update 19 August 2021

Could Crypto be The Best Retirement Strategy?

Living your best life after retirement doesn’t just happen. It needs proper planning, discipline, and commitment. We are lucky to live in an age where there are so many ways of achieving financial security in retirement. One of the most promising ways is investing in cryptocurrency.

 A cryptocurrency is a form of digital money that is decentralized and based on blockchain technology. A blockchain is a decentralized, open ledger that stores transactions in coded language. In practice, it’s similar to a checkbook that’s spread across thousands of computers all over the world. Transactions are stored in “blocks,” linked to previous bitcoin transactions in a “chain.”

There are two main algorithms currently in use; PoW ( Proof of Work) and PoS (Proof of stake). After the tremendous growth shown by various cryptocurrencies, it is hard to imagine a future without them. Cryptocurrency has risen in acceptance as a legitimate asset by some of the world’s major corporations. Here is why it might be the best retirement strategy.

The Future of Cryptocurrencies

Bitcoin, Ethereum, and some of the earliest cryptocurrencies use this mechanism. It entails computers doing unique mathematical calculations to establish a consensus. Bitcoin is the most valuable cryptocurrency at the moment, with a market capitalization of $1 trillion.

According to JP Morgan, institutional investors perceive Bitcoin as a digital substitute to gold, long regarded as a traditional hedge asset. As a result, inflows into the Grayscale Bitcoin Trust (GBTC) have increased, while gold ETF investment has stayed relatively steady.

This perception of bitcoin has made experts bullish with their predictions, predicting a $100,000 price per Bitcoin in the future. Imagine all the gains you would enjoy as a retiree considering the price is $32,900 at the time of writing.

However, their low potential for scalability has plagued PoW cryptocurrencies. It takes roughly 10 minutes for the network to confirm a transaction after it is received. Furthermore, the Bitcoin blockchain has a transaction rate of roughly seven transactions per second. These transactions are also expensive; they can cost up to $40 per transaction.

Limitations in the proof of work system have led to the development of the proof of stake system.

Crypto Proof-of-Stake System

Proof of stake is similar to the proof of work in that it is used to maintain consensus and make the bitcoin ledger secure, but it requires significantly less effort.

Instead of using specialized mining equipment to calculate a predetermined key, a miner who wants to generate a new block usually takes an amount of the cryptocurrency they wish to mine.

The aim of staking, which is similar to putting a refundable deposit, is to demonstrate that you have a vested interest in the success of whatever cryptocurrency you’re mining. Examples of the most significant proof of stake cryptocurrencies; Cardano, Polkadot, Cosmos, Thorchain, and Algorand

Advantages of Proof of Stake Systems

  • Electricity consumption- unlike PoS, a lot of electricity is used to power proof of work systems. This consumption is not only bad for the environment but also expensive. On the other hand, proof of Stake does not require solving exceedingly complex sums, resulting in significantly cheaper electricity costs for transaction verification.
  • Centralization- anyone can earn a transaction fee in proof of stake systems, unlike in proof of work systems. A few individuals with expensive machinery get to earn all the rewards.
  • 51% attack- A 51 percent attack indicates when a group or a single person gains more than half of the overall mining power. For example, a 51 percent attack against the Verge blockchain (PoW system) occurred recently, allowing hackers to walk away with 35 million XVG tokens. The tokens had a real-world worth of $1.75 million at the time of the attack.

While this can happen in proof of work systems, it cannot happen in proof of stake systems since an individual would need to purchase all the coins in the open market.

Overall Prediction

The principles of supply and demand state that as a good becomes more convenient, demand rises. Since cryptocurrency supply is limited, the price will rise progressively over the next five years to a new equilibrium. 

Payments in cryptocurrency and e-wallet integration to invest in cryptocurrency have been made possible by large payment systems and financial institutions. As a result, as more financial institutions embrace cryptocurrencies as a viable alternative asset, the price will rise. 

There are weak firms and promising companies with excellent fundamentals, just as there are in the financial markets. However, investors need to watch out for specific cryptocurrencies referred to as “meme coins” in the growing crypto industry, suggesting that they are unlikely to be present in the next 2-3 years.

Some may make outrageous profits in the short term, but if no firm decides to use the money, the intrinsic value and utility of the currency will catch up with them. Moreover, there is a likelihood that society will fully migrate to digital currency shortly, thanks to the push for digital currency and decreased reliance on fiat currency.

Digital currencies might pave the way for a cryptocurrency equivalent to fiat currency to become the next trading currency. Although this may not be fulfilled soon, the move to digital currency is a given. Investing in cryptocurrency is, therefore, a sure way of being financially secure in your retirement.

Winding-up

The future of the world’s money is headed towards digital currency. The biggest driver of our world is money; investing in the future manifestation of money is, therefore, a safe retirement investment strategy. However, you must be careful and do your due diligence on any cryptocurrency before investing.

The Proof of Stake mechanism is the future of blockchain technology. It’s making cryptocurrencies more appealing and providing more utility options for businesses and organizations. Many firms consider using an immutable and decentralized data entry system to provide a secure means to keep the information accurate. 

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Evidence shows that cryptocurrency will continue to grow in the short term and the long term. However, this growth should not lead to blind investing; like all retirement strategies, ask for help from qualified experts when deciding when and where to invest.