Globally, there is an increasing interest to understand and learn about cryptocurrencies. Along with this enthusiasm, it is equally important to achieve education. This new technology and investment model needs dedicated understanding. The first and foremost factor to be borne in mind is the legal implications. You need to also understand the risks associated with buying and selling cryptocurrencies. Check The official App to get to know more.
The government, regulatory agencies, financial institutions, and banks are working together on this. This new model needs a better understanding before implementation. Acceptance of this model may pose threat to economy at large. However, there has been much interest in cryptocurrency investment by individual investors.
Paper currency is different from digital currency. It is important to not understand both these mediums of exchange. As against conventional currencies, cryptocurrency may not support buying goods and services. Digital currency is not a medium of exchange.
The key takeaways from the article is as enumerated below :
- Review and understand the legal implications and other risks associated with owning cryptocurrency
- Digital currency/cryptocurrency is a property in the US. Government levies capital gain taxes as applicable
- No central authority backs cryptocurrency transactions. The decentralized working model works as a boon and risk for investors.
- There is no registration needed by business units to accept crypto payments. However, in the long run registration and legality may be inevitable
Let us understand in detail about risks involved in owning and trading cryptocurrencies:
Highly volatile: Volatility is the most talked-about factor about cryptocurrency. There is no stability in the market conditions and may lead to sudden hikes and a fall in prices. The market saw a sudden increase and decrease, at times in hundreds or even in thousands.
No central authority: There is no involvement of government and central banks. Regulating cryptocurrencies needs greater understanding. There are many questions on cryptocurrency. Studies are undertaken to understand the norms required to legalize these transactions.
Prone to hacking and error: Cryptocurrency goes for its technical glitch. Errors and even hacking is key risk while working on cryptocurrencies. 100% error-free and the secured transaction is never guaranteed.
Discontinuation without notice: yes, heard it right. Crypto owners may suddenly decide to vanish from the market without any prior notice.
Now that we have understood the common risks involved, let us gain a deeper understanding of all the above factors.
Globally, investors are always searching for cryptocurrency. This is a prominent reason for its hype. Yet another reason is the level of automation. Many programs are running in parallel. Algorithms are allowing us to understand and predict market conditions.
Possible tax implications: Government bodies and other regulatory agencies are monitoring the cryptocurrency market. Develop formalized guidelines to understand the tax implications. The study will also reveal its impact on the economic system. We need to wait and understand how the legal and tax implications may impact the system globally. Before making any investment it is important to understand the tax implication. Savings or profit generated through such transactions allows for applicable tax implications.
Technical for a layman: Most crypto investors do not hold thorough knowledge about it. Cryptocurrencies and their changing market are technical and complicated. Yet another added risk is the complexity of every transaction. With every transaction using cryptocurrency, you need to update a receiver address. Now this receiver address is a combination of many characters including numbers, alphabets. If you do not remember this receiving address, then there is a high probability of loss. All transactions initiated in the crypto world are irreversible. updating the wrong address could mean the wrong transaction. The wrong transaction means fund loss.
Open to scams and hacking: Your cryptocurrency wallet is hackable. This could be ethical and non-ethical hackers. You need to set strong, unique passwords, not easily understood. You may also use dual-factor authentication. This will ensure that software is secure and update your operating system on a timely basis. Also, do not shuffle websites. There could be phishing emails, pop-ups, and fake websites that may seem attractive. Let none of these emails distract you until the transaction is complete. You need to understand that no crypto agency is going to ask you for your passwords, or private keys.