A Quick Guide to Cryptocurrency
Cryptocurrency is making a lot of noise in the news lately, however, before you start adding them to your investment portfolio, there are a few things you should know about this new digital asset.
Cryptocurrencies like Bitcoin and Ethereum are making a lot of noise in the news lately, mostly dealing with the fluctuation of their extraordinary value. Much like Microsoft stock in the 80’s, many people are wishing they would’ve jumped on the cryptocurrency bandwagon early on, but don’t feel bad; your brain is wired for regret. However, before you start adding cryptocurrencies to your investment portfolio, there are a few things you should know and understand about this new digital asset.
What is cryptocurrency?
Before we dive into the pros and cons of cryptocurrency, let us first come to an understanding as to what exactly constitutes a cryptocurrency. The basic definition is that it is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions. Unlike traditional forms of money, cryptocurrency is decentralized, meaning no country or banking system controls it. Instead, the decentralized control works through a public transaction database known as a blockchain.
Is cryptocurrency even legal?
Short answer – yes. There are even internet-connected bitcoin kiosks that operate similarly to an ATM where you can insert cash in exchange for bitcoins given as a paper receipt. Now what you choose to buy with your cryptocurrency is where it can get dicey given the anonymous nature of this digital currency. That’s not to say you can’t purchase legal goods and services; there’s a lot of places that accept cryptocurrencies like bitcoins.
Pros and Cons of Investing
The most significant plus side of investing in cryptocurrency is the massive return on investment potential with much more liquidity. However, the downside is pretty steep considering how volatile cryptocurrency can be, especially with issues of devastating hacks and some countries considering an all-out ban can have a significant impact on investment.
Cryptocurrencies and Taxes
So you might be wondering “Do I have to pay any taxes with cryptocurrency?” Again, the short answer is yes, but like all the other aspects discussed above it can be a little complicated. As far as taxes go, cryptocurrencies are generally treated as property similar to a stock, bond, or real estate, but like most taxable assets there are loopholes.
How to purchase cryptocurrencies?
It’s surprisingly easy to purchase a cryptocurrency like bitcoins. There are a lot of services such as Coinbase, BitFinex, BitStamp, and Gemini that can walk you through the process and supply you with all the market data you need to help you determine which cryptocurrency to purchase.
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