A basic definition of investment is to set aside money today to earn more money, through either asset appreciation or a stream of income, at a future date. A typical view of this by investors focuses on the former, asset appreciation. “What is the price of bitcoin today?” Many investors focus on timing the market to “buy low, sell high”. Unfortunately, many fail.
Personally, I’m much more interested in cash flow. An investment that pays cash back to its holders can be a core part of a portfolio that grows without regard to daily price fluctuations, which are often noise and churn.
In traditional investments, dividend paying stocks tend to be established, low growth stocks with stabler prices.
This is not the case in crypto. There are two major drivers of passive income in crypto right now: Attention, and Securing the Network.
There is currently a battle taking place in crypto. It’s a battle for people’s attention. It’s a battle for network effects. It’s a battle for users to adopt a particular platform.
The battle is bloodless, and the victors are us, the users!
In the past six months, we’ve seen airdrops (OmiseGo), hard forks (Bitcoin Cash), and staking rewards (NEO) designed to attract people to particular platforms.
In essence, those of us who are early adopters are being bribed to use or hold various tokens. It’s a great time to be alive and online!
Securing the Network
Proof of stake is the other main income stream in crypto. Currently, QTUM is running proof of stake, and Ethereum will be running proof of stake in 2018. In this model, users “bond” their tokens to keep the blockchain secure, and receive a small reward (better than cash in the bank and many stock dividends!) at random intervals commensurate to the size of the amount staked. The more tokens staked, the more often users receive rewards.
Proof of stake allows crypto adopters to act more like bankers than investors. The seeming insanity of various market caps for nearly unproven cryptoassets reflects this expectation. It’s a bit like owning a growth stock that’s kicking out 8% dividends. This is only possible due to the inflationary nature of most coins (which is offset by the deflationary tendency of people burning tokens, losing keys, or inadvertently destroying the library to a multisig wallet).
What I’m not Covering
Certain platforms provide opportunities for making money with only a small amount of “work”. Augur, Maker, and Digix are all Ethereum based startups that have semi-passive income. These aren’t “set and forget”, but neither is the work strenuous or time consuming. Steem Power Delegating is in this category as well.
Off to the Horse Races!
A lot of cryptocurrency speculators are focused right now on guessing the next big pump. It’s rational-ICOs and little known tokens alike have seen some stratospheric rises. This is attracting a lottery ticket mentality to the space that is harmful.
This is a good gambling strategy, but a bad investing strategy. Don’t confuse the two.
Furthermore, Ponzi schemes such as Bitconnect are popping up and attracting people with little to no knowledge of bitcoin. Don’t just stay away from these, but actively tell your friends to stay away too!
Passive Income, Your Best Friend
If you’re looking for passive income right now, here is a partial list. I’m hoping these continue to rise in price as well as continue to offer returns. This drives my investment choices- not finding a “lottery ticket” token.
I own the ones in bold. None of this is investment advice!
NEO (You must hold your NEO in your own wallet)
QTUM (You must stake it on your PC)
BTC (airdrops and forks)
ETH (airdrops; Proof of stake soon)
What are your picks for passive income? Share in the comments below!
There is a great deal of bad advice in the world of passive income. Tread carefully. Message me on Dust (ProtegeAA) if you’re uncertain whether something is a scam or not (it probably is).