Financial Figures

Considering banking on crypto?

It’s hard to get through a week without hearing about some new millionaire, or billionaire, who has amassed their wealth from a cryptocurrency bet. Should you give it a shot?

That depends on how much you need the money you have. Don’t gamble the rent on it, but if you have extra cash to play with and FOMO, this volatile market could be exciting.

Know most of this industry is unregulated. That adds risk. If you decide to invest directly, choose your exchange wisely and insist on 2-factor authentication as hackers play here too. Regulated funds are new to the scene and performing poorly, but that may be a future, safer option.

Grasping the crypto scene

Bitcoin appeared in 2009. It now has a market cap of almost $700 billion. Blockchain technology was invented as a place to put it. Thirty other digital assets are now valued at over $1 billion. Shiba Inu is a standout, with a $100 bet a year ago now worth $53 million now. Crazy, right?

Like just about anything else, you’ll pay fees to participate. These can include trading fees, maker fees, taker fees, and miner fees. Different exchanges have their own ways of charging you.

Don’t forget about taxes. With crypto, anything you buy with it is considered a sale and therefore capital gains. It’s not like using dollars or credit cards. Even PayPal is allowing cryptocurrency now, but those small purchases can add up to big tax debt. Most exchanges won’t keep track of your initial purchase price, so that’s something you need to do.

Decentralization

Blockchain’s open ledger approach offers new models. The global computer network takes control away from individuals, companies, or governments trying to manipulate the market.

Decentralized Finance (or DeFi) is becoming a thing. Banks, Wall Street and insurance companies are taken out of the picture with blockchain. Instead, costs are assessed by algorithms based on computer resource demand at the time of transactions.

FINANCIAL FIGURES

By Michael Shelton

Executive Summary: Everyone’s talking about cryptocurrency; but what should you do about it?

Where this all gets interesting is with new apps and NFTs. It won’t be long before blockchain apps work like today’s banking systems without the associated corporate controls. NFTs are setting the stage for creators to get lifetime royalty compensation for their work, paid each time a work sells. These bonuses can go to early investors too, through smart contracts.

Most people are talking about the possible coin windfall gains. What could be more exciting about the crypto movement, though, is what’s being called Web 3.0. Lookout Facebook, Google, and TikTok – creators may soon be directly compensated for their content posts. Some already are.

Crypto is mostly about taking control away from a select few through an open-source environment. It’s the wild west now, but what’s developing could change the way we do business, not in coins, but in how commerce gets done.

Michael Shelton is a financial retirement counselor. Reach him at michael@discover360 Financial.com