Just five years ago, cryptocurrencies interested only professional IT people. Today, many people want to make new money or new money. We will tell you what ways to do it.
The crypto market is a highly profitable and highly risky investment tool. It is important for beginners to observe the most important rule when entering it – enter only with money, the loss of which will not cause problems (do not enter – with credit, borrowed, or last money).
1. Mining (risks – low)
This type of earning is most on the radar. Essentially, mining is the processing of cryptocurrency transfers between users. For this, the miner is paid a remuneration. The method is very attractive, because the work is done by the equipment (computers or special equipment), and the money is received by the owner. It creates the illusion of easy earnings – you bought a box, plug it in, and it begins to make money for you.
In reality, everything is more complicated. About three years ago, an ordinary computer was enough to make money. Since then, the complexity of algorithms has grown. More powerful machinery is needed to do the calculations, and therefore the rewards. Now you either need to combine several video cards into one or buy special equipment, sharpened for mining a particular cryptocurrency, which is called ISIC (“Icic”), and use it.
The main disadvantages are:
- Initial investment from several hundred thousand rubles;
- first, the equipment must pay off, and then the profit will go;
- a constant increase in the complexity of the algorithms, and as a consequence – a constant decline in income;
- mandatory conditions for the smooth operation of equipment – a place for placement, heat removal, Internet and electricity, air filtration (otherwise the mechanical parts fail quickly), a specialist who will promptly replace the burnt-out components.
- Payback is much higher than investments in bank deposits or real estate;
- minimum time costs for generating income (almost passive);
- obtaining a highly liquid product in the form of cryptocurrency.
Now the average payback of mining equipment is around 10 – 12 months (the figure strongly depends on the rate and the cryptocurrency that is mined).
2. Trading (risks are high)
A trader is a player on the exchange, who earns on the fluctuations of cryptocurrency rates.The volatility (i.e. the change in the rate of the cryptocurrency per unit of time) is very high. It can rise by tens of percent in a few days and then fall in the same way.
The scheme for earning is simple: buy at the beginning of growth, and sell at the end of growth. If everything is correct, then in a day or two you can make 10-20% of your capital. Then wait for the fall and buy again. And so on in a circle. It is real to double or triple your capital in a month. There are cryptocurrencies, which can jump by 100 – 200 percent or more in a few days.
The profitability of trading is very attractive, but it is better for beginners not to engage in trading. Until they understand the peculiarities of the crypto market and the risks associated with it.
It is important to understand that trading is a job, a profession. Before you get into it, first of all, you need to be trained. Second, you need to form skills – that is, actions brought to automatism by repetition. And this, as a rule, takes months.
The main investment in learning trading will not be in courses but in the formation of skills. At this stage, most of those who want to become a crypto-trader are eliminated. A neophyte trader flush after courses with the excitement of large earnings makes a couple or two thousand dollars (sometimes even dozens), and immediately cools down to this way of earning. He wants quick money, but here he has to sit and draw figures of the analysis for a long time to get his hand in it.
My students practice for at least a month or two before I allow them to trade on their own. The exchange itself does not produce money, it redistributes it. From inexperienced to experienced, from hotheads to cold stamina.
The main advantage of trading – high profitability. The main disadvantage – high risks. This is work for professionals with strong nerves (it is work, but not a way to invest their money). 3.
3. Arbitrage (medium risks)
There are a lot of crypto exchanges, and the difference between exchange rates on them can be quite significant. It is especially noticeable when sharp changes in rates begin. At such moments, you can buy on one exchange, then transfer to another and sell there.
The main advantage of this method is that good profit can be obtained in a short period. But this requires a sufficient amount for investment and a well-thought-out scheme for the transfer of funds from the exchange to the exchange.
The plus of this method – a simple algorithm and average risk, the minus – exchanges are constantly changing the interest rates and input-output schemes. Lately, transfers between exchanges could take hours, and sometimes days. Which sharply increases the likelihood of losses.
4. CryptoPIF (medium risk)
The crypto economy has already seen the emergence of Mutual Funds. Management companies collect combined portfolios of cryptocurrencies for you and bring them to a certain index. All you have to do is buy that index. Depending on its rise or fall, if you sell it in the future, you will or will not receive income.
Pros – low entry threshold (thousands of rubles), and no need to think about what to invest in, disadvantages – cryptocurrencies in the index, as a rule, rigidly formed.
5. Trust management (risks – medium)
Already by the name, it is clear that the money will have to be entrusted into management. To whom? A cryptocurrency broker or a crypto-fund. They will decide what to buy and what to sell, when and how. Their earnings are a portion of the profits made from managing your money. The percentages are negotiated individually by each fund. The most common scheme is 50/50.
Pros – you don’t need to think about what to invest in, disadvantages – as a rule, a high entry threshold (millions of rubles).
Both cryptoPIFs and crypto funds have big risks associated with the lack of a legal framework and a short period of time to build up the reputation of managers.
6. ICO (high risks)
The person who invented the ICO, apparently, pursued a marketing goal – he wanted to do something similar to the IPO, only in the cryptomirror. The ICO term itself – Initial Coin Offering – is not quite correct. No coins are issued. It would be more correct to say – Initial token offering, that is “token issue” (token – information storage unit).
The tricky part is that tokens are issued to the exchange. The IT people invented them as substitutes for money, so as not to get in trouble with the law. Today there is also a term – Token Generation Event. Literally “token generation event. But it doesn’t sound as cool as an ICO, so the term is unlikely to catch on.
An ICO is actually the release of a new cryptocurrency to the market. And usually it is issued for a certain project.
That is, some company decides to do something new, but it needs funds for that. And then it makes its own cryptocurrency. Investors buy it with the expectation that it will eventually go public and rise in price. Or later, the company that issued it will buy it back at a higher price. These terms are spelled out as early as the issue.
Another definition of an ICO is cryptocurrency crowdfunding.
By buying such tokens at the early stages, you can expect that they will go up in price, or they can be used to pay within the system (for example, to buy products from the company that issued them).
The advantage of investing in ICOs is a high return on invested capital. For example, last year in one project the token rose in price by 500 times.
The main disadvantage of an ICO is that it is hard to know whether the team is really going to do what they say it is going to do and whether they have the strength and ability to do it. In addition, sometimes the money received at the start is relaxing, and any idea, even the most promising, can deflate, bringing no benefit to either its authors or investors.
7. Bounty (risks – low)
A way for students, schoolchildren, and those who have a lot of free time.
Bounty is participation in the promotion of new projects for a fee in the form of their tokens.
When a project enters the ICO, it must attract an audience, somehow tell about itself. Funds are allocated for this – a small portion of the tokens. They are paid as rewards for “likes”, “reposts” in social networks, and other types of promotion. For example, one token for a “like”, two tokens for a “repost”, three tokens for a translation into your language, and five tokens for a detailed text on your blog or website. After the ICO, the tokens start to be worth something, and users who receive them can sell them on the exchange. Bounty’s profitability depends on the success of the project. You can earn nothing, or you can get a few hundred dollars.
The plus is money in exchange for time, the minus is that you may not make any money.
8. Deposit on the cryptocurrency exchange (low risks)
Very similar to a deposit account in a bank, only the interest is much higher (up to 3% per month). We transfer cryptocurrency to a special account on the exchange. The exchange gives it to those wishing to increase their capital to trade at interest and a part of the profit is shared with you.
Pros – passive income is higher than the bank deposit, disadvantages – the lowest percentage for this market and the risks of closing the exchange.
9. Issuance of your own cryptocurrency (high risks)
The source code of most part of cryptocurrencies is open for all comers. Therefore anyone can quickly launch his own cryptocurrency and become a billionaire. The bottleneck here is how to convince people to use your cryptocurrency.
Pros – you can become a billionaire quickly, disadvantages – high costs to create a flock for your coin.
10. Cryptocurrency portfolio (risks – low)
The optimal way for beginners. We buy highly liquid and well-proven cryptocurrencies and put them aside (hold) for a long term (6 – 12 months). Then we sell them at a great profit.
In this way, cryptocurrencies are similar to high-yielding and high-risk stocks. Of course, you will need to know at least a little bit about the situation, cryptocurrencies, and what is happening on exchanges. This will help you to build the most interesting coin portfolio for you (my statistics show that it is more profitable to invest in a set of coins, not just one). For those who want to become crypto investors, I give a recipe of the conservative set (for January 2018): 50% btc and 10% eth, dash, ltc, xrp, xmr. In the first crypto portfolio, I recommend students to invest an amount not exceeding 15 000 rubles. The task of the first stage of entering the market is to learn to understand it. And since students make mistakes at the first stages, they are very cheap at these amounts. Once you understand that you have mastered the market and understand how to make money in it, you add new cryptocurrencies to your portfolio or increase the number of current ones.
Pros of cryptocurrency portfolio:
- low entry threshold; for the beginning (while you master the market) you can invest even 1000 rubles;
- does not require much time – an hour or two a week will be enough;
- It is possible to form various combinations of cryptocurrencies independently.
There are almost no disadvantages to this way of earning. But there is one difficulty, which can easily spoil the whole “game”. The hardest thing is to force yourself not to touch the purchased coins during the whole planned storage period. Exchange rates fluctuate greatly. When they go up, there is a desire to quickly sell your savings and get rich. But here you can miscalculate and not wait for an even more profitable situation. When the exchange rate falls, panic begins. As a result, every change in the market is stressful. And it is necessary to understand that any asset is growing in the long term. It is very rare that the opposite happens. Therefore, you need to pull yourself together and forget about your “portfolio” for at least six months.
This method is ideal for those who have little time to follow quotes on the exchange.