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