Making money with bitcoin requires effort and a well thought out strategy. It is helpful to understand how cryptocurrencies work and the different methods you can use to generate income. In this guide, we will be exploring some methods that you can employ to generate some passive income through bitcoin.
Quick Summary for Fast Readers
- Hodling bitcoin has been a preferred method of making money through the cryptocurrency, although it has its own set of challenges like every volatile market
- Affiliate marketing and lending/staking are two additional options for generating passive income with bitcoin
- Trading and yield farming are considered lucrative – however they involve massive ratios of high-risk/high-reward; they are also considered challenging for beginners
Here is a detailed guide that explores some methods for making money through bitcoin.
Mining / Mining Pools
Bitcoin mining is the process of creating and releasing bitcoins in the market. Think of it as mining for gold, only in the case of bitcoin, your computer does everything.
The process involves validating a block of transactions, which are eventually added to the blockchain. So, as a miner your computer plays the role of a validator of transactions. Upon successful validation, you get a mining reward – which is a set number of bitcoins. You can learn more about bitcoin mining here.
Way back in 2009, Satoshi Nakamoto (the famed-yet-unknown creator of bitcoin) mined the first block on its blockchain. All he used was his computer and a simple software to do it. For a few years that followed, that process was straightforward and simple – people needed to install a software on a computer.
Things have changed, however, and a couple of factors today influence the cost of mining.
- When there are too many miners, the difficulty of mining bitcoin increases.
- When the value of bitcoin is high, the number of miners increase making the process difficult.
- Mining reward gets halved every four years.
Today, to mine bitcoin, you need ASICs (Application-Specific Integrated Circuits), which are purposefully dedicated machines for mining. These machines, along with the massive amounts of electricity they require can be too costly an affair for an individual miner.
This is where mining pools come in. They are pools where you contribute your resources, such as computing power to collectively mine bitcoin. Because the resources are shared, computing power is also shared, and the overall costs of running the hardware reduces.
In this case, you are rewarded with bitcoins in proportion to the processing power you contribute. While bitcoin mining pools have faced criticism for making mining centralized, they are still a cost-effective way to earn bitcoins than setting up a mining farm yourself.
Trading bitcoin implies buying and selling it at different stages over a period of seconds, minutes, or even days. Trading bitcoin (and cryptocurrencies in general) has become quite popular over the past few years and some people have generated massive amounts of profit. On the other hand, however, some people have even lost massive amounts of money.
A popular form of trading bitcoin is day-trading. You open (i.e., buy some bitcoins) at a certain point in the day, and close (i.e., sell your bitcoins) when you have made your profit. Some popular exchanges where you can day-trade bitcoin are Binance, Kraken, and Coinbase.
The process of opening an account on either of these exchanges is quite simple and takes a few minutes. You can deposit fiat currency (USD, GBP, EUR) and buy a stablecoin (it’s a cryptocurrency whose value is the same as that of fiat like USDT). You can then use the stablecoin to trade bitcoin. Alternatively, you can use fiat currency to directly buy bitcoin. There are many fiat to crypto exchanges.
While day-trading might seem easy (buy when prices are low, sell when prices are high), it is considered to be quite challenging. This is because of a couple of reasons.
- The market is often influenced by emotional investors. People buy/sell bitcoin subject to how it is being talked about in media.
- Bitcoin is a highly volatile cryptocurrency, despite having an astronomical 10-year increase since inception.
- Bitcoin is limited in supply – only 21 million bitcoins will ever exist. This means the prices can suddenly go up/down depending on its supply/demand.
There are several day-trading courses available online that can give you a rough idea about how crypto trading works and explain the complex terminology. You can also check our guide on cryptocurrency trading here.
Affiliate marketing is when you send someone to a company’s website where that person makes a purchase of any listed product. Because you entice your audience to buy from that website, the company pays you a tiny commission for marketing their product.
In the case of bitcoin, you would link to an affiliate program of an exchange where the greater number of people you send, the more you earn in commission. While this is an exceedingly passive income source, it involves several factors that you must take care of.
- Every affiliate program will have conditions around the amount of crypto purchase. Your commission might/might not be proportional to that.
- While recommending any exchange/crypto trading platform, you also put your own reputation at stake. If you recommend the wrong platform, you can lose your audience.
While there are hundreds of websites that will help you choose the best affiliate program, we will strive to review and recommend the best ones – we will publish a guide very soon.
Yield farming is the process by which you stake your cryptocurrencies (or provide liquidity) in a pool (or a farm) where people can borrow those tokens and pay an interest rate for it. The process is quite similar to taking a loan via centralized finance.
However, because this is decentralized finance, you don’t need to provide anything apart from a collateral against the coins you borrow.
The tokens you lend to borrowers on any yield farming protocol (or a pool where most people supply their cryptocurrencies) can either be used for trading or further invested for leveraged yield farming. That is a complex topic, and we’ll cover it later.
Most yield farming protocols run on Ethereum – making ETH the more preferred token for providing liquidity. The APY (annualized percentage yield, or the amount of return you make annually) are said to be as high as 15% for some protocols (in a traditional savings bank, you get 0.70% APY). This is because of the volatile crypto market.
Any coin that you purchase and add to the liquidity pools can immediately lose value – this is one of the biggest challenges to yield farming. Moreover, the process itself is a bit complicated and requires some time getting used to.
Calculated risks based on thorough research combined with a dynamic strategy might go a long way when doing yield farming.
You can stake (read: lend) your bitcoins on a platform like Kraken to earn interest. This, again, is a passive source of income as you do not need to actively trade it. There are also many other crypto exchanges for staking.
HODLing has become a technical term over the years – although it has a funny story behind it. It means holding the bitcoins that you buy.
It is a classic investment strategy which many bitcoin proponents have used for several years. The core community surrounding bitcoin believes that its value will keep rising over the years as it has been built for a purpose – that of defeating a community’s dependence on centralized authorities.
As it is increasingly adopted around the world, millions of people are including bitcoin investments as part of their portfolio and are in for the long haul. While that might seem a favorable strategy to some, many cryptocurrency enthusiasts often encourage each other to DYOR – do your own research. It means carefully “understanding a cryptocurrency before investing” in it.
Personal note: I have been hodling bitcoin myself since I started trading it in the beginning of this year. I personally ensure that the amount I invest in bitcoin is the amount I am willing to lose. While the positivity around bitcoin’s eternal existence has been discussed heavily, we never know where its future lies.
Can you generate passive Income with Bitcoin?
Yes, you can. All the methods mentioned above, if implemented properly, can help you make a decent passive income. However, there’s a caveat (with cryptocurrencies there always is).This is a highly volatile space and one that is driven by more emotional than objective people. Several recent developments have even questioned its decentralization – confusing people about its utility.
Easiest Way to earn Bitcoin for Beginners
While there are several strategies that beginners can employ to earn bitcoin, it is safe to start with understanding the cryptocurrency. Once the fundamentals are set and carefully understood, a small amount can be invested to be hodled for a few days.
Is there a way to get Bitcoin for free?
While this is not directly possible, some exchanges do offer very tiny fractions of bitcoin for free when signing up. If you use a referral link to sign up to an exchange, you might be offered some free cryptocurrencies.
Also, Coinbase offers free crypto for watching their training videos. So, you can check them out.
Bitcoin is the first, and probably one of the most important, cryptocurrencies. Being around for so long, it has surely found a footing in the financial markets – and in people’s hearts. Today, it symbolizes decentralized freedom more than a mere store of value.
While some people might call it a hedge, for some it is just a way to make profits. However, you choose to react to its existence, remember that making with any cryptocurrency is no longer a cakewalk.