Cryptocurrencies are a very unique class of assets that many people still don’t understand. And, strangely, it seems to attract people who’ve never invested in any other type of asset before. This is one of the things that is fueling the wild volatility in the markets and why so many people end up failing with crypto. You will need to spend a lot of time learning about cryptocurrencies and investing if you even want a chance at succeeding. You’ll also need to understand what crypto is and isn’t. Let’s take a look at some of the things that a lot of people still don’t understand about cryptocurrencies.
Crypto and Taxation
One of the most misunderstood parts about cryptocurrency is how they’re being treated by the tax code. The first thing you have to know is that cryptocurrencies are considered by the CRA as commodities and not legal tender. This means that you may be liable for both capital gains and income taxation.
If you want to learn more about how your revenues will be taxed, you should check out Wealthsimple. They explain both types of crypto tax in detail and give you tips on how to collect information when the time comes to file your report. They also provide valuable information on when the CRA will consider trades a business transaction and when profits will be considered income or capital gains.
Blockchain and Crypto are Not the Same Thing
One very important thing you have to know when first getting into crypto is the difference between blockchain and crypto. The blockchain is the technology that powers most cryptocurrencies, but it can have multiple other applications.
Simply put, the blockchain is a ledger system in which transactions are recorded and distributed to computers within a network. These are referred to as nodes. Every transaction that was ever made on that blockchain will be in a block and each block will be stringed together to form a chain. This is where we get the name “blockchain” from.
One of the biggest benefits of the blockchain is that it’s almost impossible to falsify when it’s on a large decentralized network, which is the case with most crypto. Since the information is shared among all computers on the network and there’s no central authority, any falsifications can be cross-verified by other nodes.
The blockchain can be used for cryptocurrency, but many organizations are using it for regular record keeping. So, if you hear some major investment in blockchain, don’t assume that it will do something for the crypto market. Instead, maybe you should look at who’s building the technology, and see if you could invest in them.
Cryptocurrency is Not the Best Option for Beginners
One of the biggest misconceptions about cryptocurrency is that it’s a good option for beginners. In reality, even people who have been in crypto for years often don’t understand why the markets behave the way they do. The world as a whole is still learning what cryptocurrencies are, and the blind are often leading the blind in this sector.
Another thing that makes crypto not the most beginner-friendly investment is the fact that cryptocurrency markets are extremely volatile. The process of buying and selling cryptocurrencies is also more complicated, and you might be surprised at how difficult it can be to get out of trades.
So, you should think twice about investing in crypto if you don’t understand investing in the first place. You also shouldn’t invest out of ideology. If you want to be successful in trading crypto, you will need to invest in your education and get a lot of practice. We suggest that you at least start learning how to read a candlestick chart properly and how to use some of the popular technical analysis tools.
Buying Crypto is Very Different from Buying Other Assets
Many people think that you can just go online and exchange your money for crypto, but it’s not that simple. The first thing you will need to know is what a cryptocurrency wallet is and why it’s so important.
As you already know, cryptocurrencies exist outside of the traditional financial system, so you won’t be holding your crypto in a bank. In reality, crypto-only exists as an entry in the blockchain. Your wallet is what will verify those transactions and demonstrate ownership.
Your wallet will be used to store your private and public keys. The public key is a key that will be used to identify you on the network and will be visible to everybody. This is what will allow people to send coins to you. The private key, on the other hand, will be used to “unlock” these transactions and show proof that you are the owner.
The most important thing when picking a wallet is safety. The safest type of wallet is a cold wallet. They are called cold wallets because they don’t need to be connected to a live network. They usually look like small USB keys. The Ledger Nano is the most common type, but there are many others on the market.
You then have software wallets that can be installed on any compatible device of your choice. Since these are connected to the internet, there is a chance that someone can hack them. It is still a tough task, but only if you pick a good wallet. So, pick a wallet that has a good reputation for safety. Some examples of great software wallets include Paxful, Mycelium, and Electrum.
Also, know that you have the option of leaving your crypto on an exchange, but that is a horrible decision. This would mean that the exchange would be in control of it, and you never know what could happen. And if you think exchanges don’t go out of business, think again. There have been some cases of exchanges going under, and a few hacking stories as well. While funds are usually restored when hacks happen, you still don’t want to run that kind of risk.
This is why choosing the right exchange is also very important. You will first need to pick an exchange that uses safe storage methods and the latest security technology. You also have to check what kind of cryptocurrencies they offer. Another thing you have to know is whether they allow people to buy crypto with fiat money as many exchanges will only allow you to trade crypto for crypto.
Bitcoin is Not the Only Game in Town
So many people seem to think that Bitcoin is the only coin worth looking at, but there are tons of other opportunities in the world of crypto. There are plenty of cryptocurrencies on the market that have much more potential for growth and should get your attention.
One thing you should know is that cryptocurrencies can be vastly different from one another, and serve completely different needs. Ethereum, for instance, uses Ether, its proprietary coin, to power applications over its network. It is very different from a coin like XRP that was made to facilitate international transfers and remittances.
Instead of jumping on the Bitcoin train, you should check a few other coins. Look for projects that excite you and are getting favorable reactions from the community. Learn how to read whitepapers and do your research on the people behind projects. And look for projects that are trying to achieve something instead of the hot new coin everyone is talking about.
Not All Crypto Transactions are Private
A lot of people assume that crypto transactions are impossible to trace, but that’s not the case. There is a specific class of coins out there that provide privacy, but some of them are traceable. That was one of the biggest misconceptions about Bitcoin in the beginning, which is how it gained a reputation as a funding tool for shadow organizations.
Transactions on the Bitcoin blockchain are not completely anonymous. Many government organizations struck agreements with some exchanges to allow them to associate a transaction with owners, and we can expect more of these in the future.
Tokens and Coins are Not the Same
Some people think that coins and tokens are interchangeable terms, but they aren’t. Coins have one goal and one goal only, and that is to act as a simple store of value. A token, on the other hand, can be the representation of an asset and is used in the validation of smart contracts. A token could be used to represent full or partial ownership of a property, for instance.
Tokens can also perform differently depending on circumstances. In an ICO, tokens will be given to early buyers representing a certain value, but they may be destroyed if the ICO does not meet its objectives. This is a very important distinction you’ll need to learn before you start trading.
These are only some of the common misconceptions people have about crypto. Once you truly understand what they are and how they work, you can start working on a strategy and look at some of the options out there.