One thing I truly love about my generation (the millennials) is that basically everyone wants to make “passive income”. Passive income being income you receive without having to put in any hours. The reality, of course, is that there is no such thing as plug and play passive income that requires zero upfront work and no investment. There are, however, ways you can generate pure passive income through investing. Stock dividends and interest payments on bonds fall under this category. Fortunately, nowadays, there are more ways to generate passive income streams through innovative new investment models that were not available ten years ago. I will discuss three of these with you in this article.
Social trading, also known as copy trading, is a new type of financial investing that involves copying trades of successful traders on a social trading network in a fully-automated fashion.
The way it works is that you sing up to a social trading platform, search for the most successful traders that have had a strong historical performance with their trading strategies. Then you deposit the amount you want to invest and set the system to automatically copy the trades of the traders you have selected. That way social trading can be a new passive income stream for you. Of course, like all types of investing. There are risks involved. Should the traders collective underperform you may end up losing money. Therefore, when it comes to social trading (just as it does in traditional portfolio management) it is important to diversify. Hence, it is vital to copy several successful traders with different trading strategies to generate stable long-term returns.
The global leader in social trading is eToro. eToro offers a range of investable asset classes and has the largest network of social traders that you can copy.
Bitcoin Cloud Mining
To explain what bitcoin cloud mining is and how you can generate passive income with it, we first need to briefly discuss bitcoin and how new bitcoins are created.
Bitcoin is a decentralized digital currency run on a peer-to-peer network called the blockchain. Bitcoin allows users to make low-cost money transfers and make and receive payments online without the need for an intermediary such as a bank or PayPal. To ensure that the blockchain is working and transactions are being verified, participants in the network called miners complete complex calculations that confirm transactions. For using their computing power, miners are rewarded with new bitcoins. Individuals used to be able to mine bitcoins on their home computers when bitcoin first started as the mining difficulty was very low. Nowadays, bitcoin mining is pretty much only conducted by large mining pools that have rooms full of specialized bitcoin mining hardware that have enough computing power to make mining profitable.
However, individuals still have the possibility to mine bitcoin by buying cloud mining contracts. Cloud mining refers to renting out miners at large cloud mining operations for a fee. That way, individuals can mine bitcoin and other digital currencies without having to purchase mining hardware or having to deal with high electricity costs.
I bought my first bitcoin cloud mining contract in October last year mainly to play my little part in maintaining the bitcoin blockchain and to gauge the value of investing in bitcoin cloud mining contracts. When it comes to bitcoin cloud mining, the payback period of your investment (the time until you receive ROI) is very long. A calculation conducted by a Finance Magnates contributor suggested that the payback period for an unlimited bitcoin mining contract at Genesis Mining (where I do my bitcoin cloud mining) is around 16 months provided the price of bitcoin and the mining difficulty level stay the same (which they won’t). My personal calculation gives roughly the same outcome. Should the price of bitcoin not collapse, then I will start making a profit after about one year. Once my initial investment is covered, I will start to receive small weekly profits indefinitely. Whether you buy the cheapest contract at $30 or invest $1000+ makes no difference to the payback period as the mining provider’s fees are calculated linearly at Genesis Mining.
If you decide to put some money into bitcoin cloud mining, you need to be aware that it is a risky venture. If the price of bitcoin drops sharply and doesn’t recover then you will likely lose a part of your initial investment!
If the price of bitcoin, however, continues to increase over time as bitcoin adoption continues to grow globally, then you will receive weekly profits after your payback period has passed. Bitcoin cloud mining is a risky long-term investment and, therefore, not for everyone but if you have faith in bitcoin’s future success then putting a bit of money into cloud mining contracts will create a completely hands-off passive income stream for you in the years to come.
Microlending to Friends
Lending money to friends may not seem like the most comfortable way to generate passive income. However, by using peer-to-peer microlending apps, such as Ledge, the entire private lending process is made much less awkward and much more efficient for both the borrower or the lender.
Microlending is a form of peer-to-peer lending where individuals lend small amounts to another individual through an app or an online platform. Since the credit risk of individuals is higher than those of companies or governments, the interest on peer-to-peer microlending loans is much higher than on bonds.
Of course, as in any investment, there is also the risk that you may lose some of your invested capital. Hence, it is important you only lend to individuals that you believe will actually pay you back. Otherwise, you will make a loss and your friendship is most likely ruined too.