There are more than 7,000 cryptocurrencies. Though only a few of these are widely accepted among merchants — or even known to the general public — people around the world are trading these digital currencies for a profit. As crypto is growing in popularity, you might be wondering how you can get on the bandwagon too. Below are several ideas for how to make money trading cryptocurrency.
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What Is Cryptocurrency?
Cryptocurrencies are digital currencies based on ledgers stored on the internet via blockchain technology. Cryptocurrency is decentralized, meaning that federally-backed traditional banking institutions don’t regulate or track it. All crypto transactions occur virtually, and a slowly increasing number of merchants accept crypto as a form of payment.
Can You Make Money with Cryptocurrency?
Yes, there are many ways to make money with cryptocurrency. Though constantly changing, the global crypto market cap (or total value) for all digital currencies has reached more than $1 trillion. This means there are tons of money and crypto opportunities you can tap into. Knowing how is the key.
How to Make Money with Cryptocurrency
The many ways to make money with cryptocurrency look pretty different from one another. Of particular note is that some options carry significantly more risk than others. Understanding these different methods and some of their requirements and risks can help you choose the one that’s best for your financial goals.
Investing is often one of the simplest ways to make money from crypto. Cryptocurrency investing involves buying and holding digital currency for an extended period. After making a purchase, an investor will track the value of a token in hopes it will increase over time. The investor might decide to sell the currency after several years once they’ve earned a desirable profit from the increased value.
You can open a brokerage account or use a crypto exchange to start investing in crypto. The latter option allows users to buy and sell crypto with fiat currency like the U.S. dollar or trade between cryptocurrencies. If you’re new to investing, check out our tips on how to read stock charts to help you track crypto prices and plan your next move.
Whereas investors will often hold a currency over the long-term no matter its fluctuations, crypto traders resemble short-term investors. Trading crypto involves buying and selling digital tokens based on the state of their current values. Traders often make several transactions over shorter periods.
Due to crypto’s volatility, trading cryptocurrencies can carry substantial risk, especially to crypto newcomers. Experienced traders often employ technical strategies to find optimal moments to buy and sell on trading platforms.
The blockchain networks supporting crypto require users to solve complex math problems to confirm and secure crypto transactions. Users can solve these math problems through one of two methods: proof of work or proof of stake. Proof of work is also known as mining.
First used with bitcoin, proof of work requires crypto miners to use computer technology to solve complex math problems in order to verify crypto transactions. The blockchain network rewards the first miner to find the correct number with some amount of that digital currency.
Mining crypto can be an expensive and time-consuming process. The technology required to compute these math solutions can be extremely expensive, and running mining rigs can require a significant amount of energy. The complexity and cost of it all often leads to miners working together in teams. These teams combine their individual resources to accelerate the process, then they share any resulting profits.
As mentioned above, the alternative to proof of work is proof of stake. You’ll also see the process referred to as staking. Many altcoins, like Cardano and Polkadot, rely on staking to validate their transactions.
With proof of stake, users still have to solve math problems. But instead of many miners racing to compute a math problem, the blockchain network gives a randomly chosen user permission to validate a transaction. This decision is based on the number of coins a user owns. When the transaction is verified, the staker is rewarded with more coins.
If crypto mining and staking seem a bit too complex, you might consider crypto lending. With crypto lending, third-party lending platforms connect lenders with borrowers who need funds to trade crypto. Lenders receive interest payments based on the amount of crypto they’ve contributed, so their crypto wallets grow over time without any active work.
6. Crypto Social Media
Creating content on dedicated social networks can earn you crypto. These sites charge users to access posts and articles, and their authors receive payments based on how many views, comments, and reactions their content receives.
Examples of these sites are Y’alls and Steemit. To start posting on these sites, you’ll need to use software, such as Lightning nodes, that connects you to the networks for blockchain-based cryptocurrencies. These networks are designed to help users quickly and securely make rapid, scalable crypto transactions.
7. Cryptocurrency Dividends
Dividends are essentially a passive reward for holding an investment. Many traditional stocks, for example, pay dividends out of their companies’ profits. An investor can reinvest these profits or withdraw their reward and deposit it directly into their bank account. As with stocks, there are several cryptocurrencies that offer dividend payments to their investors.
Cryptocurrency dividends are based on how much of the currency you own and the token’s trading volume. Some cryptocurrencies also yield higher dividends than others. The frequency of dividend payouts varies, with different coins distributing dividends a few times a year, monthly, or even daily.
8. Arbitrage Between Crypto Assets
Crypto arbitrage takes buying low and selling high in a new direction. Cryptocurrencies are bought and sold on hundreds of exchanges. Prices for currencies can vary by exchange. Crypto arbitrage describes buying a digital token for a lower price on one exchange and selling it on another exchange for a higher price.
There are three common types of crypto arbitrage to consider:
- Manual arbitrage: A trader makes a profit from buying a digital token on one exchange. The trader monitors crypto prices on other exchanges. They then initiate a trade when they see the currency trading at a higher price on another exchange.
- Cross-currency arbitrage: A trader makes two trades to ultimately exchange one cryptocurrency for another. The trader will first exchange one currency for another, then that other crypto for a third currency. Price variations between exchanges allow this method to work, but high transaction fees can chip away at profits.
- Automated arbitrage: Traders with experience in coding and computer algorithms can create systems that automatically track and trade multiple currencies across crypto exchanges. This way, a trader doesn’t have to manually monitor each of their digital tokens and their price fluctuations.
9. Run Cryptocurrency Master Nodes
Master nodes verify new cryptocurrency blocks on their blockchain networks. By running master nodes, users maintain the accuracy of the public ledgers behind these transactions. Master node operators play a key part in upholding the network’s activities and processes.
Although running a master node can be simpler than mining, master node operators do face some initial challenges. An initial investment in expensive equipment remains necessary. So too is comprehensive knowledge about the blockchain in question.
After clearing these obstacles, though, master node operators can earn sizable profits while maintaining low operating costs. As operators run these nodes, they’re rewarded with shares of the pertinent currency.
10. Airdrops and Forks
Cryptocurrency airdrops are like samples. They’re sent to crypto owners’ digital wallets to market new digital currencies and promote trading them. Airdrops are often free, though in some cases, investors must perform a small task to receive them. These tasks might include registering an account on a certain website or posting about the currency on social media.
Another free way to receive digital tokens is through forks. A fork results from a split in a blockchain network’s code. When a network splits, new coins are created for users to claim. Doing so can be immensely complicated, and incorrectly maneuvering through the process can result in losing both the original and new coins. Claiming services that bring expertise to the process can assist you and keep these problems off your mind.
The profit you can earn from cryptocurrency varies based on the method you use. It also varies based on how much you’re willing to invest in mining rigs and blockchain software. In many cases, more complex but expensive methods can yield higher profits than less intricate ones, but not without the startup costs.
The tools you’ll need to profit from crypto depend on the method you choose to make your profits. For example, you can start investing in cryptocurrency with your cell phone, but mining crypto requires mining hardware, software, and several other resources.
Some strategies involve steps as simple as making a brokerage account. Doing so requires no experience. More complex methods, however, require extensive knowledge of crypto technology or experience with trading strategies.