Crypto dividends may not look exactly as the dividends we have known. In fact, they are evidence of a continual state of metamorphosis seen in financial markets today. With a brand new asset class and with increasing amounts of ways to earn with crypto, what we’ve come to understand as ‘dividends’ is giving way to new and exciting ways to earn money. Learn what traditional dividends are all about, how crypto is changing that meaning, and how people can involve themselves in crypto dividends programs.
‘Dividends’, by definition, are the distribution of a reward from part of a company’s earnings. The payment is typically for a division of its shareholders. While the task of managing dividends is given to the company’s board of directors, the board needs the approval of the shareholders by way of their voting rights. What this means is that the shareholders have the right to vote on an array of matters, including:
- Corporate policy, which pertains to decisions on the structure of the board of directors
- Distributing securities
- Commencing corporate actions
- Carrying out ample revisions concerning the corporation’s procedures
The release of dividends can be accomplished in a variety of ways. They can be as cash payments, stock shares, or any other property. Regardless of the options, cash dividends have a tendency to be the most common. In addition to companies, others who pay dividends include numerous mutual funds and exchange-traded funds (ETF).
So, how can one go about earning dividends? What methods are used and furthermore, what are some of the more prominent dividend paying cryptocurrencies? This article will go into detail about these particular topics.
Before we move forward, let’s take a closer look at what dividends are. Specifically, the essential factors that make them what they are.
The standard dividend is a token reward that shareholders receive as payment for their investment in a company’s equity. Often times, it will originate from the net profits of the company. A majority of the profits reside within the company as earnings that are held on to. This represents the money for the company to use for both current and future business activities. The remainder, however, can be assigned to the shareholders as a dividend.
From time to time, companies may conduct dividend payments despite not making any satisfactory profits. They may do so as a way to preserve their set track record of executing consistent dividend payments.
The board of directors has the ability to decide on issuing dividends over various time frames. Not only that but also with payout rates that differ greatly from each other. The payments of dividends can be set to a scheduled frequency; this means it can be done either monthly, quarterly or annually.
There are four important dates when it comes to dividends:
- Announcement date – The announcement of dividends by company management.
- Ex-dividend date – The date of the dividend’s eligibility expiration, which is alternatively ‘the ex-dividend date’ or simply ‘the ex-date.’
- Record date – The company’s cut-off date, determining which shareholders are acceptable enough to receive a dividend or distribution.
- Payment date – The date in which the issue of the dividend payment commences and when the money is credited to investors’ accounts.
Sometimes traditional savings accounts are interest-bearing, like at your regular bank. At a credit union, because the share you ‘staked’ to open your savings account represents ownership, the interest you receive on that savings account may be referred to as dividends. As we see with cryptocurrency, there’s a similar crossover.
When it comes to maximizing returns, specifically on crypto portfolios, mining comes to mind. While this is not in the traditional sense of earning dividends, mining does show some resemblances. Miners are investing in a particular cryptocurrency with the expectation of regular returns. For instance, once ASIC mining rigs are purchased and set up, the software is designed to do the work while the miner earns incremental, steady amounts of cryptocurrency.
However, the hardware and rigs for crypto mining can be very costly, as is the electricity necessary to run them. On top of that, they require an appropriate amount of skills in coding and electronics in order to operate the mining activity.
During the bear market, many miners went through bankruptcy due to the drop in prices of crypto assets. A bulk of them ended up running their operations at an alarming loss. They had no choice but to acquire coins and wait for any future profitable times. So while mining can mimic dividends, the volatility and the newness of the markets play a large role in the dollar value of the dividends.
On the opposite end of the spectrum, crypto trading typically requires a substantial amount of time. So while not as passive as mining, and not dividends in the strictest sense, the expectation is still steady earnings to enhance a portfolio.
Additionally, a person would need a risk-friendly amount of capital to contribute and trading experience to garner adequate profits. Alternatively, they may turn to social trading platforms like HedgeTrade. Here they can copy trades of the pros with reduced risk. But traders must also deal with the non-stop (operating 24/7) stresses associated with the ups and downs of the fickle crypto market.
Obviously, you as a trader would like to experience as little anguish as possible. To do this, and actively lessen the amount of time you spend monitoring your coins, you need the right tools. Such as one that will handle your orders and properly carry out your trading strategy in an autonomous fashion. Something crucial to note, though, is that many of these ‘trading bots’ tend to be difficult to set up. This is especially the case if you lack the coding skills that are a fundamental requirement.
There is a third method that’s actually quite prevalent in the cryptocurrency community. This is called ‘HODLing.’ You can learn a bit more about this approach in one of my past articles, “What is a Crypto Airdrop?” For the sake of providing efficient context, let’s quickly go over it before we continue onward.
HODL is a term whose origin dates back to 2013 on a Bitcoin forum. It’s a recurring slang within the cryptocurrency community that essentially means holding onto the cryptocurrency for an unspecified amount of time instead of selling it. The story behind its creation is that a member – who was supposedly inebriated – wrote, “I AM HODLING” on the forum. It originally was nothing more than a typo, but over time the acronym for “Hold on for dear life” took root.
Ever since that posting, the term has become increasingly popular. Not just in the Bitcoin community, but in the cryptocurrency world as a whole. It is useful primarily in situations where an individual says in a conversation that they are ‘hodling’ their coin. What they mean is that they believe that their coin will be profitable someday, if not later that day. To HODL represents another unusual way for crypto folks to potentially earn returns on their investment.
In 2017, Quartz put it on their list of essential slang terms existing in Bitcoin culture. They loosely describe it as a stance of sorts:
“To stay invested in Bitcoin and not to capitulate in the face of plunging prices.”
Overall, HODLing is a more reactionary way of gaining exposure to a new asset class. As a bonus, there is no serious requirement for any specific skills and doesn’t need daily fund management. Thus, the investor has a high level of freedom regarding how much capital they go on to invest.
Passive income is basically earnings that derive from rental property or a partnership of a certain time limit. Alternatively, it can come from another company in which there is no active involvement from an individual. In a similar vein to its counterpart, active income, passive income is often taxable. However, it usually receives different treatment from the Internal Revenue Service (IRS). According to some analysts, ‘portfolio income’ is passive income, so dividends and interest are passive as well.
Can you obtain additional passive income from cryptocurrencies that are inside your wallet? Well, this concept shares similarities with commonplace strategies in more conventional financial markets. They draw from simply holding stocks that pay dividends or purchasing a bond periodically paying ‘fixed interest.’
If you want to compare the various types of passive instruments with the pros and cons, they would be straightforward. Some will have a higher potential for returns, but there will also be a much higher risk. Either way, they represent one of the industry’s foremost ways to earn crypto dividends.
Proof of Stake
By far the most common way to earn a passive return from your holdings is with the ‘Proof-of-Stake’ (PoS) protocol. I have discussed this algorithm in the past in such articles as “How Staking Coins works.”
PoS is a system that states that a person can mine or verify block transactions according to the coin amount they are holding in a designated crypto wallet. What this means is that the more crypto that a miner owns, the more mining power they possess. This protocol was basically created in order to be an alternative to ‘Proof-of-Work’ (PoW) which involves the ASIC rigs and electricity as discussed above. Not only that, PoW aims to tackle issues pertaining to that algorithm and, by extension, Bitcoin as a whole.
One of these issues is a computation power concern regarding the amount of mining power that cryptographic calculations will need. It’s arguably one of the biggest shortcomings when it comes to Bitcoin and its PoW algorithm. PoS wants to solve this by crediting mining power to the portion of coins in the miner’s possession. Instead of using energy to answer PoW puzzles, a PoS miner is mines a percentage of transactions. These transactions are indicative of what their ownership stake is.
The conventional method of mining consists of the performance of a mathematical calculation. To elaborate, solving it and acquiring the results before the other participants. This procedure needs the utmost investment in mining rigs and hardware alike.
Conversely, the PoS blockchain algorithm chooses network members to “mine” blocks at random. The odds of an election grow proportionally with the number of owned and staked coins. You don’t need any particular competencies to stake a PoS cryptocurrency and you only need minimal investment on some occasions. All in all, the return you receive will be comparative to the capital.
From here, let’s go over some of the most reliable and stable PoS cryptocurrencies. Each of the coins allows users to stake that specific coin to earn what might be called crypto dividends.
1 – PIVX (PIVX)
This is a private PoS coin that has a revised version of the “Zerocoin Protocol.” This protocol allows for the execution of anonymous transactions. For the larger stakes, there’s an alternative of running a masternode for a return that is considerably higher. Often times, you will need a much more critical stake in order to properly run a masternode. However, you are still able to join one of a number of staking pools that are available to obtain better returns in the form of crypto dividends.
2 – LISK (LSK)
3 – Decred
This is a cryptocurrency that is completely autonomous. Its core strengths come from its decentralized administration. Its consensus algorithm is a fusion of PoS and PoW. In accordance with varying incentive models, Decred splits the block rewards between PoW miners, stakeholders and the Decred Treasury, which funds the project. It corresponds to a block reward divided into the following:
- 60% for the PoW miners
- 30% for the PoS voters
- 10% for the Decred Treasury
If you want to stake Decred and acquire crypto dividends in the form of passive income, you will have to store them in a supported wallet. Further details on wallets and earning crypto dividends with Decred can be found on their website.
Here are some additional approaches that consist of notable enhancements to the way we view crypto dividends.
1 – Waves (WAVES)
This is a token platform protocol that gets its power from blockchain technology. Its root algorithm is WAVES-NG, which is a dependable and stable piece of technology that possesses high-speed. The company primarily focuses on the development of one of the best decentralized exchanges. Moreover, it provides a gateway for users to other cryptocurrencies like Bitcoin, Ethereum, Monero, and Zcash.
The WAVES platform allow other companies to issue their own coins. Each time someone issues a new coin, all other WAVES DEX users receive a small amount of that new cryptocurrency. It automatically hits each person’s WAVES wallet at launch. So by using WAVES DEX, you become eligible for these coin rewards.
2 – NEO (NEO)
This is essentially the “Chinese Ethereum.” It’s a project that’s actively distributing frequent upgrades and adding fresh new protocols. These protocols (NeoX, NeoQS, etc.) aid in greatly expanding any potential applications. The passive return crypto dividend that comes from holding NEO consists of gas distribution. Gas is a separate token that the NEO network uses to pay for the running of smart contracts, as well as their initial deployment.
3 – Crypto.com (MCO)
MCO offers multiple ways to earn dividends through its payments and investment platform. Users can stake MCO on a credit card and earn when they shop using that card:
They also offer a crypto savings account that earns interest:
It’s helpful to remember that with these types of savings accounts, there is no FDIC Insurance as you would have with a traditional account. Also, as of this date, MCO is not servicing US residents.
4 – Masternodes like Stakenet
Running a masternode means to essentially stake coins in addition to running a dedicated server to help the cryptocurrency’s blockchain function. Both staking and running a masternode will enable you to earn a crypto dividend, but masternodes are perhaps the closest crypto gets today to what traditional finance views as dividends.
With staking, you often need to be chosen (or not) to sign a particular transaction. So your earning activity is not as regular as with a masternode. With masternodes, you’re constantly engaged and receiving regular amounts of crypto dividends, the details of which are clearly laid out.
With Stakenet, their masternode program will allow you to earn regular crypto dividends for running a server and staking the minimum requirement. Other masternode programs run similarly with varying minimum stakes and supporting projects adding value to the coin.
How one goes about earning crypto dividends is thoroughly subjective. Deciding on which of the suggestions to employ depends entirely on your preferences and risk tolerance. Are you content with one of the first three PoS cryptocurrencies or would you prefer one of the additional approaches? This decision is up to you and what any further research tells you.
Regardless of what you choose to do, you will find no shortage of options for potentially earning crypto dividends.