The information contained in this article not intended to be a substitute for legal or financial advice that can be provided by your own attorney, accountant, and/or financial advisor.
Bitcoin is the largest cryptocurrency with a current market capitalization of $318 billion. It is without a doubt the most valuable digital currency in the world and is supported by some of the largest and most influential corporations around the world.
Bitcoin is widely seen as the gold standard for cryptocurrencies and many believe it will be the great financial equalizer one day.
Despite all of this, the question I get asked the most about crypto is: how does Bitcoin make money?
The truth is this question has multiple different answers. On the surface, Bitcoin is an asset and you can trade it for a profit or hold it as a long-term investment. But there are numerous other ways you can make money from Bitcoin including mining or earning rewards from a crypto account.
Bitcoin is often criticized for not having smart contracts or the utility of a network like Ethereum.
But at its core, Bitcoin serves a purpose as a digital currency that is deflationary in nature and accessible to everyone. Let’s take a look at all of the ways that Bitcoin can make you money!
How Does Bitcoin Make Money?
For crypto purists, the true way to earn money with Bitcoin is by being a miner and validating transactions. Learning this process takes a bit of work, but personally, I wouldn’t recommend undertaking it due to the high costs that are involved. Not only do you need a state-of-the-art Bitcoin miner which can cost upwards of $10,000, but you will also be stuck with a pretty expensive power bill.
The term Bitcoin mining is a little ironic since many people refer to it as digital gold. Bitcoin uses what is known as a Proof of Work consensus mechanism. This means that powerful Bitcoin mining computers are solving complex computational math problems. When they answer the question correctly, they are awarded Bitcoin as payment as a new ‘block’ of Bitcoins is opened.
If you’re not really understanding this process, I don’t blame you one bit. The amount of technology that it takes to operate a successful blockchain is mindblowing. Once these blocks are opened, the miners receive that Bitcoin payment which can be pretty lucrative given its high price.
Of course, given the volatility in the price of Bitcoin, the value of those rewards also fluctuates.
Can You Make a Living off Bitcoin?
Like any asset, you can certainly make a living off of Bitcoin, but it wouldn’t be easy, or something I’d recommend.
Aside from mining, Bitcoin and other cryptocurrencies have developed a large following of traders. Just like with day-trading stocks, you can actively trade Bitcoin. One thing that these traders love about trading cryptos is that the market is open 24 hours a day and seven days per week.
What do you need to become a Bitcoin trader?
Let’s start with a high-risk tolerance and a decent starter amount to invest. You should also familiarize yourself with technical analysis and learn how to use stop-loss or bid-ask prices. The education you need is quite similar to day-trading stocks. Many of the same principles are used like support and resistance levels as well as Fibonacci retracement levels.
Do I recommend day-trading Bitcoin?
It’s a little too risky for my liking, so no.
Should I Just Hold Bitcoin?
Here’s another great question I get asked.
Most people just do not have the time or resources to day-trade or mine Bitcoin. So can they make money from Bitcoin by just holding it as a long-term investment?
Absolutely! Just think about this: in 2010, Bitcoin was worth about $0.10 and in 2021, it hit an all-time high price of about $65,000.
If you’re thinking of just holding your Bitcoin you can get a little creative with it. Sites like Binance will allow you to earn additional Bitcoin by putting it into a Binance Earn account. While not quite like staking in DeFi, earning allows you to make some crypto ‘interest’ on your investment. Just know that while you are earning, the exchange is lending your Bitcoin out to others. I understand if that doesn’t really sit well with you!
The best and safest way to hold Bitcoin is in cold storage on an offline hardware wallet. These wallets will only cost you less than $200 but they can be a lifesaver. One unfortunate thing about the crypto industry is that it has a long history of hacks and malicious attacks. Holding your crypto on a centralized exchange means you are trusting someone else to keep your investment secure. If you really want to make money on Bitcoin by holding it for the long term, I recommend storing it safely offline.
The Bottom Line: How Does Bitcoin Make Money?
So how does Bitcoin make money? Bitcoin mining has always been the traditional way to make money from Bitcoin. It is the closest thing to getting paid for Bitcoin being your job.
Of course, you can also day-trade Bitcoin or you can actually accept Bitcoin as payment for work which is kind of what Bitcoin was intended to do in the first place!
No matter if or how you decided to make money from Bitcoin, make sure you protect it by storing it in a safe place!