How to Make Money with Cryptocurrency
Over the years, cryptocurrencies have provided numerous opportunities for investors to make profits. Let’s have a look at what the current options are.
The cryptocurrency market has been in full swing since the beginning of 2021. With the price of BTC soaring past $50.000, many are looking to buy bitcoins and participate in this financial revolution.
However, some are still wondering what the fuss is all about. This article will review the main reasons why cryptocurrencies are essential in today's world. We will try to explain what lies behind their profit-making potential and how they can be a prospective asset for the future.
First, we must review the cryptocurrency that started it all - Bitcoin.
Bitcoin as a peer-to-peer payment system
Bitcoin was the first cryptocurrency that was released way back in 2009. Its mysterious creator, Satoshi Nakamoto, remains anonymous to this day.
The original cryptocurrency was created to provide humanity with a global currency for exchanging value on the internet. This digital peer-to-peer payment system showed the world that money could be made without the need for any third parties for transactions or issuance.
Instead, new coins would be created through a mathematical process called mining, with a limited supply of 21 million coins to be issued. All transactions are recorded on the blockchain, an immutable public ledger, where all transactions remain accessible and transparent for everyone.
Why are cryptocurrencies beneficial?
Thanks to their decentralized nature, cryptocurrencies offer numerous benefits that other assets don't. For instance:
- No governing body - the decentralized nature doesn't allow a central governing authority to control the network. This means that no one can shut down a blockchain, and as lengthy validators verify transactions, it remains accessible to anyone.
- Fraud resistant - the decentralized ledger is distributed among thousands of computers over the internet. This makes it inherently resistant to change or fraud.
- Fast and cheap international transactions - because there are no 3rd parties involved in the process, the fees for international transfers are minimal and near-instant.
- Inclusive and permissionless - cryptocurrencies are, for the most part, permissionless. Anyone with an internet connection is free to use their networks. This allows people in countries with poor banking networks and bad monetary policies to access a sound economic network and participate in the internet economy.
How can you make money with cryptocurrencies?
Over the years, cryptocurrencies have provided numerous opportunities for investors to make profits. Let's have a look at what the current options are.
We already mentioned mining in our introduction earlier. This is the minting of new coins using powerful computers called mining rings. Furthermore, mining takes care of the transaction validation in proof-of-work blockchains such as Bitcoin.
It consists of solving complex mathematical puzzles and receiving newly created cryptocurrencies for the effort. The process uses a lot of energy, and miners spend a valuable resource - electricity to mine new coins.
Staking is another consensus mechanism for validating transactions, which is applied to proof-of-stake blockchains. It's a much more energy-efficient process, as users need to lock their coins to secure the network and validate transactions instead of spending power.
They are then rewarded with the transaction fees for each block they helped validate.
Cryptocurrency Lending and Providing Liquidity
Many financial products have become available over the years, where users can use their cryptocurrency to lend them to other users and gain interest.
They can also provide liquidity to decentralized exchanges and receive trading fees in return for their service.
Of course, one of the best ways to profit from cryptocurrencies is to trade them on different exchanges. Users can trade cryptocurrencies for each other or for FIAT money to make profits.
However, it's also one of the riskier ventures when investing in cryptocurrencies. Trading requires advanced technical analysis and capital management knowledge if you wish to be successful.
Moreso, due to their high volatility, cryptocurrencies can bring incredible profits and cause severe losses for inexperienced traders traders.
Cryptocurrency Investing and "HODLing"
A more beginner-friendly tactic for making money with cryptocurrencies is investing in them regularly. This works exceptionally well with Bitcoin, as the original cryptocurrency has seen its value go up one way in the long term.
For instance, a dollar-cost average strategy involves buying a fixed amount of crypto regularly. This way, investors can negate the short-term spikes in cryptocurrency prices and accumulate assets for long-term profits.
Starting as a niche technology, cryptocurrencies have become widely accepted over the past decade. Bitcoin jumpstarted an entire industry, which has revolutionized the way modern finances work.
Furthermore, crypto provides numerous ways to make some passive income for investors. This makes them some of the most exciting assets to hedge against today's economic instability.
If you plan on starting a crypto venture, stay current on your country's tax regulations regarding these assets.