It can be very tempting to jump right into the world of cryptocurrency and start trading it, buying and selling it, or even mining it. However, it can be quite a complex thing with a lot of different factors to understand, especially if you are planning to make it a large part of your income.
If you are ready to start looking into crypto for yourself, then here is what you will want to know ahead of time. The more you prepare, the better the entire process of handling cryptocurrency can be.
Understand Your Chosen Currency
Not all cryptocurrencies are the same. While many people see Bitcoin as the de facto standard cryptocurrency, that is not actually true. Plenty of other crypto types have their own unique gimmicks or details that you will need to consider when using them, especially if they are tied to something else.
For example, Ethereum uses ‘gas’ as part of its mining process, which is a term that refers to the computer power that helps keep the blockchain network running. Other currencies have specific terms for certain things, or can only be mined in certain ways, and have limits on how they are used.
Remember that every cryptocurrency has particular market caps as well. Dogecoin has no cap and can just keep being generated forever, while others have systems that slowly erase coins if the total supply exceeds a certain amount. Some even have a constantly changing maximum limit.
Know Your Own Limits
Cryptocurrency is not a guaranteed money-maker. If you decide to dump all of your money into a random type of crypto and its price crashes, then you have lost that money. Be careful, think things over, and do not commit more than you can afford towards a single purchase.
If you are not intending to buy and sell crypto and just want to use it as an alternative currency, this still matters. If you are spending more than you can afford, then you are putting yourself at risk since all cryptocurrency carries an inherent chance of crashing at any moment with no warning.
Prepare for Tax
In many countries, cryptocurrency is taxed. While this varies from place to place and often relies on certain rules that might only apply in certain situations, it is important to understand. Tax can be a difficult thing to calculate if you are not used to it, and many people do not expect it with crypto.
Some countries and states see cryptocurrency as a currency, which means that your earnings are taxed in the exact same way as conventional money. This is easy enough to figure out and does not usually require much more effort, other than knowing how much the crypto is worth.
However, others class it as an asset. This means that making a profit with your crypto opens it to taxation but also has the benefit of allowing certain exemptions for personal use. If you are using crypto for business reasons, then you often have to pay the regular business tax on it.
Be sure to look into your tax laws before you start using crypto, just in case you miss something. A good cryptocurrency tax guide can help a lot.