Many people think that creating passive income is all about selling services, but it’s more than that. It’s also possible to generate money while watching a fantastic film and relaxing at the same time. That’s precisely what passive income enables you to do.
There are several methods to generate money without requiring your time or involvement on a regular basis. Staking cryptocurrencies is one strategy that’s gaining popularity. Here’s why staking Ethereum (ETH -2.74%) might be a fantastic way to make passive earnings.
Staking is only possible on blockchains that employ the proof-of-stake consensus method. These blockchains enable you to pledge your tokens to verify transactions. In return, you will be rewarded.
The original Bitcoin network was on the proof-of-work principle, which does not allow staking. In December 2020, however, the Beacon chain enabled staking for Ethereum coins. This chain is set to connect with the mainnet this year, allowing Ether tokens to be staked across the whole Ethereum ecosystem.
How much money can you make while staking Ether tokens? It is determined by the crypto exchange that you use and how long you stake your assets for. However, the payouts may be quite significant.
The annualized return on investment for staking Ether is 10.1% as of the time of this writing, and it’s highest ever. For a 120-day staking period, Binance offers this particularly lucrative return. It’s simple to discover other exchanges with returns ranging from 4% to 8%. Over shorter timeframes, these yields are more appealing than those provided by most dividend stocks.
The other side of the coin
Why wouldn’t everyone want to stake Ether tokens, with potential returns of double-digit proportions? The major disadvantage is that you can only sell once.
When you stake your Ether tokens, most cryptocurrency exchanges demand that you keep them locked for a certain length of time. Even after the staking period has ended, you may not be able to sell immediately. Some exchanges have “unstaking” periods lasting several days.
The inability to sell tokens can be especially harmful when the coins’ value rapidly drops. We have seen this happen in recent days, with Ethereum plummeting more than 30% in a week.
It’s quite conceivable that a downturn might stretch on for some time. While staking may help to some extent, the yields will not be nearly enough to compensate for significant losses like we’ve seen this month.
Taking the long-term view
This is basically the same issue that dividend stock investors face. You cannot sell your shares of the company and still get paid dividends. It’s conceivable that the share price could fall much more than you realize from your payouts.
That is why dividend-paying firms with good long-term prospects are most appealing to investors. The stock price may drop in the near term, but investors anticipate it will at least remain level (and perhaps increase) over time.
If you’re thinking about staking Ether tokens, take this into consideration. Staking Ether tokens is a poor decision if you don’t believe in the cryptocurrency’s long-term potential.
However, if you believe that the Ethereum blockchain has some staying power and that Ether is a wonderful long-term investment, things are different. If this forecast comes true, staking Ether may genuinely be a fantastic way to generate passive money.