The hype around cryptocurrency does not subside even for an hour. The number of blockchain forum users is constantly growing, the capitalization of markets is increasing, and books on the subject are being swept away from store shelves like hotcakes. Bitcoin and other coins are firmly in our lives and are having an impact on both business and culture, forming new principles of human cooperation and gradually changing the rules of the game in financial markets. As of today, it would be true to state that a real window of opportunity has emerged around this phenomenon. And although the days of rapid growth of Bitcoin are over, who says that it is impossible to enrich yourself with other blockchains, or to work with leverage on Bitcoin and earn money when the rate falls?
In this article we will look at all possible ways to make money on crypto. But before we begin, we will make an important statement: this material is not a guide to action. The author only describes the basic principles of earning in this market and does not tell anyone to do anything. Remember that any investment involves a risk of losing money!
So, perhaps the most common way to make money on a cryptocurrency is mining it. There are two main types of mining coins: mining and minting, sometimes also called forging. As a rule, these methods are used separately from each other, although on some platforms both options are available. «Mining» is available on Proof of Work networks. «Minting» or «forging» can be done with Proof of Stake protocol (proof of ownership). Protocols are a set of rules that work in the system, and their names that are incomprehensible at first glance will become clear as soon as we reveal a little of their essence.
The blockchain is a distributed ledger in which past transactions are stored. For their verification and recording, large computational powers are needed. Mining is nothing more than providing the resources of your computer for this purpose.
You buy equipment, install a special miner program on it, and then the process works autonomously. Someone might think it is a «dream job» — and will be right. However, this does not mean that mining should be approached lightly. Remember that this is a business that requires specific knowledge and effort.
The main task of the miner is to choose the right cryptocurrency. Since video cards for mining cost a lot of money and the process goes 24/7, they wear out quickly and eventually become unusable. Moreover, the costs of electricity should also be considered since costs will jump sharply once the production of cryptocurrencies starts.
The key parameter of the equipment is the hashrate. This term refers to the number of computational operations per second that a graphics card is capable of doing. The higher your hashrate, the more crypto you can mine and, in the end, make more money. Hence the name of the protocol «proof of work.» The end result depends on the resources you provide.
Different hashrates are needed for the extraction of different coins. Therefore, before rushing to buy a video card from a shop you should familiarize yourself in detail with the features of various cryptocurrencies. Make a schedule of return on investment, which must necessarily contain all your costs and estimated profits. Moreover, it should be deliberately understated to account for possible unforeseen circumstances.
Minting (or forging) is another way to extract cryptocurrency. It is much less common than mining and is used less frequently.
As we remember, the protocol on which cryptocurrency available for minting works is called «proof of ownership». It perfectly reflects the whole essence of the process, because the reward is issued depending on the cryptocurrency which is on the balance sheet of the user and does not depend on their equipment. It is possible to forge coins on any, even the oldest, PC. At first glance it seems that it is very profitable because the need to set up expensive mining farms disappears. In fact, the investment here is no less, they just have a different character.
In order to achieve success in this field, you need to buy as many coins as possible. The more of them in your account, the greater your reward. Now imagine what will happen if you invest a large amount of money purchasing a crypto and then it depreciates? That’s right, you go broke. Therefore, minting should also be approached with utmost responsibility and only those projects that are aimed at solving a problem and are well implemented by an experienced team of developers should be considered.
The abbreviation, ICO, stands for «Initial Сoin Offering» and bears a clear resemblance to another abbreviation — IPO, meaning «Initial Public Offering». And this is no coincidence. An IPO is a standard process for issuing shares of a company to the market in order to raise funds, while an ICO is the same but issues tokens instead. At the beginning of each start-ups path they are faced with a lack of funds, which can put the fate of the entire enterprise in question. Being unable to cope on their own, firms offer anyone who wants to buy their cryptocurrency (or, in the case of an IPO, securities) at a reduced price. And then when the project gains strength the price of this asset will grow and it will be possible to sell it profitably. You can earn on an ICO in two ways: invest in someone else’s or create your own.
Creating an ICO is not an easy thing to do. And given the percentage of projects that are competitive, this business is much more risky than traditional business. The first thing you need is an idea. Two types of start-ups survive in the cryptocurrency market: pioneers who are well-established and promising newcomers involved in solving real problems. I propose to concentrate on the latter category.
Think about what you want to improve in this world and figure out how to do it. Remember: everything ingenious is simple. You do not need to build space stations on Mars. It can be a small innovation that could make people’s lives a little nicer and easier. Next you have to search for an experienced team and be ready for long months of hard work. Do not forget about marketing. People are your main resource, work on social networks and the project’s website and write a detailed Whitepaper. After a sufficient audience has been reached, the project can hold an ICO.
Investing in someone else’s ICO
As mentioned above, the number of ICO’s is now innumerable. Conventionally, projects can be divided into 4 categories:
- Illiterate scammers.
- Literate scammers.
- Illiterate, but honest.
- Literate and honest.
There are almost no representatives of the first category left on the market, since natural competition destroys them at the very stage of their inception. Earlier a common Landing Page with a small advertisement could easily collect several hundred thousand dollars, but today the community has become more demanding and all kinds of scammers are swept aside by it instantly.
Much more dangerous are the second and third groups. In the first case, we are investing money in a project that most likely will not appear on the market, and if it does, the rate of the coin will quickly slide to zero. In the second case, we are dealing with sophisticated scammers who are not so easy to bring to light.
Let’s talk about how to distinguish a truly worthy project:
- Understanding the principles of the blockchain. First of all, we need to decide whether it is necessary to implement the blockchain and if the new token can implement the idea in which we are being offered to invest. Is it possible to solve the project’s tasks without using a distributed registry?
- Experience in the industry. Select those ICO’s that you can evaluate based on personal experience. If you do not understand anything in the industry in which the startup is focused, it is best to pass by and look for another.
- Public team. You can not entrust money to an anonymous team or people who avoid appearing in public. It is desirable that the project site contains data on developers and links to their social networks.
- Roadmap and whitepaper. Every company must have a plan. If it has none and has no trial, so your money goes too.
Another interesting way to make money with cryptocurrency are bounty programs. Their meaning is simple: beginner projects often offer community members a number of convenient ways to participate in promoting their project (for example, make a repost or record a video review) and receive a specific reward for it. In this case, the above criteria applies for the selection of quality projects.
СThe most difficult, but in the long term most profitable way of earning with cryptocurrencies is by trading. Trading is called currency pairs speculation on exchanges and you can earn both on growth and on the fall in rate of a coin. Buying an asset on an exchange is called «long» or «long position» in common slang, and to sell — «short» or «short position».
You might say, «Stop! I understand how I can earn money on the growth in rate of a cryptocurrency, but how can you make money on it’s fall? And how is it possible to sell an asset without buying it?» Everything is very simple, short transactions occur with the help of so-called marginal lending or leverage. As soon as you press the «sell» button, your broker (the organization providing access to the market) automatically gives you the necessary asset for use, which is instantly sold. And then when you decide to complete the transaction, buy it back and return the asset to the broker. If you were right and the price fell — you profited, but if you sold the currency but it grew, you suffer losses. In short, the main thing is to correctly determine the direction of the rate. Technical analysis is implemented at the highest level and you should not focus your attention on this at this time.
The process of predicting asset rates is too complicated and deserves a separate article. Here we only note that it consists of two aspects:
- fundamental (factor) analysis, which involves tracking the news background, as well as the study of various forecasts and reports;
- technical (graphical) analysis, which includes all methods of price forecasting, based on its behavior in the past. Today, there are many special indicators based on mathematical functions that signal a further increase or fall.
So, with this our review has come to an end. We hope that it was useful for you and at least some of the issues related to earning in the crypto-market have been clarified for you. It should be remembered that this is just a «skeleton» — general information given to you for reflection, but not a guide to action. But if you are seriously interested in mining, trading, or investing in an ICO then you should thoroughly study this topic. Remember that earnings are in direct proportion to your competence, and it is better to weigh everything in advance and analyze than to grieve about hastily made decisions.