Make money with cryptocurrency
We investigate how you can make money from cryptocurrency
Bitcoin, Litecoin, Ethereum, Ripple, the list of digital coins goes on and on. All of them allow us to send virtual payments to each other globally, instantly and for very little cost and many have extra features. But is it possible to make money with cryptocurrency?
Let’s take a look at some of the options available.
How to make money with cryptocurrency
1. Investing (buy and hold)
Is cryptocurrency a good investment? Well, some would answer with a resounding “yes”. Bitcoin (BTC) started January 2019 at $3,753 (£2,887) per BTC, while today’s price is $7,161 (£5,508) making investors a healthy 90 per cent by ROI. In fact, if they’d sold it at its peak in June 2019 they’d have made an impressive 244 per cent. Not bad.
When you compare this to commodities like gold, which has gained just 12 per cent since January, you can understand why many people choose to invest in cryptocurrencies.
Of course, not all digital coins have had such a profitable year as Bitcoin. Ethereum (ETH) has gained just seven per cent since January while Ripple (XRP) has lost a painful 71 per cent.
However, many believe that where Bitcoin leads, altcoins will follow. In spite of a few recent hiccups, said to be caused by Chinese authorities cracking down on unauthorised crypto exchanges, the grandfather of crypto has been considered to be in a bull run since April. If the other coins follow suit, 2020 could be an exciting year for virtual currencies.
As always, forewarned is forearmed. Research the coins you’re interested in thoroughly before making any decisions and only invest what you can afford to lose.
You can buy cryptocurrencies using fiat money easily from exchanges and companies such as currency.com. Some altcoins can’t be purchased directly and must be bought using Bitcoin or Ethereum. Whichever coin you choose, ensure the exchange or company used is legally allowed to sell coins in your country and research the fees carefully as they can take a big bite out of your profit. And remember, once bought always remove your coins from the exchange and store in a cold wallet, to protect yourself from hackers.
If you thought investing was risky, welcome to the exciting world of cryptocurrency trading. By closely monitoring small price movements in the markets, experienced traders can make a large return simply by buying and selling coins at the right time of the day, or trading one crypto coin for another in the hope it will rise in value.
With such high levels of volatility in the cryptocurrency markets, a good day trader that can keep their emotions in check could make a lot of money. But equally, we need to accept that some losses are inevitable. Fees can make a big difference to your profits so ensure you understand exactly what you will be charged.
Keen but inexperienced long-term investors could also try trading with a small portion of the coins they are holding (HODLing) while removing the bulk to a cold wallet.
Bear in mind that hacking can be a real problem for traders so increase security as much as possible. Open a dedicated trading email account to limit the damage a hacker could cause. Research the exchange or company you use with care as scam sites can look very convincing. And if you don’t fancy staying glued to your screen all day, consider choosing a company that allows you to buy and sell coins wherever you are on your mobile phone.
Trade Bitcoin to US Dollar - BTC/USD chart
3. Mining: earn money from cryptocurrency
Buying and holding coins is one way we could make money, but can we earn money from cryptocurrency? The simple answer is yes, by becoming a crypto “miner”.
By agreeing to use our computing hardware to solve complex cryptographic puzzles that verify transactions on the blockchain, we can become miners and earn crypto coins such as Bitcoin, Litecoin or Ether for our trouble. This is possibly the most hassle-free method of making money; simply set up your equipment and start it mining.
However, while this was an enticing way to earn coins in the past, mining has become big business in recent years with companies creating whole warehouses dedicated to earning coins.
Unless you have access to a purpose-built ASICs computing rig designed to solve the puzzles for the coin of your choice, your chances of verifying a block and earning a coin are slim with most altcoins and non-existent if you wanted to mine Bitcoin. What’s more, the electricity costs alone can outweigh any profit made. Work out your costings carefully before investing in any equipment.
Mining pools that allow miners to pool computing power can be a good alternative. Miners agree to share the block rewards in proportion to their contributed mining power, making it a good option if you have a graphics processing unit (GPU) and can produce a steady income stream, depending on which coin you mine.
But there are other ways to make money with cryptocurrency. If you have some spare time, anything from 10 (0.000001BTC) ($0.0008, £0.00061) to 100 Satoshi (0.00001BTC) ) ($0.008, £0.0061) can be earned through cryptocurrency faucet sites as a reward for playing games, clicking on links or watching adverts.
What’s more, if you are good at marketing, there are companies that will pay you in digital coins for creating video content or infographics for cryptocurrency brands.
Read more: How bitcoin mining works
4. Investing in Initial Coin Offerings (ICOs)
Entrepreneurs are setting up new altcoin projects all the time but to do so requires money. One way to raise this is by crowdfunding via an Initial Coin Offering. Investors that believe a project has potential can invest in its ICO by purchasing the new coin or token.
As the Ethereum platform tends to host most new ICOs, you will usually need to pay in Ether or Bitcoin. Should the new currency become popular and more valuable in the future, investors could make a lot of money.
Of course, the crypto world is proudly unregulated, which sets the alarm bells ringing. Unlike an Initial Public Offering (IPO) ploughing money into an ICO buys you no stake in the company. All you have bought is some coins, which may or may not turn out to be worth something in the future. It smells of gambling and the potential for scams is huge.
But, ICO aficionados would argue that there are plenty of satisfied investors that bought into Ethereum, the most successful ICO to date.
Potential ICO investors can protect themselves by carrying out due diligence. Analyse the whitepapers and ensure the teams behind the projects are real. How will it work? What are the unique features that make this ICO stand out from the rest? What is its roadmap and how will it manage security?
Read more: IPO vs ICO: what’s the difference?
Of course, scams are rife in the cryptocurrency world and fraudsters are becoming more sophisticated.
July saw $32m (£25m) stolen from a hot wallet held in a Tokyo-based exchange. And in September, Blockchain forensics company CipherTrace revealed that cryptocurrency theft has surged in 2019, to $4.4bn in the first nine months of the year.
This is up more than 150 per cent on 2018, and includes $2.9bn lost from an alleged Ponzi scheme involving a crypto wallet and exchange. What’s more, these are the ones we know about, as crimes valued at under $5m are often left unreported.
Depending on your level of experience, enthusiasm, and free time, there are numerous ways to make money with cryptocurrency. But whichever methods you choose, make security a priority. Research thoroughly, use companies with solid reputations and remove coins to cold wallets as soon as possible to restrict access by hackers.
With a bit of luck, 2020 could see many of us making money from cryptocurrencies.
FURTHER READING: What are the most secure cryptocurrencies, and are they really private?
FURTHER READING: What will 2020 hold for Ethereum and its cryptocurrency Ether?