Get to know what the buzz is with Cryptocurency
Let us try to get some of the definitions out of the way first. Some of the Buzzwords you have probably heard of are crypto-currency or Bitcoin. These are self-explanatory however, the word ‘crypto’ refers to cryptography which is essentially really smart mathematics which can be used to encrypt or rather, to secure and verify digital data.
A cryptocurrency is a medium of exchange like normal currencies such as the Rand or US Dollar but is designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography. Cryptography is used to secure and control the transactions and the creation of new coins.
Many are of the belief that cryptocurrencies are the hottest investment opportunity currently available. Of course there have been many stories of a lot of people becoming instant millionaires overnight through their Bitcoin investments. Bitcoin is the most recognizable digital currency to date, funny enough it was just in 2016 where one Bitcoin was valued $800 which is roughly R10, 000 when converted to Rands. Fast-forward to November 2017, the price of one Bitcoin managed to exceed $20, 000 which can roughly be estimated at R250, 000. It has now been corrected to $15, 000 or in South African value it now R150, 000.
Another cryptocurrency which has emerged is called Ethereum and it is probably the second most valuable cryptocurrency having recorded the fastest rise a digital currency ever demonstrated. As of May 2016, its value increased by at least 2, 700 percent. When it comes to all of the cryptocurrencies combined, their market cap soared by more than 10,000 percent since mid-2013.
However, it is very important to note that cryptocurrencies are HIGH-RISK investments. Heavy market value fluctuates like no other financial asset out there. Moreover, it is partly unregulated so there is always a risk of them getting outlawed in certain jurisdictions which could lead to any cryptocurrency exchange potentially getting hacked.
A lot of cryptocurrencies are bought using fiat currencies in the case that it is not mined, meaning that most people use Rands, Dollars or any other country’s currency on these exchanges. If you decide to invest in cryptocurrencies, Bitcoin is obviously still the dominant one currently. However, it does not come as cheap anymore as of 2017 its share in the crypto-market has quite dramatically fallen from 90 percent to just 40 percent. There are many other options which are currently available, with some coins being privacy-focused. Some of the utility focused on others being less open and more decentralized than Bitcoin and, some are just outright copying it as Bitcoin is an open-sourced project meaning that its code could be easily copied by others.
While it is relatively very easy to purchase Bitcoins, there are a couple of exchanges in existence which trade in BTC as other cryptocurrencies are not as easy to acquire. Currently in South Africa, you can buy Cryptocurrencies from three major exchanges like localbitcoin.com, luno.com, altcointrade.co.za and many other foreign exchanges have already started to sell Litecoin, Ethereum, Monero, Ripple and others.
Depending on your jurisdiction, once you have made a profit or a loss investing in cryptocurrencies, you might need to include it in your tax report. In terms of taxation, cryptocurrencies are treated very differently from country to country. In the South Africa, the South African Revenue Service has not ruled on anything yet regarding Bitcoin and the other digital currencies. For investors, this means that their accrued long-term gains and losses from cryptocurrency trading could potentially be taxed at each investor’s applicable capital gains rate, which stands between fifteen to twenty-five percent.
In crypto-mining, miners are arguably the single most important part of any cryptocurrency network. Much like trading, mining has the potential to become a very lucrative investment. Essentially, miners are providing a bookkeeping service for their respective communities. They contribute their hardware computing power and electric energy to solving complicated cryptographic puzzles and then they are rewarded with crypto currencies, which are necessary to confirm a transaction so that they can record it in a distributed public ledger known as the Blockchain.
One of the interesting things about mining is that the difficulty of the puzzles are constantly increasing which correlates with the number of people who are trying to solve it. Meaning that the more popular a certain cryptocurrency becomes, the more people try to mine it and that in turn makes the process more difficult to manage.
Currently, Litecoins, Dogecoins and Feathercoins are said to be the best cryptocurrencies in terms of being more cost-effective for beginners. For instance, at their current value, you might earn anything from fifty cents to ten dollars in a day using only consumer-grade hardware with Litecoins.
As a cryptocurrency attracts more interest, mining becomes harder and the amount of coins received as a reward tends to decrease. For example, when Bitcoin was first created, the reward for successful mining was at fifty Bitcoins. Right now, the reward stands at 12.5 Bitcoins. This happened because the Bitcoin network is designed in a way that allows a total of twenty one million coins in circulation. As of November 2017, approximately seventeen million Bitcoins have been mined and distributed. However, as rewards are inevitably going to become smaller and smaller, every single Bitcoin mined will become exponentially more valuable.
Some cryptos can be mined and some cannot be mined. For example, Ripple has no mining or rather, no miners whatsoever. Instead, transactions are powered through a centralized blockchain to make it faster and more reliable. In cryptocurrency, miners are incentivized to process network transactions within the currency itself but, this has created a number of issues that Ripple has deemed untenable. In short, Ripple has centralized some aspects of its currency therefore it cannot be mined
These are the few experts to follow if you would like some valuable advice and direction as to where the industry is going:
- Don Tapscott — Media theorist, author of several books on Blockchain and cryptocurrencies.
- Vitalik Buterin — Creator of Ethereum.
- Brett King — Founder/CEO of Moven, bestselling author, Innovator of the Year.
- Charlie Lee — Creator of Litecoin.