Cryptocurrency 201

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Cryptocurrency—it’s so hot right now. What was once a fringe activity has moved into the mainstream and exploded in popularity over the past few months. But there’s still a lot of uncertainty around it—this is uncharted territory, after all. We know you have questions, so we’re here with some answers!

First things first—if you’re not sure what we’re even talking about, head over to our Cryptocurrency 101 article to get the basics.

Second, there are literally hundreds of different types of cryptocurrencies so for the purposes of this article, we’re mostly going to be talking about one in particular, Bitcoin. This is the most popular type of cryptocurrency and is probably the one you’ve been reading the most about in the news.

Now that we’ve got that out of the way, below you will find some of the most common questions you may have about this new technology.

How can I buy Bitcoin?

Getting your hands on cryptocurrency works a little differently than what you’re probably used to. First of all, it’s not really physical money. Cryptocurrencies, like Bitcoin, use a type of technology called blockchain, which is essentially an unalterable digital ledger. That being said, there are three ways to get Bitcoin:

1. Bitcoin ATM

There are 373 Bitcoin ATMs across Canada, including a few in Atlantic Canada. You can purchase Bitcoin by depositing regular Canadian money into the ATM. The Canadian funds can be used to buy Bitcoin. If you do this, you’ll be issued a special encryption code known as a private key. You can opt to keep the digital copy in a digital cryptocurrency wallet on your phone, but some people also opt to print out the key on old fashioned paper and put it in safe place. Whatever method you choose, keep the info in a safe place! If you lose it, it’s gone! Cryptocurrency is at its most basic level a digital ledger—if you lose the ledger record, you lose the value associated with it. In fact, it’s estimated that as much as $4 million (of a maximum $21 million in potential Bitcoin) in existence is lost. Yikes.

2. Cryptocurrency Exchange

A cryptocurrency exchange functions just like any other currency exchange. There are thousands of cryptocurrency exchanges to choose from, but buyer beware—not all of them are regulated. Make sure you do your homework when choosing an exchange. It’s also recommended that you don’t store your currency in an exchange, but rather transfer it into a cryptocurrency wallet for security purposes.

3. Direct Transfer

The third method for getting Bitcoin is through a direct transfer from somebody else. A peer-to-peer transaction will require you to have an address—either from a currency exchange or to a cryptocurrency wallet—in order to receive the transfer.

Can I deposit Bitcoin at my local credit union?

Not right now. Cryptocurrency hasn’t been integrated into the traditional banking system—yet. You can, however, receive a regular direct deposit, wire transfer, or e-transfer of Canadian currency from a cryptocurrency processor who has exchanged Bitcoin for cash.

What do regulators and law makers think about this stuff?

In Canada, Bitcoin and other cryptocurrencies are not considered legal tender. Cryptocurrency is uncharted territory, so regulators and law makers are still trying to establish best practices, as well as rules and regulations.

For tax purposes, the Canada Revenue Agency (CRA) treats cryptocurrencies as commodities. For example, say you sell some Bitcoin for Canadian funds at a profit, this is treated as a capital gain and must be reported for the tax year the sale took place in.

To be clear, there is nothing illegal about mining, trading, or buying cryptocurrencies like Bitcoin in Canada—there’s just a lack of clarity about how it should be treated (a currency, a barter exchange, commodity, or something else entirely).

As with anything online—be careful! The world of cryptocurrency is new territory and as such rules and regulations are playing catch up.

Even though cryptocurrencies have been around for nearly a decade, it’s really only been in the past little while that they’ve become mainstream. Because of this, it’s still really early days in terms of regulations, access, and the technology itself. It’s not that often that we get to bear witness to a completely new technology emerging, with unprecedented capabilities and yes, implications. So sit back and enjoy while the future continues to unfold.