This article aims to provide you with answers to some of the most crucial beginner questions about how to make passive income using cryptocurrencies. We aim to help you understand the below.
- What are cryptocurrencies?
- The types of cryptocurrencies,
- how cryptocurrencies work,
- where and how you can buy cryptocurrencies, and finally,
- how you can make passive income using cryptocurrencies.
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Here at Growzania, we love investing in people, and we are here to help you on your personal growth adventure. Please feel free to reach out to us if you have any questions.
What is cryptocurrency?
Let’s start by understanding the meaning of a cryptocurrency.
A cryptocurrency is an encrypted digital currency that you can use to make direct transactions with another party. You can do this without the need for an intermediary to process the transaction. No central authority controls a cryptocurrency.
This is because you can only transfer cryptocurrencies directly from one owner to another through private and public keys. This is one of the main advantages of using cryptocurrencies. The encryption makes the transaction more secure..
What is passive income?
Passive income is the process of building up enough momentum either through cash or other assets in a business. It often does not require active participation to grow your monthly return.
Passive income is not limited to one-time payments. You can get payouts indefinitely as long as the asset (e.g., property, blog, youtube channel, etc.) generates revenue.
Here at Growzania, we define passive income as making money while you sleep. In a few more words, we define passive income as money that you earn by putting in little to no effort daily to maintain it. The keyword here is ‘little to no effort.’
We are not promising that you will not have to do anything forever. However, you would only need to put in little effort to keep the cash coming in.
What is fiat currency?
In order to understand cryptocurrency better, it is important to understand Fiat currency. Fiat currency is what we have been using for many years.
Fiat currency is a currency that does not have its value determined by anything other than the trust it commands in the market. A fiat currency’s value is derived entirely from how much people are willing to exchange it.
Every government-based fiat currency on the market today has had a central bank that prints fiat currency units. This printed cash is then redeemable by the citizens of its country at face value for a specific amount of gold or another commodity.
Some examples of fiat currency are the U.S. dollar, the Euro, and the Chinese yuan. A central bank generally maintains each fiat currency’s value. They do this by intervention or indirect influence over the amount of gold backing the currency.
The Basics of Cryptocurrencies
There are currently over 1,500 cryptocurrencies available on the market today. However, there are only a few that have attracted the biggest number of investors.
The top 4 cryptocurrencies in the market include Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Bitcoin Cash (BCH). These are the big four cryptocurrency coins. They have been around for a longer period and have performed well compared to other altcoins.
There are a HUGE number of cryptocurrencies, and it could be useful to understand some words that people use to describe them. Some words that come up are:
- “anonymous” – Bitcoin transactions cannot be traced, so users may not want to reveal their identities for fear of being implicated in illegal activities.
- “independent” – Because no country or bank is involved, the currency is said to be independent. The advantages of this include lower transaction fees and fewer restrictions on how much money you can send.
However, there are also risks associated with maintaining an independent currency because you do not have access to any financial support if your cryptocurrency becomes devalued or compromised for any reason.
- “innovative” – Many people think that cryptocurrencies represent the future of money because they allow the quick and cheap transmission of funds across borders. They also have the potential to be a good investment because their value has been increasing over time.
- “peer-to-peer” – Because cryptocurrency exchanges happen directly between users, they are to be peer-to-peer. This means you don’t need to use an intermediary to process any transactions, and everyone can remain anonymous if they choose to do so.
How do cryptocurrencies work?
Cryptocurrencies work through a straightforward concept called cryptography. Cryptography is the ciphering and deciphering of messages sent between parties. However, the essential cryptographic concepts are public and private keys.
Public keys are like your I.D. number for sending cryptocurrencies to other people’s public addresses. On the other hand, only you can access your funds because of your private key. People can’t send crypto out of your address unless you have your private key.
Public and private keys are mathematically related. Therefore, it is very difficult for someone else to derive your private key from a public key.
What are the main types of cryptocurrencies?
Satoshi Nakamoti (at the time, an unknown person), invented the BitCoin and released it as open source software in 2008. Bitcoin was the first cryptocurrency. It is both a digital currency and payment system. The most commonly used cryptocurrency is currently Bitcoin.
In March 2021, there were 18.67 million bitcoins in circulation using a total maximum supply of 21 million bitcoins. The Bitcoin network protocol limits the number of bitcoins that can be created to 21 million.
Bitcoin Cash (BCH)
Bitcoin Cash is the second-largest cryptocurrency by market cap. Unlike bitcoin, which was mined through an algorithm known as proof of work, Bitcoin Cash is mined through a process called proof of stake. It is based on the same open-source protocol as bitcoin, known as the bitcoin blockchain.
Ethereum is a digital asset designed to run smart contracts. Smart contracts are applications that run as programmed without any possibility of downtime, censorship, fraud or third-party interference.
Ethereum Classic (ETC)
Ethereum Classic is a continuation of the original Ethereum blockchain – the classic version preserving untampered history, free from external interference and subjective tampering of transactions.
Litecoin is similar to Bitcoin in that it’s based on blockchain technology and has a short transaction time (2.5 minutes.) Bitcoin and Litecoin’s main difference is the total number of litecoins in circulation: there are four times as many litecoins as bitcoins.
The third highest cryptocurrency by market cap is XRP. The technology is still relatively young, has practical use in real life, and has many financial institutions becoming involved with its development. Since XRP only relies on its underlying technology (blockchain) to operate, it can be seen as both a cryptocurrency and a digital payments system.
Why should you use cryptocurrency?
There are several reasons you might want to use cryptocurrency over fiat currency. The main three reasons are (1) anonymity, (2) security, and (3) decentralization. Let’s discuss each one in turn:
- Anonymity – Using cryptocurrencies means that you always have complete control over your own money.
You have absolute privacy and no one can take your money away from you. Instead of central authorities controlling your money, you control it yourself.
- Security – The encryption of cryptocurrencies makes your money safe from hackers. A big problem with fiat currency is that banks safely keep all records of transactions, violating your privacy.
- Decentralization – Cryptocurrencies are decentralized. There’s no single point of failure and no central issuing authority that can dictate what you can or cannot do with your money. Additionally, you have the freedom to move your money around the world without any restrictions.
So how exactly does cryptocurrency work?
From a technical perspective, a cryptocurrency is based on a technology called the blockchain. Blockchain is a decentralized database where information (such as public keys) is stored in chronological order and can be accessed by anyone.
The blockchain contains every transaction ever made, and the information about each transaction is available to everyone. This ensures that everyone involved can see the transactions being made, but it remains anonymous at the same time because your personal details are never revealed.
All transactions are secure, so no one can fake or change them after they have been made.
What is decentralization?
Decentralization is the process of distributing or dispersing functions, powers, people or things away from a central location. A cryptocurrency system does not have a central point of authority — it is decentralized.
This means that instead of being backed by an organization like a bank, cryptocurrencies are backed by millions of users across the globe.
The network is secured by blockchain technology and cryptography that ensure data consistency and make the transaction and the creation of new coins possible.
Is Cryptocurrency Legal?
The stated goal of cryptocurrencies is to create an alternative currency that better functions than fiat currencies such as the U.S dollar and euros.
Cryptocurrency creators also hope to create a more secure, private, and decentralized system than banks and other financial institutions. However, because the market is new and largely unregulated, cryptocurrencies have become very popular amongst black-market users.
Thus, many countries have banned the use of cryptocurrencies or restricted their use in some way.
How to Store Your Cryptocurrency?
There are several types of cryptocurrency wallets available on the market right now.
- Software (desktop or online) – This is a very easy way of storing your coins because you can simply download and install a software program on your computer or smartphone. You will have to buy the coins, then transfer them into the software wallet that you selected.
However, this method is not secure because you could lose access to your coins if your computer crashes or gets hacked.
- Hardware (USB) – This is a wallet that is embedded into your computer or phone. It is quite practical because you will be able to store many coins simultaneously with relative security.
However, it can be very difficult to keep track of the different passwords and security codes for all of your coins.
- Paper – You can print out your public and private keys on paper and then store them in a secure place like a safe or even in a bank vault. However, you cannot use this method to store coins in the same way as a software or hardware wallet.
Why is Cryptocurrency Better than Fiat Currency?
Cryptocurrencies have several advantages over fiat currency, the traditional form of money that countries use in their economy. Any sort of government cannot control cryptocurrencies if any country or government does not back them.
This means that cryptocurrencies exist on a very level playing field. With regards to freedom and regulation because governments do not influence them.
You can also send cryptocurrencies instantly anywhere in the world without relying on any bank or other financial institution. This is because cryptocurrencies are decentralized and owned by everybody who has invested and uses them.
Cryptocurrency is also very good for people who like to remain anonymous. Fiat currencies have been used in many criminal operations, especially money laundering.
Because cryptocurrency exchanges are peer-to-peer, you don’t need an intermediary to process any transactions. This means that your name is not tied to any given transaction.
This method has created opportunities for people who want to commit crimes and remain anonymous. However, it has a downside because if you get hacked or lose your wallet, there is no way of getting it back. After all, crypto coins are irreversible.
Advantages and disadvantages of cryptocurrency
The biggest advantage of cryptocurrencies is that they are much faster and cheaper than using banks to process transactions. Using cryptocurrencies, it is possible to make an international transaction in a matter of hours or even minutes.
This type of transaction would normally take days for banks to complete. Another great thing about crypto coins is that they are not subject to regulation or control by a central authority like a bank, government, or other financial institution.
This makes them an attractive option for people who want to move their money somewhere without being charged fees, especially if they are high.
Advantages of crypto currencies
There are other advantages of cryptocurrencies that make them superior to banks, such as:
- Lower transaction fees – Cryptocurrencies offer lower transaction fees than what banks and credit card companies charge. The transaction fees for crypto transactions usually start from 1%, much lower than the 2% or even 3% that traditional financial institutions might charge you.
- No limits – Using cryptocurrency exchanges, there are no limits on how much money you can send or receive. This is because crypto exchanges don’t require any verification for a single purchase, whereas banks usually charge a minimum amount depending on your country.
- More secure – Cryptocurrency transactions and exchanges are much more secure than banks. When using a bank, you have to use a username and password to log into your account.
This means that anyone who gains access to the data will be able to steal money from your account if they can get the user name and password.
Cryptocurrency exchanges do not collect any personal information about their users, which means that they don’t have access to personal financial information, including social security numbers or bank account numbers, when they are conducting an exchange.
Disadvantages of crypto currencies
There are also some disadvantages of cryptocurrencies, such as:
- Less control – Currently, the only way to get and control your cryptocurrency is to store it on a software or hardware wallet. These wallets usually have no access to the internet and are not connected to the internet at all. They are just like physical wallets in that they are stored in a safe place.
This means that there is no way of making an international transaction if you don’t have access to a computer or smartphone. However, you can still use these wallets without going online. There is also a very good chance that future generations will have them built into their phones, which could dramatically change this situation.
- Risky – Cryptocurrencies are very volatile and risky, which means that the price can change dramatically within a short time.
- Unregulated – One of the major advantages of cryptocurrencies is that they are not regulated by governments or central banks.
This means that crypto coins can be used for a lot more than just buying products and services. In reality, there is no way to stop people from selling their cryptocurrency coins to get fiat currencies or other cryptocurrencies.
We love questions, please ask one
Here at Growzania, we love investing in people, and we are here to help you on your personal growth adventure. Please feel free to reach out to us if you have any questions.
How to Use Cryptocurrencies?
With a few cryptocurrency exchanges, you don’t have to use your wallet for storing your coins. However, when you store your coins in an exchange, you are at risk of losing money.
Remember that cryptocurrency is still considered very volatile, so make sure to closely monitor your coins’ value in a given period of time.
Cryptocurrencies can be used in different ways, and they also have different advantages and disadvantages depending on the type of cryptocurrency you use.
The most popular and common way to use cryptocurrencies is to buy them with fiat money or other cryptocurrencies. People can use their bank account or digital wallets such as Bitcoin, Ethereum or Litecoin.
They can also trade them in exchange for other cryptocurrencies like Bitcoin Cash, Ethereum Classic or Ripple because most exchanges offer this option.
Ways to use your crypto currency
There are many ways that you can use cryptocurrency but the most common include:
- Buying products and services – If you have a coin such as Bitcoin that you want to spend, you will need to find someone who is going to accept the coin for whatever it is that you are looking to buy.
You can also do the same thing with fiat money if you shop at a store that has not yet accepted cryptocurrency.
- Paying bills online – Many people worldwide are still using fiat money for goods and services, but they also use cryptocurrencies for their online bills. Crypto coins can be used for insurance payments, credit card bills, and even mortgage payments.
- Speculating – This is an attractive option for people looking to make a profit, but it also has some risks because of the volatility of crypto prices.
You can still invest in cryptocurrency even if you don’t own one because many exchanges allow you to trade fiat money for cryptocurrency.
You can then sell your coins later and make a profit depending on how much the price of that coin has appreciated at that time.
- Donating – If you want to use cryptocurrencies for something other than financial gain, then you can donate them to any charity or organization that accepts these coins.
There are many different ways to take advantage of cryptocurrencies, but it’s important to realize that this is a very risky investment because prices can change drastically within a short period.
This means that you need to carefully consider any investment, decide how much you want to invest, and then let the money sit for a while before making any major decisions.
How Do I Buy Cryptocurrency?
Buying cryptocurrency is quite easy with the right information and tools, but there are many places where you should not buy coins because they are scams, or they may not sell what they claim, or their information might be unreliable.
There are two ways to buy cryptocurrencies: you can either buy them from cryptocurrency exchanges or use crypto mining.
How to Buy Cryptocurrencies From an Exchange
The most common way to get bitcoins is to exchange them for another currency, either fiat or other cryptocurrencies. This can be done on cryptocurrency exchanges:
Some of the largest and most well-known cryptocurrency exchanges where you can buy cryptocurrencies include:
You can also use the online wallet to make purchases.
A good place to start your search for crypto coins online is CEX.IO. They are a reputable cryptocurrency exchange that offers a great trading platform, has low fees and excellent security.
They are also in Europe and accept credit cards, so you can buy coins from them instantly with fiat currencies such as dollars or euros.
Another good place to start is Cointree, another reputable cryptocurrency exchange that offers many different cryptocurrencies, good trading options, and support for over 100 different fiat currencies worldwide.
How to Buy Cryptocurrencies Using Crypto Mining
There are a few different ways you can do this. The first way is to use an online mining service. This means that you will not need any equipment or software, and you will be able to buy the mining power directly from a company dedicated to providing this service.
In some cases, you can even earn extra income from this type of mining service by renting out your personal computer and hardware through them. Some of the best-known online mining services include NiceHash and Genesis Mining.
How to mine cryptocurrencies?
Cryptocurrency mining is the process of adding transaction records to blockchain ledgers. Mining is actually a cryptographic process that helps secure the network.
In cryptocurrency, miners use powerful computers to solve complex math problems and verify transactions on the cryptocurrency network. For their efforts, they are rewarded with new coins.
Best Cryptocurrency Exchanges
Some of the most popular cryptocurrency exchanges include Bittrex, Kraken, and Poloniex. All of these exchanges have their pros and cons, which are worth discussing in more detail below.
Poloniex is a U.S.-based cryptocurrency exchange that was founded in 2014 and is based in San Francisco. It is a full-featured spot trading platform for the major cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple, and Dash.
There are a lot of different cryptocurrencies traded on this exchange. It offers in-depth tutorials and information to help users get started. It also provides mobile applications for iOS and Android devices.
Bittrex was founded in 2013 by three cybersecurity engineers, and it is one of the most well-known cryptocurrency exchanges in the world. It has millions of users worldwide, and it is considered one of the top 10 largest trading platforms for cryptocurrencies worldwide.
It has not only one but several cryptocurrency exchanges under its umbrella. Its goal is to provide great service in the industry and ensure that all financial products are secure, protected, and flexible.
Kraken is a global exchange based in San Francisco. It was started in 2011, and its primary mission is to provide users with low fees, high liquidity, multi-language support, advanced security tools, and overall better experience than other cryptocurrency exchanges available on the market.
Some of its exciting features include the ability to buy Litecoin (LTC), Bitcoin (BTC), Ripple (XRP), and Ethereum (ETH) through bank transfer. Because this exchange is one of the most popular options available, it has attracted many new users in the past few years.
Aside from these three exchanges, other lesser-known platforms provide similar services as well.
How Much Are Cryptocurrencies Worth?
The value of crypto coins varies from day to day because of the high volatility of this market. If you want to buy some cryptocurrencies, you should start by checking out live charts for the coin you want to buy.
This way, you will get an idea of the current value and how much it might be worth at any future date. The value of cryptocurrency fluctuates every day depending on several different factors, so it’s important to check on it regularly if you want to make sure that you stay somewhat updated on current prices.
The value of the coins might also vary depending on where they are being traded. For example, if a coin is not being sold at the price previously, then this may mean that more people buy and sell that coin than would ordinarily be expected.
The price of crypto coins can also increase or decrease depending on the number of coins that are available for sale.
How Do I Sell Cryptocurrency?
When you want to sell cryptocurrency, there are several things that you should keep in mind. Firstly, you need to decide which coin you will sell and at what price because this will determine if it’s a good time to sell.
You should also consider what you want to do with the money from selling those coins, such as buying fiat currency or other digital currency. It’s also important to remember that most exchange sites only allow you to sell crypto coins to buy fiat currency or another coin.
This means that you should go through the same buying process when you want to sell your coins.
You also need to think about how quickly you want your money because there are different options, such as a bank transfer that can take a few days or an online transfer faster and cost more. If you want the money right away, it’s best to use an in-person transfer from a cryptocurrency exchange.
Lastly, there is the question of how much you want to sell. This will depend on the price you buy or trade for and any fees charged by the exchange. You should always be careful when selling your coins because they can be a very volatile investment compared to fiat currencies depending on how they are trading at any given time.
How to Make Passive Income using Cryptocurrencies
If you want to invest in the cryptocurrency market, you can do so in different ways. There are two main ways that people typically invest in cryptocurrencies including:
Buy and hold.
You can buy the cryptocurrency, then wait for it to appreciate over time. This is called a “buy-and-hold” strategy, and it is an effective way to make passive income from cryptocurrencies. The downside of this approach is that you need to have good timing when buying the cryptocurrency and when to sell it.
The most common way to make passive income with cryptocurrencies is to buy them at a low price and then hold onto them as long as possible. People holding onto a coin for more than a year typically expect an average yearly return between 15%-20% on their investment. However, people who are buying crypto coins often have different expectations and goals in mind.
Once you have the cryptocurrency, you don’t need to spend it or exchange it back into fiat currency right away. You can simply hold on to it and wait for its value to appreciate over time. When you hold onto a crypto coin for over a year, it is called HODLING, a meme based on a typo in one of the cryptocurrency forums.
This approach can be very effective with cryptocurrencies because they are typically very volatile. The value of cryptocurrencies can change significantly within just one day — sometimes even more than that.
This means that you can take advantage of these dramatic changes and still make money by not immediately cashing out on your investment. However, the value of cryptocurrency needs to be taken with a grain of salt because you can’t take them as seriously as other forms of investments.
An example of how to buy and hold cryptocurrencies
Buying the cryptocurrency for its perceived value and waiting until it appreciates significantly in price.
For example, if you have $120,000 right now and you buy a single Bitcoin for $60,000, then it will be worth $100,000 when you sell it at a later time.
If you believe that the price will appreciate and want a higher return on your investment than your initial purchase, you can buy more Bitcoin for $60,000.
This is a simple way to increase your exposure and value, but it does come with risks because cryptocurrency prices fluctuate heavily, so it’s important to find out when it’s best to buy and sell your coins.
Investing in the cryptocurrency on an exchange.
This method involves setting up an account at an exchange such as Coinbase or Gemini. You can then buy the cryptocurrency with fiat currency or other cryptocurrencies that you already own.
Some of the features to look for in an exchange include low fees, high liquidity, fast transactions and good support staff.
Some cryptocurrency exchanges also help you make money by paying you a share of their profits in the form of an incentive known as a “dividend”. For example, the cryptocurrency exchange Bitconnect pays a daily interest of 1% on all supported coins.
Investing in special schemes and programs that focus on investing in cryptocurrencies.
For example, some Forex brokers are now starting to focus on cryptocurrencies. You can choose one of these brokers and set up your account following their instructions. They will then buy and sell cryptocurrencies for you and perform other cryptocurrency-related transactions on your behalf.
This can be a great way to invest in the cryptocurrency market because cryptocurrency investments are generally unregulated.
However, it may not be a good idea to leave all the trading to the broker because they usually charge high fees and have very limited knowledge of cryptocurrency.
Best way to invest in cryptocurrencies
While there are many ways to invest in cryptocurrencies, the best way to invest in cryptocurrencies is to patiently hold your coins in the long-term for capital appreciation and dividends.
For example, you can regularly buy Bitcoin and sell at a 5 – 10% profit. In this way, your net profit per week can is around USD 50 – USD 100. This way of investing in cryptocurrencies has one clear advantage.
Since you are regularly investing in the coins, you won’t have to worry about the price of cryptocurrencies falling drastically, like what happened in 2015 when the price of a single Bitcoin fell from $1000 low as $300 in a matter of months.
The Future of Cryptocurrencies
There is no way to know precisely where cryptocurrencies are going in the future, but there is a lot of data and information you can collect to decide whether or not to invest in them.
In the next few years, cryptocurrency will most likely continue to grow in popularity, and you will want to be part of that growth.