First thing that comes to our mind when we talk about cryptocurrency is Bitcoin. A widely popular form of digital currency, Bitcoin gained worldwide fame in the last few years. Invented by an unknown person or group, going by the name Satoshi Nakamoto, Bitcoin was invented in 2009.
Bitcoin, Litecoin, Ethereum, Ripple and more are just a type of cryptocurrency developed on the Blockchain technology. What is it that makes cryptocurrencies so popular? Let’s learn about that in this article.
Cryptocurrencies are a type of digital money that have no physical presence and are created as a reward for a technological-process mining. The Blockchain, a string of encrypted blocks, is used to code and create cryptocurrencies.
Cryptocurrencies have become hugely popular as a method for digital transaction as Blockchain provides a secure and fast process in comparison to other payment methods. These have also been used for running programs and executing contracts as well as for trade purpose.
What are Some Popular Types of Cryptocurrencies?
- Bitcoin – Developed as a global payment system has gain popularity as an investment. The bitcoin network consists of Bitcoin miners who are awarded Bitcoins when they validate a transaction done through the network.
- Litecoin – Created on the same network like Bitcoin, it is also termed as lighter Bitcoin version as it provides a fast transaction process.
- Ethereum – Perhaps the most robust, secure and efficient cryptocurrency based on the Blockchain technology, Ethereum runs open software programs. It helps network members utilise a single decentralised platform to process many functionalities, including processing transaction, creating and running programs and contracts
As the integration of Blockchain technology is still in its nascent stage, there are many more in the developing phase that will completely pave and improve the way cryptocurrencies will be utilised in future.
How Blockchain is Being Used for Creating and Using Cryptocurrencies?
The Blockchain is block-build decentralised database which means it is an open network without any server or an owner. If you are a member of a Blockchain network then you are able to access the data. Whenever any transaction is done and validated by a member, or if they solve complex cryptographic puzzles or execute contracts and do other functions, they earn or create currency unit known as mining. Blockchain transactions are secure and safe as it tracks each and every transaction on the network.
How Cryptocurrencies are Stored Digitally?
Cryptocurrencies like Bitcoin are kept and stored in digital wallets. The digital wallets are then used to pay where cryptocurrencies are accepted, however these are still recognised as legal tender at many places.
Is Investing in Cryptocurrency a Good Idea?
Considering the projected future growth for Blockchain technology and the use of digital currency for enhanced security and fast process, investing in cryptocurrencies can yield great financial gains.
There are several risks at present you must be aware of:
- There is no specific regulation on trade of cryptocurrencies so in absence of any proper regulation your investment is not protected if there is any loss or other issues.
- With no regulated process in place for digital wallets, you could become a target of money laundering.
- Without any guarantee by banks or financial bodies, you cannot project what will be the value of the cryptocurrency in future.
- It is all based on popularity and if the concerned network is seeing high-end member activities. The value can dramatically fluctuate.
What Cryptocurrency Tax Norms are followed in Australia?
Like many other countries, Australia too has seen a surge in cryptocurrency mining and trade. Therefore there are some regulations and tax laws being implemented:
- If your digital wallet contains cryptocurrency lower than $10,000 in value and is transacted for personal goods and services, you are not taxed.
- For any other purpose, however, your earnings are taxed as detailed below:
- When you pay for any business activity using cryptocurrency it is taxed.
- The profits made when mining cryptocurrency is assessed as taxable income.
- The profits from trading virtual currencies come under taxable income.
- When you keep digital currency as an investment and then earn profits selling it, you have to pay capital gains tax.
- When you sell and buy Cryptocurrency through Exchange, the profits you make is taxed.
If you are looking to know more about mining or trading and investing in Cryptocurrency, then it is best to conduct a thorough research on your end and consult a professional.