There are many ways to create a passive income, with the surge of cryptocurrencies, one can use their crypto investment to create passive income up to 9% yield. To me, passive income is an income source providing you constant cashflow with minimal involvement in the activity, such as incomes from rental properties, dividends, and so on.

Cryptocurrency staking is a way to make passive income, which does not require a lot of technical understanding, as long as you understand the ecosystem structure of the project, you will be able to understand how to create passive income from certain coins.

Here I explain how it works to provide you some information, but you need to do your research and make a sensible decision. Let’s take a look at how to create passive income with cryptocurrencies.

1. Staking

It is the easiest way to create passive income with your cryptocurrencies. It does not involve any programming nor constant monitor. But you first need to own the coins to start with. Once you have bought the coins, let’s say Tezos, the coins are sitting in your wallet or your account in a crypto exchange. Then you can allocate your ‘rights’ to the exchange or a staking pool. The coins are still with you. This works for POS (proof-of-stake) consensus mechanism coins. Proof-of-stake means those who have more stakes of the coin, have a higher chance to validate the transaction and get rewarded. That is why some staking pools are gathering people’s staking rights from their coins so that the staking pool has a bigger stake in the ecosystem. And it is more likely that they can handle more transactions and get more awards. The awards are the respective coins. Then they distribute the awarded coins to the participated coin holders. It is similar to crowdfunding, as startup raises funds from individuals and creates value in the future with that money, then distribute profits to the investors. Instead of giving the actual money to the startup, coin holders don’t transfer the coins. Instead, they only assign rights to others. This makes it much safer.

Not all cryptocurrencies support staking in this way, because some are built with POW (proof-of-work) consensus mechanism, such as bitcoin. Some are built with POA(proof-of-authority). Here is an article that explains the major consensus mechanisms. Below is a graph showed some various consensus mechanisms on the blockchain.

2. Cryptocurrencies Which Support Staking

As I mentioned before, cryptocurrencies built with proof-of-work mechanism support staking, which are the coins out there you can start staking now?

• LISK

• NEO

• TEZOS

• ARK

• TRON

• STRATIS

• QTUM

• Algorand

• Ontology

• Stellar

• …

The list is long. For more information, you can find it on Binance staking site, or Stakingrewards.com. The investments come in twofold. First, you can receive additional coins through staking. Secondly, you can also benefit from the price increase of the coin the moment you decide to sell them. It is similar to choose a company share. You need to understand what the project is about, what is the development, how big is the ecosystem, and the future outlook of the cryptocurrency. If you are holding the coins for the long term, then you can consider using them for staking.

3. Where to Start.

Once you decided which coins you want to stake, the next step is to find a reliable staking pool, which has consistent performance and is in the marketing for quite some time. The risk with new staking pools is that some of them might operate for only a short period of time then they disappear. They gather the stakes from investors and use those to create more coins. But instead of giving the rewards back to the investors after the agreed cycle, they just disappeared. Usually, you don’t receive the awarded coins right away, it takes some time when the coins are in, so during the time gap staking pools can make a lot of coins. After that, they close down. So, as an investor, your loss will be the opportunity cost in this time frame. It is very important to choose a reliable staking pool, each stake pool can bring you a slightly different return due to their performance difference.

3 ways to stake:

1. crypto exchanges: Binance, Kraken, Coinbase, and so on.

2. staking pools: for each cryptocurrency, there are many staking pools. For example, Tezos staking pools, Cardano staking pools, and so on.

3. Ledger device. You can assign your cryptocurrency stakes directly from your ledger. More information can be found here. For now, it is limited to Tezos and Tron.

If you want to learn more about Tezos staking (baking), you can check out another article <How to Bake Tezos — Layman’s Guide>. If you have already staked your coins and have some additional information to share, feel free to leave in the comment section. If you are considering to start, I advise you to choose carefully and study the projects and staking pool well. Eventually, the value of a coin only exists when the ecosystem is sustainable and growing over time. But with the emergence of various players in the blockchain space, such as bakers, hardware producers, crypto exchanges, and payment solutions, cryptocurrencies become more accessible to everyday investors.