Passive Crypto Mining: 7 Best Strategies to Earn Income (2024)

Published: April 19, 2024 | Last Updated: June 11, 2023

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

Passive crypto mining is a strategy that allows miners to earn Bitcoin or other coins without actively participating in the process. But the terminology can be so confusing that it’s hard to figure out how to go about it. On top of that the options seem endless. So how do you figure it all out? What is the easiest way to generate income by simply holding or staking your cryptocurrencies through smart contracts? Well, buddy you’ve landed on the right page. Stick around and I will walk you through all you need to know.

Why Choose Passive Crypto Mining?

Passive crypto mining has several benefits, including steady income, and lower barriers to entry compared to traditional mining. You can mine cryptocurrencies with ease using smart contracts and earn new coins without the need for expensive equipment.

While Bitcoin (See What is Bitcoin) is one of the most popular cryptocurrencies that you can mine passively it’s not the only one. There is a range of currencies that you can use to earn money while you sleep.

Methods for Passive Crypto Earnings

There are different strategies for earning passive crypto income.

Under the mining umbrella, you have the following 5 strategies

  1. Cloud mining
  2. Mining Hosting
  3. Solo mining
  4. Mining Pools
  5. Staking

Apart from mining you can also get your crypto assets working for you by using the following 3 methodologies

  1. Lending
  2. Liquidity provision
  3. Crypto faucets and play to earn

Each strategy has its own advantages and risks. By understanding these strategies, you can maximize your earnings while minimizing your risks.

But before we take a closer look you need to become familiar with some basic concepts about crypto mining.

Understanding the Basics of Cryptocurrency Mining

How Cryptocurrency Mining Works

Cryptocurrency mining is a process by which transactions involving Bitcoin or other coins are verified and added to a blockchain. You can think of a blockchain as a digital ledger. Miners use powerful computers to solve complex mathematical problems that validate transactions and create new blocks in the blockchain. In return for their efforts, miners receive block rewards in the form of cryptocurrency, which can be deposited into their accounts. So the more computational power you have the higher the chance that you will solve the puzzle.

A crypto mining rig
A crypto mining rig and its mining hardware

Types of Cryptocurrencies That Can Be Mined

While Bitcoin (BTC) is the most well-known digital asset that can be mined by miners, there are many other cryptocurrencies that can also be mined using hashing power.

Some popular examples include Litecoin, Monero, and Zcash. Each cryptocurrency has its own unique mining algorithm and reward structure.

Staking vs Mining

Bitcoin mining requires computing power and therefore energy to verify transactions. Other coins such as ATOM, DOT, and, nowadays, ETH, use an alternate mining process called staking to confirm transactions.

The two terms are often used interchangeably but they are very different processes.

I am going to use a naive explanation to illistrate how proof of stake works so that we don’t get stuck in the weeds.

A staking consensus mechanism requires that validators put up a certain amount of coins to verify transactions on a blockchain. If they try to cheat, then their coins get taken away. The more they stake the higher the chance that they get chosen to add a new block. Whenever they do get chosen they get rewarded in more crypto. So the incentive for a validator is to

  1. Not lie
  2. Stake as much as possible in order to increase your chances of getting selected

Now the cool thing is that anyone can participate and give the validators their coins. In return for staking your crypto with them, validators will share their rewards with you.

I will tell you more about how you can sit back and earn income through staking further down.

Before we do that there is one more aspect you need to understand.

Hardware and Software Requirements for Cryptocurrency Mining

To mine digital assets such as Bitcoin, you need specialized hardware called a mining rig or ASIC miner. These devices are designed specifically for cryptocurrency miners and have high hashing power to solve complex mathematical problems quickly.

In addition to equipment, you will also need software such as a Bitcoin mining pool client or standalone miner software. A mining pool allows multiple miners to combine their hashing power to increase their chances of solving a block and earning rewards together.

OK let’s take a how you can earn that sweet sweet crypto

Passive Crypto Mining Strategy No 1: Cloud Mining

Definition and Explanation of Cloud Mining

Cloud mining is the process of mining cryptocurrencies remotely through a cloud mining provider’s hardware. This means that you don’t have to invest in expensive equipment or worry about the electricity costs associated with running it. Instead, you can purchase a cloud mining contract from a provider and start earning cryptocurrency immediately.

Cloud mining is like renting a car instead of buying one. You pay for the usage of the car without worrying about its maintenance, insurance, or other associated costs.

Advantages and Disadvantages of Cloud Mining

One advantage of cloud mining is that it allows you to earn cryptocurrency without having to invest in expensive hardware or pay for electricity costs. Cloud mining providers often offer different contracts with varying levels of hash power, allowing you to choose one that fits your budget and desired earnings without requiring a lot of technical knowledge.

However, there are also some disadvantages to consider.

One potential issue is that not all crypto-cloud mining providers are reliable or trustworthy.

Some may promise high returns but fail to deliver, while others may disappear altogether after taking your money. A lot of people on Reddit are reporting negative experiences. In fact, it’s hard to find any positive ones.

Another disadvantage is that you have no control over the hardware used for cloud mining. This means that if the hardware becomes outdated or inefficient, your earnings may decrease as well.

Finally, cloud mining requires you to invest upfront into a pool of mining machines with others. If the mining machines solve the cryptographic puzzle then you earn a return. But there is limited information on what return you can expect plus you need to take into account that the dollar price of the coin you earn is not going to be stable.

Related: Bitcoin Cash Cloud Mining: Best Guide for Beginners

Tips for Choosing a Reliable Cloud Mining Service Provider

When choosing a cloud mining service provider, there are several factors to consider:

  1. Reputation: Look for reviews and feedback from other users online to ensure that the provider has a good reputation.
  2. Transparency: Make sure the provider is transparent about their fees, contracts, and earnings calculations.
  3. Security: Check if the provider uses secure protocols and has measures in place to protect user data.
  4. Support: Choose a provider with responsive customer support in case any issues arise.

Top Cloud Mining Providers

Here is a list of the most mentioned cloud mining providers. Please note that I have not better these. Given the negative publicity, I personally am staying away from cloud mining.

  1. HappyMiner
  2. BeMine
  3. Awesome Miner
  4. Ecos
  5. Crypto Universe
  6. Bitdeer
  7. Nicehash
  8. Hashing24
  9. StormGain
  10. Kryptex Miner
  11. ChickenFast
  12. Trust Cloud Mining
  13. GreenHashes
  14. F2hash

Passive Crypto Mining Strategy No 2: Hosted Mining

Hosted mining is similar conceptually to cloud mining except there is one big difference. With hosted mining, you actually buy the mining equipment yourself. The hosting facility might sell you one or you can buy your machine elsewhere and send it to them.

The benefit of doing it this way is that you have more control and transparency. There is a specific machine that process and mines crypto for you. Then you pay a monthly fee for maintenance and electricity and any returns are sent directly to your cryptocurrency wallet.

This option is more legit and you have some serious companies backing. You do need to make the upfront investment to buy a miner though.

I have written a separate article on Bitcoin mining hosting here if you want to delve in further.

Passive Crypto Mining Strategy No 3: Solo Mining

Solo mining is when you go and buy miners, mining rigs, and containers and set up your own mining operation. This requires that you have access to low-cost electricity and some basic technical expertise.

For example, take a look at this guy. He has set up solar panels to power a mining farm outside his house. You can bet he has been earning some decent passive income. However, the word passive here does require some very active installation and upfront capital to start with.

If you are considering going down this route you will need to consider that the price of a Bitcoin mining container will set you back around $30,000 and then on top of that, you will need to invest in around 800 Bitcoin miners which will set you back at least another $250K if you buy used ASICs.

So you need really high capex and a hobbyist attitude to solo mining.

Now when you mine you can either mine on your own or you can join a pool.

Passive Crypto Mining Strategy No 4: Pool Mining

Assuming you do set up a crypto mining rig the best option would be for you to join a crypto mining pool. Say you want to mine DOGE which like Bitcoin uses a Proof of Work mining algorithm. This means that you get rewarded in more DOGE every time your machines solve a cryptographic puzzle. Whenever you solve the puzzle you are rewarded with 10,000 DOGE. Not bad.

The problem is that the likelihood you will solve this puzzle frequently is minuscule. Larger farms which more mining capacity will solve the puzzle and claim rewards more often than you. They have way more scale than you. But what if you pooled your miners with others and you all shared the rewards?

This translates into a steadier and more predictable recurring revenue from crypto mining.

To find out more about mining pools check out my article explaining what a Dogecoin crypto mining pool is.

But not everyone has the tech know-how on how to set up a mining farm.

If all of the above sounds like too much hassle then the most hands-off approach to earning passive income through crypto mining is to stake your crypto.

Passive Crypto Mining Strategy No 5: Staking

How Staking works

Staking involves holding a certain amount of a cryptocurrency coin in a wallet to support the network’s security and validate transactions. In exchange, stakers receive rewards in the form of additional coins.

Most Layer 1 crypto platforms allow you to stake their native coin. For example, if you stake ETH on the Ethereum Network you earn about 6% in staking rewards. Of course, you need to factor in price fluctuations. It’s no good if you earn 6% and then the price drops 90%.

The best way to stake a coin is to visit the official website of the respective blockchain. For example, if you wanted to stake FTM you would need to visit the Fantom Network and follow the instructions on their site. Such instructions will usually tell you to download a specific wallet app and use it to send your coins to a designated address.

Benefits and Risks Associated with Staking and Running Masternodes

Earning income via staking offers several benefits over mining.

  • You earn passive income without needing to invest in expensive equipment
  • It is way less risky than Cloud mining which has built a bad rep for itself.
  • The recurring revenue is predictable when priced in the native digital currency so you know what to expect.
  • Network participation: By supporting these networks, users contribute to their security and stability.
  • Potential price appreciation: If demand for these cryptocurrencies increases, their value may rise.

However, there are also risks associated with staking:

  • Market volatility: Cryptocurrencies can be highly volatile, which may affect their value over time.
  • Technical issues. You need to become a little familiar with how to move funds around and how to manage wallets. If you are a complete beginner to all of this then check out my guide that explains what a crypto address is.

If you like the idea of earning a yield on your crypto while it just sits at a wallet address somewhere then I have got some pretty cool alternatives for you.

Passive Income Strategy No 6: Lending

Lending allows investors to lend their cryptocurrency to borrowers who need it. This is not done peer to peer but rather you put your assets in a pool from which people can borrow. It’s kind of similar to savings accounts in banks. Savers put their money in the bank and the bank then lends that money to others.

The mother of crypto lending is a protocol called Compound. With Compound borrowers put up their crypto as collateral. Lenders on the other hand put up the liquidity i.e. the money for the loans. This is almost 0 risk for the lender because if the borrower defaults the protocol just recoups the value of the loan by selling the borrower’s collateral.

The rate of return on Compound and other protocols similar to it varies on a day-to-day basis.

While Compound is an example of a decentralized finance borrowing and lending platform there also exist centralized platforms such as Nexo. Centralized platforms have more marketing budgets behind them but history has shown they are highly risky. Already two of the major lending platforms, Celsius Network and BlockFi have declared bankruptcy after mismanaging risk so badly.

To understand crypto lending better read my guide on how crypto lending works and also make sure you understand Compound. Hey if you want that free money you are going to have to do some homework. But that is what ElementalCrypto is here to help with.

Passive Income Strategy No 6: Liquidity Provision

Understanding Yield Farming and Liquidity Provision

Liquidity provision (also known as Yield farming) refers to the process of providing your crypto as liquidity to an exchange. The simplest way to understand this is to imagine a market stall that sells apples and pears. Say you have pears and want to exchange them for apples. Cool.

Who is going to put the pear and apples on the counter for you to exchange between the two? In a centralized world, there is a seller who buys the fruit wholesale and sells them to you. To understand how all this would work without a central authority you need to think of it like a barter economy where the goods are sourced from the community who supply them and get a cut for doing so in return.

liquidity provision analogy

In the world of crypto, those pears and apples are combinations of cryptocurrencies and the marketplaces are decentralized crypto exchanges. Usually, you will send 50% of the value in one currency, say ETH, and 50% in another currency, say USDT to a liquidity pool. Every time someone exchanges one for the other you get a cut.

However, participating in liquidity pools does come with risks. The biggest one is Impermanent loss where changes in token prices can result in losses despite earning an interest rate or transaction fees.

The most famous decentralized crypto exchange is Uniswap. If you want to understand liquidity provision then you need to learn about Uniswap. You know how everyone says that this is not investment advice and that you need to do your own research before you invest? Well, this is the type of thing you need to read.

yield aggregator
You might also want to consider a yield aggregator. Yield aggregators like Beefy.finance will tell you what return you can expect and which liquidity poil to join. They will then reinvest any recurring revenue you earn so that you can compound your returns.

Passive Income Strategy No 7: Crypto Faucets and Play-to-Earn

Crypto Faucets are a great way to get rewarded in crypto in return for completing small tasks. While it sounds like you earn crypto for free it’s not that much of a passive income because you actually have to do something. Also, we are not talking about earning serious money here. For example, Coinbase rewards new users when they watch some of the educational videos that Coinbase has on crypto and trading.

However, if you want to explore these options check out my article below.

Top 30 Crypto Faucets for Passive Income in 2023: an Incredibly Effortless Way to Earn Extra Money

best crypto faucets

In this article, we’ll be exploring the world of crypto faucets and how they can help you earn some extra income on the side. For those unfamiliar with the concept, crypto faucets are online platforms that reward users with small amounts of cryptocurrency for completing simple tasks such as watching videos, playing games, and completing surveys. Read more.

A subcategory of crypto faucets is Play-to-Earn games.

What are Play-to-Earn Games?

PlaytoEarn games, as the name suggests are games that allow players to earn rewards in the form of digital assets, such as cryptocurrency. These games use blockchain technology to enable players to own and trade their in-game items and currency outside of the game’s platform.

How do they work?

PlaytoEarn games usually involve completing tasks or challenges within the game world, which earns players rewards that can be used both inside and outside the game. The more time and effort a player invests in the game, the more rewards they can earn.

  1. Axie Infinity – Players breed, raise, and battle fantasy creatures called Axies to earn rewards in the form of cryptocurrency.
  2. Splinterlands – A trading card game where players collect cards and battle against others for rewards.
  3. Gods Unchained – Another trading card game where players can earn cryptocurrency by winning matches.
  4. Genopets crypto: a game that rewards you for walking and augments your characters.

Tips for maximizing earnings from Play-to-Earn games

  1. Join early: Many play-to-earn games have limited resources available at launch, so joining early may provide an advantage.
  2. Invest wisely: Research which platforms have good potential before investing time or money into them.
  3. Build a network: Encourage friends and family members to join the same platform as you so you can collaborate on tasks together.
  4. Learn how to trade: Once you’ve earned your digital assets from the game, you can use trading platforms or wallets to exchange them for money.

FAQs:

What is cloud mining?

Cloud mining is a strategy that allows investors to rent computing power from third-party providers who manage hardware maintenance costs while sharing profits generated from mining activities.

How does staking work?

Staking involves holding digital assets in your crypto wallet and locking them up as collateral to support network security and transaction validation, earning rewards in return.

Is staking legal in the US?

Yes, staking is legal in the United States and the income earned through staking is taxable.

What are PlaytoEarn games?

PlaytoEarn games are digital games that allow players to earn digital assets by completing tasks or winning challenges within the game environment.

Are yield farming and liquidity provision safe strategies for passive income?

Yield farming and liquidity provision are high-risk, high-reward strategies that can offer significant returns but come with potential risks such as impermanent loss or smart contract vulnerabilities. It is essential to conduct thorough research before investing in these strategies.

Can I earn passive income without actively participating in cryptocurrency mining activities?

Yes, various passive crypto income strategies such as cloud mining, staking, yield farming, and liquidity provision allow investors to earn rewards without actively participating in cryptocurrency mining activities.

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Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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