How to save with crypto

How to Save With Crypto

There are two major use cases of cryptocurrency: It either serves as a means of payment or a store of value. The common use case for people is to use cryptocurrencies as a form of payment. This makes a lot of sense owing to the many benefits of digital currency such as a higher level of security, anonymity, cheaper and reduced transaction fees among other things. However, you can also use cryptocurrency as a means of savings.

What does saving with cryptocurrencies mean?

One of the remarkable things about cryptocurrencies is that they are powered by relatively recent technology - the blockchain. Because of that, a lot of people are yet to hear about it or experience the utility of cryptocurrencies. But every day, the global adoption rate of cryptocurrencies keeps increasing so that other than the inherent advantage of cryptocurrencies like bitcoin over fiat currencies, the increase in demand is also continuously driving the price up. Also, as institutions begin to adopt bitcoin, the foremost cryptocurrency, for use, its value keeps increasing. 

For instance, on January 1, 2020, 1 BTC was worth just above $7000 but by December 31, 2020, the value of 1 BTC crossed $29,000. So if you had held your $1,000 in bitcoin on January 1, at the end of the year it would be worth about $4,000. This is because, unlike fiat currencies which are subject to inflation, most digital currencies are designed to withstand this. This makes cryptocurrencies a good long-term savings option.

Interestingly, the increase we just saw is merely due to the value of bitcoin increasing. There are, however, crypto savings accounts, just as we have with fiat that allows you to earn a standard return on your cryptocurrency.

Pros and cons of cryptocurrency savings account

With the emergence and growth of DeFi, more crypto services are now being offered that allow people to do more with the cryptocurrencies they hold. People can now get crypto loans as well as save and earn interests. So when people talk about savings in cryptocurrency, it is usually done through a crypto savings account.

However, just like the traditional bank savings accounts, cryptocurrency savings accounts have some advantages and disadvantages:

Pros

  • Better store of value: Just like we’ve said earlier, cryptocurrencies make for a great store of value because they are not subject to inflation and their deflationary design and limited supply for some keep their value increasing over long periods of time. So in comparison to locking your money up in a bank, savings with crypto would be the most ideal alternative.
  • Better yields and interest rates: Cryptocurrency savings accounts offer higher interest rates than traditional banks and institutions. This means you earn more money on your crypto savings than on fiat money in traditional banks.

Cons

  • No Insurance: So here’s the not so great part: when you save money with the bank, they are backed by insurance thanks to the Federal Government. So if somehow the bank loses your money, the insurance has it covered. However, in a crypto savings account, your savings are not backed by insurance, crypto institutions however do take serious measures to ensure that your account is safe.
  • No key ownership: If you are wondering how crypto-based savings accounts can provide you with such great interests, it’s because your crypto is lent out and the borrowers pay interests on your savings for loaning that crypto just like in the banks. The difference however is that for crypto accounts, your crypto keys are lent out to the borrowers who need the crypto for a specific amount of time.
  • No compound interest: While crypto savings accounts offer higher interest rates than traditional savings accounts, the interests do not usually compound. That means you keep earning the same interest even as your initial deposit grows.

How to save with crypto

1. Decide how much crypto you want to save

2. Pick your desired cryptocurrency

This might be the hard part and that’s because there are hundreds of cryptocurrencies to choose from. You want to be as safe as possible so you want to pick the best one but they are so many and there’s just so much information on all of them that it is hard to make a choice and stick to it. 

The most dominant cryptocurrency by market capitalisation right now is bitcoin and it is followed closely by Ethereum. One of the major advantages of these cryptos is that information about them is readily available and you can make informed decisions about saving your money in either bitcoin or ethereum. Information on other altcoins, however, may not be as easily accessible which would mean more in-depth research before you decide to save in that currency.

In addition, crypto savings accounts often offer different interest rates based on the cryptocurrency being saved, so you want to find out which are okay with before committing to save.

3. Choose your platform

Here, it is important to note that there are two ways to save with crypto:

  • The first way is to open a crypto wallet and hold your crypto in it so that over time if the value of the cryptocurrency increases, your crypto asset would be worth more.

  • The second way is to use a crypto savings account which offers you standard returns on your cryptocurrency, however at some costs (e.g. giving up ownership of your keys, as mentioned above)

Therefore, once you’ve decided on how much you want to save and in what cryptocurrency, the next step is to decide if you want to save in a cryptocurrency wallet or a cryptocurrency savings account.

Cryptocurrency savings accounts

The following are notable companies that offer cryptocurrency savings accounts:

  1. Crypto.com
  2. Coinbase
  3. Nexo
  4. BlockFi

Cryptocurrency wallets

The most common storage for crypto is crypto wallets. A crypto wallet is a software program that holds the relevant information that connects you to your digital currency. It contains two keys; public and private keys which give you the ability to send crypto to other people and also gives you ownership over the digital currency in that wallet. There are several types of crypto wallets:

  • Desktop wallets: Desktop wallets are installed on desktop devices and give the user full control and access to their wallet.
  • Mobile wallets: Mobile wallets are almost the same as desktop wallets except that users can also send and receive crypto in a physical store either through “touch-to-pay” or by scanning a QR code. 
  • Web wallets: Web wallets are easily accessible because you can facilitate transactions using a web wallet from anywhere. You can send and receive payments on any browser or mobile phone.
  • Hardware wallets: Hardware wallets are the safest type of crypto wallets and this is because they store digital currencies on a physical device that can only be accessible by plugging it into a computer. They are highly secure and less prone to virus attacks and theft.

At the end of the day, it is always important to consider your savings goals before deciding on how to save your crypto.

Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.