Do you have friends or family members who can’t stop talking about the world of cryptocurrency? If you are trying to get your head around the complex world of crypto, here’s everything you need to know!
What is cryptocurrency?
Imagine you have money, but instead of physical coins or paper bills, it exists only in a digital form. That’s cryptocurrency! It’s a type of virtual currency that you can use to buy things or exchange with other people just like regular money.
The special thing about cryptocurrency is that it’s not controlled by any government or bank. Instead, it operates on a technology called “blockchain”. Blockchain is like a big digital ledger that keeps track of all the transactions, making them secure and transparent.
Each cryptocurrency, like Bitcoin or Ethereum, has its own unique value, and people can buy or sell them on special websites called “exchanges”. Since the value of cryptocurrency can go up and down a lot, some people see it as a way to invest and make money, but it’s also risky because it can change in value quickly.
Is cryptocurrency a good investment?
People invest in cryptocurrency for various reasons.
High growth potential
Some cryptocurrencies, like Bitcoin and Ethereum, have experienced significant price appreciation over time. Early adopters of these digital assets have seen substantial returns on their investments, attracting more investors seeking similar growth opportunities.
Cryptocurrencies operate on decentralised networks, meaning they are not controlled by any central authority like banks or governments. This decentralised nature appeals to individuals who value financial autonomy and want to avoid the influence of traditional financial systems.
Cryptocurrencies offer an additional diversification option for investors looking to expand their investment portfolios. As a separate asset class from traditional stocks and bonds, cryptocurrencies can potentially reduce overall portfolio risk.
Cryptocurrencies enable financial inclusion by allowing access to financial services for people who are unbanked or underbanked. With a smartphone and internet connection, anyone can participate in the global economy using cryptocurrencies.
Cryptocurrencies facilitate cross-border transactions without the need for currency conversions or intermediaries, making international payments faster and more cost-effective.
Hedge against inflation
Some investors view cryptocurrencies, particularly Bitcoin, as a potential hedge against inflation and devaluation of fiat currencies. Since cryptocurrencies have a limited supply, they may retain their value better in times of economic uncertainty.
What’s the catch?
Despite these benefits, it’s important to note that investing in cryptocurrencies comes with significant risks. Cryptocurrency prices can be highly volatile, and the market is relatively young and subject to regulatory uncertainty. If you are thinking about investing in cryptocurrency, you should always approach it with caution, conduct thorough research, and only invest what you can afford to lose.
Exploring the world of Cryptocurrency can be an overwhelming and confusing process, especially when it comes to investment strategies and taxation. Seeking support from a cryptocurrency expert is the best way to minimise the risks and maximise opportunities.
Written by APS Senior Accountant, Stephen Fry.
Stephen is an accountant with over 13 years of professional expertise in the areas of taxation and accounting. Currently serving as a senior tax accountant at APS Tax, Stephen offers comprehensive guidance and ensures compliance in all tax-related matters. He has developed a specialised focus in areas such as self-managed superannuation funds, cryptocurrency taxation and leveraging software and technology to assist clients in streamlining their processes. Beyond his professional pursuits, Stephen cherishes quality time with his family and enjoys unwinding on the golf course. On the weekends he also enjoys following the AFL and watching British comedy television.