If you regularly follow tech, finance, or business news, you’ve most likely heard about Blockchain technology and cryptocurrencies. However, as cryptocurrency increasingly becomes a hot topic and news of crypto millionaires taking the headlines, more people are gaining interest in this topic. While there is a lot to learn before investing in cryptocurrencies, below are common questions, facts, and misconceptions that beginner investors keep asking.
What Are Cryptocurrencies?
Cryptocurrencies are digital currencies that can be used for payment, exchange, or store value. Since they are digital currencies, you can’t touch or carry cryptocurrencies like contemporary bills. Transactions also occur exclusively online.
Cryptocurrencies are decentralized, meaning that they aren’t backed or controlled by the government, the same way U.S dollars, for instance, are controlled. Crypto transactions, such as buying, selling, or trading, are recorded in a permanent decentralized ledger, known as Blockchain.
Are Cryptocurrencies Legal?
Due to their decentralized features, questions about the legality of cryptocurrencies are bound to arise. Interestingly, this cannot be a yes or no question. This is because several frameworks determine the legality of these digital currencies. However, cryptocurrencies are not considered legal tender in several countries, mainly because they don’t have a paper trail, making it hard to track. However, investing and trading in cryptocurrencies is legal.
Are Cryptocurrencies Taxable?
Cryptocurrencies are taxable under various circumstances. If you purchase and keep your crypto coins in your personal wallet, you won’t owe the government any tax. However, if you are an active crypto trader, you will have several tax implications. Taxable transactions include selling your crypto coins for U.S dollars, exchanging one Cryptocurrency for another, earning income from your altcoins, or making purchases with them.
Generally, the IRS considers these digital currencies to be personal assets, just like gold or stocks. If you exchange or sell them, capital gains are automatically taxable. The nature and complexity of your transactions will determine how you should file your taxes.
Is Investing in Cryptocurrencies More Viable Than Traditional Investments?
While some people will encourage investing in traditional assets, such as stocks and real estate, over cryptocurrencies, this is not always true. Cryptocurrencies and traditional investments significantly differ in their functionality. Despite the volatile nature of the crypto market, this investment currently has proven longevity.
Blockchain technology has evolved and currently is the go-to tech in many fields, including gaming, cyber security, and more. Cryptocurrencies also provide an even playing field, unlike stocks and real estate, which established brokers on Wall Street dominate. However, you should read widely to understand and invest wisely.
Which Cryptocurrencies Are Good to Invest In?
As you may have noticed, there are several types of cryptocurrencies on the market. However, experts recommend that it is best to start with crypto coins with the largest market cap and trade volume, such as Bitcoin and Ethereum. While they are volatile and highly speculative, they are less risky compared to thousands of other coins.
How Can You Start Investing in Cryptocurrency?
Having decided on which cryptocurrency to invest in, most beginners don’t know where they can buy these coins. The following steps can help beginners buy their first crypto coins.
· Choose an exchange platform – This is essentially an online platform where you can buy, sell, and exchange your crypto. Using a platform such as Netcoins provides assured security, accepts multiple payment methods, charges low fees, and has multiple coins. Sign up and create an account.
· Load money to your account – Like any other traditional investment, the next step is loading U.S dollars or whatever currency you use to your crypto exchange account.
· Place your order – The next step is placing an exchange order to trade your dollars for your preferred cryptocurrency.
· Store and manage your coins – You can then decide if you want to store your coins in your account, sell, or store them in digital wallets.
Hopefully, these questions can provide some clarifications on the basics of cryptocurrency trading. Generally, cryptocurrency is an interesting and easily confusing technology and currency. The increased adoption in various industries means it won’t be dipping into the horizon soon. This makes learning about these currencies worthwhile.
Written by Barbara McGee