## time value of money, explained

Time value of money (TVM) is the concept that money available today is worth more than the same amount of money in the future. Inflation gradually weakens the purchasing power of money, but its value can rise over time through investment and interest earned.

The time value of money is an essential concept in finance and investment. Used to determine the present value of future cash flows, such as investment returns and loan repayments, based on interest rates and associated time periods.

**Related: What is Opportunity Cost?Definition and example**

Several financial calculations can be used to display TVM, such as future value, present value, and annuities. Understanding the time value of money is critical in making well-informed financial decisions, such as comparing investment options, determining loan terms, and planning for retirement.

Cryptocurrencies tell us about the time value of money thanks to how often funds are tied up in bankruptcy proceedings

— Juthica (@juthica) January 6, 2023

There are two types of annuities: regular annuities and annuities. In a regular annuity, cash flow occurs at the end of each period. In an annuity, cash flow occurs at the beginning of each period.

## Does the concept of time value of money apply to crypto?

The concept of time value of money can also be applied to the world of cryptocurrencies. In fact, it is an important principle to consider when assessing the potential profitability of investing in cryptocurrencies.

### Crypto lending platform

The use of crypto lending platforms is one way the time value of money principle is applied in the cryptocurrency world. These services allow users to earn interest on their investments by lending their cryptocurrencies to other users.

The supply and demand of cryptocurrencies, the loan duration, and the risks involved with borrowers are just a few of the variables that affect the interest rates users can receive on their cryptocurrency investments. Due to the time value of money, the interest rate an investor can earn from an investment increases with the length of the loan term.

### staking

Another application of the time value of money concept in cryptocurrencies is through the use of staking. Staking requires a certain amount of cryptocurrency to be locked onto the blockchain in order for the network to benefit and sustain itself. Staking incentives are usually determined by the length of time users lock their cryptocurrencies. The longer the staking period, the greater the reward due to the time value of money.

You may be 99% right, but think others are 1% right. Our delayed gratification gives others time to reach our level.Addition of time is hard to understand for most cryptocurrencies as a visionary genius founder @RichardHeartWin I monetized the time value of money lol pic.twitter.com/idORnzVG9T

— ⬣Hexlena PulseAlot⬣ (@StakeHEX5555) February 26, 2023

### Determining the potential future value of cryptocurrency investments

Additionally, the TVM concept can also be used to assess the potential future value of cryptocurrency investments. The value of cryptocurrencies, like the value of any other investment, can change over time due to a variety of variables, including market supply and demand, changes in legislation, and technological advances.

**Related: How to Trade Cryptocurrencies: A Beginner’s Guide to Buying and Selling Digital Currencies**

The value of an investment depends on how long it takes to reach its full potential, so the time value of money should be considered when estimating the future value of a cryptocurrency investment.