Per a report from the Cambridge Center for Alternative Finance (CCAF), fossil fuels have been the primary energy source for BTC mining since the start of the year. The CCAF recently updated its Cambridge Bitcoin Electricity Consumption Index (CBECI). Its study claims that 62% of all the energy the leading token has consumed so far consists of coal-based energy. BTC’s Energy-Intensive Mining Bitcoin employs the proof-of-work consensus mechanism to create new tokens and validate transactions on the blockchain. The PoW…
Digital assets like Bitcoin, Ethereum, and Cardano are often acclaimed for being highly reliable investment options. Some of these digital assets have shown massive potential by creating high profits for investors. Others have exceptional use cases applications that make them even more attractive in the financial world. One such application is personal finance planning.
Personal finance planning focuses on creating financial plans to help better manage their finances. In personal finance planning, a user needs to make budgets for emergency funds, retirement benefits, investments, debts, credit cards, taxes, anything that would help control expenses and savings.
Crypto assets can be of great help when it comes to personal financial planning and management. However, there are also downsides to using crypto when planning personal finance. This guide looks into both the merits and demerits of using digital assets when making individual finance plans.
Merits of Crypto in Personal Finance Planning
Complete Decentralization is Full Financial Control
Using digital assets for your finance management leaves you in actual control over your funds. If you use fiat currency when making your financial plan, your goals and expectations may fall short. That’s because banks, the government, or other service providers may enter the equation and have a significant impact.
However, crypto fosters the decentralization of financial services. Digital assets decentralize every aspect of the financial world from banking, payments, investments, insurance, etc. Therefore, by using digital assets, you can easily control all your finances.
Confidentiality of Your Financial Activities and Plans
The second advantage of securing your money using digital assets is the confidentiality or privacy of digital assets. Privacy is one of the most critical factors in the financial world. It’s the only thing that makes with you feel safe when transacting. However, it’s impossible to get absolute privacy when dealing with fiat investments and savings.
Digital assets, however, give the sense of utter privacy of the investments. Even though Bitcoin’s goal is to offer transaction transparency, tools like mixers help enhance privacy. Other privacy coins like Zcash, Monero, and many more provide transaction anonymity, thus ensuring financial confidentiality.
Planning your finances using crypto means you will be able to take advantage of the confidentiality in transactions. Your mortgages, bank loans, savings transactions, and retirement plans will all be private when you use digital assets.
Easy Access to Funds Anywhere Anytime
Another reason crypto stands out as a better asset for personal finance planning is its mobility and accessibility. If you put your money in the banks, it’s hard to access them when out of a specific jurisdiction. Moreover, depending on the financial institutions, access has limited hours.
However, crypto is boundless, free from any jurisdiction. Therefore, you can easily use crypto in any country that accepts it as payment. Generally, investing in international trade becomes less hectic when crypto is part of the process.
Therefore, with digital assets, you reduce the work of converting one fiat for another when moving across countries.
Favorable Transaction Charges Thus More Savings
When compared to costs involved in fiat, crypto is relatively more cost-friendly. Fiat transactions often involve long chains of people. More so, they generally include fees for every minimal service, i.e., for processing another fee.
However, crypto eliminates the idea of intermediaries in transactions, therefore ensuring the transaction costs are quite friendly. There are no costs for filing documents or charges for paying other fees.
When using digital assets for personal finance, therefore, you get access to less costly transactions. Thus, the necessary financial processes like insurance, banking, investments can all benefit from lower fees. By cutting on the fee costs, you remain with more to save.
It’s Easier to Access Investment Loans
The primary benefit of using digital assets when planning personal finance is the easy access to loans and credits. It’s normal for people to consider getting loans, especially when planning to invest in some business. Fiat-based institutions like banks often give out loans, but the procedures are usually very long.
Crypto-based lending platforms provide loans that are more easily accessible. The lending rates in crypto platforms are pretty friendly, and the procedures are rather short. Therefore, you can easily access loans for investments or personal use by using digital assets for your finances.
Demerits Associated With Using Crypto for Planning
The Accounting and Taxing Standards Complexity
Disadvantages to putting your funds in crypto exist, too. Firstly, you have to deal with the complexity of accounting and taxing procedures. Generally, holding your funds in crypto requires basic knowledge of taxing and accounting standards in your country.
Are digital assets financial assets, property, or just currency? What tax bracket do they fall in if taxable? Fiat assets and their taxing requirements are very common and easy to understand, unlike crypto tax regulations.
The complexity of accounting and tax requirements makes it harder to use crypto for personal finance management.
International Law Issues
Another issue associated with crypto is international sovereignty issues. Generally, global issues include the legal state of crypto in a country; Are they legal or illegal? The uncertainties surrounding the state of crypto in different countries could make timely access to your funds difficult.
Volatility By Itself is A Risk
The crypto world’s volatility is also a considerable demerit, especially to persons not ready for risks. It’s possible for the funds in crypto to lose half of their value in a month. The case of Bitcoin in 2021 is clear proof of volatility. The coin hit $64k, then later tanked to below $30k in a month. This volatility can effectively lead you to make more losses from your money.
Imagine planning your investments and personal finance using crypto; then, you lose half of your wealth when the crypto prices plunge? Generally, that could lead to a series of poor decisions that will make you completely lose your wealth. Therefore, the volatility of crypto brings complications when planning your finances using digital assets.
Hacking and Security Threats
The most severe issue connected to crypto is insecurity. Hacking and scamming, for instance, are widespread occurrences in the crypto world. Unlike fiat, hacking crypto assets and accounts are easy since the assets are available online. Just a few days ago, hackers were able to steal $600 million in a single attack of Poly DeFi. You can lose the funds you invested in, saved, or borrowed very fast.
Using crypto for personal finance management is a risky business. Imagine losing your entire retirement plan, investment, and savings from a hack attack. Therefore, you need to be cautious when using digital assets for personal financial management. Otherwise, you could expose yourself to more issues.
Final Word on Digital Assets for Personal Finance
Although the primary role of finance currency is personal finance planning, digital assets may prove even more effective. The assets have the attributes of decentralization, confidentiality, and accessibility, thus being easy to control privately. Furthermore, digital assets have lower fees and give more accessible loans than fiat assets.
However, these assets are hazardous, especially regarding market volatility, scams, and hacking. You could lose your entire wealth in a single day. When making financial plans, you need to consider both the drawbacks and upsides of crypto. Currently, the upsides outweigh the downsides.