What is cryptocurrency?
Cryptocurrencies such as bitcoin, ether and tether are digital assets. Learn how crypto works, plus the risks of crypto investing.
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Cryptocurrency is a digital asset based on a decentralized network of computers located in various locations around the world, known as the blockchain. This new currency system enables peer-to-peer transactions without the intervention of banks or other financial institutions, and cryptocurrency can be used to prevent fraud or counterfeiting.
However, investors should also beware of crypto scams. In just the first half of 2024, Canadians lost $51.6 million to crypto scams, reports the Canadian Anti-Fraud Centre (CAFC). Canadians who wish to buy bitcoin, ethereum and other crypto assets should look for a credible crypto trading platform that has been approved to do business in Canada by securities regulators.
It is also possible to gain exposure to crypto without buying it directly. Canada was the first country to launch a bitcoin exchange-traded fund (ETF), and now investors can choose from a dozen Canadian crypto ETFs.
Investors should also note that cryptocurrency gains are taxed, except for crypto ETFs held inside a registered account such as a tax-free savings account (TFSA) or registered retirement savings plan (RRSP).
Example: “I just bought some cryptocurrency, and one day I hope to buy a new car with it.”
Read more on cryptocurrency:
- Should you invest in cryptocurrency?
Bitcoin and other cryptocurrencies have captured the attention of investors around the world. But crypto is frighteningly volatile, and should be approached with caution. Here’s what you need to know. - Altcoins vs. bitcoin: What to consider while building your crypto portfolio
Should you put all your money into one type of crypto coin? Find out the difference between altcoins and bitcoin and how each can affect your portfolio. - What are the risks of trading crypto?
Before you invest in bitcoin, ethereum and other cryptocurrencies, understand how to manage their risks—including the errors you might make. - How to invest tax-free in a bitcoin ETF in Canada
You can’t hold crypto in a registered account, but you can hold crypto ETFs. Just keep these pros and cons in mind.
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