Cryptocurrency is a digital asset that’s gaining popularity for use as payment. However, it’s important to remember that it is not federally insured or regulated like securities are and its value can swing wildly. Consequently, only invest in crypto with money you can afford to lose.
The Wild Shifts in Value
While it’s true that the price of cryptocurrencies has fluctuated dramatically over the past few years, it is also worth noting that they are still significantly less expensive than using credit cards to purchase goods or services. In addition, the ability to transact instantly, regardless of where you are in the world, and without the friction that comes with transferring money between banks can save significant time and effort for both businesses and consumers.
It’s also worth noting that a blockchain is a technology that can be applied to many other areas beyond just currency, including the stock market. In fact, a group of Wall Street and crypto industry professionals have recently formed a project called Chainyard to explore how blockchain could be used to reduce the time it takes for brokers to settle trades. This can be up to three days for large stock trades, and blockchain could cut that time considerably.
The Differences Between Cryptocurrency and Other Investments
Some cryptocurrencies are designed to be decentralized, meaning they’re not backed or controlled by any government, central bank, or corporation. Instead, they operate according to software that anyone can download and monitor. This can make them more vulnerable to changes in regulatory policy or crackdowns from governments, which can affect their value. In contrast, the US dollar is backed by the federal government and regulated by the Federal Reserve.
Most cryptocurrencies are created through a process known as mining, in which computers are used to verify the authenticity of transactions on a network. This can be energy-intensive, but some cryptocurrencies use different technology that demands less power.
There are several things to consider before buying a cryptocurrency, such as its legality and how it’s taxed. For example, while Bitcoin is often referred to as “money,” it is not considered legal tender in any country and cannot be used to pay for all types of goods and services.
Another thing to consider is that the Internal Revenue Service treats crypto as property, so when you buy or sell it or exchange it for other goods and services, you’ll likely owe taxes based on its current value. In addition, the law is constantly evolving and the future of how the IRS will treat cryptocurrencies is uncertain. That’s why it’s important to work with an experienced tax advisor when investing in them.