Cryptocurrency is taking over the world of investing. As of January 2021, there are more than 4,000 different kinds of cryptocurrencies in existence. With all of the hysteria behind the hype, there are millions of people who are now addicted to the craze that started to take the world by storm back in 2009. Bitcoin, the pioneer of all of the cryptocurrencies, has a founder by the name of “Nakamoto” that has never been identified.
The value that goes beyond the coin is the blockchain technology associated with this new kind of currency. Blockchain may seem complicated, but it’s simply just a fancy way of saying the word “database.” If you go into google and type in “Companies using blockchain” you’re going to see a lot of household names. This will provide you to get in on the action, without having to fully understand how cryptocurrency works.
Despite turning many people becoming “Bitcoin Millionaires” there are still a few uncertainties about crypto. Let’s take a look at a few of its shortcomings.
1. Will Your Transactions Be Taxable?
Say you walk into a grocery store and your cryptocurrency is at $10.00, by the time you grab your goods and check out, your coins are worth $12.00. Will this make your purchase a taxable event? According to the IRS, whenever you sell an asset at a gain, this triggers a taxable event.
So, the problem here is that you’re going to be taxed on your grocery in the form of sales tax and can be taxed as high as 20% on the gains of your coins. Making your transaction “double taxed.” You’re going to be taxed on your purchase of the goods and taxed because you bought those goods with an appreciated asset.
2. Will It Be Accepted by Major Corporations?
Back in the late 1980s, Walt Disney Company came out with a form of payment that was called, “Disney Dollars.” It quickly failed due to the fact the currency was only accepted through Disney. Thus, until cryptocurrency is accepted as payment, this is going to act as a headwind for the growth of this form of money.
Despite these challenges, with the hefty amount of different coins out there, like Dinosaurs, some are going to have to go extinct. For example, you can’t walk into a gas station in America and pay using the Mexican Peso or Japanese Yen. Cryptocurrency is no different. The key takeaway here is to do your homework and ensure you’re placing your money into a coin that you feel will be mainstream 10, 20, or 100 years from now.
3. How Will Cryptocurrency be Regulated?
The dark side of the cryptocurrency market is that since the transactions are encrypted, many drug dealers, sex traffickers, and other criminals are using this to their advantage. Without some form of regulation, this will allow these outlaws to continue doing business.
It’s tough because many crypto maniacs enjoy the fact that their transactions cannot be “tracked” and gives them the peace of mind that there is protection. On the flipside, with every great idea, there are people who are looking to abuse the system.
4. Finite Number of Bitcoins.
Now, I’m no expert in the world of cryptocurrency, but from my understanding, there are only going to be 21 Million Bitcoins produced. Once they hit that mark, it’s done. Forever. Also, I’ve read that Bitcoins are being lost during transactions. And, that many users have forgotten their password which has been estimated there are millions of dollars worth of cryptocurrency that will never be seen again.
Simple economics will teach you that as supply decreases and demand increases, the price of any item will increase in value. Which is an easy way to think about what has caused Bitcoin to spike in price eclipsing the $50,000 mark.
Overall, I believe blockchain technology is going to stand the test of time, but the unknown of which cryptocurrencies will still be in existence 50 years from now keeps you in the dark. So, if you’ve missed the boat on investing in coins, do your homework, invest in companies that are backing certain coins, and continue to monitor this market carefully.
Joshua Krafchick, aka “The Unconventional Money Guy”
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