July 18, 2018

Cryptocurrency and block chain – All the questions you were afraid to ask

BY :     July 18, 2018

Montreal, Canada – 28 February 2018: Stacked cryptocurrency coins (Bitcoin, Ethereum, Litecoins)

What is block chain?
Think of block chain as a read only accounting ledger of transactions in chronological order.  Once a transaction is added, it cannot be modified or put into a different order.  The transactions are verified in a decentralized fashion to prevent any fraud.

How will my business be affected by Cryptocurrency and block chain?
I see all normal accounting ledgers being eventually replaced by block chain.  In fact, ledgers of the past may be simply called unsecured ledgers and block chain ledgers may be called a secured ledger.  Shipment and inventory transactions are also good candidates for block chain.  If you are in retail, you should start accepting Cryptocurrency now on your store.  Options available include Coinbase Commerce, Coin Payments, and Coin Gate.

What is the future of Cryptocurrency?
Like anything in life, Cryptocurrency derives its value from what people place on it.  Fiat currency derives its value from the governments that back it.  Cryptocurrency derives its value from the underlying technology; block chain, and the features of the particular Cryptocurrency.  While there are over a thousand different types of Cryptocurrency, I believe that there will eventually be one winner that will be used as a global currency and accepted as common as Visa transactions.  Fiat currency is less valuable over time due to inflation.  Cryptocurrency has a huge advantage over Fiat currency in that it has a set limit available; its value increases over time.

Which Cryptocurrency will win?
Technology decisions are typically driven by developers.  Developers choose frameworks based on the robustness, the development tools, the documentation, and the community following.  As soon as major companies adopt block chain to solve common business problems, we will see a shift in acceptance of the associated Cryptocurrency.  It is too early to pick a winner.  The block chain business race is just getting started.

Can I still make money in mining?
Yes, but gone are the days where you could use your home PC with a high end graphics card to mine coins.  Today it requires specialized hardware to mine.  The mining rigs generate an enormous amount of heat and use a significant amount of electricity.  My friend has a warehouse for his business where he mines $8000 in bitcoin per month; that is after $4000 of electricity.  The mining hardware cost him $40,000.

Can I make money by mining in the cloud?
No.  Cloud servers simply do not have the hardware required for mining efficiently.

Should I invest in Cryptocurrency?
Invest only what you can afford to lose.  Be ready for high volatility.  Buy low and sell high.  Stick with the top ten most popular coins.  Transfer your Cryptocurrency to a private wallet immediately after purchasing.

Where can I buy Cryptocurrency?
I would recommend Coinbase, Bittrex, or Kraken.  I would avoid all others.  There are a lot of scammer exchanges.

What is the safest place to store my Cryptocurrency?
Purchase a hardware wallet such as the Nano Ledger or Trezor.

What are the tax implications of cryptocurrency?
According to the IRS, you must keep track of all cryptocurrency transactions.  For tax purposes, Cryptocurrency is considered property.  Holding and selling a Crypto Currency within the same year and making a profit, the difference is taxable as income.  Selling a Crypto Currency after a year is subject to Capital Gains tax.

 

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  1. Erik Haahr · July 18, 2018 Reply

    Great article!

    If you are located in Europe I would also recommend Coinify as your trading partner.

    Maybe it is a little premature to talk about *investment* in cryptocurrencies – it would seem to be more like gambling. But then many people buy lottery tickets…

    Finally the Tax rules you list are local rules – you have to check in your own country how taxation applies to cryptocurrency trading.

  2. Greg Finzer · July 18, 2018 Reply

    Erik,

    Good call out about Coinify and local tax rules. I would consider Cryptocurrency investment having a high risk level somewhere between Small Cap Stocks and gambling. Precious metal futures are more risky than gambling and people certainly invest in that. Bitcoin and Litecoin are the most recognized and in my opinion the least risky of the top ten cryptocurrencies.

    Thanks,
    Greg

*Opinions expressed on this blog reflect the writer’s views and not the position of the Sogeti Group