Would Cryptocurrency Be a Reliable Passive Income Source?

Passive income is often described as money that comes in regardless of whether you work or not. Essentially, it’s when you are no longer paid just for your efforts but instead get paid for the actions of hundreds or even thousands of others and the efforts of your money. It is a key to financial and personal freedom.

Would Cryptocurrency Be a Reliable Passive Income Source

Passive income is not new. Before the cryptocurrency industry caught the frenzy, there were many ways to earn passive income, such as dropshipping, stock trading, affiliate marketing, Amazon FBA, and more. Passive income sources are typically found in the cryptocurrency space in mining, staking, hosting masternodes, and more recently, yield farming and liquidity mining.

Bitcoin mining provided a new passive income source

Miners were the first to use cryptocurrencies for passive income following the invention of Bitcoin. Crypto mining involves using computational power to secure a network and confirm transactions in exchange for a reward. While Bitcoin could be mined using central processing units (CPUs) in the early days, an increase in hash rate led miners to switch from graphics processing units (GPUs) to Application-Specific Integrated Circuits (ASICs).

While Bitcoin mining remains profitable, the space is now dominated by corporations with significant resources. Mining revenue surged to a daily high of more than $52 million in March 2021, resulting in more than $1.5 billion for Bitcoin miners.

In addition to Bitcoin mining, there is staking, which is a less resource-intensive alternative to mining. A reward program requires a wallet to be locked and specific actions to be completed to earn rewards. With Ethereum transitioning to a Proof-of-Stake network, its Beacon staking contract is currently the largest PoS cryptocurrency by market capitalization. The contract has also been staked with 4.5 million ETH, estimated at nearly $18 billion at current market prices.

More recently, the market has shifted away from mining and staking toward yield farming and lending, fueled by the 2020 decentralization boom.

Essentially, making your cryptocurrencies work regardless of whether you are awake or asleep remains the same.

How sustainable are passive income blockchains?

Proof-of-Stake blockchains are perhaps the hallmark of passive income in the crypto world. In addition, they reveal how unsustainable the model can become. With the possibility of doubling their investments within a short time, high-staking platforms do not have a problem attracting new users. Even so, the profitability of these networks seems to be a mystery.

When the supply of these projects increases, everyone’s holdings quickly become diluted since most of these projects offer no additional features beyond staking. If the primary purpose of staking blockchains is risking, it leaves the question of what else these chains can provide.

In the end, blockchains that offer passive income through staking or mining need additional products and services to remain profitable, relevant, and sustainable.

The Passive Income (PSI) project is a few blockchain-based projects to realize this inherent challenge. Blockchain technology is introducing an exciting concept in the passive income niche. Through a variety of economic activities, PSI generates passive income that is decentralized and sustainable. By enhancing existing passive income models, PSI hopes to make them more affordable and adaptable for everyone.

Uniswap is yet another project that is at the center of passive income in the cryptocurrency space. With Universal Swap, users can swap ERC-20 tokens from one web3 wallet to another through a decentralized exchange (DEX). In contrast to centralized exchanges like Binance, Uniswap facilitates swaps through liquidity providers. By becoming a liquidity provider on Uniswap, a person can make passive income using his idle funds.

The blockchain-based passive income project Yearn Finance is another noteworthy mention in this field, despite many others. By maximizing yields through yield aggregators and DeFi ecosystems, platforms based on DeFi maximize gains. The most exciting thing about Yearn Finance is that it allows users to choose the DeFi protocol that offers the best annual percentage yield (APY) according to their risk tolerance. Through yPool, users can earn lending fees from both Yearn and Curve.

There’s life still left in passive income blockchains

Passive income is like a hydra in the cryptocurrency space. If one is shut down, there will be many more to take its place. Therefore, the niche may never go out of fashion.

For example, the total market cap of all PoS coins currently stands at around $12.6 billion. About $8 billion out of this figure is locked up in staking wallets, suggesting that many crypto users are still actively staking. In the event that any of these projects fail and close up shop, you can rest assured that there will be ten more to take their place and offer similar or better promises.

An actual solution

Passive income models like staking or other passive income methods are not the real problem. The real problem is relying on only one income stream to generate income. Having said that, a project built around transaction fees without a complementary economic activity is doomed to fail.

Blockchains focusing on passive income need to look beyond transaction fees and the holding-to-earn concept. Their first task should be to “build.” That means developing a minimum viable product, establishing a community, establishing progressive partnerships, and building an ecosystem of network participants.