Bank accounts have long been a major option when it comes to savings.
But the financial world is changing rapidly, under the influence of modern technology. Many people have started using digital tools and platforms, and money itself is increasingly digital.
One of the biggest innovations on the market is cryptocurrencies and the blockchain technology on which they are based. Among other things, they have led to the emergence of austerity as an alternative path to financial prosperity.
The intention is to generate significant passive income by keeping currencies long enough. In practice, there are several obstacles, such as volatility, which is innate in almost all cryptocurrencies, and that is why it is best to approach this topic with a healthy dose of caution.
This guide will show you the main features, benefits, and ways to save crypto.
The problem with traditional savings
We know what you mean. The money is safe in the bank and there is no reason to move it. But what about the fact that he often makes no profit?
Namely, if you provide a dinar or foreign currency deposit, the value of that money remains more or less the same over time. This means that this type of savings has almost no positive effect on your purchasing power. The main culprit for this state of affairs is inflation, which “eats” what the interest rate brings.
Of course, the inflation rate is a matter of fiscal policy of the state, on which you do not have much influence. Simply put, traditional money is designed to lose its value gradually. Cryptocurrencies, on the other hand, have a much greater potential to increase revenue.
First, they are completely hedged against inflation and this characteristic of cryptocurrencies is the result of their design and the fact that supply (the number of currencies in circulation) is limited.
Governments may choose to let a bunch of money into the economy, but there is only as much cryptocurrency as blockchain users can mine.
Savings in cryptocurrencies and its advantages
The crypto market is decentralized and operates on the principle of a peer-to-peer network.
This means that there is no central instance that dictates the terms of transactions. Buying or selling currencies is a unique exchange between two actors. You own, not only full ownership of the assets, but also all the privileges of managing them.
Another advantage is that you do not have to prepare a “hill” of paperwork and pay for various banking services. Cryptocurrencies give you a chance to avoid most of the complications, commissions, and other costs that arise when opening regular savings accounts. You may also be pleased that individuals do not have access to your complete financial history.
As a result of all these benefits, many have begun to accept cryptocurrencies as a form of savings instead of pure consumption.
Savings plan as a foundation
When it comes to saving, the key to success is in a smart savings plan.
The basic idea is simple. Find a way that allows you to easily and securely buy cryptocurrencies. How to choose a channel and how to store cryptocurrencies? Exchange offices, stock exchanges? Each channel has its pros and cons, and they depend primarily on your motive for buying and knowledge of cryptocurrencies. One option is to open an account on the appropriate stock exchange, to provide a deposit of a certain amount of cryptocurrency. Another option is a crypto exchange where you can quickly and easily buy cryptocurrencies for your money.
Problems arise in the practical domain — in the execution of this plan. To do this successfully, you need to think more as an investor than as a typical saver or speculator. In other words, your goal is not to get rich quick or keep money with someone else. Keeping cryptocurrencies on the stock exchange is just keeping “money” with someone else. When it comes to savings, and not active trading in cryptocurrencies, stock exchanges do not have to be the optimal solution.
Also, it should be noted that saving in multiple cryptocurrencies is usually a smart move. With this diversification, you practically reduce the risks, which are always higher when you invest all your money in one currency.
One of the newer trends in terms of savings is the fact that parents buy cryptocurrencies for their children. This is a form of saving, but also investing in their future. The main advantage is what we have already pointed out – you can avoid inflationary risk (pressure).
Cryptocurrency selection factors
The first step is to choose the currency in which you want to save.
Bitcoin is an indispensable topic in the world and still one of the most popular cryptocurrencies. Although it has come out with a somewhat bad reputation as a very volatile option, what is not in question is the incredible growth of its value over the years.
In addition to bitcoin, you can consider other established currencies, such as ethereum, litecoin, dash, and bitcoin cash. Despite instability, these currencies have also seen a rise in value over the years. Another encouraging trend is that their value is stabilizing.
Investing in smaller cryptocurrencies may be cheaper, but the basic problem is unprofitability in the long run. Simply, they are subject to large variations in prices, and can suddenly disappear from the scene. Therefore, they usually do not enjoy the trust of investors and savers.
True, the risk is always there, and it deters many investors and savers from cryptocurrencies. This market really cannot be compared to a securities market that is far more stable. What you need to understand is that this instability is only one side of the coin.
The other side is big profits.
In principle, cryptocurrencies are worth considering, in the case of long-term savings.
They are not subject to inflationary pressures and gain in value as time passes. In contrast, bank accounts are very slow or no means of saving, primarily due to low interest rates and inflation.
There are definitely risks, so you have to be willing to accept them. Make a savings plan, determine the amount you will save, and set realistic goals. Carefully choose the currency in which to save and diversify your strategy as much as possible.
For starters, don’t translate all your savings into cryptocurrencies. You do not want your financial health to depend solely on cryptocurrencies. Always invest with caution.