16 Categories of Crypto Passive income

25th Jan 2019
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There are different types of smart passive income from Crypto projects. This is an overview of the 16 general categories.

These investments are very high risk because they are uninsured, unregulated, volatile and technically complex. Scammers come in two forms, the first and pure scammers out to get your money the second are people who do not have the skills to launch or manage a full project. In both cases most likely the investors will lose their money and time. The rest of the projects have a success rate similar to that of startups, which is extremely low.  Learn more: ICO success and startup success

Your own research is essential. One rule of thumb is that investors need to explain their investments to others in a clear and coherent way, before they invest themselves. If an investor cannot describe A passive income opportunity in detail to someone else then most likely they are not yet ready to invest in it themselves.

The examples on this page are not suggestions to buy, sell or hold any of these cryptocurrencies. The situation in crypto projects changes frequently and what is a good project today can be a project not worth investing in tomorrow. In any case as per our many disclaimers, this is not investment, tax or financial advice. All the projects mentioned have been listed here without any remuneration.

This article assumes a certain level of understanding about the cryptoverse. If you are relatively new to this space,  I would invite you to read the following articles.Masternodes Scams

  1. Masternodes

Masternodes (MN) are servers on the web which service a blockchain. The incentive to run such a service for MN operators is that they participate in the rewards of the block creation process. This means, that they get a share of the newly minted coins. The requirements and cost to create a masternode vary from coin to coin. For Example 1 Dash coin costs $140, (at the time of writing) and 1,000 Dash are needed to create an MN. There are 100s of Masternode coins 90% are pure scams and another 9% are doomed to fail.

Examples include: Dash, MUE, Crown, Trittium, Birake

  1. Masternode “Shares”

Masternode shares are pooled masternodes, this means that investors do not own a full masternode but own a fraction of one. Some masternodes cost over $100,000 which makes them inaccessible to some investors. However MN pools allow for many coin holders to participate in a token to pool. This pool is held by a MN pool management company which setups up the masternode and then distributes the profits according to the share of ownership in the pool. This setup makes it easy to invest, however investors do not have control of their private keys which might result in their tokens being stolen. These services have been hacked and coins have been stolen. Learn More: Masternodes Pools and Shares

Examples: MyMue, Node Hub, My Node, Neptune Dash

  1. Staking

A staking wallet validates transaction on a cryptocurrency network; in return the wallet will earn a share of the newly minted coins. In order to stake a wallet needs to be open and online. Such a wallet will stake depend on how much of a stake it holds in that particular currency. A staking wallet is particular to one crypto currency. Raspberry pi is excellent choice for hardware wallets to stake crypto. Learn more: Passive income from Crypto currency staking

Example: Pivx

  1. Online Staking

Staking wallets need to be online all the time. This is a problem for some users. Some websites allow token holders to deposit tokens so that they can stake on their behalf for a fee. These services run the risk of being hacked.

Example: StakeUnited

  1. Cold Staking

Cold staking takes place from a cold wallet, i.e. a wallet that is offline. In practice the network will reward users who block their coins for a period of time. This functions similarly to a term deposit.

Examples: Minex Bank, Callisto, EDNA, HorusPay

  1. Delegated Proof of Stake

In dPOS systems, the power to confirm a transaction is reserved to a number of delegates. These delegates are voted by the token holders. The delegates earn rewards when they confirm transactions, some of them share this reward with their voters. Ark shares reward with the voters but EOS does not.

Examples: Ark, Lisk

  1. Security Tokens

The token model is evolving from pure utility tokens. Companies are now issuing security tokens. These security tokens are shares in digital format. Shares entitle the holder to any distributed dividends. Rialto has taken the bold step of issuing all the XRL token holders with 75% pro rata share of the Rialto Company!

Examples: Nexo , GoodMoney

  1. Reward Tokens

Some coins even though they are not (yet?) security tokens share part of their profits from the company. These coins are not shares because token holders do not have the same privileges as shareholders. They cannot vote the board of directors out of power.  Reward tokens are not regulated and do not have the strict reporting standards that public securities do and herein lies the issue.

There are two forms of reward coins one where the reward is calculated before expenses and the other where dividend is calculated after.

The difference here is that the expenses of a company can be inflated through high salaries and expenses, this would lead token holders with a smaller passive income stream.

The most transparent form of reward token is those sharing a percentage of revenue. On the other hand revenue cannot be tempered with as easily. If a project is making a specific number in sales then their token holders know what they are getting.

What happens if a crypto project with reward tokens is sold to a third party, will they be legally obligated to continue the same scheme?

A variation to this system is dividend lotteries, token holders get to participate in a special lottery. TrueFlip and some masternode projects have token holders or block reward lotteries.

See Also :

Passive Income from Exchanges

Examples: CombiCoin, KuCoin Bonus, TrueFlip, Trade.io

  1. Airdrops

Airdrops take place by dropping coins in wallets. These tokens are distrusted according to some factor decided by those doing the airdrop, for example: amount of tokens held and for how long. The model is an alternative to ICOs. The token issuers keep a share of the token themselves and then they sells them on the open market to fund the project. The difference with ICOs is that they have very strong incentives to make their project a success. This might not be the case with ICOs who are paid upront.

Airdrops have taken place on  EOS and NEO

Some Aridrops are listed on the Crypto passive income news page

  1. Air Graps

Airgrabs are a slight variant of Airdrops. On EOS airdrops require the sender to use RAM, Air Grabs use the ram of the receiver. Most Airdrops can be managed from the EOSToolkit

  1. HardForks

A fork is when a blockchain is split into two blockchains. This happens because a blockchain does not reach consensus and the miners split the chain into two (or more chains). The most famous hard fork is Bitcoin / Bitcoin cash. The owners of the original coins will get coins on the two new forks. The resulting coins when added together could have less value than the original coin, this is because the original project resources have been split. Learn More: Why hard forks are altcoins?

Examples: Bitcoin Cash, Bitcoin ABC, Bitcoin SV, Bitcoin Gold, BitcoinX

  1. CryptoLending

Margin traders need coins to leverage their trades. To margin trade traders need to own or borrow these coins. Some exchanges offer this service to margin lenders. Including Bitfinex and Poloniex. Not all cryptocurrencies can be lent. There are important risks to consider when lending crypto currencies because exchanges can default, hacked or shut down due to regulatory noncompliance.

CoinLend is a bot which automates crypto trending. The system works by first the investor gets a special key from the exchange. The user then logs into the CoinLend lending bot and provides the key. With this key the lending bot can actually lend the coins automatically according to specific strategies set by the lender. The magic of crypto lending is that the passive income compounds!

The coins which have a lending market are BTC, BCH, EOS, ETH, XRP.

Example: CoinLend

  1. Crypto Mining

There are three ways to participate in crypto mining.

  • Cloud Mining Contracts
  • Shares in crypto mining companies
  • DIY Crypto mining

Mining Contracts

Proof of work cryptocurrencies run energy intensive algorithms that maintain the integrity of their blockchain ledgers. This mining is performed by different computer processors competing with each other to find the result of a special formula. Whoever finds the result first gets the coin base reward. There are many risks to this form of passive income. Online mining companies have frequently proved to be scams.

Others who were perceived as solid for many years, but they changed the rules of their mining contracts half way through. Switching from a lifetime contract to a yearly one. Cloud mining contracts pay for their electricity through the income generated by the mining profits. If this income does not cover the electricity, then these contracts are closed down. Online mining contracts remain viable as long as the income from the mining can cover the electricity expenses. If the income from a mining contract falls below the expenses then the mining contract will be stopped and all invested capital will be lost.

Example: Genesis Mining.

DIY mining

Solo mining can be feasible for the technically inclined. There is much software and hardware technical setups that need to be managed. Some crypto enthusiasts setup a DIY miner both for the passive income and to support the ethos of passive income, i.e. decentralisation. The risk here is that crypto mining is an arms race. Each year new more performant miners come to market, making the others less profitable. The new miners outperform the old ones and make them less profitable. In some countries mining is both a life saver and illegal. Read more about Venezuela crypto mining.

The largest providers of crypto mining hardware are

Examples: SkyCoin Setup

Shares in crypto mining companies

There are crypto projects whose objective is to generate passive income from crypto currency mining.  Many of these projects were launched through an ICO, this could make them the target of regulators. In general the business model is to use part of the ICO funds for funding a mining center, and setup the company. The proceeds are then split into three, the token holders, mining equipment upgrades and the founder.

There are many such projects who have failed to deliver on their results first because they promised something and returned much less and secondly because they did not setup themselves in the correct legal ways. Their incompetence together with the investor’s lack of due diligence and appetite for risk resulted in significant losses for capital.

The advantage of this type of mining over DIY or cloud mining contracts are; no knowledge is needed to setup mining rigs and continuous upgrades are done to the mining hardware. On the one hand the returns will be lower, but on the other hand the project has more long term prospects for a passive income stream. This is because it is more sustainable because they use part of the profits to upgrade their hardware..

All crypto mining projects promote some unique competitive advantage as the investor hook, from solar energy to hydroelectric dams in pristine alpine rivers to free economic zones. There are a few other factors to consider, proof of work currencies are under strain because they can be 51% attacked, they are not environmentally friendly and the profit depends on the price of the crypto currencies.

Please review their price charts of these projects; this is the collective intelligence of the market showing you their value.

Side note: Proof of work  (PoW) can be attacked from the outside with mining power. Proof of stake (PoS) and masternodes can only be attacked from the inside, i.e. token holders. Read in more detail the arguments in favour of PoW. Personally, I think using energy for crypto mining is not a good idea, given that PoS works.

Some investing disasters in crypto mining:

  1. Selling / Buying goods and services for Crypto (Side Hustles)

Several websites allow trading of goods and services in exchange of crypto currencies. The advantage here is that traders can earn crypto for their time and skills rather than having to spend their hard earned money.

Mobile or internet based side hustles are more suited for such an exchange. Side hustles such as a mobile app with a subscription or an eBook are ideal side hustles which can have their payments setup to accept crypto.

Side Hustles can be turned into a passive income stream when engineered to work with minimum input and automated to the full extent possible. Side Hustles are not pure forms of passive income, but they can become so when they gather enough momentum, after which they can run with minimal input.

Examples:

  1. Bounties (Side Hustles)

Some crypto projects offer bounties. These are small payments done in exchange of some task requested by the project. These are most popular with ICO projects.

Most bounties are in the domain of communication and marketing, examples of tasks include promoting the project on social media, translations, joining specific Telegram groups.

These bounties tend to be small, in fact, they are attracting people from low-income countries. These bounties are relatively high when compared to the income in low-income countries. Bounties tend to have specific details and strict clauses, any deviation can exclude from payment.

A higher form of bounties is payments to influencers. There are “experts” who tend to have an important following in some specific area. These influences tend to have an authority and a reputation which specific projects can tap into to spread their news. Their payments are considerably higher than that offered for the bounties, because influencers are putting their reputation at stake and have the ear of a specific niche audience.

  1. Referrals and Ads paying in Crypto

A referral program is offered by a company that has products to sell. It offers the opportunity to influencers and marketers to promote third party product for a commission. When products they market are sold the bounty hunters earn a fee on each sale. There are a number of ICO projects and exchanges such as KuCoin and Binance which offer such referral programs.  Commissions are earned in crypto.

Referrals work with cookies, today there are many cookie blockers which could make referral marketing very hard. Because those clients referred to a product are not tracked. This means that when they purchase a product the referrer does not receive a commission.

Influencers with significant media channels can earn a significant commission fees from referral programs. In the case of exchanges the commissions are in the fees that the referred trader has traded in. The disadvantage is that the fees can be crypto dust, very small amounts which need to be exchanged to BTC.

  1. Dividend Crypto Funds, Arbitrage and Automated trading

Funds are a colleciton of digital assets which are managed either activley or according to a specific set of rules (index). Dividend Crypto funds, participate in ICOs, trade, perform arbitrage and according to their own set of rules provide a divdend if their performance meets some criteria. Astronaut and Taas are two such funds which issued a series of dividends when they where launched. However with the market declines by the end of 2018 these dividends dried up. Invictus is another fund which will issue passive income when it hits certain KPIs.

CountingHouse, Rialto and Dropil are three funds which participate in crypto trading and/or abritrage. Day trading is very risky for the small investors, but with the right tools and informaiton it can be profitable. These funds have the economies of scale to get an edge over the others. Counting House does not give a dividned but reinvests the proveceeds.

Disclaimer

  • NodesofValue.com staff are not financial, tax, investment or professional advisors. Do not trust people on the internet.
  • None of the sites mentioned above have paid to be mentioned.
  • This site does not provide any buy, sell or hold recommendations of any assets mentioned.
  • It is safe to assume that NodesOfValue.com staff has bought, sold, shorted, hodled all of the above assets at some point.
  • Do your own research before you invest in anything.
  • Your capital is at risk and you can lose it all when investing in ICOs and cryptos.
  • Please discuss this with your local financial advisor before you invest.
  • Full Disclaimer

Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own these digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

Keep in mind that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. We try our best to keep things fair and balanced, in order to help you make the best choice for you.

Author: Jim Reynolds
Jim Reynolds. Is passionate about finance, passive income and cryptocurrencies. He writes about his passions on NodesOfValue.com. He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.


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