Cryptocurrencies are an asset class like no other. Not only can you invest in these assets the way we invest in stocks and commodities, but you can also earn equity in these protocols by contributing to their networks. Contributors are known as “miners” and they perform various tasks throughout the system in an attempt to verify transactions, encourage additional engagement from others, increase liquidity, and overall, just keep the network up and running. Decentralization means there’s no puppet master behind the curtain; these digital currencies are ran and maintained by the participants within the system. Similar to an employee, policies within these protocols state that miners are rewarded for their services, normally in the native token of whatever network the contributor is affiliated with. Miners are not limited to a particular skillset; there are various ways that almost anyone can participate and monetize their efforts.
#1: Consensus- Proof of Work (PoW)
I’ll let you know now; this method is not meant for everyone. It is highly technical and competitive, not to mention it consumes massive amounts of energy. In a proof of work system, miners compete to verify blocks on a chain by completing cryptographic equations. Bitcoin was the first cryptocurrency to introduce a PoW consensus, miners validate blocks in exchange for Bitcoin tokens. A new block of transactions come equipped with a specific hash, in which miners compete against each other to see who can create a matching hash first for the right to add the block to the chain. While the task is tedious and energy-consuming, the process was designed to be difficult to discourage any malicious intent on the network. (I don’t remember the exact source of where I heard this, but supposedly Bitcoin’s entire network consumes more computer power than all of Switzerland!) Which brings us to our next method of mining.
#2: Consensus- Proof of Stake (PoS)
This consensus mechanism is much more energy efficient, and not nearly as technical. Validators are assigned based on a user’s personal stake in the network. To become a validator in a PoS-based system, a user must possess a minimum balance of staked tokens in the system (Ethereum requires that validators hold no less than 32 ETH tokens.) Validators are then chosen at random to verify blocks, and a block isn’t finalized until a certain number of validators have agreed on it. A validator’s stake is used as collateral in exchange for the right to verify, these tokens will be taken away if a validator attempts to alter the chain in anyway. These contributors also receive rewards in the form of additional tokens as well, build a passive stream of income without mining hardware.
#3: Yield Farming (Liquidity Mining)
Another contributing alternative would be to add liquidity to various lending pools and earn interest off the transaction fees within those pools. Yield farming was first introduced by the Ethereum built lending protocol known as Compound (you can go check out my article on that project on Medium.) The network consists of numerous pools for users to choose from, farmers often jump in and out of pools on a weekly basis depending on which one is currently offering the highest yields. Interest rates fluctuate from time to time depending on the trading activity taking place in that specific market. This is another potentially passive stream of income as these yields are normally higher than the yearly APY offered by standard banks; however the risk is also high as well. These protocols are not insured in any way, so instances are likely to arise where a user is unable to withdraw their funds if the network undergoes any attack. Compound is not the only platform that offers this service, so be sure to do your own research before depositing funds into any asset pool.
#4: Storage Providing
Becoming a storage provider means you are lending available computer storage for others to store their personal files on. Protocols like Arweave and Filecoin (I wrote a piece about them on Medium as well) allow users to monetize available storage the way Uber allows their drivers to monetize their personal vehicles. Providers store and retrieve data for clients, and provide cryptographic proofs that a client’s data remains stored away for the duration of the established deal between the client and provider. Storage providing is definitely easier said than done, it is a highly technical task, which is why providers are broken into two groups: storage providers, and retrievers. Both tasks consume high amounts of energy and take up more time than is ideal. It’s also rather competitive as well since your mining capabilities are limited based on bandwidth, and available storage, but essentially anyone with Wifi and a storage disc is able to join and contribute.
#5: Create and Curate Content
Particularly on the HIVE network, users are able to earn tokens simply by interacting with the community. HIVE is a public content platform, with an ecosystem of dApps (Decentralized Apps) for users to monetize their talents and promote others work as well. From gamers to musicians, there is something for everyone to love on the HIVE network, and all account information, and activity is solely in the hands of the owner, no external factor can edit or remove any post or comment made by another individual.
#6: NFT’s
Last but certainly not least, we have non-fungible tokens (which are still technically investments, but their popular right now so we’ll roll with it.) There are two different ways someone can profit off NFT’s: they can go with the “buy and flip” method, or they can create their own line of tokens for others to buy. Lately the creators have been making the headlines with the million-dollar sales, but retail buyers have also been known to flip tokens faster than a game of heads or tails. NFT’s come equipped with royalty fees that go back to the creator upon each re-sale after the initial purchase; so while a quick buck is cool and all, minting a project of your own is unequivocally more lucrative.
As the blockchain ecosystem continues to grow, new opportunities arise with it. Bitcoin gained the attention of institutions and governments because it showed them what we are capable of when we unite. There’s no necessity for 3rd parties, or overpaid CEO’s; we, the people, are all we need.
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