Cryptocurrencies are ways to make secure digital payments which circumvent the need for a third party such as a bank to process the transaction because they use something called the blockchain (also known as the ledger). This is a record of all transactions that anyone can view removing the need for centralised record keeping. The best way to understand the blockchain is think of the blocks as links in a chain attached to a ships anchor. You can keep traveling down the chain viewing previous transactions until you return to the very first block which is when the cryptocurrency begain.

Bitcoin was the first invented in 2009 and since that time there have been thousands more cryptocurrencies created. There are many different ways you can make money with cryptocurrencies and these are the main ones but by no means an exhaustive list:

Investing: This is the most straightforward way to get started and is simply purchasing cryptocurrency in exchange for a traditional currency (e.g Purchase Bitcoin for US dollars). As cryptocurrencies aren’t centralised or regulated, the price of cryptocurrency fluctuate depending on the current market price similar to if you were purchasing stocks or trading currency.  You make money when the price of the cryptocurrency increases in value. Even though this method is straight forward, it requires your own money to get started and there is no guarantee that a cryptocurrency will increase in value. A great site to get started if you want to invest in cryptocurrency is Coinbase or Etoro which allows you an easy way to buy or sell a number of cryptocurrencies.

Mining. Some cryptocurrencies such as bitcoin are created by solving complex mathematical problems. That doesn’t involve sitting down with a calculator but rather through running a piece of software on your computer. This is what is known as mining. However as you can imagine because this is the ultimate passive income, a lot of people are doing it with a large number of computers switched on day and night. It is very likely your home computers won’t be able to process enough calculations and create enough currency to pay for the increase in your electricity bill. Not to mention because the computer is constantly processing calculations it will heat up and need additional cooling fans. If you are serious about mining cryptocurrency you are going to need to invest a large amount of money into equipment.

Staking. Similar to mining but using less computer power, staking allows you to use certain cryptocurrencies you already have in order to allow the cryptocurrency to function and grow. Think of staking more like co-operation rather than competition which is what mining would be. You can set up your own staking pool or join one which is already running. Over time you are rewarded with additional cryptocurrency for staking the existing ones you own. Coinbase and Etoro both offer staking for certain cryptocurrencies which allows you a relatively straight forward way to make passive income.

Earning. Another way to make money from cryptocurrencies is to earn them. You could ask for payment for any service you offer in Bitcoin or any other cryptocurrency as they are becoming a more mainstream method of payment. Some sites such as Cointiply allow you to perform micro tasks and get paid in Bitcoin.

Extra Cash

Cryptocurrencies are an incredibly complex instrument to deal with and there are many more ways to make money from them including lending your coins through Peer 2 Peer, setting and running a master node, and even starting your own block chain. It is worth investing a significant amount of time studying and learning about cryptocurrencies if you are interested in dealing with them. Be careful what sources you learn from as there are a lot of websites and videos on Youtube who are giving contradictory advise based on nothing other than speculation.

Top Tip

Cryptocurrencies are still in their very early days and no one knows what will happen with them in the future. While there is no doubt that they are here to stay and will revolutionise the way we make payments, it is still an incredibly risky, unregulated area to invest. There are scams based around cyrptocurrenices and people will make and lose fortunes. A lot of the current cyrptocurrencies in circulation will no doubt fall by the wayside in years to come. There is plenty of money to be made with cryptocurrencies but it is important than ever to educate yourself and not invest more than you can afford to lose.

Recommended Reading

Mastering Bitcoin 2e – An in depth explanation of Bitcoin.

Cryptocurrency by Stephen Satoshi – The Complete Guide to Financial Independence.

Cryptocurrency: A Trader’s Handbook – A Complete Guide On How To Trade Bitcoin And Altcoins.

Sites to use 

Coinbase – A Cryptocurrency exchange platform allowing you to purchase and stake cryptocurrency. Get $10 free in bitcoin when you join.

Etoro – Social network gives you access to many investments including cryptocurrencies, commodities, shares and currencies.

Cointiply – Earn bitcoin for completing online tasks such as watching videos, clicking on ads and playing games.