Are We Still Buzzing Around Cryptocurrency l Canny Accounting

ARE WE STILL BUZZING AROUND CRYPTOCURRENCY?

Cryptocurrency was the buzz word for much of 2017 and it seems 2018 has many of us even more captivated.  Nearly everywhere you go or look you can be sure that someone is talking about or making reference to cryptocurrency.  Fast forward years down the track to 2021 and cryptocurrency has proven itself to be a strong player in the exchange market providing extraordinary returns over the past decade since it first hit the scene.  So, are we still buzzing around Cryptocurrency?

Cryptocurrencies use cryptography to secure transactions and regulate the creation of additional units.  Bitcoin, the original and by far the most well-known cryptocurrency, was launched in January 2009.  Today there are well over 1,500 different cryptocurrencies available online.

Cryptocurrency is a digital asset designed to work as a medium for exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.  Putting it simply – it typically does not exist in physical form, like how we see actual paper money today, as well it is typically not issued by a central authority.

The total value of all cryptocurrencies on 27th January 2021, was in excess of $897.3 billion, according to CoinMarketCap, a market research website and the total value of all bitcoins, the most popular and well-known digital currency, was pegged at approximately $563.8 billion!

Let’s talk Bitcoin!

Bitcoin is credited with being the first decentralised cryptocurrency.  Like all , was more that $cryptocurrencies, it is controlled through a blockchain transaction database, which functions as a distributed public ledger.  Bitcoin was created by Satoshi Nakamoto and it’s been a mystery whether the name refers to an individual or a group, to this day it is still unknown.

A feature of most cryptocurrencies is that they have been designed to slowly reduce production and some have an absolute limit to supply.  Consequently, in some cases on a limited number of units of the currency will ever be in circulation.  For example, the number of bitcoins is not expected to exceed 21 milion, whereas cryptocurrencies such as Ethereum work slightly differently.  Issuance is capped at 18 million Ethereum tokens per year, which equals 25% of the initial supply meaning overall limiting the number gives it a greater value.

Today there are more than 6,700 different cryptocurrencies that are traded publicly, according to CoinMarketCap.com, a market research website.  Cryptocurrencies continue to proliferate, raising month through initial coin offerings, or ICOs.

How it all started…

In 1983, an American cryptographer David Chaum conceived an anonymous cryptographic electronic money called ecash.  Some years later in 1995, he implemented it through Digicash, one of the early forms of cryptographic electronic payments which at that time required used software in order to withdraw notes from a bank and designate specific encrypted keys before it could be sent to the recipient.  This was the beginning of the digital currently and its untraceable nature by the issuing bank, the government or any third party.

Cryptocurrencies differ significantly from traditional currencies as they use blockchain technology to create a distributed ledger.  Nonetheless, you can still buy and sell them like you can with any other currency and you can also trade on the price movements of various cryptocurrencies via CFDs.

Initially designed to provide alternative payment methods for online transactions however, cryptocurrencies are not yet widely accepted for all transactions as some consider them to volatile to be suitable as methods of payment, even with its strong presence on the currency exchange.  As a decentralised currency, it was developed to be free from government oversight or influence, and the cryptocurrency markets are instead monitored by peer-to-peer internet protocol.

Thinking of investing?

Like with all investing you need to do your research before diving in. You also need to make sure that you are invested in line with your specified risk profile.  You can invest in shares, cash, property and alternative assets; which is where Cryptocurrency would fall.  Given the high risk and volatility involved, it would be recommended that the percentage of your total investment portfolio is limited, unless you’re willing to risk everything you have.

Bitcoin is back in the headlines, having soared from $13,700 AUD in July 2020 to $26,400 AUD by early December.  It’s no secret that we’ve seen cryptocurrencies skyrocket before, but this time around the technology has matured and society is rapidly shifting to digital payments, and low returns on cash are encouraging investors to explore new options.

It’s also important to find out any tax implications before investing.  As like with any money-making schemes, the ATO want to ensure that they are receiving their fair share.

There are a few things that you would need to do before you start trading, aside from speaking to our advisory team to work out and understand your risk profile, you would also need to speak to our accounting team to consider any tax implications before investing!

The future of Cryptocurrency

Blockchain and cryptocurrencies have moved, by any metric, far from the earlier days of conceptual understanding and technical curiosity and have now become part of the mainstream business conversation.  Depending on who you ask about the future of cryptocurrency, you will always get different answers.

Optimists have a good reason to maintain their positive outlook.  Despite the COVID-19 pandemic and all of the economic chaos that our country experienced throughout 2020, Bitcoins mid-November 2020 run has surpassed all expectations and the cryptocurrency is approaching another all-time high.  Since December 2020, Bitcoin has more than doubled its value, and some believe this is just the beginning of a long run.

So, what are the risks?  One of the major risks of Bitcoin is that it remains incredibly volatile.  It can shoot up over a short period and in the blink of an eye can shoot down in a matter of weeks, days or even hours!  Moreover, there are security threats that can arise like a 51% attack, where miners gain majority control and disrupt transactions.  Not unlike how we are always on high alert in todays day and age with the scammers that are furious trying to scam money from anyone and anyone that will give them more than five seconds on the telephone before being scared into thinking the federal police are at their door because they have an outstanding warrant.

Like everything in like, there are risks that need to be taken into consideration, but with the right advice and the right people supporting you, our team at Canny Group will be with you every step of the way to be able to ensure you are fully aware of the risks when it comes to your investments.