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Can bitcoin be used as a viable savings technology to save your money? How does it compare to other traditional savings methods like bonds or savings accounts? I took a year to learn and the results might surprise you.
Introduction
As a child I remember getting a blue branded savings box. Guess you could have called it a piggy bank even though it was rectangular. It had a slot for putting coins and notes inside. I’m sure most people can relate to this. We were taught to save our money for a rainy day. Unfortunately, that idyllic notion is gone. Just saving your money does not preserve it from losing its value through a hidden thief called inflation. When new money is injected into the system, it dilutes the value of the money in your pocket. Do you need a new saving technology? Maybe bitcoin could be the answer.
In this post, I will explore how bitcoin can be used to store the efforts of your time and energy and how bitcoin is the ultimate savings technology.
Bitcoin was introduced in 2008 as a peer-to-peer electronic cash system. What this means is that people can exchange value directly without a bank being involved. This is like trading or bartering, except the trade is virtual and the good is a digital asset. Over time, bitcoin has proven to preserve its value very well compared to other traditional currencies.
Understanding Bitcoin as a Savings Technology
What is Bitcoin?
Bitcoin is a decentralized digital currency. That means that there is no single person or organisation that controls it. It has been adopted as money by people voluntarily and not through governments deciding that it should be used as money.
Traditional Savings vs. Bitcoin
Traditional savings methods like bank accounts and bonds are often a safer way to save than Bitcoin. Bitcoin’s price can fluctuate wildly whilst traditional savings methods have a predictable interest rate or yield. The drawback is that these investments do not beat inflation in real terms. Money in a savings account is highly liquid, meaning you can easily access your money when needed. Savings also has simpler taxation rules whereas bitcoin taxation is more complex.
People often talk about the prices of goods and services going up and everything becoming more and more expensive. In reality, it’s the value of money going down. This is the reality of inflation – a hidden tax on your savings.
Bitcoin has many advantages to traditional forms of money, such as its limited supply and global accessibility. There will only ever be 21 million bitcoin created. The bitcoin network is globally accessible and available any time of day, unlike traditional banks that have banking holidays and are closed on Sundays and public holidays.
The Experiment
The goal of this experiment was to test bitcoin’s viability as a savings tool over a year. This is how the experiment was conducted:
The initial investment amount was 1 million satoshis (0.00100000 BTC) or R5576 converted to Rand at the time. No other savings or contributions were added during the experiment.
The funds were won as a prize from the Wallet of Satoshi app. Competition winnings in South Africa are not taxed so there are no tax implications for this experiment.
The scenarios and criteria for spending funds.
Anything that can be paid for using bitcoin over the period of a year. The Rand value of the spending amount will be locked in at the time of spending.
The funds were all stored in a bitcoin wallet app called Wallet of Satoshi (WoS) and spent directly with merchants and individuals accepting bitcoin.
There were some challenges to consider before the experiment. Bitcoin can be very volatile over a short period of time. The one-year time period was chosen because it would allow us to ride out day-to-day volatility and assume that the price of bitcoin would increase over time. The other concern was transaction fees and speed. The Lightning Network is a second layer over bitcoin which enables very low fees and almost instant settlement. Most merchants or wallets accept this protocol for small payments.
Results and Observations
Data Presentation
Here are the figures and data collected over the year.
| Date | Type | Amount (BTC) | Fees | Description | Amount |
|---|---|---|---|---|---|
| 23-Jun-24 | Lightning | 0.00297166 | 0.00000149 | Pick ‘n Pay | R3504.29 |
| 01-Jun-24 | Lightning | 0.00059312 | 0.00000002 | Pick ‘n Pay | R756.25 |
| 01-Jun-24 | Lightning | 0.0003935 | 0.00000000 | Another user | R490.00 |
| 20-May-24 | Lightning | 0.00066132 | 0.00000034 | Pick ‘n Pay | R819.25 |
| 15-May-24 | Lightning | 0.00021094 | 0.00000000 | Another user | R245.00 |
| 15-May-24 | Lightning | 0.00003332 | 0.00000000 | Another user | R37.00 |
| 15-May-24 | Lightning | 0.00015255 | 0.00000000 | Paid to Chef’s Emporium | R172.00 |
| 14-May-24 | Lightning | 0.00147739 | 0.00000075 | Pick ‘n Pay | R1702.99 |
| 23-Apr-24 | Lightning | 0.00035688 | 0.00000002 | Pick ‘n Pay | R458.70 |
| 23-Apr-24 | Lightning | 0.00000078 | 0.00000001 | CryptoQR Wallet Link Test | R0.98 |
| 07-Sep-23 | Lightning | 0.00002024 | 0.00000000 | Bitrefill | R10.00 |
| 06-Aug-23 | Lightning | 0.00100843 | 0.00000000 | Pick ‘n Pay | R495.00 |
| 21-Jul-2023 | On-chain | 0.00094 | 0.0001147 | Another user | R515.00 |
| 10-Jul-2023 | Lightning | 0.001042 | 0.0000001 | Another user | R576.00 |
Total amount spent: 0.00986213 BTC
Total fees: 0.00011743 BTC
Total Rand value: R 9,782.46.
Analysis of Results:
From the initial R 5,576.00 the overall growth of the spending value grew to R9,782.46 which means a 75% increase in spending power.
The funds were mostly spent at Pick ‘n Pay to buy groceries. Bitcoin was also sent to individuals and vendors, for instance on 15 May 2024, I spent bitcoin at the Bahia Bleu Restaurant at Mossel Bay, at a spaza shop in the township and bought a cap at the Bitcoin Ekasi Headquarters. This is South Africa’s first bitcoin circular economy where people get paid and pay others in bitcoin. Of course, you can still use Rands but the preferred currency is bitcoin.
Another notable transaction was from Bitrefill to buy prepaid airtime. The service allows people to pay in bitcoin and then redeem a voucher code online or in-store. The merchant does not accept the bitcoin directly but receives Rands instead. This is a way to spend bitcoin where companies do not directly accept bitcoin.
The fees for sending bitcoin were generally very low. On 21 July 2023, I sent another person some bitcoin and the transaction fee was higher as it was done on the blockchain. The overall average fee was about R15 considering that this transaction pushed up the average. If we leave this transaction out of the equation, the average transaction cost was only R0.55.
Comparing our bitcoin results with traditional savings technology methods leads to some interesting observations. When investing in government bonds, the closest option is a 2 year fixed rate bond with a yield of 8.5%.
When looking at traditional savings accounts with the best interest rate, it’s tie between African Bank and TymeBank. They both beat the competition, offering an interest rate of between 9- and 10% per year.
There was a significant event that influenced the result. In April 2024, there was a lot of interest in bitcoin due to an event called the Halving. However, we did not see all-time highs in the price until the end of 2024 in the run-up to the US elections so this did not have a significant impact on this price experiment.
Pros and Cons of Bitcoin as a Savings Tool
Pros
Bitcoin has the potential for much higher returns. It is a hedge against inflation in the sense that it is a deflationary currency and will hold its value better than saving in Rands. I also found that bitcoin was very accessible. It is easy to send funds even on Sundays and public holidays when traditional banks are closed.
Cons
Bitcoin can be very volatile and investing in the short term can see you losing money. If you need to pay bills and need cash flow in Rands, there is some risk. Never invest money you can’t afford to lose.
There are also security concerns. Storing bitcoin means taking personal responsibility for your money. A lot of people have lost money due to hacks or falling for scams.
There is some regulatory uncertainty with regards to bitcoin currently, but this is becoming less and less over time. It seems that bitcoin is most immune to regulatory changes and much of its growth is organic and driven by real world adoption. Some countries have also tried to ban bitcoin but because of its decentralised nature this is impossible to enforce.
Personal Experience
The experiment was an eye-opener. Without investing or gambling on traditional stock markets, I was able to preserve the value of my money more than any traditional savings investment.
The friction of finding a merchant that accepts bitcoin meant that I had to be selective and think twice before spending the funds on anything frivolous. There is no debt in bitcoin so I cannot overspend the funds that I owe or have a credit or overdraft facility. Bitcoin encourages saving and avoids debt. Some companies do provide bitcoin-backed loans to people where you can use your bitcoin to secure a loan to pay off debt instead of selling your asset.
There is not much of a learning curve as even for newbies it has become very easy to save and spend in bitcoin.
Practical Tips for Using Bitcoin as a Savings Technology
Best Practices
Anyone can save into bitcoin. I would say, saving in bitcoin would make a great emergency fund. When needed, one can tap into these funds and spend the bitcoin directly or cash it out into Rands. The barrier to entry is very low. Just remember to keep some Rands for the bills your need to pay.
For day-to-day spending, a good software wallet like Blink Wallet or Wallet of Satoshi is more than fine. If you really want to enforce your saving, use a hardware wallet that keeps the funds completely offline in cold storage.
It is always a good idea to stay informed about market and regulatory changes that will affect bitcoin.
Long-Term Considerations
Bitcoin teaches long-term thinking. Instead of frivolous spending, it creates a low-time preference where one thinks about the future instead of spending now. Looking at the trend of the Rand, it will only devalue further against other major world currencies. Bitcoin levels the playing field so that everyone can save into a sound money that does not devalue.
Conclusion
Summary of Findings
The key takeaway from this experiment is that bitcoin is a viable savings technology. The amount of bitcoin grew 75% in spending value during the experiment. This gave a much better return than investing in bonds or a traditional savings account. Saving in bitcoin encourages saving over spending and makes the saver think twice about what their money is spent on.
Future Outlook
The future of Bitcoin as a savings technology looks bright. With countries such as El Salvador adopting a bitcoin strategic reserve, and even NASDAQ listed companies such as Microstrategy (MSTR) saving their cash reserves in bitcoin, there is no reason not to save into bitcoin.
Remember to consider your own financial goals and risk tolerance before exploring bitcoin or other cryptocurrencies for savings.
