How can I make money with Ethereum?
So, you’re interested in Ethereum: can’t say we blame you! And you want to make money? Well, we’re right there with you!
Ethereum was the first “smart” Cryptocurrency. It was launched a few years after Bitcoin, which is the granddaddy of Cryptocurrency and still the market leader.
Ethereum is purely digital and exists in digital space as a huge virtual system, maintained by computers all over the world. Unlike Bitcoin, which was designed to be a replacement for traditional currencies, Ethereum was designed to be a world computer capable of running applications and hosting financial systems.
The Ethereum “Blockchain” supports not only the usual ledger entries and addresses that can store quantities of tokens (like Bitcoin), but also supports “Smart Contracts” – that is, bits of code for specific tasks: such as “check that input against a list, and send funds to this list of addresses if it’s OK”.
The whole system runs on Ether (ETH) – the native token of the Ethereum Blockchain. ETH is used to pay the Blockchain to run the Smart Contracts, called a “Gas Fee”. These fees are also payable in ETH when you move other tokens around.
Tokens? Yes, and lots of them. Tokens are like Cryptocurrencies but they live on someone else’s Blockchain: in this case, Ethereum.
Because Ethereum is a smart Blockchain, it’s capable of being programmed to support many different business rules (called “Tokenomics”). There are thousands of these, from single unique tokens (called NFTs – “Non-Fungible Tokens”) to security tokens (a bit like digital stocks and shares), to Stablecoins (coins that exist to represent a real-world asset digitally, such as the US Dollar, or gold). Ethereum is also a key home to third-party protocols allowing Ethereum users to “be their own bank” – DeFi (“Decentralised Finance”).
Ethereum has been wildly successful, which has brought a wide range of problems too.
Moneymaker 1: Mine!
In its initial form (ETH 1.0), ETH is generated by “mining”: where computers worldwide compete to solve a mathematical puzzle to earn the right to process transactions for a fee. This uses a lot of power: and though 70% of Crypto mining uses renewable energy, it’s still a bottleneck. Currently, this is leading to high gas fees. This mining process is called “Proof of Work”, because computers are using their work (and electricity) to earn new ETH.
How can you make money?
There are mining companies such as Shamining that allow you to rent processing power from them that they put to use in “mining pools”. This earns you a share of the Ethereum earned by that pool.
Pros: Easy to start and deposit any amount you like.
Cons: Ethereum 2.0 is going to put an end to mining Ethereum, mining companies are unregulated, you never get your mining fee back, and the ETH generated varies in value.
Moneymaker 2: Everything’s at Stake!
The problems with speed, capacity and “Proof of Work” prompted Ethereum developers to plan out an Ethereum 2.0 (ETH 2.0). The upgrade is faster and moves to a concept called “Proof of Stake”, which is a lot kinder to the environment.
Instead of powerful computers competing to solve puzzles to earn the right to process transactions, users of the system called “validators” lock up (“stake”) a certain number of ETH to earn that right. They also have to keep a system running 24 hours a day to process the transactions.
How can you make money?
Despite the fact that ETH 2.0 is not fully launched, it’s still possible to stake ETH and make a return: according to the official status panel, staking is currently returning about 4.2% per year for validators.
Note that the ETH stake is still yours, so you benefit/suffer from any underlying value changes.
Solo Home Staking
This is where you have to commit 32ETH, and also commit to running the Ethereum software 24/7 in case you’re picked to validate transactions.
Pros: It’s just you and the Blockchain: there’s no other company involved (i.e. no KYC or AML, though most ways you’d buy the ETH would require that).
Cons: It requires you to commit 32 ETH: that is a lot of ETH (over $96,000 worth). This is equivalent to you investing $96,000 into a 4.2% interest-bearing account, but you stand a chance of losing out if your system goes offline.
Staking as a Service
You can give someone else your 32 ETH and they will run the software for you.
Pros: You don’t have to run a validator
Cons: Still costs 32 ETH. Obviously, this is a chargeable service so there would be fees. Also, you have to trust the company providing the service.
Pooled Staking
This is where staking becomes viable for everyone. You can put in as little as you like, and get a share of the rewards.
Pros: Accessible, lots of options. You keep control of your Crypto.
Cons: This isn’t native to the Blockchain, so you’re relying on the integrity of a third-party company. Still only 4.2% return according to Ethereum’s own figures.
Centralised Exchanges
Some exchanges offer (or will offer) the chance to stake the ETH you just bought with them.
Pros: An easy and affordable option.
Cons: Return only 4.2% (if you even get that), the exchange has control of your Crypto, and exchanges are giant targets for hackers.
Moneymaker 3: Buy and Hold
This is probably the simplest option to understand, though there is a question of where to buy, and where to hold!
ETH: is it actually worth anything?
But first: if you’re about to buy a load of Ethereum: is it actually worth anything? Is it just hype? Or is there something behind it?
Well, one thing about the hype process is that it tends to be short-lived: just look at the craze around NFTs, for instance.
Ethereum has been functioning and growing since 2015, and its functioning needs people to buy ETH. The bigger the Blockchain gets, the more ETH is needed, and the price tends up over time. It’s supply and demand.
Unlike Bitcoin (max: 21 million coins), there’s no theoretical maximum amount of Ethereum that can exist. But there’s a finite supply at any given point. Demand greatly outstrips supply because Ethereum is useful. So, it’s worth something. Also, no hype can last 7 years and counting!
HODLing Time
All of the other options excluding mining involve actually buying ETH, so the big question is: is the underlying investment worth it?
ETH has historically gone up over the long term, though there have also been years where you’d have lost 90% of the value of your holdings (these were recovered later, but it took a long time).
If ETH 2.0 is a success, you’d expect ETH to be worth a lot more than it is now as more and more finance options jump on it. If ETH 2.0 is a failure, there might be a slow decline as activities move to a new Blockchain.
Pros: HODLing as a strategy doesn’t involve trusting anyone if you’re keeping it in your own wallet.
Cons: Unlike the other strategies, it doesn’t generate any income.
Moneymaker 4: Trading
The concept is simple: buy low, sell high! And do it at an exchange that charges low fees and has a good order book, otherwise, you’re punished for every move you make! INX Crypto is the lowest fee exchange, but there are others, such as Coinbase, Binance, Gemini, Bittrex, Bitstamp and more.
But should you trade? While good Crypto tends to appreciate over the long-term, on a day-to-day basis, its value is all over the place. Unfortunately, the tools that might help you in a traditional finance environment (such as “Technical Analysis”) are much less help in Crypto because external events are more common, and the ability for a flurry of atypical orders to affect the price is larger.
You can make a lot of money stuck in front of a screen getting lucky: but you can lose a lot of money stuck in front of a screen getting unlucky.
As with all investments, if you do this, make sure it’s with money you’re prepared to lose! And make sure you do the maths so you’re not losing your profit in exchange fees.
Pros: Nerve-tingling excitement 24/7. You could make a lot of money.
Cons: Nerve-tingling excitement 24/7. You could lose a lot of money.
Moneymaker 5: Earn Interest on your ETH
Pros: Simple. Guaranteed returns are larger than staking and mining.
Cons: You’ve got to trust the company.
Of all the options that involve making money on ETH, the simplest one with the best return is to leave your ETH with a company that pays a guaranteed return: or even, buy the ETH in-app to avoid transmission fees: something you can do with a credit card.
GCISL is an established provider of interest-bearing Crypto accounts.