Buying and spending with crypto comes with so many advantages. Not even the government comes between buyer and seller as a third party. It is fast, efficient, and secure if you follow best practices.
Nonetheless, the lack of proper regulations might also expose you to serious risks, fraud, scams, taxes, and legal mistakes. In fact, a report by Chainalysis shows that despite a 46% decline, crypto scam revenue was a whopping $5.9 billion in 2022. So before sending funds to that crypto address or investing in that “next bitcoin,” you must look out for these four things.
1. Transaction Venue
One of the things to consider is: Where will you buy or spend your crypto?
The increasing adoption rate of cryptocurrencies is seeing more businesses accept different cryptocurrencies as modes of payment. These include online retailers like Shopify, travel companies like Expedia, online casinos, gift card companies, and, of course, crypto exchange platforms where most cryptocurrencies are bought and traded. In a few years, crypto might be as popular and widely accepted as fiat currencies.
However, the industry is still developing, and many countries have yet to implement robust regulatory infrastructure for control and ensuring consumer security. As a result, buying and spending crypto is associated with some risks of scams and fraud, depending on the transaction venue. If you are asking if bitcoin can be hacked, the answer is yes and no, because while it can’t be hacked, it can definitely be intercepted.
So, at this time, it appears that your crypto’s security lies in your proactivity and discerning abilities. You should check out user reviews before using a crypto checkout option online or make a thorough comparison of crypto casinos by consulting their site reviews by past users before settling for one.
Be safe!
2. Volatility
The value of Bitcoin (BTC) — the first and most popular cryptocurrency —- reached an all-time high of over $65,000 in November 2021. Fast-forward a year later to November 2022, it closed at 1 BTC to $17,600.81. And now, in November 2023, its current price is 1 BTC to $36,980.79.
The point is that no one can say with absolute certainty what its price will be in November 2024 or tomorrow. This uncertainty is due to the highly volatile nature of cryptocurrencies. This is something you should consider and prepar for before buying or spending cryptocurrency.
Most investors use the underlying business principle of “buying low and selling high.” This principle translates to the rule of thumb of buying cryptocurrencies when their prices are low. We can’t forget in 2010 when the cost of two Papa John’s pizzas was 10,000 BTC; imagine selling those same 10,000 BTC when the price is high, like in November 2021.
However, even that won’t prepare you for the cryptocurrency market’s volatility. For instance, LUNA, Terra Network’s token, which was widely considered by many as the next big thing, experienced a price decline from $120 to zero in May 2022.
There are a lot of factors at play, and you need to prepare for them before buying or spending your crypto. On this premise, the man who spent 10,000 BTC on two pizzas might have spent a bit too early. Likewise, someone who bought in November 2021 might choose something else if they had a do-over.
This of course poses problems when using crypto as a payment method, and it’s especially true when gambling. The funds you win might be worth less when you withdraw them, although the reverse is also true and you could find you won more than you thought. In either case, you should prepare for both eventualities.
3. Taxes
Nothing in this world, they say, is constant except death and taxes.
Now, despite cryptocurrency’s bright future, regulations around it are not quite mature at the moment, but you can’t exactly say the same thing for the market revenue. And you best believe the government is getting its slice of that giant cryptocurrency pie.
Currently, crypto taxes work a lot like stock taxes, especially in the US: Your profit on the sale of holdings is taxed by a certain percentage, just like taxes on capital gains in the stock market, and you’re allowed to make deductions when you incur losses. Furthermore, purchasing goods and services also attracts taxes, sometimes depending on the nature of the purchase.
You want to ensure your purchases and acquisitions put you in the best possible position regarding taxes.
You should also know that the statutes are constantly changing. So, you should update yourself constantly with the current developments. If that sounds too taxing (so to speak) to you, it is advisable to acquire the services of a certified accountant or tax consultant. Furthermore, you can also take advantage of the various tax preparation software packages that multiple crypto exchange platforms are integrating into their platform.
If you’re going to gamble with crypto, there are also varying tax laws. For example, in the UK, gambling winnings are not taxed, but profits from investments are. So, where do we draw the line between gambling and investing when it comes to crypto?
Whatever you do, consider taxes.
4. Legality
Despite businesses’ wide adoption of cryptocurrencies, some countries have yet to legalize their use. Furthermore, many countries that have legalized crypto have stringent regulations that must be met by businesses and individuals buying or spending them. Many are not up-to-date with these requirements, and buying and spending your crypto with these businesses might put you on the wrong side of the law.
Getting involved with crypto is supposed to give you capital gains, transaction ease, borderless transactions, and a host of other benefits. It would be a shame to expose yourself to legal implications instead of taking advantage of crypto benefits.
For instance, the US Securities and Exchange Commission (SEC)’s federal securities law mandates that a company must be registered with it before it can offer or sell securities. And registering with the SEC requires the issuer to disclose key information about its offerings, the company, and the securities. However, many companies offer these services to the public without meeting these requirements.
In summary, you need to be legally conscious about the crypto you buy or spend and the company you transact with before buying or spending crypto.
Conclusion
Cryptocurrency’s bright future shows it might be the future of financial transactions. But it’s too early to tell. Currently, you can buy and spend crypto on many platforms. However, doing this might open you to serious security, legal, and financial risks. So you must be careful.
Ensure you consider your transaction venue, crypto volatility, taxes, and legalities before buying or spending crypto.
It’ll do you so much good.