Profit solely is attractive. Compound interest is twice as attractive. Read this article to increase your investment profit up to 6 times.
What is compound interest?
There are tons of technical articles and reads on this topic, explaining what compound interest is and how it calculates. We are going to quickly explain this beautiful mathematical phenomenon, which is not rocket science at all.
John owns 1,000 dollars and decides to put his money in a bank. The bank's agreement says they pay 1% per month on deposits. John does not need his money for 2 years. The first year he gets 10$ per month as interest and withdraws it as soon as it is received. At the end of the year, he ends up with 1,000$ plus 120$ as profit, so he has 1,120$ in total (+12% profit). John received the same interest every month because his balance has been 1,000$ constantly.
For the second year John decides to expand his profit by avoiding withdrawal of interest and keeps his interests in his account. Since his balance is increasing each month, he will receive an additional interest. In the first month, he has 1,000$ and receives 10$ as interest. In the second month, his interest calculates for 1,010$ that is 10.1$ (1% more than the regular method). For the third month, he has 1,020.1$ and receives 10.201$. If you follow the calculations above, you will see that his interest is increasing little by little, giving him more profit than before. At the end of the agreement, he finishes the year with 1,126.825$, which is the sum of his initial 1,000$ plus his 126.825$ interest. John has made 6.825$ more interest than that of the first year (~5.7% extra profit).
Now let's raise the numbers and see the results. If the bank's interest was 24% instead of 12 (doubled), John would make 1,268.24$. Check the following table for results in other numbers.
|Monthly Interest Rate||1 year Final Balance (Normally)||1 year Final Balance (Compound)|
|1%||1,120$ (+12%)||1,127$ (+12.7%)|
|2%||1,240$ (+24%)||1,268$ (+26.8%)|
|4%||1,480$ (+40%)||1,601$ (+60.1%)|
|10%||2,200$ (+120%)||3,138$ (+213.8%)|
If the period of investment was longer, take 2 years, the results would change by a large degree. To see such an effect in action, watch the table below.
|Monthly Interest Rate||2 years Final Balance (Normally)||2 years Final Balance (Compound)|
|1%||1,240$ (+24%)||1,270$ (+27%)|
|2%||1,480$ (+48%)||1,608$ (+61%)|
|4%||1,960$ (+96%)||2,563$ (+156%)|
|10%||3,400$ (+240%)||9,850$ (+885%)|
According to the numbers above, doubling the investment period is doubling the outcome normally, but when you are on the compound track the profit is more than doubled.
The following chart shows the effect of duration and interest rate on Compound outcome:
This was a simple example with either low interest rates (like banks) or high artificial rates.
Crypto-currency mining (Bitcoin mining):
Through an investigation on what to invest in, John finds out that Bitcoin mining (and cryptocurrencies in general) is getting popular recently, and that it is usually more profitable than bank deposits. Based on his research, compound interest works better in such situtaions so he decides to invest in Mining Bitcoin.
John does his research and gets familiar with CRY token. CRY is a Cryptocurrency which is backed by Bitcoin Mining and other crypto currency mining, a tokenized mining service that automatically pays the profit to the holders. If he invests his money in this Token in Christmas 2020, and Bitcoin reaches only $20k (and stays 20k, for calculation's simplicity), his profit for one year will be something like the table below given different situations he buys at.
|John's decision||holds for||ends up with|
|buying after ICO, receiving normal airdrops||2 years||3,375$ (+238%)|
|buying at ICO, receiving normal airdrops||2 years||4,050$ (+305%)|
|buying at ICO, receiving CRY as airdrops||2 years||15,648$ (+1,464.8%)|
One can easily calculate their estimated profit in mining.crytech.trade 's online Profit Calculator. Above numbers come from below calculations by the official website:
Mining cryptocurrencies like BitCoin is a profitable act. Compound interest is great. Both at the same time is a Money Printing Machine: Crytech Mining Token.
From the examples above, we conclude that the "interest rate" and "period of investment" have a significant impact on the compound interest.
In simple words, compound interest is "interest on interest".