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  1. 1. What are these cryptocurrencies?
  2. 2. Bitcoin - the story of a technological revolution
  3. 3. Satoshi Nakamoto, who is the creator of Bitcoin?
  4. 4. Vitaly Buterin – the creator of Ethereum
  5. 5. What is Blockchain, and how does it work?
  6. 6. What is an NFT token?
  7. 7. What is money?
  8. 8. Cryptocurrencies vs fiat money, which will win?
  9. 9. What is DeFi (Decentralized Finance)?
  10. 10. DeFi: opportunities, advantages and disadvantages of decentralized finance
  11. 11. What is an altcoin?
  12. 12. Stablecoins - What are they?
  13. 13. Cryptocurrency wallet - what is it?
  14. 14. Why do we talk about bull and bear markets?
  15. 15. Security in the crypto market - what rules are worth following?
  16. 16. What is the seed phrase in cryptocurrencies?
  17. 17. Dogecoin and memecoin - what are they?
  18. 18. What is a Ponzi scheme?
  19. 19. What is a Soft and Hard Fork?
  20. 20. Blockchain - examples of use
  21. 21. Is blockchain safe?
  22. 22. Smart Contracts - what are they?
  23. 23. What is Ethereum? 
  24. 24. Liquidity in the cryptocurrency market
  25. 25. What is cryptocurrency mining?
  26. 26. What is the mining difficulty?
  27. 27. Inflation and its effects on financial markets
  28. 28. What is compound interest, and how does it work?
  29. 29. Cryptocurrency wallet diversification
  30. 30. Blockchain and NFT games - how to make money on them?
  31. 31. Decentralized Apps – what are they?
  32. 32. What is Proof of Work (PoW) and what is Proof of Stake (PoS)?
  33. 33. What is Proof of Burn (PoB)?
  34. 34. What is the Proof of Authority (PoA) consensus mechanism?
  35. 35. What Are Privacy Coins and Are They Legal?
  36. 36. What is CBDC - central bank digital money?
  37. 37. What is Cryptocurrency Airdrop all about?
  38. 38. What are the types of blockchain networks?
  39. 39. Key differences between ICO, IEO and STO
  40. 40. What is IoT - the Internet of Things?
  41. 41. What is the difference between Circulating Supply and Total Supply?
  42. 42. Everything you need to know about gas fees in Ethereum!
  43. 43. The most important cryptocurrency acronyms/slang you need to know!
  44. 44. Halving Bitcoin - what is it, and how does it affect the price?
  45. 45. What is the Fear and Greed index for cryptocurrencies?
  46. 46. APR versus APY: what is the difference?
  47. 47. Snapshot from the world of cryptocurrencies - what is it?
  48. 48. Know your customer (KYC) and Anti-money laundering (AML) what are they in the cryptocurrency industry?
  49. 49. What is a whitepaper? What is its purpose, and how do you write it?
  50. 50. How do you transfer cryptocurrencies?
  51. 51. What is EURT? How does it work?
  52. 52. What is an Initial Farming Offer (IFO)?
  53. 53. What is Regenerative Finance (ReFi)?
  54. 54. Bitcoin Pizza Day
  55. 55. What Is Stagflation and Why Does It Have a Negative Impact on the Market?
  56. 56. What are decentralized DAO organizations, and how do they work? What are DAO tokens?
  57. 57. CyberPunks - the story of the most popular NFT collection in the crypto industry!
  58. 58. Michael Saylor, Self-Proclaimed Bitcoin Maximalist
  59. 59. AI blockchain - a new look into the future?
  60. 60. The Bored Ape Yacht Club (BAYC) - the story of the popular NFT collection!
  61. 61. Who is Changpeng Zhao, CEO of Binance?
  62. 62. What is blockchain network congestion, and how does it work?
  63. 63. Azuki NFT collection guide: everything you need to know about it!
  64. 64. Who Is Craig Wright, the Alleged Creator of Bitcoin?
  65. 65. What Is Bitcoin (BTC.D) Dominance?
  66. 66. What is WorldCoin? Everything you need to know about this cryptocurrency!
  67. 67. Who is Brian Armstrong - CEO of Coinbase?
  68. 68. The 10 most expensive non-fungible tokens (NFTs) ever!
  69. 69. Web3's most popular social media platforms! Will they replace the platforms we know?
  70. 70. Cryptocurrency wallets: Hot Wallet vs. Cold Wallet - key differences!
  71. 71. Gavin Wood: Blockchain Visionary and Co-Founder of Ethereum
  72. 72. The memecoin story: madness or great investment?
  73. 73. Blockchain versus databases: key differences!
  74. 74. NFT Art: The digital art revolution - history and examples!
  75. 75. Who is Galy Gensler and the SEC? How does the Securities and Exchange Commission (SEC) affect the cryptocurrency market?
  76. 76. On-chain analysis in the cryptocurrency world: Everything you need to know about It
  77. 77. What are utility tokens and what use do they have in the cryptocurrency sector?
  78. 78. Can you pass on your cryptocurrencies after death? How do you pass on a cryptocurrency inheritance?
Lesson 46 of 78
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46. APR versus APY: what is the difference?

Annual percentage rate (APR) and annual percentage yield (APY) are important terms used in calculating interest on cryptocurrency investments or loans. Such investments may include staking, providing funds for liquidity pools, cryptocurrency accounts and more.

While some of these investments calculate interest based on APR, others use the APY method to calculate your interest payment. Consequently, every cryptocurrency investor needs to know the difference between the two terms. You may ask – why? To collect as much interest as possible and earn as much as possible!

Annual percentage rate (APR) – what is it, and how do you calculate it?

Everyone has certainly heard of the annual percentage rate. It is paid when using savings accounts or charged by traditional banks for loans. Talking about traditional finance: If the annual interest rate is 5%, then if we invest 100 PLN, we will get exactly 5 PLN profit after one year of saving. For a loan at the same interest rate we have to pay back 105 PLN to the bank.

In cryptocurrency, we calculate APR in the same way. The APR in cryptocurrencies refers to the simplest interest applied to the principal amount of an investment or loan. If you have held an investment or loan for less than a year, interest is calculated in proportion to the time you have held the investment. For example, a six-month investment at 5% will give you exactly half that, a return of 2.5% on the principal.

So how do you calculate the APR (APR)?

Use a simple formula: A=[P x (1 + R x T)] where:

A indicates the total final amount. P, is the initial capital. R – the rate of interest,

T – as the term in physics – the time.

You can understand this better with an example. We invest 2.0 Ether in the DeFi liquidity pool. The APR is 25%. We close our investment for exactly one year, i.e. 365 days. We put our data into the formula:

2.0 Ether (1 + 0.25 x 1)= 2.25 Ether. This is how much your annual interest will be.

You can understand this better with an example. We invest 2.0 Ether in the DeFi liquidity pool. The APR is 25%. We close our investment for exactly one year, i.e. 365 days. We put our data into the formula:

  1. Ether (1 + 0.25 x 1)= 2.25 Ether. This is how much your annual interest will be.

Annual percentage yield (APY) – definition and calculation methods

APY, or annual percentage yield. This is the interest on an investment or loan, with the difference that it is compound or compound interest. Interest is compounded over any period of time – annually, weekly, monthly or daily. That alone should give you pause for thought – calculating APY is more complex. Here we have to consider the number of periods in which this amount is adjusted based on the interest rate.

How do you calculate the APY

As always – use the equation: A= [P (1 + R/N)N]

Where A is the total final amount. The letter P is the initial capital of the investment or loan. R is the interest rate we use and N is the number of compound interest periods.  

And it is the N that is a crucial part of the formula for us. N distinguishes the APY from the APR. N is the number of periods or ‘number of times’ the investment amount is recalculated based on the nominal interest rate given.

Interest is added to the original investment amount at each of these recalculations. Accrued interest income must be added.

Example. We invest 1.0 Ether for one year. The APY rate is 24%. The investment has two payback periods – 6 and 12 months. The data is based on the following formula: [1.0 Ether x (1 + 0.24/2)2] = 1.2544 Ether. This is the amount of interest on your investment.

Differences between APR and APY

The only significant difference in the calculation of APR and APY is the compounding periods. For everything else – the investment, the interest rate or the investment period – it is the APY that will result in a higher final amount. What does this mean in practice? If you are lending money to someone, it is better to calculate the interest based on APR. If, on the other hand, you are the investor, the APY will give you a higher total return.

APR and APY are very common in DeFi protocols, centralized exchanges and cryptocurrency platforms in finance. Remember that compound interest can do wonders for cryptocurrency investments.

Summary

The investment and lending opportunities in the cryptocurrency industry are endless. Due to the nature of the cryptocurrency market, APRs and APYs are sometimes higher than in traditional financial markets. Therefore, the return opportunities are much higher, but also involve more risk.

However, before you decide to invest or borrow at these rates, make sure you know how they work.