Everyone knows that time brings change to just about everything. As you’d expect, the examples are around us every day.
For example, it has only been about three decades since the first cellular phones started making an appearance in the private sector. At that time they were big and clunky and not a common item in every household. Today, cell phones are widely used and it seems that land line phones are nearly a thing of the past.
I believe a similar evolution is taking place with paper currency and it will soon be just as obsolete as the land line phone. One reason for this is the surge of cryptocurrency now sweeping the globe.
Not all countries accept cryptocurrency as a form of legal tender at present, but that is changing daily. However, to better understand this new form of money, there are 5 things you need to know about cryptocurrency.
1. What it is
You can find many different definitions of cryptocurrency on the internet. Basically it’s a digital asset you can exchange using cryptography for security and control. Cryptography in the computer world is also referred to as encryption.
2. How the IRS Classifies It
At this time the IRS is not classifying cryptocurrency as actual currency, according to a recent contribution found at Forbes.com. In fact, the IRS is actually calling digital currency, “property”, when it comes to dealing with your taxes. This means you could experience capital gains taxes if you hold onto cryptocurrency as an investment.
3. Can’t be Easily Forged
The encryption used to keep cryptocurrency-based transactions from being forged is very difficult to break. This makes it a more secure form of entering into financial transactions than other types of currency.
4. It’s Becoming More Accepted
If you haven’t heard a lot about cryptocurrency yet, I believe you will in the near future. There are a lot of good qualities digital currency can provide, such as convenience and security. In addition, it’s becoming more accepted all the time.
As an example, a new start-up could use cryptocurrency as a means to fundraise. They would use an Initial Coin Offering, or ICO, to sell cryptocurrency to backers of the new venture in exchange for actual money. The real money would then be used to get the new company off and running. When the company experiences success, the cryptocurrency holders can expect to receive a return on their investments.
Use caution if you are interested in purchasing cryptocurrency through an ICO. Some of the ICO information is for legitimate start-ups and others are scams.
5. It Is Not Backed by Anyone
In the U.S., the current form of currency was at one time backed by the gold standard. But although that changed back in 1971, our legal tender has not.
Presently the monetary system of the U.S. is backed by fiat. What this means is that the dollars in your pocket have value because the government says so.
Digital currency, on the other hand, is not backed by the U.S. nor is it backed by any financial institution. It won’t fit in your pocket or purse. Instead, it exists only through virtual monetary exchanges.
Time does bring about changes including the awareness and increased utilization of cryptocurrency. If you keep in mind the above 5 things you need to know about cryptocurrency you may just avoid losing any real dollars.
What other things do you need to know about cryptocurrency?