The simple idea of a cryptocurrency is enough to make your head spin. It seems that no matter where you go or what you do, the concept just keeps cropping up. Some people swear by it, whereas others will swiftly tell you to stay away. Then there are the members of the public that have only heard some basic rumours about the currency.
Is it a lucrative investment? Is it a scam? Is the stuff even legal in most parts of the world and, if so, how?
Let’s clear up some of this cryptocurrency confusion and look at what it actually does.
What Is Cryptocurrency?
Cryptocurrency is a digital version of a currency. The owner puts forth real money into a company that provides a cryptocurrency, and in turn they receive an amount that represents that sum based on that currencies worth. The most popular examples of crypto companies include bitcoin, Doge Coin, Etherium and Litecoin. More of these companies are cropping up each year which means the top companies are likely to change at any time.
The worth of a certain cryptocurrency can fluctuate based on the stock price of the company that sells it, not the current economic climate. This means that $10 worth of a cryptocurrency can be worth more, or less than this amount depending on the status of the company at that moment. So this means that you can spend more money than you actually have with cryptocurrency, right?
Is Cryptocurrency Illegal?
A common misconception about cryptocurrency is that it is illegal in Canada. However, that is not strictly true.
A Canadian resident can choose to buy as much cryptocurrency as they like at any price. What makes the concept of cryptocurrency illegal in Canada is when it is used in the place of legal tender. It is against the law to purchase any goods or services anywhere in Canada using a type of Cryptocurrency. Only money that is distributed by the Royal Canadian Mint can be exchanged as a form of legal tender, and using cryptocurrency in this fashion is a punishable offence. Therefore, you can’t pop into the shops and buy a loaf of bread with your cryptocurrency, you have to use the currency of the country.
If that is the case then what is the point of buying cryptocurrencies in Canada?
What Is Cryptocurrency Used For In Canada?
While you cannot use cryptocurrency as legal tender to buy goods, it is not completely useless in Canada. The main reason that people choose to buy this form of currency is because of its investment opportunities.
As mentioned before, the worth of any cryptocurrency is tied to its company’s value on the stock market. This means that its value will rise and fall at a much faster rate than money tied to the economy, just like a regular stock investment.
That is exactly what buying cryptocurrency is in Canada- an investment. You can place your money into a company that you think is going to increase in value, and that can boost the value of your cryptocurrency. Once your currency is at a higher value, you can then sell it at a price that is higher than your original investment. This money that you receive from selling the currency can then be used in your everyday life.
However, if your stock falls you will lose out on some of the money that you have invested. It is a tricky balance to maintain, so always keep an eye on the market to find out how your cryptocurrency is doing. People starting out in cryptocurrency investments should look into the investment patterns of the large companies, such as Bitcoin or Doge Coin.
How To Get Cryptocurrency In Canada
Before you get started investing in cryptocurrency, you will need a crypto wallet. These wallets are a necessary computer or phone app that allows you to monitor your digital currencies. Check out Wealth Simple to find out how to invest in a crypto wallet in Canada. The country does not permit its residents to use cryptocurrency as a form of payment, but it is legal in other countries around the world.
These residents can use these wallets as proof of purchase, or to make transactions with their cryptocurrency in stores and online. Unfortunately, Canadians are not privy to these functions but it is still a handy tool to use when keeping up with your investments. Also, these crypto wallets will display how much of the stuff you have invested in for tax purposes. That element will be discussed in a bit but first, let’s look at why else you may choose to invest in a cryptocurrency.
Other Benefits Of Cryptocurrency
Cryptocurrency isn’t just a worthwhile investment for those who know how to play the stock market. This digital currency comes with a slew of other benefits that most investors do not even consider.
Firstly, this digital currency has a ton of security benefits. Every bit of cryptocurrency features a digital code that is unique to that lot. This string of data is used as a tracking device, which means that no one else is able to use the currency that is owned by you. If someone does happen to steal it, the offender can easily found and their purchases are made void. This means that it highly unlikely that you will be a victim of fraud when you use cryptocurrency. Many business owners choose to use this benefit to their advantage. If you have a lot of money tied up in your business, you can convert it to crypto to keep it more secure.
Also, cryptocurrency is immune to inflation as it is privately owned. Put simply, inflation is a phenomenon that occurs when the economy dips and this causes the value of the local currency to be worth much less than it was before. However, if your money is exchanged into a cryptocurrency its value will not change as a result of the economic shift. This benefit will also give cause for more people to look at more stable investment opportunities, such as cryptocurrency. This means that your crypto company’s stock is likely to rise in these situations, giving your initial investments a boost.
With this protection from the economy’s flaws, we can also see another benefit of using cryptocurrency. Many people choose to exchange their money into cryptocurrency before travelling to a country that uses a different currency. By doing so, they can experience a flatter rate of exchange than if they traded their home currency straight into foreign tender. What’s more, their little investment can receive a boost while they are away. Again, check the laws of your country before attempting to use this perk.
Things To Be Aware Of When Using Cryptocurrency In Canada
Using cryptocurrency as an investment opportunity is a fair and legal way to use the stuff in Canada. However, there are some people out there that will use this digital currency in a negative way. That is why you should be aware of some of the other legal complications that come with using cryptocurrency. These aren’t to be considered as negatives, just some things you should know before investing.
Unfortunately, transferring money into cryptocurrency has provided some criminal organisations with the means to evade tax or launder money. That is probably one of the main reasons that you cannot use this form of currency as legal tender. As a result, it is important to declare any money that you have converted to the appropriate authorities. This doesn’t mean that you should alert the police, but make sure that you make a note of these exchanges on your tax forms. Your currency is clearly displayed in your crypto wallet which makes declaring these transactions easy. Also, try to look into a company before making an investment. If a deal look to good to be true then it probably is. There is always going to be someone out there that finds a way to trick people out of their hard earned cash. Don’t let this be you.
Furthermore, it is important to note that cryptocurrency is taxed at the normal rate in Canada depending on how you use it. Cryptocurrency that is earned as part of an investment opportunity for a business is likely to be taxed as property at 100%. If you choose to do it privately for personal gain it will be taxed at 50%, as a normal household income would. However, you will not be taxed for conversions or holding cryptocurrency. It is only in the event of a profit that you will have to pay tax.
While this article has demonstrated how cryptocurrency can be used legally in Canada, every country will have its own laws. Always check before exchanging crypto overseas. Your investment might be legal in Canada, but elsewhere you could face criminal charges.
Conclusion
As you can see, the basic use of cryptocurrency is legal in Canada. However, you are only allowed to use it as an investment opportunity and not for purchases. Keep a look out for any changes to the law and do your research before committing to a crypto investment.
