The DC Voice

Baffled by Bitcoin? A Simple Intro to Cryptocurrencies

After some dramatic highs and lows, cryptocurrency is settling into its own form of normalcy. A growing number of people believe it’s here to stay—and that it might just be wise to have a stake in it. So let’s take a quick look at how it works, and why it matters.

What Is Bitcoin?

Bitcoin was the first cryptocurrency. Each transaction carries a unique, encrypted identification, indelibly carried from one block to the next in a chain. Bitcoin is still the most popular cryptocurrency. To view the leading alternative coins (“altcoins”) by total investments, take a look at CoinMarketCap.com.

Is There Anything Behind It, Giving It Real Value?

All money is simply a record. A dollar is just paper, but has value when people have confidence in it. It works because it behaves as a ledger representing value, as Bitcoin does today. And the more people invest in it, the stronger a currency’s value becomes. 

How Do You Buy and Trade It? 

Buying and trading digital assets means setting up a link between a debit card and a trading platform. The user-friendly Coinbase is a highly popular platform. You invest online, as you would invest in conventional stocks. Yet the digital currency market never closes. This can make cryptocurrency owners anxious. Add it to the reasons not to sleep with your smartphone.

Is Bitcoin Safe?

As long as it’s traded on a reputable platform, Bitcoin itself is safe. The blockchain, which is Bitcoin’s ledger-based technology, stops people from double-spending or engaging in other fraud.

Isn’t Blockchain Being Talked About Now for Other Uses?

Yes. The same technology created to protect transactions with digital coins is now being developed to guarantee integrity within business systems. Consider these examples:

  • Telecommunication companies, disrupted by cheap, user-friendly apps, may adopt blockchain to revamp their offerings.
  • Blockchain shows promise for becoming a mechanism to ensure a clear chain of title in property transactions. Cook County, Illinois has already taken it for a test run.
  • Walmart, with IBM, developed a blockchain food-safety system. Contaminated food that once took a week to trace to its source now takes 2.2 seconds to trace—and keep off the shelves.

None of this would be happening but for Bitcoin introducing blockchain.

Fascinating, But Can Cryptocurrency Buy Me a Coffee? 

Soon, yes. In early 2020, the Intercontinental Exchange (owner of the New York Stock Exchange) will start pilot runs letting Starbucks customers buy their coffee with a Bitcoin app.

Is Cryptocurrency Taxable? 

Yes, if you have capital gains, they will be taxed—generally at a lower rate than income tax. And if you hold a cryptocurrency for more than a year, earnings will be deemed long-term, lowering the rate further. If you trade, report your earnings (or losses) to the IRS on Form 1040, Schedule D.

What Are the Biggest Pros and Cons of Using Cryptocurrency?

There’s obvious volatility and risk here. Don’t invest what you can’t afford to lose.

The biggest pro may be the risk that any national currency could be devalued. A good cryptocurrency can be positioned as an alternative if central banks fail. For people without bank accounts at all, it could be a lifeline. Digital currency could support international ID2020 goals to serve more than a billion people who can’t access basic financial services. 

This information is simply a conversation starter on digital assets, not professional investment advice. Cryptocurrencies are still volatile assets, and no one can guarantee the future.

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