Before you look for an answer to the above question, let me take you to a quick tour of Fiat currency, which forms the basis of today’s topic. Simply put, Fiat currency is recognized as a mode of transfer and regulated by the government. Its value is determined by the participants trading in it but there is no use-value of it. Speaking of it, there are questions on whether Bitcoin is a fiat currency, Bitcoin trading in Canada, or is Bitcoin safe in Canada or anywhere in the world? Well, we have got you.
Bitcoin is not a fiat currency because it’s not legal tender. But it does hold value as it’s being traded widely. Bitcoin and other coins such as XRP, Ether, etc. determine their value from the factors like demand & supply, mining cost, and the ultimate users.
All About Bitcoin Trading in Canada
This is the base for understanding Bitcoin trading in Canada. It is one of the oldest currencies was discovered in 2008 by a person known as Satoshi Nakamoto. The term ‘Cryptocurrency’ was formed with logic and for solving a definite purpose. Because ‘Crypto’ means the machine uses cryptography thereby creating more units of that currency and as a final step to secure and verify transactions on the P2P network.
Bitcoin is a cryptocurrency. A good thing about Bitcoin is that it is decentralized. No government institution can get involved because the system feeds itself on complex codes and technology. Bitcoin is born through high-speed computers used by miners who solve not so easy mathematical equations. Records are maintained in a public ledger known as Blockchain.
Is there any limit to bitcoin mining? Yes, there is. 21M is the amount of Bitcoin that can be mined. But you can purchase as low as 0.0000001 units of Bitcoin, or even lower than that. Bitcoin also has a ticker like stocks, it trades as XBT or BTC and prices fluctuate like a stock.
Every coin has two sides, so does Bitcoin. While it is impossible to be an intermediary in a bitcoin-backed transaction, it is vulnerable to attacks from hackers. Many hacks have been done till now, and the proceeds have been used for money laundering and terrorist funding.
Cryptos Based on Their Marketcap
Let’s look at the Cryptocurrencies falling in the first decile, based on their Market Cap as of 27th December 2021.
1)Bitcoin takes the lead with a market cap of $943.23B
2) Ethereum with a market cap of $474.31B
3) Binance Coin has a market cap of $92.35B
4) Tether with a market cap of $77.99B
5) Solana with a value of $59.20B
6) Cardano with a market cap of $49.79B
7) Ripple having the market cap of $43.13B
8) USD coin with a market cap of $42.10B
9) Terra with a market cap of $33.33 B
10) Polkadot having a value of $29.55B
Just the way we store our liquid cash in a wallet, Bitcoin can also be stored in a wallet that can be in your phone or computer. It can also be stored in a paper or hardware wallet. Four main types of wallets are Web wallets, Hardware wallets, Mobile wallets, and Desktop wallets.
The dynamics of a wallet are no different than the traditional one, bitcoin wallet also allows you to set keys. Two types of keys that can be set are 1) Private key – Giving you access to your currencies/coin 2) Public key – An alphanumeric key used when you want to receive bitcoin from someone.
Make sure you keep your private key safe, else you stand to lose all funds. To mitigate your concern, use hardware wallets that are offline and very secure but a tad expensive. Public and private keys can be printed on paper and can be stored in a relatively safe place.
How Legitimate is Trading Bitcoin in Canada?
Before answering is Bitcoin safe in Canada? We really need to have clarity about how much Legitimate is the bitcoin. Buying, selling, and using Bitcoin as a mode of payment to purchase goods and services wherever applicable is legal.
However, do note that the Financial Consumer Agency of Canada alludes those cryptocurrencies like Bitcoin and others that are still not legalized in Canada. What is a legal tender is the coins issued under the Royal Canadian Mint Act and banknotes issued by the Bank of Canada under its Act.
How Safe is Bitcoin Trading in Canada?
Let’s quickly dive into the topic of the day, is Bitcoin safe in Canada? We can now weigh in the upside and downside and then you as an investor can take the call if Bitcoin trading is suitable for you.
No doubt, Bitcoin is highly volatile and speculation in this asset class goes to the moon. There is still a debate going on among financial experts whether it will be legalized among many other things.
Crypto trading can make you a millionaire overnight, however, you can also lose all of what you have invested. Let me give you an example of Quadriga, where investors lost more than $200 million because of the death of its founder.
Not to forget about the impending fear of the hackers hacking your wallets and stealing everything you own. To bring the odds in your favor, make use of a regulated crypto platform and avoid using a hot wallet.
Advantages of Bitcoin
- Make some bucks trading Bitcoin.
- It offers anonymity in transactions and privacy protection.
- One of the most liquid currencies due to its market cap.
- Accepted as a mode of payment at some places to purchase goods and services.
- Exchange it with fiat currencies like USD, CAD, and many more.
- Because of its decentralized network, central banks cannot regulate.
Disadvantages of Bitcoin
- Not backed by regulators, hence in an event of fraud, you have very limited resources to help yourself.
- Because of its volatility and sometimes in absence of fundamental price movements, you are inadvertently engaged in more risk than you should take.
- Once your bitcoin wallet is being hacked, it might be impossible to recover it back.
- Bitcoin mining consumes a lot of energy and has made environmentalists more active of late to consider the existence of Bitcoin.
- With new offerings coming every new day, Bitcoin might lose its crown as the most dominant currency.
- Bitcoin is accepted as a mode of payment in only a few places and banned in many countries.
How does Taxation Work for Bitcoin in Canada?
By now you must have got the basic idea of is bitcoin safe in Canada? Let’s look into the most important aspect of any investment – Taxation. Make no exception, gains arising from trading in cryptocurrencies are taxable.
As per the CRA, this asset class is classified as a commodity under the IT act. However, it depends on how you use these currencies and report gains. Mainly you can segregate activities into 3 types. 1) Mining of cryptocurrencies 2) Accepting as a mode of payment 3) Trading.
If your business is accepting Bitcoin as a mode of payment, the value received is reported for IT purposes. For calculation, use the FX rate at the time of the transaction. Another scenario is if you used Bitcoin as a mode of payment for goods and services, an increase in its values has to be declared as a capital gain.
One important thing to note is that only half of your gains are taxable for the year. Incurring a loss helps in offsetting gains up to previous there years. For more information, you can take the advice of your tax consultant and refer to the CRA guide for more guidance.