I remember when I could deposit my money into a savings account at a bank and earn interest. It is a fascinating idea that has always been central to banking.

What happens is that you put your money into the bank for an agreed period of time and the bank uses the money to lend to someone else who needs it. The bank charges the borrower interest for using the money and pays you interest for depositing it. The bank earns its own profit by charging the borrower more than they pay you.

This whole thing is great when it works (worked). Those who had spare money could earn interest (compound interest, of course) simply by leaving it in the bank and those who needed it could use it for a cost.

Unfortunately for that simple model the financial markets have completely changed in recent years. Now interest rates are so low that putting cash into the bank is no longer beneficial. In fact it’s likely to cost you both in terms of lost purchasing power through inflation and through what is euphemistically called negative interest. Negative interest simply means that banks now do (or shortly will) charge you to look after your money, while still using it to earn interest.

Please note that this is a very simplified model of the way banking works and the recent changes. I simply want to demonstrate the point that the nature of money is changing.

Now it is possible to deposit your cryptocurrency and earn interest on it. At the moment I am earning around 7% pa on my deposited bitcoin while also gaining the benefit of not being affected by inflation. I am not addressing the fluctuations on the value of Bitcoin, though I expect that to be an added bonus.

For those who want to borrow, they can deposit Bitcoin and borrow the equivalent the currency of their choice. This deposit requirement means that debt defaults can’t happen as the Bitcoin can be simply used to replace the loaned amount.

I am still experimenting with this aspect of Bitcoin and have deliberately avoided the more risky ways of earning much higher interest.

Overall, I feel comfortable with this model as I can both HODL my bitcoin and earn interest on my savings. I also have instant access to my capital. I will say more as I learn more…..