computer was enough to mine it. But the protocol is designed in such a way that as the computing power of the nodes grows, the overall network hash rate also grows, so it becomes more and more difficult to create blocks. As a result, CPU mining became ineffective, and graphics processors (GPUs) and special miners (ASICs) came to replace them.
Mining farms are much more expensive and therefore require a lot of investment to launch. The more computing power of the miner (TH/s ratio), the more efficiently it will extract cryptocurrency. The size of the reward is proportional to the power of the computing device, but when calculating the profitability, two more parameters must be taken into account: the cost of electricity and the payback for the miner.
Types of crypto mining
Mining on your own hardware
In classic mining, you mine cryptocurrencies on your own hardware. To start mining, you need to buy and assemble a mining farm on a graphics card or an ASIC device. Then you need to set up and install the equipment in a room prepared for this process, configure it and put it into operation yourself or with the help of a specialist. Popular ASIC miner models:
- Antminer S9, S17 Pro and S19 from Bitmain;
- WhatsMiner M21S;
You can check the efficiency of miners and calculate the profitability on the WhatToMine website.
Another type of mining involves the purchase of equipment, but requires specially designated hosting. In this case, the company takes care of the placement, configuration, maintenance and repair of devices, and you only pay for hosting services and withdraw income. Miner hosting services are provided by companies such as CiberianMine, Blockbase, Compute North and VBit Tech.
- High profitability when mining in pools that grows with a rise in the cryptocurrency price.
- You get a practically passive income.
- You don’t need to worry about setup and maintenance if you use hosting services, but the cost is higher.
- High costs for the purchase and maintenance of equipment.
- Technical knowledge and skills required.
- Low profitability of mining and a long payback period if there is no access to cheap electricity.
- Discomfort and the need for constant monitoring and maintenance if you place miners in your own premises.
- Possibility of equipment failure and repair costs.
To mine cryptocurrency, you do not buy or maintain equipment, but instead rent miners by purchasing cloud contracts and paying a service fee. The main disadvantage of cloud mining is that it stops generating income if the profitability does not cover the service fee.
Popular cloud mining services:
- Genesis Mining;
- IQ Mining;
- Crypto Universe.
We wrote in more detail about cloud mining in another article: “All types of mining: does cloud mining work?“.
- Convenience: the company undertakes maintenance and repairs.
- Access to cheap electricity.
- No technical knowledge and skills required.
- If the yield is negative, the coins are no longer credited to the account.
- Limited-term cloud contracts.
- Service fees can be high.
- With high demand, lucrative contracts are quickly bought up and are difficult to find.
As the computational complexity of PoW blockchains has increased, the problems associated with mining have become apparent, and the cost of mining cryptocurrencies has steadily increased. In addition, mining equipment leads to environmental problems. PoW has been replaced by the Proof-of-Stake (PoS) consensus algorithm.
With the advent of PoS, the need to buy expensive equipment has disappeared. Instead, investors buy cryptocurrencies directly and block them in a smart contract to mine new coins. An ordinary PC and an internet-connected crypto wallet are all that is needed to launch the node. Nodes that stake and mine coins on the PoS network are called validators.
Note: in some blockchains, validators may be called something else: for example, node operators or bakers, as in the Tezos ecosystem.
However, the threshold for entry is high enough. For example, to stake Dash cryptocurrency, you will need at least $176,000 at the exchange rate at the time of writing. Subsequently, PoS was upgraded to Delegated Proof-of-Stake (DPoS), which allowed holders with small amounts of coins to delegate them to validators in order to participate in staking and generate income.
The profitability of staking (APY) differs greatly from network to network and depends on the deflationary mechanism inherent in the blockchain protocol, as well as the number of staked crypto assets: the larger the amount the validators have staked, the lower the profitability. The APY of crypto staking can vary from 1% to several dozen.
List of cryptocurrencies that support staking:
- Ethereum (ETH) (in test mode). The developers released the Beacon Chain supporting PoS, but the network will finally switch to this consensus algorithm only after the release of the Ethereum 2.0 update, which will not happen until 2022;
- Solana (SOL);
- Cardano (ADA);
- Polkadot (DOT);
- Polygon (MATIC);
- Terra (LUNA);
- Tezos (XTZ);
- Elrond (EGLD).
- Low entry threshold (for DPoS).
- Passive income.
- The increase in profitability is proportional to the growth in the rate of the staked cryptocurrency.
- DPoS availability: no need to configure a node – just install a wallet and delegate coins/tokens to validators.
- No technical skills or knowledge required.
- Risks associated with investment and cryptocurrency volatility.
- The average profitability excluding the growth of the cryptocurrency rate, which usually does not exceed several tens of percent per annum and, moreover, is decreasing.
The evolution of the decentralized blockchain ecosystem has led to the emergence of the DeFi industry, which has presented users with new ways to generate income from digital assets, collectively known as Yield Farming – a set of tools and strategies that can increase the return on investment in cryptocurrencies. There are two most common farming methods: lending and liquidity mining.
The method is as follows: the holder provides another user with his cryptocurrency on credit secured by another digital asset. For this, the borrower pays interest to the lender. The collateralized cryptocurrency is blocked in a smart contract.
Lending is involved in different farming strategies: for example, you can borrow crypto assets in order to farm them. If at this time the rate of the collateral cryptocurrency rises, you will receive a double benefit. But remember that as the profitability increases, so will the risks.
The largest landing protocols:
- Aave (Ethereum, BSC);
- Compound (Ethereum);
- Anchor Protocol (Terra).
- Passive income.
- Low entry threshold.
- Not very high yield on the lending.
- Risks of collateral liquidation in the event of a strong fall in its value.
This method is also based on farming. The essence of liquidity mining is that the holder adds his assets to the liquidity pool, which brings him income. Profits are generated from commissions that are paid to traders.
Some DeFi protocols such as Uniswap, 1inch, PancakeSwap and Osmosis Zone add additional native tokens, which can significantly increase the profitability of farming for liquidity providers.
To start farming, all you need to do is connect your crypto wallet to a decentralized application (AMM protocol or DEX exchange), exchange your assets for liquidity tokens (LP) and contribute them to the liquidity pool, whereupon the income begins generating.
- High profitability.
- Complete passivity.
- Low entry threshold.
Note: the Ethereum blockchain has average transaction fees of up to $50, so farming can be unprofitable with small amounts. Consider investment and transaction costs when choosing a platform. For example, to add a cryptocurrency to a pool, you usually need to make a transaction three times: approving liquidity tokens, getting LP and staking to the pool.
On Ethereum, you will spend at least $150 on an average commission, so if you invest less than $1000, it will take you a long time to recoup the cost of the commissions.
- The method is not the easiest for beginners and requires at least basic knowledge in the field of yield farming.
- Volatile losses are a situation that occurs when the price of a cryptocurrency in a pair changes dramatically due to high volatility. If traders withdraw coins from the pool, the losses become permanent.
- High risks associated with the possibility of a collapse in the rate of digital assets.
- The likelihood of someone hacking the protocol and withdrawing assets from its smart contract.
One of the most common ways for beginners to earn cryptocurrency. The essence of the method is trivial: buying cryptocurrency cheap and selling it is for more money. The difference between the selling price and the buying price is the trader’s profit, but exchange fees must also be taken into account, which on average vary from 0.1% and 0.3% per transaction. There are several main types of trading:
- Day trading;
- Swing trading;
- Algo trading;
Trading is available on both centralized (CEX) and decentralized exchanges (DEX). The latter are considered safer, since the trader does not need to entrust his money to the exchange, and the coins continue to be stored in his personal wallet, but do not forget about the possibility of someone hacking the blockchain protocol. Besides, users of DEX exchanges, in addition to the trading commissions set by liquidity providers, also pay a network commission for each transaction, as a result of which transaction costs increase.
List of CEX exchanges for cryptocurrency trading:
- Curve Finance (Ethereum, Harmony);
- 1inch (Ethereum, BSC);
- Uniswap (Ethereum, BSC);
- PancakeSwap (BSC);
- Sushiswap (Ethereum, BSC, OKEx Chain, Harmony)
- High potential profitability.
- Low entry threshold.
- Lots of strategies and trading methods that each trader can choose to his liking.
- Contracts on the derivatives market make it possible to profit not only on the growth, but also on the fall of cryptocurrencies, but at the same time carry increased risks of losing funds.
- High risks associated with cryptocurrency volatility.
- There is no passivity: traders launch trades frequently and monitor the market regularly.
- The method is not really suitable for beginners, as it requires specific knowledge and experience, on which the effectiveness of crypto trading largely depends.
- The ability to analyze the market, use technical indicators and develop your own trading strategies.
- The risk of liquidating positions and losing the deposit completely when trading on the derivatives markets (CFDs, futures, perpetual contracts and options).
HODL (an ironic term created by a typo in the word “hold” by a user of the BitcoinTalk forum) is the easiest way to invest, which is not only suitable for beginners, but also shows excellent results.
To be clear, when trading you can not only suffer losses due to fast and frequent price changes, but also miss out on important gains. It’s not uncommon for long-term investors to outperform most long-distance traders. For example, if you bought Ethereum in March 2020 for $1,000 at a price of $100, you would have about $45,000 in your wallet right now.
Investments can be medium- and high risk. Buying Bitcoin, Ethereum and other major altcoins is associated with medium ris, because these coins have a high reputation and are rightly considered leaders in the crypto market. Investing in startups via ICO, IEO and IDO is high-risk as blockchain projects are at an early stage of development and can either “Moon” and enrich their investors or cause colossal losses.
If you are storing cryptocurrencies long-term, you need to be concerned about the security of the crypto assets. Storing funds on a crypto exchange is unsafe because you do not have the private keys to the wallet. Exchanges are more suitable for traders who need quick access to trading. Hardware wallets for cold storage of digital assets are considered the most secure: they are almost impossible to hack, and access can only be obtained physically.
Safe wallets for storing cryptocurrencies
- Trezor T and Trezor One;
- Ledger Nano S and Nano X;
- CoolWallet S;
- Bitcoin Core (ex. Bitcoin Qt);
- Atomic Wallet.
- Trust Wallet;
- Binance Chain Wallet;
- Relative passivity: you can monitor the market from time to time, or just forget about the coins for a while and store them in a cold wallet.
- High profitability for long-term storage.
- Knowledge of fundamental analysis is optional, but it can make investing more efficient.
- Risks caused by the volatility of crypto assets.
- It takes a lot of patience and endurance, especially for long-term investments.
- The risk of losing the private key from the wallet.
Comparison of ways of earning cryptocurrencies
In this table we have compiled and compared the criteria for choosing an income method using cryptocurrencies.
|Criterion||Mining on your own equipment||Cloud mining||Staking||Lending||Liquidity(farming)||Trading||Holding|
|Accessibility for beginners||+/-||+||+||–||–||–||+|
|Minimum investment||$ 1000 +||$ 10||$ 10||$ 10 – $ 1000 depending on the protocol||$ 10 – $ 1000 depending on the protocol||$ 10||$ 10|
|The need for technical skills and knowledge (difficulty)||–||+||+||–||–||–||+/-|
|Profitability||High||High / Medium||Medium||Medium||High / Medium||High||High|
Comparing the results of the best ways of earning on crypto for beginners, Cloud Mining, staking and holding are the best. Farming requires at least basic knowledge of processes and carries additional risks associated with the security of smart contracts. To start mining, calculations and a search for cheap electricity will be required, and effective trading requires training.
We talked about the five best ways to make money with cryptocurrencies. Each of them has its own features, advantages and disadvantages: some offer high returns with very high risks, while others are not particularly suitable for beginners.
The choice of method depends on individual needs and goals: if you want to earn cryptocurrencies quickly in a short period of time, mining, farming and trading are better suited for your goal. For long-term investors, it would be more reasonable to consider staking and holding, but farming is also suitable.