The traders and investors dealing with the crypto market daily are aware of the volatility of the market. Sometimes it could lead to loss or in some cases could prove beneficial for the traders as it could create some opportunities for profit too.
The probability of loss in crypto market can be decreased by thinking and smartly applying passive income strategies that could help in the time of difficulty.
Usually in the conditions of bear market, the traders and investors can earn profit through earning income passively. The downtrend in the market or crash could be recovered by dealing with any crypto asset by passive income.
Here is a detailed guide article that will help the readers to learn the ways of earning income passively while dealing with Ether or other cryptocurrencies during a volatile market.
What is Ethereum?
A blockchain network that is decentralized by nature and is used to operate the smart contracts over the blockchain. Smart contracts do not involve the interference of any third party or any external influence and operate only in the way they are directed to. The native token of Ethereum is commonly known as Ether.
There are a number of functions that could be carried out by using Ether such as storing and trading nonfungible tokens (NFTs), carrying out transactions, staking crypto assets, to play games and many others.
The decentralized applications (DApps) are built by using Ethereum. These applications operate on blockchain and are usually refereed as open-source software.
Working of Ethereum
It can be turned into the most popular platform among the traders and investors as anyone who has an experience or has skills can build the decentralized applications on the network of Ethereum. Initially the Proof of Work protocol was adopted by Ethereum that helped the miners in winning awards for each block of transaction they validate.
However, in September 2022, Ethereum then shifted to Proof of stake consensus officially. As already mentioned by Vitalik Buterin, the co-creator of Ethereum during Merge that this historic shift towards PoS is the first step towards the scaling roadmap of the network that has been planned through a number of years.
Ethereum will then become efficient in energy and improved scalability by shifting to proof of stake protocol. In order to secure the network in a better way it will eliminate the presence of miners from the network who use electricity in high amounts.
How can Passive Income be Earned by Ethereum
In order to earn passive income through Ethereum there are certain ways mentioned below.
- Staking
In order to validate transactions and get a chance of earning rewards, funds have to be locked on the blockchain that operates on the Proof of Stake protocol such as Ethereum.
This phenomenon is known as staking. The blockchain network gets more secured as the users take the financial risks to achieve their goals while staking Ethereum. For the services they provide to the network, they are awarded tokens that may be Ether or any other.
Though for the beginners and unprofessional traders, Ethereum staking might prove highly costly, still it is considered as one of the popular ways of earning income passively through crypto assets.
After the shift of Ethereum to the Proof of Stake network, in order to stake the validator node completely and to involve in the staking process, approximately 32 ETH are required that will be about 50,000 dollars.
In addition to staking Ethereum directly over the network, using the service providers such as Lido or StakeWise, the traders can also stake Ethereum. Ethereum staking services are provided by these decentralized applications to the users where there is no compulsion to run a node fully.
Therefore, even if the users own minimal amounts, still they can conveniently carry out staking process. There is no need for the users to make an initial investment of 32 ETH. However, a fee approximately equal to 10% might be charged from the profits that are earned by one by staking process.
- Hodl
This is a slang terminology that is usually used in the crypto space. This term is derived from hold. The term is usually referred to the situations where for making investments for longer period of time, one needs to hold on to the crypto assets.
When cryptocurrency is hodl by the investors dealing with Ethereum, it means that they claim to sell the crypto at increased price in the future for sure when the prices will hike.
Hodl is considered as one of the easiest and well-known ways to earn passive income using crypto. If one is completely sure that the price of Ether will increase in the future, then this strategy can prove a lot fruitful for the investors in long-term even if it does not provide them benefit on immediate basis.
Since its inception, Ethereum is successfully growing in the crypto market. It is now considered as one of the most demanded cryptocurrency in the world. Therefore, the traders dealing with Ethereum are hopeful that with increasing popularity, its prices will go up in the future.
Dealing with cryptocurrency and assets it is very important to keep the fluctuations and the high volatile nature of the market in mind.
Therefore, one should also consider the probability of potential loss that comes with hodling crypto for earning profit in future. So, it is always advised that the users should invest in crypto as much as they think is safe to lose in case of any mishappening.
- Automated Trading
Automated Ethereum trading is another way by which the users can generated income passively by using crypto. For this purpose, a bot is used to carry out an Ethereum investment.
These trading bots are basically the algorithms that are programmed beforehand are used to run the software programs that could help in buying and selling cryptocurrencies 24 hours a day all days of week.
During specific market conditions such as fluctuations in price or volume of trading, one can set up these bots accordingly and carry out trade procedures. Some of the popular examples of automated trading softwares are Bitsgap and Coinrule.
These softwares assist the traders in setting up the rules for trading. It can be done by utilizing the templates that are made beforehand or making the new ones according to the risk they can sustain.
Although there are certain risks that are integrated with automated trading but if goes successfully, it could provide a huge and consistent profit to the traders.
One should be aware of the fact that the bots can make mistakes too while trading and do not expect them to be perfect. They can sometimes sell an asset very early in the market or may be buy an asset very late.
In addition to that, being just an algorithm, the bot may not be able to recognize or predict the market conditions integrated with crypto market such as high volatility or trading volumes. Therefore, to avoid some major losses while carrying out automated Ethereum trading, the investors should also supervise the market conditions on their own.
- Lending
Using the investment in ETH, the traders can also generate income passively by using the lending method. The crypto assets are lent to the borrowers at higher rates of interests that could help them in making profits through it. lending platforms both centralized and decentralized can be used to carry out this activity.
In case, the users choose the centralized platform for lending, then the technical issues that may include storing data, security of the platform, authentication of data or using of bandwidth are not to be worried about.
All these issues are then managed by the platform itself. It helps in increasing the yield that could be produced by the crypto assets by providing more potential to the traders.
As compared to the decentralized lending platforms, the centralized platforms usually have higher rates of interests. However, the risk that is integrated with using the centralized platform is that the data can be hacked easily and is more susceptible to cyber attacks and crimes.
However, if the traders choose the decentralized platforms to carry out lending activity. These platforms provide the users with a transparent environment, customizability and increased security levels. Therefore, the traders are provided with the better opportunity to adjust the settings of the system to gain maximum profit out of it.
On the other hand, it is important to note that the level of complexity attached with these platforms may be higher then the centralized ones.
Therefore, in order to operate these platforms, it may require an expertise or training to avoid any losses. Moreover, the interest rates that are offered by the decentralized platforms are also usually lesser than the ones in centralized platforms.
- Liquidity Mining
Another important method to earn income passively through Ethereum is liquidity mining also commonly known as yield farming. In this method, using the decentralized platforms, the crypto assets such as Ether or others are lent by the traders to the liquidity pools.
Some of the popular decentralized exchanges include Uniswap, SushiSwap and Yearn.finance where the traders can also get the opportunity to earn rewards.
In the liquidity pools, the opportunity to get the tokens exchanges with any other is also provided by a number of yield farming platforms. When any cryptocurrency is being traded, the traders have to pay a fee for it. Then according to their contribution in the pool, the fee is divided among the farmers accordingly.
The amount of the liquidity that is provided by the farmer to the pool decides the size of the reward that he will be getting. Though the profit that can be earned through yield farming is huge that could help in passive earning, still it should be kept in mind that it is relatively a new technique and there is still a lot to discover and learn about it.
Moreover, it may involve a certain risk as the price of the underlying assets may change and vary rapidly in the process, one should be aware that it may lead to loss sometimes.
Difference Between Yield Farming and Staking
Though both the techniques are used to earn passive income, still there are certain differences that make yield farming distinctive from staking. These differences are mentioned below.
- Incentives
In staking, every time the user validates a new block over the blockchain network, they are given rewards in the form of tokens. On the other hand, in yield farming or liquidity mining the users are given their rewards in the form of APYs.
- Mechanism of Consensus
In yield farming, the decentralized applications are used by the lenders for staking their assets into a lending pool. However, in staking the proof of stake protocol is being used by the traders.
- Impermanent Loss
While staking the cryptocurrencies, there is chance of any impermanent loss. On the other hand, in yield farming, the farmer may have to face an impermanent loss in case there is an unequal ratio of tokens in the pool.
- Locking up Funds Requirements
Using the yield farming method, the users do not have to lock up their funds for specific period of time to earn the profit. On the other hand, in staking the crypto assets, it is mandatory that the funds are locked for a specific amount of time that is decided beforehand. Moreover, the users usually stake their assets on different blockchains.
Pros of Passive Crypto Earning
Earning income passively through the opportunities available in the market can prove a lot beneficial for the everyday traders. Some of the advantages of passive crypto earning are mentioned below.
- Diversifies Income Stream
As mentioned in the article that there are a number of opportunities that are present in the market that could help the traders earn income passively. The professional and active traders would take advantage of such opportunities and invest their funds in multiple streams.
This will diversify their trading profile and help them earn income through multiple resources. This is one of the reason the traders are enthusiastic about earning passively.
- Future Investment Opportunities
When the traders who are eager to earn passively, look for the opportunities in the market, they may find a number of opportunities where they can earn through in the future. They find out the future opportunities and projects and the crypto assets that may increase in value in the future.
- Sustaining Risks During Bear Market
During the down trends in the market, earning income passively through crypto could prove beneficial for the traders and they can compensate their losses by a great extent during the bear markets.
- An Approach to Generation of Wealth
The opportunities that are provided to earn the passive income through crypto can help the traders to increase their income and wealth multiple times. With lower amount of charges, lesser time required for commitment and lesser technical issues, the traders can grow their income.
Cons of Passive Crypto Earning
Earning income through passive means may also have certain disadvantages attached to it. Some of the major risks involved in passive earning through crypto are mentioned below.
- Threat of Cybercrimes
As the world is getting advanced in technology with time, the cybercriminals are also becoming more and more active in carrying out the illicit activities.
Just like any other trading activity in the world, there is always a risk of data being hacked or any illegal activity while dealing with crypto. Therefore, the traders have to be aware and look out for such scams and crimes.
- Failure of Projects and Liquidation
There is always a greater risk of potential loss integrated with crypto trading. Many a times the projects may go insolvent, or the firm goes bankrupt that may result in a loss for the traders that cannot be recovered.
Therefore, the traders should think a lot before investing their funds in crypto market. The crypto hedge fund Three Arrows Capital (3AC) and crypto lending operator Celsius Network are some commonly known examples.
- Fast Changes in Crypto Space
As the crypto market is growing rapidly all across the world at a fast pace. This has resulted in the discovery of a number of new crypto assets and many more are yet to come.
Therefore, with the launch of any new asset the market fluctuates as the price of already existing assets decrease. Therefore, the traders should keep the market up and downs in mind before choosing an option to earn income passively in crypto market.
Conclusion
During the market volatility and fluctuations, earning income passively using the Ethereum can help the traders in compensating their losses. There are a number of ways that can be adopted by the traders to earn passive income such as staking, liquidity mining, hodling and many others.
However, looking upon the pros and cons of each of the passive earning method, the traders should choose properly. Moreover, it is advised to carry out a proper research before investing in crypto because of the potential risk of loss always attached to it.
