Cryptocurrency has changed a lot since the invention of Bitcoin. Even old pros who cashed out early may wonder how the crypto environment has evolved over the years and if certain coins are worth buying into. Let’s take a look at all things you should know about crypto.
What Everyone Should Know About Cryptocurrency
As of 2021, 300 million people (or 3.9% of the world’s population) currently own one or more cryptocurrencies. Before you opt-in yourself, you should take notice of the following.
1. The Crypto Market Isn’t Regulated by the Banks
An unregulated crypto market sounds like a good thing for many, but if a currency suddenly tanks, you aren’t offered any protection. Unlike stocks, there’s a low chance that a currency will earn you more than what you paid because there’s no incentive for investors to stay steady.
There’s a possibility you’ll lose everything you invested after a single trade. Bitcoin, the most stable coin on the market, lost 99% of its value in June 2011, and it crashes often. You could earn a lot of money, but you have to accept the fact that fluctuations are frequent and common.
Also read: Cryptocurrency Consultant | How to become a cryptocurrency consultant
2. Crypto Isn’t Limitless and Likely Can’t be Banned
Although crypto isn’t regulated by any governing body, that doesn’t mean it’s limitless. Bitcoin specifically uses supply and demand to estimate its value. Since it’s the most popular currency, supply is limited, leading to its high value. Once sold, the value of every Bitcoin decreases.
Although countries can make regulations surrounding the trade of crypto, the market itself can’t be banned. However, some countries have limited rights around using crypto, like Nepal.
3. Crypto Wallets Aren’t as Anonymous as You Think
There’s a persisting thought that transactions made on the blockchain are anonymous, but that isn’t accurate. While you could become traceable if you use credit cards to buy crypto, you can still be traced even if you use other methods because nothing can be deleted on the blockchain.
Patterns will show up if you continuously use your wallet to buy items on the blockchain or convert money into coins. This makes the blockchain pseudonymous. Once someone ties a crypto wallet to your identity, they’ll know how much crypto you’re buying and trading.
4. The Environmental Costs of Self-Storage is High
Concerns around the environmental impact of crypto relate to the network’s energy consumption and subsequent release of carbon emissions. Studies predict that the emissions released from trading and storing currency alone could push global warming above 2 °C within three decades.
However, you can reduce your environmental impact by trading less or by opting for a currency that uses a proof of stake algorithm. These networks could reduce energy demands by 99%.
Also read: Basics of Blockchain Penetration Testing for Beginners
5. Cryptocurrency is Subject to CGT or Income Tax
Although cryptocurrency isn’t regulated, you still need to pay taxes like you would on other earned income. Since crypto wallets aren’t anonymous, the IRS knows that you’ve at least converted income into crypto. They may even know how much you’ve traded or purchased.
If you earned crypto by selling goods or services in exchange for currency, you’ll have to pay income tax. If you make money from trading, you’ll pay capital gains tax (CGT). Since most crypto is bought and sold in less than a year, you’ll likely pay high short-term investment fees.
6. Timing is the Most Important Part of Crypomining
Crypto trading is a bit of a catch-22. You need to opt-in early to get the most out of a currency, but fraud and price manipulation are common. Stocks work in a similar way, but penny stocks and “sure things” are more common. Crypto is almost always a high-risk, high-reward scenario.
While you can make a lot of money by taking risks, you’ll actually be more successful if you monitor the industry before spending money. Follow price patterns, not your gut feeling.
7. Scammers are Common in the Crypto Market
Social media can be used to improve your career or business, but it can also be used to scam crypto investors. Hundreds of individuals and businesses have cashed out because they manipulated an investor’s good nature, so you need to stay vigilant and do your research.
Like with any other security, you really need to know what you’re buying. Some investors will start a pump and dump scheme if a currency is failing, so don’t fall for anything that looks too good to be true. Once again, do your research and evaluate each currency by its merits.
8. Stick to Trusted Communities and Enthusiasts
You have to be very careful with who you trust in the crypto space. It’s not a coincidence that so many celebrities promote cryptocurrency and NFTs; they’re seen as a genuine advice source. But most well-known celebrities aren’t trading crypto themselves. They have investors for that.
Most people can’t afford to hire a professional, so you need to seek out investors that know a thing or two about the market. Avoid celebrities who have no business being in the space.
9. Be Careful Where You Store Your Crypto Wallet
Cryptocurrency is a bearer asset like jewelry or cash. If you lose it, it’s presumed to be gone. That’s why you should never give anyone your cryptographic keys, even to certain third parties. Both centralized and decentralized finance platforms are rife with exploits and backdoors.
At the same time, several advanced users will still use a third party because it can be difficult and terrifying to store your own currency on hardware. Before you store your crypto with a third party, read the user agreements to ensure you’re protected against different hacks or issues.
Also read: 10 Best web3 wallet | Price, Safety, Features
10. White Paper-Backed Cryptocurrency is Safer
A white paper is an informal document that highlights the features of a product. You need to make sure that the cryptocurrency you’re backing has a white paper that’s easily accessible. Otherwise, it’s an obvious red flag that said currency doesn’t have any data or project details.
Be sure to read the white paper carefully, as an incomplete or misleading paper is another red flag. It’s safer to invest in a cryptocurrency that has an end goal or general project time frame.
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