Passive income is earnings that generally do not require much active participation. Traditionally it includes earnings from a rental property, for example. There are multiple ways of generating passive income with crypto, like staking, yield farming or even just holding a rewards token.

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Let's use staking as an example here:

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Some cryptos offer "staking" as an act of passive income: you have to lock the tokens in your account for a period of time so the exchange can adjust the circulating supply of the token. Then, they reward you with more of that crypto for your participation. You are earning income passively, without actively trading.

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There are numerous advantages to developing a method of generating passive income. An individual's wealth-building base can be expanded with passive income, making it easier to retire early. Furthermore, it serves as a backup plan if a person loses their day job and an alternative if a retiree outlives their retirement plan.