Passive income with Bitcoin

Passive income with Bitcoin

You can read this post on general passive income with cryptocurrencies, but if you are interested specifically in making income from your bitcoin holdings, then read on.

Generally, as with other cryptocurrencies, main ways of making additional income with your bitcoin is to either participate in bitcoin mining pools, invest in bitcoin savings, provide liquidity to the exchange or participate in DeFi projects. Disclaimer – information in this post doesn’t represent any financial advise, please speak with a financial adviser before making any cryptocurrency investments. Links provided in this post are affiliate links, which – please see affiliate disclosure at the bottom of this page for more details.

Make income with Bitcoin mining

Mining is a process used by Bitcoin blockchain to verify transactions and add them to blocks to prove that transaction is legitimate. During this process miners are solving a mathematical puzzle, which gets more and more  complex over time and requires more and more computing power. First miner that solved the puzzle will get a Bitcoin reward for solving it and many people participate in bitcoin mining to earn additional money.

As these puzzles are getting more and more complex, miners decided to join mining pools to provide their resources in the pool and make it easier to receive this reward. Once the reward is received it is distributed across mining pool members in proportion to computing power provided by each miner.

While there are many mining pools available, some exchanges (like Binance) offer their users access to such a service. In order to get started you will need to acquire a mining machine, connect it to the mining pool and start earning your Bitcoins.

Alternatively, some services are offering mining contracts, where you just provide bitcoin or cash and these companies are providing mining resources directly to you. While this may look attractive and no hassle solution to participate in Bitcoin mining, you have a real risk of losing all invested money resource provider goes bust, so generally it’s safer to get your own mining resources and participate in the mining pool instead of giving your bitcoin to unknown companies.

Bitcoin savings

Bitcoin savings

Some exchanges may offer Bitcoin fixed-term or variable savings (Binance does) if you are looking for a savings product.

Another interesting product offered by Binance is dual-savings. Please note that it is a complex product with a complex pay-off, so may not be suitable for everyone.

Passive income from providing Bitcoin liquidity

Providing liquidity via on-chain staking means that tokens you are providing can be used by a smart-contract blockchain. Majority of established smart contract services run on Ethereum, so in order to participate in these you’ll have to either buy an ERC20 token (and bear a risk that it will depreciate against Bitcoin) or buy an ERC20 token that is pegged to Bitcoin e.g. WBTC (Wrapped Bitcoin). Please note that while WBTC is pegged to Bitcoin, it is not Bitcoin.

Providing liquidity via off-chain staking is another way to provide Bitcoin liquidity and earn interest. Off-chain here means that it is not supported by a smart contract and you trust the provider. Kraken offers off-chain Bitcoin staking and probably other exchanges and crypto services do this too.

Bitcoin projects

Participating in DeFi projects

DeFi stands for Decentralized finance and ways of earning with DeFi is limitless, as each service has its own use case.

Unfortunately, Bitcoin doesn’t have a native support for  smart contracts the same way as Ethereum has, so majority of DeFi apps are available for Ethereum and Ethereum-based tokens (ERC20).

One of the ways to get around it is to buy a WBTC (Wrapped Bitcoin), which is an ERC20 coin tethered to Bitcoin and then use it to access DeFi projects. You can read more about WBTC here.

If you still want to use use your Bitcoin in DeFi projects, you may search for Bitcoin DeFi apps, but while there are some developments in this space, I am not aware of any well established project in this space for now.

Again, you can participate in DeFi projects via your exchange or crypto wallet (like TrustWallet)

A word of caution

We have reviewed a number of ways how to make passive income with your bitcoin. Generally, there are two separate paths you can take: provide your bitcoins to a service and earn interest or exchange it to an ERC20 token and participate in DeFi projects.

If you directly provide Bitcoin (via savings or off-chain staking), you need to trust the counter party (exchange or crypto service) and be sure that you will get your Bitcoin and interest back. So it’s important to deal only with established organisations with good reputation – unfortunately there is no official list in the crypto space and you will have to decide for yourself if a particular service is reputable or not.

On another hand, smart contracts running on a distributed ledger offer sort of logical protection to your digital assets. However, you fully rely on algorithms / contract logic here, and of logic is untested or faulty you may also experience unexpected losses. Here it’s important to assess technical side of the smart contract, read review about a particular service and see how many users it is serving. The more users it serves the better, as user community will find flaws and drive its resolution.

Making income with your Bitcoin maybe lucrative, but also risky – so do your research before investing your hard-earned Bitcoins.

Posted by Crypto Novice in Crypto tokens