What is Cryptocurrency and Where Can I Buy in Canada?
What is cryptocurrency?
Cryptocurrency prices have skyrocketed and as a result, more and more people are now investing in them. A cryptocurrency is a form of digital currency that serves as a medium of exchange like the CAD the only difference is that it uses algorithms from the computer and has no affiliations to a single country. The first type of cryptocurrency that was developed was the Bitcoin. Digital currencies are not governed by any centralized body they operate based on a peer to peer network where people transact with each other using digital currency and their computers.
Cryptocurrencies are now popularly accepted all over the world and can be used for so many transactions including buying and selling over the internet. There are online stores that accept Bitcoins as a choice of currency to buy goods. Cryptocurrencies transactions are kept in a public ledger also known as blockchain which is publicly displayed.
What is blockchain?
The blockchain technology is like a digital bank account. It keeps information like wallet addresses, account balance, as well as the public keys of the sender and recipient.
Legal status of cryptocurrencies in Canada
It should be known that these digital currencies are not legal tender in Canada. The Canadian Dollar is still the only official currency used in Canada. Cryptocurrencies are not legal tender because the Currency Act’s definition of Legal tender recognizes banknotes issued by the bank of Canada and coins issued by the Royal Canadian Mint Act as the only form of legal currencies in the country. The Canadian Government does not support digital currencies nor do any central authority in the country like the Bank of Canada. Banks and Credit Unions in Canada also do not operate with digital currencies.
Even though digital currencies are not legal tenders, it is surprising however that they are taxable. Any transaction or items bought using cryptocurrencies are subject to Canadian Income Tax Act.
When goods are bought with cryptocurrencies, they are included in the seller’s income because of tax. GST/HST are applicable with the value of the goods bought with cryptocurrencies. Also, the tax is charged when trading cryptocurrencies. It is mandatory that people operating in trading of cryptocurrencies file their gains or losses when filing their taxes. It is illegal not to do so in Canada.
Where to buy cryptocurrencies in Canada?
• Exchange Market
Cryptocurrencies are available online through exchange platforms where one can easily buy bitcoin or any of these digital currencies in their local currencies. The cryptocurrency market cap operates exactly like the real stock exchange market. Digital currencies operate like a regular bank account where one can check their recent bank transactions and balances. To operate digital currencies effectively, you will need a cryptocurrency wallet which will provide the user with an address that can be used to store and transfer their currencies. Many exchange platforms have digital currency wallets which store bitcoins in cloud.
You can get cryptocurrencies from Coinsquare, Coinmama, Coinbase, Kraken etc. Coinsquare is the most popular exchanger in Bitcoin Canada and they also trade in Ethereum. To operate a digital currency wallet, you will need a “public key” and a “private key”. The public keys are used for wallet recognition while the private keys are used to unlock the users’ wallet so that you can access your money. It is advisable to keep these keys secretly for security purposes and to protect your account from hackers.
• Automated exchangers
These are also popularly known as Bitcoin ATMs. They are real ATMs that give users the opportunity to buy bitcoins with cash and also getting cash in exchange of bitcoins. These ATM machines are different from regular bank ATMs as they give the user anonymity. The transactions conducted on these machines are not monitored by any central authority or credit card merchant. The ATMs are available in different parts of the world and their rates vary from place to place. A transaction fee is usually charged for each transaction that takes place using the machine.
What the Bitcoin ATM does during transactions is that it reads the cash that is inserted and then converts it to the value of Bitcoins. After the conversion, the equivalent is then transferred to the users Bitcoin address entered.
• Mining Cryptocurrencies
Cryptocurrencies mining is another method to acquire digital currencies. They can be mined using a computer’s process monitor and it decrypts transactions using a computer program in the payment system. The mining process creates a Blockchain which is normally maintained by a computer network distribution program which solves cryptographic puzzles contained in the Blockchain.
When mining Bitcoins, the computer running the Bitcoin mining software completes a block and it will be rewarded with Bitcoins. The method of creating one block can be slow because there are a lot of computers all over the world currently used to encrypt blocks. The solution to this is that people invest money in getting a high-end computer hardware to generate the Bitcoins. Even with the high-end computers generating Bitcoins, it is still difficult because more people are getting these machines and in turn, it slows down the rate at which new coins are generated.
It is slower to mine cryptocurrencies and the cost eventually doesn’t really make it worth all that time.
Risks in trading cryptocurrencies
Trading with digital currencies is very risky as it has fewer protection unlike regular accounts.
Very limited customer support because complaints are not handled properly like other financial options.
Wallet can easily be hacked and the wallet providers do not guarantee the user would be able to retrieve his/her funds back once there is a problem.
There is no insurance on deposits
The user has the responsibility to protect his/her digital wallet
Digital currencies deposits are not insured by the federal government. For instance, the Canada Deposit Insurance Corporation protects Canadian Dollar deposits made in financial institutions.
Investment in cryptocurrencies is very risky because if the exchange platform goes bankrupt, the user won’t be able to get his funds back. Also, their value can fall at any time as a result of the fluctuation in prices. Cryptocurrencies are not predictable. Cryptocurrencies are subject to fraud and are easy targets for hackers so be sure to use a trading platform that can guarantee you at least 90% security.