These days, it is impossible to go a few days without hearing about the latest cryptocurrency craze. Social media is always buzzing with the news of Bitcoin or Ethereum hitting a new high. According to a recent report named “A rising number of Americans own crypto” by the finder, around 36.5 million people in the U.S. have so far invested in this digital currency. The cryptocurrency market is exploding with possibilities, and at some point-of-time, almost everyone has thought about venturing into this relatively newer world.
Cryptocurrency is one of the fastest-growing digital assets, and there are plenty of ways to make money off it. Although unfortunately, many fortune-seeking people that get into the cryptocurrency field are unable to earn any profits. They either fall into a scam or simply give up on their cryptocurrency dream due to lack of information.
In this article, we will be unveiling the answer to one of the most coveted questions,” How Does Cryptocurrency Make Money?” So, let’s dive right in!
This is a no-brainer; investing is the easiest way to make money with cryptocurrencies. Although, crypto assets are extremely volatile but have incredible long-term potential, making them perfectly suitable for investment purposes. There are many ways to invest in cryptocurrencies, such as long-term investing, passive income, and arbitrage investments. All these options are good in their unique way, where some need significant investments while others are available for users with a minimal initial capital.
Crypto investment can yield huge returns via appreciation of the coin/token one buys and their share in the project. One can also get access to the project or product, depending on the type of cryptocurrency they choose to invest in.
One thing to bear in mind is, investing in cryptocurrency has its disadvantages. Some of them are:
1. Being a blockchain-powered digital asset, cryptocurrency lacks centralized control, which, on the one hand, can be an absolute advantage, and on the other hand, make the investments totally an investor’s risk.
2. Cryptocurrency’s volatile nature can turn out to be disastrous for many enthusiasts as it changes its course every day. Inexperienced investors often start to panic and begin to lose capital when even a small downward trend is witnessed.
Buy and HODL
Buying and HODLing is perhaps the most common way of making money out of cryptocurrencies. HODLing is the process of buying some powerful cryptocurrencies and holding them with the hope of their prices shooting straight up. Sadly, HODLing doesn’t earn the holder any interest on their funds.
The strategy behind buying any cryptocurrency like Bitcoin, Ethereum, Ripple, etc., asks one to identify more stable and volatile assets that can rapidly shift in value, thus yield a lot of profit. Assets like Ethereum and Bitcoin are ideal for this trading strategy because of their continuous price variations and investment safety. However safe these options may be, one s always scrutinize each asset before going through with HODLing it.
Two favorable things happen when one picks the buy and HODL strategy. And these advantages are:
1. It cancels out 95% of the market noise. Short-term cryptocurrency traders many-a-times get frustrated when the market shrugs them out of their trades as it usually whipsaws on the smaller time frames. However, that effect on a weekly chart is relatively non-volatile, and traders do not need to worry about losing money in one go.
2. Another feature of “buying and HODLing” cryptocurrency that makes it an enticing option is that it doesn’t require the perfect market timing to make money from it. For highly experienced traders and investors who hope to be in cryptocurrency trading for an extended period, this is a feasible option because it allows them to stay in the market without spending a lot of money. It is one way of laying low without losing your position in the market.
Cryptocurrency Mining or Crypto-Mining
Cryptocurrency Mining essentially translates to leveraging the power of computers to help verify crypto transactions. This method is a way of making money with cryptocurrency by extracting it. As mentioned before, it harnesses a lot of computer power, known as “mining farms.” Crypto mining has seen massive growth both as a topic of activity as cryptocurrency usage has surged high in the past few years.
Every time a cryptocurrency transaction occurs, a cryptocurrency miner ensures the authenticity of information and updating the blockchain with traction. Crypto miners compete with each other in this mining process to solve complex mathematical problems containing cryptographic hash functions associated with a block holding the transaction data.
The first miner to decode the problem is rewarded with new coins, through block rewards, for performing these functions. Initially, when cryptocurrency was yet to get the momentum that it has today, mining could be done on a desktop computer but not anymore. These days to get started with the cryptocurrency mining career, miners need to be armed with the following things:
1. Dedicated computer hardware featuring either a specialized graphical processing unit (GPU) chip or an application-specific integrated circuit (ASIC)
2. A legitimate software package meant explicitly for crypto mining.
3. Membership in an online cryptocurrency exchange along with an online mining pool
4. A cooling system for all the complicated hardware involved
5. And most importantly, an uninterrupted internet connection.
Everyone is familiar with the concept of compounding interest, where one can earn interest for letting a bank use their money, then earning interest on that interest. The accumulated interest then automatically gets reinvested and yield more interest. The blockchain investor’s equivalent is the method of staking, where one earns tokens for holding tokens. Proof-of-stake (PoS) is one of the consensus mechanisms that help determine who will validate the next block.
Based on a randomly chosen validator, PoS is a consensus algorithm for blockchain networks. These validators “stake” the native network’s tokens by locking them into the blockchain. Widely regarded as the greener version of Proof of Work (PoW) consensus in Bitcoin, which demands significant energy expenditures, Proof of stake allows its validators to get rewarded for their total stake. It does so by incentivizing nodes to validate the network based on ROI.
From a user’s perspective, staking is the way of being rewarded for taking part in the network ecosystem. The process of validating a blockchain is technically complicated, but the reason why crypto enthusiasts around the globe chose to go for this option is:
1. They earn rewards for simply holding their coins in the wallet for a particular period. The rewards depend upon the number of coins stored in the wallet and, sometimes, the amount of time they are kept. The protocol often enforces the act of claiming these rewards, and in other cases, users can choose to do it on their own.
2. Another enticing aspect involved with staking is, it allows users to earn rewards for delegating a part of their stake to a validator. The reward comes straight from the validator sharing part of its revenue with the ones delegating their stake to the validator. Those rewards can again either be automatically enforced by the protocol or completely rely on the said validator’s goodwill.
One easy way of making money with cryptocurrency is through participating in bonus/airdrop offers. Exchanges often distribute airdrops (free tokens) to generate awareness and build up a huge user base for a project. This method of making money through cryptocurrency doesn’t require one to invest in anything. To earn a free/bonus point, all one has to do is join the airdrop program of a cryptocurrency and complete a set of easy tasks allotted to them.
Additionally, it allows one to earn bonus tokens by investing in a cryptocurrency during an initial coin offering (ICO). ICO is a means of crowdfunding used by start-ups to steadily replace the act of raising venture capital. In an ICO, tokens are up for grabs to the general public, which provides something similar to equity ownership for the token holder.
ICO has the potential to make a lot of money and mentioned below are some of the factors first-time investors should consider before turning to ICO:
1. Seek projects that have good long-term fundamentals. Look at the project through a bird’s eye-view and analyze its vision. Assess the problem it is trying to resolve and scrutinize the quality of its developing team. Well-planned projects often achieve their objectives and deliverables.
2. Don’t forget about the bonus offerings. Most ICO’s have a bonus system to reward early investors. And these bonuses can range somewhere between 10% to 100%. Keep in mind that generally, investment in the pre-ICO stage is higher than on the actual ICO period.
That’s a Wrap!
Making money through cryptocurrency is not as difficult as it sounds. It depends on one’s volume of knowledge, level of skill in financial markets, the handpicked method of earning, the volatility rate of the chosen cryptocurrency, and well, sometimes, it’s just a matter of luck.
Although cryptos have been around for quite some time now, the world of cryptocurrencies is still shrouded in mystery. Every day a new analysis happens, new statistical information comes-up, and new coins get released in the market. It can be exhausting, but above mentioned five methods are surely going to yield results. Give it a go and be a part of this ever-evolving world of cryptocurrencies. After all, it is the future.