Cryptos That Earn an Income
As both cryptocurrencies and the blockchain have matured/proliferated, another concept from traditional fiat currency has come into play: the concept of using money to make money, typically by lending it to someone else in exchange for an interest payment.
But as you might expect with an emerging technology, this is only one of the ways you can earn an income from cryptocurrency.
And also as you might expect with an emerging technology, there are plenty of risks and some of the opportunities require a degree of technical expertise. Always rely on the investor's mantra:
"Never risk money you can't afford to lose"
Please don't take any of the following as recommendations. They are intended to provide useful information, pertinent at the time of writing. Always, always do your own due diligence.
Cryptos That Earn an Income
Celsius
You've heard the term HODLer, right? It's just a term for someone who buys cryptocurrency like Bitcoin, Ether or Ripple and then HOLDs onto them, as opposed to trading them or buying something with them. Though presumably, the HODLer will do one or both of these things eventually. When the price is right.
Well, if you're a HODLer, you can now earn a passive income from your cryptocurrency holdings. At least, if they're substantial.
The Celsius Network, which has been around for over 4 years (a lifetime in the blockchain world) redistributes 80% of its revenue to the Celsius community by way of weekly interest payments that can equate to around 13% annualized. Considerably more than a bank! And the Celsius app is available on both iOS (iPhone) and Android, so you can trade with just your smartphone.
Celsius supports over 30 different cryptocurrencies, so you have a lot of choice.
The company has over 100,000 users with more than $700 million in assets. And has made interest payments in excess of $12 million.
You can borrow as well as lend on Celsius. You can use your deposited cryptocurrency as collateral and borrow cash or stablecoins as a loan at a range of different terms. Unlike traditional fiat loan services, Celsius loans don’t require a credit check and usually give you approval in minutes.
BlockFi
BlockFi is a platform where you can deposit your crypto coins for them to lend out to corporate and institutional investors. It's a fairly recent platform (established in 2017) and will pay up to 7.5% per annum on cryptocurrency deposited in a BIA (BlockFi Interest Account). There are no fees and no minimum balance. Different interest rates are paid on different currencies and also depend on the amount of currency deposited.
Clearly, these will change with time. You can check BlockFi's current rates HERE.
At the time of writing, you could earn 7.5% on any quantity up to 50,000 of the stablecoins USDC and GUSD and 8.5% on the stablecoin DAI (as an introductory rate during a promotional period. BlockFi does have some amazing promotional deals and the current ones can be seen HERE.
Bitcoin (up to 0.25 BTC) and Ether (up to 5 ETH) earn 4% at the time of writing.
You can also open a trading account for buying and trading bitcoin and other cryptocurrencies and you can borrow US dollars at competitive interest rates backed by your cryptocurrency assets.
Stablecoins
You will normally get the highest interest rate available on stablecoins.
Stablecoins are a form of cryptocurrency whose exchange rate is not set by market forces like bitcoin and ether. They are instead pegged to a fiat currency such as the US dollar or even to a "real" asset such as gold. The intention is to avoid the excessive volatility associated with other cryptos, particularly bitcoin.
Note that this is an intention, not a guarantee. A stablecoin, just like any other crypto can fail. Always do your due diligence.
Some examples of stablecoins are:
- BITUSD (Issued by BitUSD)
- DAI (Maker DAO)
- GUSD (Gemini Dollar)
- Tether (USDT)
- EURS (STASIS Foundation)
Stablecoins theoretically offer all the advantages of cryptocurrency but without the volatility. Bitcoin's exchange rate volatility has meant that its current use case is as a store of value and a high risk/high reward investment rather than Satoshi Nakamoto's vision of a decentralized currency. This may change once all 21 million bitcoins have been mined ( see Mining the Blockchain).
For more information on stablecoins and a (changeable) list of some of the most popular, see Best Stablecoins Comparison here.
Peer-to-Peer Bitcoin Lending
If you already have a holding of bitcoin and/or other cryptocurrencies and are a Hodler (someone who holds their crypto as opposed to trading it) you can earn interest on your holding by lending it out. Just like a bank. See my article Crypto Home Loans: No Bank Involved for a glimpse into a possible future.
There are crypto-powered lending platforms that facilitate you lending some of your cryptocurrency to individuals, crypto traders or institutions who need funding for whatever reason.
Again, this isn't a recommendation, but one of the well-known platforms for peer-to-peer lending is BTCPop.
BTCPop facilitates both sides of the transaction, so you can enter their platform as either a borrower or a lender (despite Polonius's advice to his son in Shakespeare's Hamlet).
As is often the case with cryptocurrency platforms, BTCPop offers a number of services:
- Peer-to-Peer Loans. The ease of your borrowing isn't determined by your credit score, as it would be in traditional (fiat) financing, but by your reputation. Once you've registered and verified your account with BTCPop, it's just a matter of selecting your loan type, completing a form and then submitting it.
If you have a business idea that needs funding, you can request a loan by creating an IPO (Initial Public Offering) and submitting it. If your IPO is approved, it will be listed for other members of BTCPop to invest in it. - Cryptocurrency Exchange. You can exchange one type of cryptocurrency for another with other BTCPop members. The cryptocurrencies supported are frequently updated, so check BTCPop for the current list.
- Proof of Stake Verification. Many altcoins are moving to a proof-of-stake (POS) verification model. With POS, a miner verifies a block not by solving an algorithm, but by putting an amount of cryptocurrency they already own at stake. The more coins you stake, the more mining capacity you have. You can read more about how POS works at POS Detailed Guide.
At BTCPop, you can pool your coins with others to get a percentage of new coins that are mined using proof-of-stake. It's been estimated that POS mining returns on average 5% per annum.
Lightning Network Node
Lightning network nodes are relatively new and require a degree of technical expertise. But what are they all about?
Well, an issue facing everyone who wants to see cryptocurrency succeed as an alternative form of money is how long it takes to add transactions to the blockchain. And, of course, the more successful something like bitcoin becomes and the broader its usage, the longer it takes. It's already handling millions of transactions every day.
It's a technology problem and the Lightning Network is a technology solution.
Lightning is a network of payment channels powered by a smart contract between two individuals transacting in bitcoin or litecoin. It will probably be extended to other cryptocurrencies in the future,
The transaction is conducted off the bitcoin blockchain and so is lightning fast (the clue was in the name, wasn't it?) Here's how it works:
Two people can set up a payment channel on the Lightning Network. One or both of them have to fund the payment channel with bitcoin or litecoin. For example:
Karen and Toby set up a Lightning payment channel with a capacity of one bitcoin and each commit to 50% of it.
They can then transact as much as they want over the channel, up to its capacity, with a temporary balance sheet being updated instantaneously. It's not until Karen and Toby (or one of them) decide to close the channel, that the current balance sheet is updated to the bitcoin or litecoin blockchain, reflecting Karen's and Toby's current balances. This is what makes it so fast.
Of course, it would be impractical to have to set up a payment channel for everyone you want to transact with.
Because Lightning is a network of interconnected payment channels (called nodes), payments can be forwarded to the intended recipient by "hopping" from one node to another. This is still close to instantaneous and the Lightning Network automatically finds the optimal route to reach the recipient.
How to Make Money from Lightning
You can profit from the Lightning Network by making your computer available as a Lightning node.
Unfortunately,
- it's not trivial
- you have to fund it initially with some bitcoin and
- At least at this stage you won't make much money (satoshi) out of it.
Still, it could be a could way to get into bitcoin with having to buy any other than your initial stake, which can be as low as around $10 worth,
Basically, you have to become a node in the Lightning network and set your transaction fee low enough to be attractive and high enough to return a profit. Just like the real world of business, really! It's possible that profits may increase as the network becomes more popular.
You can learn how to set up a lightning node at How to run a Lightning network node on Windows and How to run a profitable Lightning node.
Summary
For a detailed overview of how to earn an income from cryptocurrency, have a look at The Top 10 Ways to Earn Passive Income from Crypto.