Everything you need to know about the basics of cryptocurrency, from our resident crypto expert Chris Barnard.
Crypto, we’ve all heard of it, but how many of us actually understand what it is and how it works? We’ve put together this handy guide to tell you everything you need to know about this new-age form of currency, to help you decide whether it’s the right investment for you.
Put simply, cryptocurrency is digital money that is designed to be used over the internet. The first cryptocurrency was Bitcoin, which launched in 2008 and remains by far the biggest, most influential, and best-known. In the decade since, Bitcoin and other cryptocurrencies like Ethereum have grown as digital alternatives to currency issued by governments. There are now more than 1,500 cryptocurrencies you can invest in or trade. But how, and why should you care?
Our beginner's guide will explain the basics of crypto and why it's so important to store within your Auderli.
When you first start researching cryptocurrencies, you'll encounter a lot of words that are unfamiliar. This glossary will help you understand some of the key terms used in cryptocurrency:
As we’ve just learned, the biggest difference between cryptocurrency and regular currency is that crypto is decentralised, it’s not controlled by any central organisation such as the government. However, there are several other key differences worth discussing.
Firstly, if you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to access your account to withdraw or move funds from one person to another without a trusted third party.
This ‘key’ takes the form of a string of random letters, which should be treated similarly to a bank account number as nobody should have access to it except for you, or they could wipe out your account. You have to keep it safe because you can’t reset them like a password. Most cryptocurrency platforms where you purchase your coins will never ask for your key.
You also have a ‘public key’ or address, which is actually your home address or the place where your funds will be sent that you then share with anybody who wants to send you crypto coins. However, people don’t send you funds through the post. You can have a link generated that uses this address where people can transfer you coins online. This public key needs less protection than your private one, but you should still keep a good record of it.
The global financial system has been based on a set of laws and best practices for centuries. Crypto, on the other hand, is a largely unregulated market, and any rules in place often vary by judgement.
Sending money internationally and across borders is much faster with cryptocurrency. Instead of days, transactions are completed in minutes at a fraction of the cost.
Normal money has a somewhat unlimited supply, as more can be printed in times of financial crisis. Cryptocurrency, however, is in limited supply. Once a certain number of virtual coins are in circulation, the algorithm stops producing any more. For Bitcoin, this number is 21 million. This limited supply works to crypto’s advantage, as it theoretically ensures that coins hold their value for years to come. A bit like digital gold.
Transactions are permanent and final. It is nearly impossible to reverse any crypto transactions.
Although Bitcoin has been around since 2009, cryptocurrencies and applications of blockchain technology are still emerging in finance and more uses are expected in the future. Transactions including bonds, stocks, and other financial assets could eventually be traded using the technology. More recently, shops have begun accepting cryptocurrencies as a form of payment.
In order to decide whether cryptocurrency is the right thing for you to invest in, let’s take a look at some of the pros and cons:
When it comes to taxes and cryptocurrencies, there are no clear-cut rules. The government has not classified cryptocurrency as a taxable income. However, when you use it to purchase goods or services, your transaction is considered a taxable event.
Cryptocurrency is treated as both property (like stocks) and currency (like foreign exchanges). This means that any earnings from the sale of cryptocurrency are treated as capital gains.
The tax implications of this can be complicated because many people forget to report cryptocurrency exchanges on their tax forms, or to keep accurate records of their earnings from crypto.
Adding cryptocurrencies and NFT’s to Auderli is just like adding anything else. We won’t ask for any details about your wallet, or any other sensitive information. This should remain private to you.
To add your cryptocurrency holdings to Auderli simply tap on ‘Add’ and choose ‘Digital Assets’
You will be asked to choose whether you are adding Cryptocurrency, NFT’s or something else. You then simply enter how much it’s worth and give it a name.
And that’s it. You now have a record of your holding in Auderli. You can add supporting files such as statements and purchase information to your record as you can any other asset or liability.
As with all financial and important documents, keeping track of everything can be a chore. If crypto makes up a chunk of your net worth, then uploading it to your Auderli allows you to keep track of your personal wealth as its value increases over time. Helping you to realise when the long-term commitment of investing is truly paying off.
Like your property and other possessions you own in your name, crypto is considered a probate asset. This means that it has to go through probate (the legal and court-driven process of distributing your estate) before it can be legally transferred to your beneficiaries after you die. Letting your loved ones have an easy record of your crypto ensures that all of your assets are accounted for in the event of your death.
Some exchanges have policies in place to transfer cryptocurrency to the next of kin, but not all. Therefore, it’s advisable to ensure that all relevant information regarding your cryptocurrency is stored within Auderli.
As well as this, of the existing 18.5 million Bitcoin, around 20 percent — currently worth around 140 billion dollars — appear to be in lost or otherwise stranded wallets, according to cryptocurrency data firm Chainalysis. Keep yours close to hand!
Hopefully, this beginner’s guide has helped you to feel more prepared to enter into the world of crypto or to more successfully organise what you already have. Just like any other asset, your crypto contributes to the overall value of your estate, which needs to be planned properly in order to make it easier for your loved ones in the future.
With Auderli, it’s a breeze. You can upload and store your financials and important documents in one safe, secure place. Then, you can share these securely with those that you trust.
To find out more about Auderli and what it could offer you, sign up for free today.