Making your cryptocurrency financially and technically safe

August 26, 2021  |  Karoline Gore

types of cryptocurrency in coins

 Photo by Thought Catalog on Unsplash

This blog was written by an independent guest blogger.

Cryptocurrency is a fantastic way for people to invest their money in a technologically progressive and versatile way. However, it is also subject to considerable volatility and, as the IRS’s June announcement of a huge $2.3 million confiscation indicated, insecurity. Cryptocurrency and the regulation that surrounds it is undergoing vast change, with market forces changing on a whim every single month. Protecting yourself and your assets is something both achievable and urgent, from the financial/regulatory side through to the protection of your wallet and hash code.

The tax situation

As soon as they could be regulated, cryptocurrencies have been taxed. Right now, cryptocurrencies are subject to capital gains taxes and are treated as a physical asset. Like any other currency holding or stock or share, you will pay for your gains and sales on cryptocurrency - and it is crucial to report any income of this type. CNBC have reported that the senate is now cracking down on misreporting of cryptocurrencies. This means that the IRS will have greater powers to fill what is estimated to be a $28 billion cryptocurrency tax gap. Things are about to get serious for cryptocurrency gains and reporting - ensuring that you are on the right side of the law, right now, will keep you in the clear.

Using the right product

Where you store and exchange cryptocurrency is important. In the UK and Malaysia, regulators have banned popular exchange Binance according to the BBC. It’s important that you make sure you are not using services that are questionably legal within your state and indeed the wider country. This can be asking for trouble, and the regulators have indicated, as above, that they are looking to recoup the maximum profit from cryptocurrency and ensure that taxation and fine parity is reached. Of course, this only applies to active trading or when you have funds held in escrow or in options - for the actual wallet of your cryptocurrency assets, there’s another consideration.

Crypto wallet

As MarketWatch explains, there can only be one way that federal agents were able to actually seize the $2.3 million tied to the Colonial Pipeline cyberattack announced by the IRS - shoddy password use. Using public blockchain explorers, they traced the funds back to the respective wallets, and then, when they were sure the accounts were the ones they were hunting, they used software to crack the accounts and transfer the holdings to federal accounts. If the government is potentially using this software, anyone can, and more malicious actors will likely use more sophisticated tools. It’s absolutely crucial that you use a high-quality cryptocurrency wallet and follow good digital hygiene - that means complex passwords, two-factor authentication, and extra approval on any transactions.

Bringing yourself up to date will enable you to have peace of mind while trading. Cryptocurrency is a huge opportunity, but changes in the market make it risky, too. Ensure that the technology and habits underpinning your trading work for you.

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