- Earning passive income with Ethereum allows you to maximize your return on investment without trading.
- Staking, Lending, and using automated trading bots are the ways you can earn passive income.
- Decentralized lending platforms have robust security architecture than centralized lending platforms.
The cryptocurrency market poses several opportunities for Ethereum investors, holders, and traders. Intriguingly, most investors hold and trade assets when the market is bullish. However, they divert to other passive income-earning projects in crypto when the bearish phase comes.
Blockchain protocols such as Ethereum allow earning and maximizing your return on investment— asides from trading. That is, when there is a decline in the Ethereum price value and the general market, you can earn passive income. Your digital asset can work for you as it is not economically beneficial to trade during the bear market.
For instance, an Ethereum trader or investor earning passive ETH income has a hedge against the Ethereum market losses. Similarly, protocols built on the Ethereum blockchain allow you to earn passive income.
Formally, the most common way of earning extra income through interest on crypto assets is through Hodling. It is a common practice in the crypto ecosystem to hold digital assets through the downtrodden market until a favorable market condition is restored, which drives up the crypto prices. Asides from trading and holding, there are other ways to earn.
This article will identify ways to earn passive crypto income with Ethereum.
Earning Passive Crypto Income With Ethereum
These are some notable ways you can earn passive income with Ethereum.
1. Ethereum Staking
Staking as a passive income venture is not peculiar to Ethereum; it cuts across all proof-of-stake blockchains. The staking process involves an ETH holder locking their funds on the network. The Ethereum network uses the locked funds to validate transactions and distribute the rewards to the investors.
Similarly, you provide security for the Ethereum network by staking your ETH. Users that stake their ETH are essentially supporting and helping to secure the network. In return for their efforts, they earn rewards in ETH.
Even though staking is a viable way to earn a viable income, it is quite expensive to be a staker on the Ethereum network. You need at least 32 ETH to run a full validator node to stake your token. This validator node qualifies you to be a staker and earn a reward at every round.
Significantly, there are two methods of staking in crypto. They are direct staking and indirect staking.
Direct staking is the method whereby you lock your funds and make them available in a validator node. Similarly, indirect staking requires using third-party, decentralized service providers.
Furthermore, these decentralized apps (DApps) provide Ethereum staking services in indirect staking. They allow network participants to stake with minimal amounts without running a full node. These decentralized third-party apps usually charge a fee for rewards after staking your token. Most of them charge 10% of your ETH reward and do not require you to have 32 ETH to be a staker.
2. Automated Trading
Automated trading is another viable way to earn passive income in Ethereum. Automated trading involves using a bot for trading. In this trading arrangement, you engage the service of software programs that use pre-programmed algorithms to buy and sell cryptocurrency on exchanges.
Depending on the trading bot you integrate, you can set them up to different trading rules and conditions. So while you are away, these bots trade using your ETH. Most platforms offering automated trading either have premade templates or allow you to customize them based on risk preference.
Furthermore, it is important to know that you can either maximize or lose your investment using trading bots. If you program it right and succeed, it can provide steady profits while navigating the associated risks. However, bots are programmed and prone to mistakes. There are instances where the bots sell too early or buy too late.
Moreover, the cryptocurrency market is highly volatile and unpredictable. A sudden change that the bot does not anticipate can lead to a huge loss. Therefore, investors must monitor their automated trading activity closely to avoid major losses.
3. Ethereum Lending
Investors seeking passive income on their Ethereum investment can engage in lending. If you want to engage in lending, you can provide your Ethereum token to borrowers on a decentralized or centralized lending platform. When investors lend a part of their ETH holdings on a lending platform, they get back the ETH with a high-interest rate.
Furthermore, when you use centralized lending platforms, the platform engages in all the processes, from finding borrowers to recuperating your token. Similarly, the platform covers all the technicalities, such as agreement, security, data storage, bandwidth usage, and authentication.
The entire lending and borrowing process is transparent and highly decentralized on decentralized lending platforms. The lender enjoys a higher level of security, transparency, and customizability. Significantly, it is advantageous for seasoned and professional ETH investors to tweak settings to maximize their profits.
It is important to know that there are distinct differences between centralized and decentralized lending platforms. One of those differences is that decentralized platforms are more complex and require higher technical expertise. Similarly, interest rates are lower on decentralized lending platforms.
Significantly, decentralized lending platforms have a hedge over centralized lending platforms concerning security. That is, centralized platforms are more susceptible to hacks and data breaches.