There are two sets of people in the crypto arena: Founders and Owners. The creators of a cryptocurrency project are its founders. Owners, on the other hand, are individuals who have bought the created coins or tokens. So, how do cryptocurrency owners make money?
Cryptocurrency founders often make their money through initial coin offerings, transaction fees, hold and sell, and consultation fees. Crypto investors make money by investing in ICOs, crypto day trading, token staking, lending, mining, and selling their holdings.
Let’s take a look at each of these methods in detail.
4 Ways Cryptocurrency Founders Make Money
1. Initial Coin Offering (ICO)
An ICO, or initial coin offering, is a type of crowdfunding that allows crypto owners to raise capital by selling digital tokens. The significant advantage of an ICO is that it provides access to a broader pool of investors and will enable startups to raise funds without giving away equity in the company.
There are a few different ways that ICOs can work. Still, the most common model is for investors to send funds (usually in Ethereum or other smart contracts capable blockchain) to an address and receive tokens in return. The tokens issued during an ICO can be used to access the products or services offered by the startup, or they may give holders voting rights or other benefits.
Examples of successful ICOs:
2. Transaction Fees
Crypto has thousands of transactions per hour. Unlike a stock exchange, cryptocurrency trading occurs around the clock.
Founders of cryptocurrency exchanges like Coinbase and Binance can make a lot of money off transaction fees on trades. These exchanges take a small cut (usually between 0.10% -0.60%) on each trade made on their platform.
Fees are charged when you trade, withdraw, or sell your crypto. Fees are also charged when you deposit crypto into online storage spaces like digital wallets and cold storage.
3. Consultation Fees
Another way cryptocurrency founders make money is to offer consultation. Many digital currency businesses provide consultation services (for a fee) to help others in the industry navigate the digital world, and these consultations can be very lucrative.
Fees for consulting services vary greatly depending on the project. They typically start at $350 per hour and go up from there.
Some well-known digital currency consultants include:
- Andreas Antonopoulos: A popular Bitcoin and blockchain consultant, he has worked with some of the biggest names in the space.
- Perianne Boring: Founder and president of the Chamber of Digital Commerce, Boring is one of the most influential women in cryptocurrency.
- Jimmy Song: A well-known Bitcoin developer, he has taught coding courses and consulted for many startups.
4. Traditional Hold and Sell
In most cases, the founders of a cryptocurrency will hold part of their tokens, offering the majority to the open market during the ICO. They can then sell or trade their stake later when the coin price goes up.
This is a common strategy for startup founders, allowing them to cash in on their investment after the company has gained some traction. It’s also an excellent way to generate income if you’re holding a large amount of a particular cryptocurrency and you’re confident that the price will increase over time.
Now that we have covered the different ways cryptocurrency founders make money let’s look at how investors can generate income from digital currencies.
6 Different Ways Crypto Investors Generate Revenue
1. Investing in ICOs
Investing in ICOs is a way for some investors to diversify their portfolios. By investing in one or more new cryptocurrency projects, investors can put their money into potentially high-growth projects while they are still in the early stages. This can provide them with a much higher return on investment than if they had waited until the project was more established.
Of course, a certain amount of risk is involved in investing in ICOs.
Because these projects are still in development, there is always the possibility that something could go wrong, and the project may not take off as planned.
However, for those willing to take on a bit of risk, investing in ICOs can be a great way to make some serious profits.
2. Crypto-Day Trading
Day trading generally refers to buying and selling a security within the same day to take advantage of short-term price fluctuations. Crypto-day trading is a subcategory of day trading that applies explicitly to cryptocurrencies.
Day traders aim to take advantage of short-term price volatility to make a profit. They are short-term investors who buy and sell digital assets multiple times within the same day to take advantage of small price movements.
For example, let’s say that a trader buys 1 Bitcoin for $10,000 at 9:00 am. The price of Bitcoin then rises to $10,500 by noon. The trader then sells their Bitcoin and pockets the $500 profit.
Of course, day trading is not without its risks. Day traders must constantly monitor the markets and make split-second decisions to succeed. Because crypto prices can be so volatile, it’s pretty easy to lose money if you’re not careful.
Staking is a process whereby investors can earn rewards for holding digital assets in their wallets. Put simply, it’s a way of earning interest on your cryptocurrency holdings, much like certificates of deposit work in traditional banking. Holders agree to “lock up” their current holdings for a given time to earn interest.
Not all cryptocurrencies allow token staking investment. Cryptocurrencies will enable them to use the “proof of stake” consensus mechanism. The coins investors stake are used to validate transactions on the blockchain and secure the network. In return for their efforts, they earn staking rewards.
So, for example, let’s say that you have 1 Tezo coin in your wallet, and you stake it to help validate transactions on the network. You may receive 0.5% interest on your holdings as a reward for your contribution.
Some exchanges offer programs to earn cash flow by locking up cryptocurrency, allowing them to arbitrage crypto loans and giving holders part of the profit. At the time of writing, I have active holdings in Crypto.com’s Earn program, earning me around a 6% annual yield.
4. Crypto Lending
Another way investors can generate income from cryptocurrencies is by lending them to borrowers. This can be done through specialized lending platforms or exchanges that offer margin trading services, such as Bitfinex and Kraken.
Margin trading is a type of trading in which investors borrow money from a third party to trade assets with leverage. For example, if an investor has $1,000 and wants to trade $10,000 worth of assets, they can borrow $9,000 from a margin lender and trade with 5x leverage.
Crypto lending works similarly. Borrowers can take out loans in cryptocurrency using their digital assets as collateral. The loan is then repaid with interest. Not only do they earn interest on the loan, but they also get to keep the collateral if the borrower defaults. For investors, crypto lending can be a great way to generate income from their digital currency holdings.
5. Crypto Mining
Mining is the process of verifying and adding transactions to the blockchain. Miners are rewarded with cryptocurrency for their efforts. This is how new coins are created.
To be a miner, you need specialized hardware and software. It would help if you also had a good understanding of how the blockchain works. If you’re not a technical expert, mining can be quite tricky and is not something we would recommend to beginners. However, if you’re up for the challenge, it can be a great way to earn extra income.
6. Buying and Holding
This is perhaps the simplest way to make money with cryptocurrency. Just buy some coins and hold on to them, regardless of market conditions. This approach contrasts with active trading, which involves buying and selling assets to take advantage of short-term price movements.
The thinking behind this strategy is that, over time, the price of cryptocurrencies will continue to increase as more people adopt them. So, if you buy now and hold for the long term, you stand to make a lot of money.
HODLing can be an excellent way to weather the volatility of the cryptocurrency markets. Proponents of this strategy argue that, over time, the market will tend to move upwards, so HODLing is a good way to generate long-term gains. In addition, HODLing can help to reduce trading costs and taxes.
However, HODLing is not without risks. If an investor HODLs an asset that decreases in value, they will likely incur a loss. Moreover, HODLing requires patience and discipline, as it can be challenging to resist the temptation to sell when prices rise. Overall, HODLing is a risky but potentially rewarding strategy for cryptocurrency investors.
Whatever the reason for owning cryptocurrency, there are several ways that founders and owners can make money from it. The blockchain technology that supports cryptocurrencies is also used in creating tokenized art. This innovation seems to be gaining traction daily- a rising tide of sorts.
Financial Disclaimer: This content is for educational purposes only and is not suitable as financial advice. Opinions and statements expressed herein are those of the author. They do not reflect the views of Data Overhaulers or its owner. Data Overhaulers is not a subsidiary of or owned by any ICOs, blockchain startups, or companies that advertise on our platform. Investors should do their due diligence and meet with a licensed financial advisor before making any investments in any ICOs, blockchain startups, or cryptocurrencies. Please be advised that your investments are at your own risk, and any losses you may incur are your responsibility.