Is Cryptocurrency Legal?
Few countries have outright bans on buying, selling, and storing cryptocurrencies. In much of the world, Bitcoin and other virtual currencies are completely legal. But before you get started with them, you should check if your jurisdiction allows it.
It is important to remember that each country has a different approach to regulating cryptocurrency activities. Make sure you’re not breaking any tax or compliance rules.
Is Cryptocurrency Dead?
The media has claimed cryptocurrencies to be dead hundreds of times over the past decade. However, it continues to perform the same way as 2009. That doesn’t mean it doesn’t fluctuate – the price fluctuates wildly. For those just trying to profit, bear markets can be frustrating.
However, it would be a mistake to describe cryptocurrencies as “dead”. It continues to attract new users, and the technology and infrastructure are only growing more complex.
The core innovations of Bitcoin and Ethereum will certainly play an important part in reshaping our existing monetary systems to better suit the current times. Immutability, censorship resistance, unreliability, or near-instant transactions using a public monetary system can radically improve the mechanism of economic activity on the Internet.
Is cryptocurrency safe?
There is a degree of risk to cryptocurrencies. If you forget your password to access your bank account, you can simply reset it through customer support.
However, if you forget or lose the private keys that give you access to your cryptocurrency, no one will be able to help you. Using a reputable exchange may be a more forgiving option – it requires trust, but you don’t risk losing your private keys.
Public key cryptography has not been broken yet. With good security measures in place, it’s more likely that you’ll have any of your other online accounts hacked than have your funds stolen. Best practices include being aware of common scams (social engineering, phishing, etc.), keeping your private keys offline at all times, and backing them up in a safe location.
Is Cryptocurrency Anonymous?
Your names are not connected to your crypto address, they look like random strings of numbers and letters on the blockchain. However, be careful assuming this makes you anonymous. You’re a pseudonym, you still have some kind of online identity, it’s not the one you use in real life.
There are certain methods that can allow people to associate your IP address with your activities. In this respect, things like dusting attacks and other analytical techniques can be used to erase your identity. Remember that blockchains are essentially giant public databases.
If you’re concerned about your privacy, you should try to get others to associate transactions with your name as hard as possible. Cryptocurrencies like Bitcoin are not private by default, but methods like coin mixing and CoinJoins can make heuristics analysis unreliable.
A small subset of cryptocurrencies (called privacy coins) can obfuscate the source, destination, and amount of transactions, using methods such as Confidential Transactions. They have stronger privacy by default, but aren’t entirely against unanonymization.
Are Cryptocurrencies Valuable?
In the financial system, value is a shared belief. Just like with anything of value, value is not inherent to the cryptocurrency itself, it is assigned by people. In other words, something has value if people believe it has value. This is true regardless of whether the valuable object is a precious metal, a piece of paper, or some bit in the database.
With all that said, some people consider cryptocurrencies and Bitcoin, something like a scarce digital good. Due to the predictable issuance rate and monetary policy, some have argued that Bitcoin could act as a future store of value, similar to gold.
Since Bitcoin is just over a decade old, it is not yet known if it will stand the test of time in this respect.
Are all digital currencies cryptocurrencies?
Is not. You may have heard that many countries and central banks are working on creating their own versions of digital currencies. However, this is only digital currency.
In fact, they are often referred to collectively as central bank digital currencies (CBDCs). These are essentially digital versions of fiat money and they don’t enjoy most of the benefits of cryptocurrencies. They are issued and declared legal tender by the central government and do not typically use a distributed ledger, such as a blockchain, to keep a record of transactions.
You may also have heard of Facebook Libra, another digital currency. On the plus side, it is planned to be built on an open source blockchain system. However, it will not be permissioned like Bitcoin or Ethereum, meaning that participants will need more than a simple Internet connection to use it. Furthermore, the project and the activities on it will be run and managed by an association of a select number of members.
So even though CBDCs and other forms of digital money use blockchain or cryptocurrencies, they are completely different from cryptocurrencies like Bitcoin.
What is the market capitalization of cryptocurrencies?
When you are looking at the price of a cryptocurrency, you only see part of the picture. An equally important metric is how many individual units of that cryptocurrency exist out there, i.e. supply.
More specifically, to gauge the value of a cryptocurrency network, you need to know how many individual units exist right now. This is called a cyclic supply. Different cryptocurrencies may adopt different release schedules, so it is important to understand how issuance works with each network.
Market capitalization (or market capitalization) is the price of an individual unit multiplied by the quantity supplied in circulation.
As you can imagine, the market capitalization of a cryptocurrency network is a more accurate representation of the value in the network than the price of an individual unit. A network with a lower priced coin but a higher circulating supply may have a higher total valuation (market cap) than a network with a higher priced coin but a lower circulating supply. And the opposite can also be true in certain cases.
Why do I need to pay a transaction fee?
If you send a bitcoin to another address, you will notice that the address receives a little less than what you sent. That’s because you pay a small fee to reward miners who added your transaction to the blockchain.
Many cryptocurrencies use a similar mechanism to incentivize users to secure the network. In a Proof of Work system, transaction fees are usually bundled with newly minted coins (block subsidies) to form the block reward.
You can adjust the fee depending on the urgency of your transaction. Rational miners will always seek to generate as much revenue as possible, so they will favor transactions with higher fees. You can review current pending transactions to get an idea of average fees and set your own fees accordingly.
I lost my key, can I get my money back?
If you’re certain you’ve lost your key, chances are you’ll never get it back.
The great benefit of cryptocurrencies is the removal of custodians and middlemen from managing financial transactions. However, the flip side of that is that the responsibility is now completely in your hands. So you need to be extremely careful not to lose your private keys, as they are secondary to giving you ownership of your coins.
What is the future of cryptocurrency?
What the future of cryptocurrency will look like depends entirely on who you ask. Some believe that Bitcoin will rise to replace gold in the digital age and disrupt the current financial system. Others argue that cryptocurrencies will always be a secondary system, existing as a niche market. We also have those who believe that Ethereum will become a distributed computer that will serve as the backbone of a new Internet.
Skeptics predict the industry will eventually collapse, while enthusiasts are content with the remaining niche monetary systems of cryptocurrencies. There are many possible outcomes – it is simply too early to say with certainty what will happen, even a year from now. But we cannot deny that there is a huge growth potential.