What interest rates are and explore the history of interest rates

Today, let’s delve into what interest rates are and explore the history of interest rates.

Interest rate refers to the profit received by the lender in the context of borrowing and lending assets, whether they are cryptocurrencies or fiat currencies. It is the amount paid by the borrower to the lender, usually calculated as a fixed percentage of the borrowed funds, paid at regular intervals. Even in the world of cryptocurrencies, interest rates exist. They can arise from lending activities or farming initiatives. In the realm of blockchain, payment is often made on a per-block basis.

Reasons for the Existence of Interest Rates:

Time Value of Money:

Cryptocurrencies and fiat currencies change in value over time. The value of the same amount of cryptocurrency or fiat currency in your possession now is generally considered higher than the same amount in the future. This is due to the ability to invest or spend money. Borrowers use money borrowed now to expand their businesses or meet necessary expenses, hence the cost of this convenience is the interest.

Balance between Savings and Investment:

Interest rates also serve to encourage investment. During high-interest rate periods, individuals and companies are more likely to deposit their cryptocurrencies or fiat currencies into banks or protocols. Conversely, during low-interest rate periods, borrowing becomes essential to stimulate economic activity. Central banks use interest rate policies to adjust the overall economy. The growing popularity of cryptocurrencies has caused concern among politicians and experts who worry about the potential loss of control over economic activity.

Risk and Inflation Management:

Interest rates also reflect the risk to both the borrower and the lender. If higher risk is anticipated, interest rates tend to be higher. Additionally, during periods of inflation, lenders may demand higher interest rates to protect the real value of future repayments.

History of Interest Rates:

The concept of interest rates has existed for a long time, across different cultures and eras. Interest-bearing lending practices have been observed in ancient Mesopotamia, ancient Greece, Japan, and other places. Interest rates have developed from these historical backgrounds.

In Japan, for example, an interest-bearing lending system called “SUIKO” existed since ancient times. This system involved lending rice and receiving it back with interest during harvest time, making it the origin of Japan’s financial practices. During the Kamakura period and onwards, financial institutions like “KASHIAGE” and “DOSO” emerged, advancing the practice of interest rates.

Interest Rates in the World of Cryptocurrencies:

Platforms like xWIN.Finance collaborate with lending protocols such as Venus Finance and Aura Finance to introduce various interest rate products. Particularly notable is “Dollar Zanmai,” a product that involves setting tokens linked to the dollar and automatically collecting interest from various lending projects.

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