Five Things You Should Know Before Owning Crypto

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You wouldn’t buy a house without researching the market and doing an inspection. You wouldn’t buy stocks or securities without doing your homework and understanding the risks involved. And in the same way, you need to consider a few key points before diving head first into the world of cryptocurrency.

Here are five things to ask yourself before your first crypto purchase.

1. Why are you interested in cryptocurrency?

You’ve probably heard of Bitcoin or Ether and know that some people became millionaires seemingly overnight thanks to savvy early-stage purchases. While the crypto market is certainly growing and has proved lucrative to some, you shouldn’t consider it your golden ticket to getting rich quick.

Cryptocurrency is by nature a volatile and speculative investment based on supply and demand. And while higher-risk investments can generate high returns, you should only ever invest what you can afford to lose. Keep your expectations realistic, and like any investment, don’t pour your life savings into one transaction.

2. What are you going to own?

It sounds obvious, but consider what you are actually buying. There are literally thousands of other types of Altcoins available today. And just as the British Pound is different to the American Dollar, the value and function of cryptocurrencies can differ.

Whether you’re interested in buying existing coin or supporting a new initial coin offering (ICO), do some research. For example, find out:

What is the token supply currently in the market, or projected for release?

Just as gold is a finite resource, cryptocurrencies are too limited by the overall supply of tokens a project or business decides to generate. Find out if it’s stable or increasing in value.

Just as gold is a finite resource, cryptocurrencies are too limited by the overall supply of tokens a project or business decides to generate. Find out if it’s stable or increasing in value. What will you get in return for your investment?

Are you buying a coin or a token? Coins act as money, while tokens may act as an asset or utility that allow you access to a company’s product or services.

3. How will you store, buy and sell your cryptocurrency?

You need a digital wallet to store your cryptocurrency and you need to join an exchange to buy or sell cryptocurrencies. Depending on the token and its popularity, you may need to sign-up at multiple exchanges in order to purchase a specific token as all cyptocurrencies are not listed on all exchanges.

A digital wallet is essentially a secure type of software that acts like a storage facility for your cryptocurrency. The digital wallet will also hold the keys that enable you to buy and sell cryptocurrency online.

Make sure you securely backup whatever type of digital wallet you choose and check whether you can store multiple types of cryptocurrencies on it.

In addition, offline wallets exist, and are more secure than a hot wallet, or wallet that is connected online (i.e. a digital wallet).

Offline wallets usually need a PIN or some sort of identifying information (like a passphrase) in order for you to access your wallet.

Now that you have somewhere to store your cryptocurrency, how do you go about actually making a purchase?

As mentioned, there are a number of active exchanges but if you don’t already own any cryptocurrency, you’ll need to join one that enables the transfer of government-backed currency (such as U.S. dollars) to cryptocurrency — which most do offer in 2018.

Make sure you understand the fees and charges involved in the transaction.

Once you’ve made your purchase, you will then need to transfer your cryptocurrency from the exchange’s wallet to your own personal wallet, digital, hardware or otherwise.

Read article from Blockgeeks for more information on cryptocurrency wallets and the options available for crypto-holders today.

4. What are the tax and legal implications?

Different countries have different cryptocurrency regulations and this is an important point to remember. Japan, for example, is very progressive on crypto, it considers cryptocurrency legal tender and actively regulates the industry within its borders. In the United States, the Securities and Exchange Commission has been focused on the use of blockchain assets as securities and has taken a much firmer but also more loosely defined approach.

What does this mean for you?

It means, again, you need to do your homework.

Look at which exchange will accept currency from your country? Is the coin or token you purchase considered taxable income, an asset or a separate virtual currency?

In the U.S., in terms of income tax, cryptocurrency is treated like an asset, like property or stocks. A recent IRS notice stated: “General tax principles that apply to property transactions apply to transactions using virtual currency … Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.”

The bottom-line: Seek professional advice if you are unsure about the tax implications in your jurisdiction.

5. Are you safe from scammers?

Unfortunately, scammers are seemingly rife in the cryptocurrency world. When you are researching companies and the various types of cryptocurency, make sure to look at the company’s website, as well third-party reviews or information in community forums such as Reddit and Telegram.

Be extremely wary of social media and email communications asking you to send crypto or cash. If you participate in an initial coin offering, only use the specific address listed in the smart contract or reach out directly to the project or company to confirm the address to send payment to.

Overall, the first step to owning cryptocurrency is to make sure you understand what you’re buying, what the implications are in your country, and how you will securely buy and store your cryptocurrency. Conducting research before you get started will go a long way to making the process as seamless as possible.

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