You’ve all heard of Bitcoin and Etherium, but what about Dogecoin or Halcyon? None of them are made up and at least one of them is a scam. The world of cryptocurrency is mysterious, and prone to hyperbole and deception, as IA critical thinker John Turnbull discovers.
Rat Poison Squared
Rich white man Warren Buffett recently described Bitcoin as “probably rat poison squared”, pointing out that the value of cryptocurrency is based purely on speculation rather than anything tangible.
Crypto-evangelists like Sam Ling and Panos Mourdoukoutas argue that the bugs are just being worked out and crypto is totally the currency of the future, although it’s telling to note the Forbes' editor’s note on Mourdoukoutas recent takedown of Buffet’s views:
‘Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.’
Of course, it’s long been accepted that high return investments come with an associated high risk, but are the risks of putting your money into cryptocurrencies really any different to any other type of investment?
Let’s take a step back — what are cryptocurrencies?
Cryptocurrencies are decentralized digital currencies based on a complex encryption system called blockchain. The first cryptocurrency was Bitcoin, created in 2009 by Satoshi Nakamoto as a peer-to-peer electronic cash system that kept track of every transaction within the currency itself. The currency was adopted quickly by the dark web, being used most frequently to buy drugs via sites like Silk Road.
The value of cryptocurrencies is determined by how much the market is willing to pay, which saw Bitcoin’s value increase exponentially during 2017, topping out at just under $US20,000 per coin. At time of writing, Bitcoin was valued at $US6,529 per coin — but that’s not necessarily the value you’ll get if you try to spend it. That’s because Bitcoin transactions aren’t free, with an analysis by CNBC concluding that transactions cost an average of $US28 each. And of course, not everyone accepts Bitcoin as legal currency…
Where do cryptocurrencies come from?
Cryptocurrencies need to be mined, using high-end computers and the SHA 256 Hash algorithm. Anyone can mine cryptocurrencies, but it takes a lot of time and a huge amount of power — a recent estimate from Digiconomist stated that mining Bitcoin alone uses more energy annually than Ireland or the Czech Republic.
Somewhat amusingly, many of the earliest Bitcoin miners started mining to fuel their Silk Road habits and when the site was eventually shut down in 2013 and its creator given two consecutive life sentences, totally forgot about their bitcoins. When the currency spiked in 2017, these former stoners were suddenly rich — if they could find the computer with their coins on it.
Pretty much anyone can set up their own cryptocurrency, which is why the sector is so prone to scams and dodgy business practices — as evidenced by the number of dead coins out there.
What’s a dead coin? Some sort of pirate thing?
Well, yes, sort of. A dead coin is a cryptocurrency that is no longer (or never was) trading on the open market. Website deadcoins.com currently lists 832 dead coins, with almost every one accompanied by stories of people being ripped off and unscrupulous bastards running away with people’s money as soon as the opportunity presented itself.
Dead coins are a great representation of the dodgy side of cryptocurrencies — they’re an easy scam on people who want to make a quick buck. The biggest trap seems to be hyping up an Initial Coin Offering (ICO) and then dumping the coin, resulting in a few “in the know” people making money and hopeful investors losing everything. There’s also the standard Ponzi scheme, where investors are encouraged to attract new investors to artificially maintain the value of the currency, along with the expected plethora of malware, spyware and Nigerian Prince approaches.
I met a guy who claimed to make a million in Bitcoin, tax free
Yeah, we’ve all met that guy. He may have made a million in crypto, theoretically, but he probably made significantly less unless he sold at the peak. But either way, it isn’t tax free.
The Australian Taxation Office states:
If you use bitcoin for a personal use and have a capital gain or loss of $10,000 or more from the disposal of the bitcoin, capital gains tax will apply.
Although it's referred to as capital gains tax (CGT), this income or loss is actually part of your income tax, not a separate tax. You need to report capital gains and losses in your income tax return and pay tax on your capital gains.
The bottom line is; if you sell your cryptocoins and make a decent profit, you’ll need to pay tax.
You’re just a luddite, man
Possibly. But many of the governments around the world are in the process of putting regulations in place around cryptocurrency. Banned outright in Equador, Bolivia, Cambodia and Bangladesh (generally due to money laundering concerns), regulations are increasing in China and politicians in Iceland are lobbying to ban crypto mining due to the massive strain it places on their energy grid.
Despite the high level of fraud and the continued sluggish performance of Bitcoin, the cryptocurrency bubble is far from over. Since 2009, over 4,000 virtual currencies have been created, with over 500 cryptocoins launched in 2018 alone. There are a plethora of pro-crypto sites out there and, if you believe what you read on most of them, your financial future is assured.
Not all cryptocurrencies are scams and there is a chance that crypto really is the currency of the future. But if someone approaches you with an offer that sounds too good to be true, be wary. Oh! And there’s no such thing as a physical Bitcoin, so if someone tries to sell you one of those, you’re definitely being conned.
Think for yourself!
Books by John Turnbull are available on Amazon and Kindle, including supernatural thriller Damnation’s Flame; action/romance Reaper, black comedy City Boy and travel guidebook Bar Trek: Europe. Damnation's Flame by John Turnbull is also available in paperback in the IA store HERE (free postage).
India's Ruling Political Party Allegedly Involved in $763 Million #Bitcoin #Scam. Report talks of “multi-layered” scam estimated at over Rs. 88,000 crore ($12 billion). However, that figure would imply ten percent of bitcoin’s total market cap https://t.co/CCuGXt2D95 pic.twitter.com/B5CTPWb9UX
— Bill Mew (@BillMew) July 6, 2018
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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