With the world embracing new forms of technology, Cryptocurrency is a new way of using your money. They have become a popular form of investing in the market with companies such as Bitcoin and Ethereum leading the way. Hence, if you’re looking to use Cryptocurrency when investing, here is everything you need to know:
What is Cryptocurrency:
Cryptocurrency is a form of digital/virtual currency that is used as a medium of exchange. Cryptocurrencies enable secure and verified transactions. It helps to prevent counterfeits and double-spending. It also controls the making particular types of cryptocurrencies.
Cryptocurrencies are based on decentralized units using Blockchain technology. This eventually prevents government interference or manipulation. Virtual “Tokens” are used for transactions and are displayed by ledger entries in the system. Public and private keys facilitate these transfers. Public keys are featured in a person’s account address while private keys are known only by the owner and will be used when signing transactions.
How does it work:
Despite the rising popularity of Cryptocurrency, there have been issues over its legality. The reason for this is that countries are trying to understand the concepts of cryptocurrency and where it fits with their regulations. Therefore, some countries have banned Bitcoin. While others have no regulations over it. As of 2017, countries such as Bangladesh, Bolivia, Ecuador, and Vietnam have made Bitcoin illegal with Russia and China considered joining the list.
Risks involved:
There have been concerns about the decentralized nature of cryptocurrency in which people can use them anonymously. These can be used as a means to participate in illegal activities such as tax evasion and money laundering.
In the past 10 years of Bitcoin’s history, there have been reports of hacking and theft in multiple online exchanges. One example is the exchanges in Mt. Gox, the Bitcoin exchange company filed for bankruptcy in 2014 after losing 744,000 user Bitcoins and faced technological problems.
Although they can be used as a method of payment, buying goods, and mining, it is popular for investing. There have been stories of people becoming millionaires by investing in cryptocurrencies.
That being said, you have to be mindful of the value of Cryptocurrency as it can go up or down rapidly, making it a high-risk investment. It is best that you include all of your profits and losses from cryptocurrencies in tax reports. Depending on the country, the treatment of cryptocurrencies’ taxation varies. For example, the United States treats them as property rather than currency.
Types of Cryptocurrency:
Bitcoin is the first-ever Cryptocurrency, introduced by the mysterious Satoshi Nakamoto in 2009. The usage of “peer-to-peer” technology pioneered what Cryptocurrency is today. Subsequently, Ethereum is considered the second most popular Cryptocurrency as it holds the fastest rise in digital currency. Other competing cryptocurrencies include Litecoin, Peercoin, Ripple, NEM, and IOTA.
To acquire Cryptocurrency, it depends on the brand you are using. Having access to Bitcoins is common as there are about 1,800 Bitcoin ATMs in 58 countries. You can also buy gift cards, trade face-to-face, exchange Cryptocurrency, or use investment trusts.
For lesser-known Cryptocurrency, this will depend on the currency’s popularity and your location as there are limited options for acquiring them. Face-to-face trading is still an option as well as exchanges for flat currencies or even Bitcoins.
Pros of Cryptocurrency:
The pros of the Cryptocurrency is that it is portable, divisible, transparent, and can resist inflation. Since it is easy to transfer funds between two parties with no third party involved. Instead, public and private keys facilitate secure transfers.
Cons of Cryptocurrency:
However, Cryptocurrency can be used for illegal activities such as money laundering and tax evasion. Other criticisms include exchange rate volatility and vulnerable infrastructures. This method may disrupt many industries and has prompted countries such as Bangladesh and Vietnam to ban Cryptocurrencies altogether. Market prices for cryptocurrencies are based on supply and demand. The value of Bitcoin has gone up and down at a rapid pace.
Conclusion:
Since it can be used as a viable solution for investing, there is plenty of potential in the future of Cryptocurrency. Using Bitcoin can be a valuable asset to your investment portfolio that can bring great rewards. Also, its decentralized nature can inadvertently allow people to participate in illegal activities.
Regardless, Cryptocurrency is showing a brand new way for people to buy/sell, mine, and invest. Will it become the new form of currency that will replace the current forms? Only time will tell.
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References:
Cointelegraph. (2017, December 05). What is cryptocurrency? Retrieved November 04, 2020, from https://cointelegraph.com/bitcoin-for-beginners/what-are-cryptocurrencies
Cointelegraph. (2017, December 06). Is Bitcoin legal? Retrieved November 04, 2020 https://cointelegraph.com/bitcoin-for-beginners/is-bitcoin-legal
Frankenfield, J. (2020, September 16). Cryptocurrency. Retrieved November 03, 2020, from https://www.investopedia.com/terms/c/cryptocurrency.asp
Originally published at https://blog.zivolve.com on November 14, 2020.
