Answers to your cryptocurrency questions

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Bitcoin is a national currency in El Salvador. An exchange-traded fund that tracks bitcoin debuted on the New York Stock Exchange in late 2021. And at least $48 million in bitcoin and other cryptocurrency donations were sent to Ukraine after Russia attacked the country, according to blockchain analytics firm Elliptic.

In the decade since its launch, bitcoin has grown into a trillion-dollar market that has sparked excitement among some cryptocurrency advocates who believe it’s the future of money and payment methods or – insert the name of your choice (the energy network, the economy of creators, Twitter).

But as it grows in popularity, critics have called digital currency speculative, see it as a way to launder money, and say its mining has environmental consequences.

Here’s an overview of how cryptocurrencies work, what you can actually buy with them, and the regulations (or lack thereof) governing digital currency.

What is cryptocurrency in general?

Cryptocurrencies are a type of digital currency based on blockchain technology that you cannot counterfeit. Bitcoin, the most well-known type of cryptocurrency, was launched in 2009 and started trading on exchanges in 2010.

As for the blockchain itself? Here’s an analogy that cryptocurrency journalist and podcaster Laura Shin explained to Marketplace: Think of it like a Google spreadsheet.

It’s a bit like those old ledgers, where banks kept track of their customers’ funds. Except this one is much more sophisticated. Shin said blockchain allows us to have a single ledger that everyone can see at all times.

Shin said she believes bitcoin is a more transparent form of currency, and over time, the technology behind it could allow financial transactions to occur more cheaply.

What other types of cryptocurrency exist?

There are thousands of cryptocurrencies, which you can see listed on CoinMarketCap, but some of the most notable include Ethereum (also known as Ether) and Tether.

There are also cryptocurrencies that started out as jokes, like dogecoin, whose popularity was boosted by Tesla co-founder Elon Musk.

NFTs, or non-fungible tokens, especially exploded in popularity last year. These tokens, which are part of the Ethereum blockchain, represent a digital asset and provide proof that the buyer is the genuine owner of that item. They can take the form of anything, according to Marketplace reporter Matt Levin, which includes tweets and digital basketball “cards” that feature clips from NBA games.

A digital collage titled “Everydays: The First 5000 days” by digital artist Beeple was the first NFT artwork sold at auction and fetched nearly $70 million.

What can you buy with cryptocurrency, and how?

Technically anything the seller or other party agrees to. The first transaction involving a physical object took place more than 10 years ago, when Florida-based Laszlo Hanyecz offered 10,000 bitcoins on a forum to anyone who would buy him two large pizzas from Papa John’s.

Now the process has become more legitimized. Several major retailers have started accepting cryptocurrency as a method of payment through third-party apps.

GameStop, Nordstrom, and Petco, among other stores, let you pay for items using bitcoins through the Flexa payment network, which has an app called Spedn. This app creates a QR code that you can swipe at checkout (similar to Apple Pay), converting your bitcoins into dollars.

Meanwhile, the Starbucks phone app lets you top up funds through a service called Bakkt, a digital wallet where you can store and send digital assets like cryptocurrency. And some platforms, such as Newegg.com, even allow you to pay directly in bitcoin.

How secure is cryptocurrency?

Although cryptocurrency has grown in popularity, investing in it can be risky.

“Even over the past few weeks, we’ve seen that it’s not independent of the traditional sources of macro volatility that affect stocks,” said Michael Young, assistant professor of finance at the University of Missouri.

He explained that bitcoin has been rising and falling recently, mirroring the stock market.

Young, who revealed he holds cryptocurrency, said if you’re interested in investing in cryptocurrency, you need to consider your time horizon and assess your own personal risk.

Young, who is in his early 30s, said he would be fine if the value of his cryptocurrency holdings dropped by as much as 40%. But there are people like his parents who are nearing retirement and cannot afford these losses. “What you invest in is something you should be comfortable with,” Young said.

Some exchanges, like Coinbase, also create cryptocurrency retirement funds.

Chris Farrell, a senior Marketplace economics contributor, told us that he doesn’t think putting in cryptocurrencies — even a small percentage — is a good idea.

“Now I’m going to get a lot of complaints for this response from passionate crypto investing advocates,” Farrell said. “But look, the crypto ecosystem is noisy, it’s volatile, it’s opaque. And we’re talking about your retirement savings. It’s money that should add to your economic security in your old age.

Young said a general investment advice he always gives people is that they should eventually figure out what they’re investing in.

What regulations and requirements govern bitcoin?

Cryptocurrency is not particularly regulated at present – Global Legal Insight reports that “little formal regulation has taken place” in regards to cryptocurrencies.

While you can regulate the participants and companies that supply bitcoin, you cannot regulate the technology, according to Gil Luria, technology strategist at DA Davidson.

Different regulatory bodies somehow govern certain aspects of bitcoin. The Securities and Exchange Commission, for example, applies current securities laws to digital assets, which means investors must report gains and losses made on their cryptocurrencies on their taxes, according to the Decoding Crypto series of the NASDAQ.

We also have a new cryptocurrency provision, which was incorporated into the $1 trillion White House infrastructure bill that President Joe Biden signed into law late last year. To help foot the bill, lawmakers have included new reporting requirements for digital assets, which could fetch $28 billion over the next decade, according to estimates from the Joint Committee on Taxation.

“Brokers” will need to report information on transactions over $10,000 to the Internal Revenue Service. This provision has drawn criticism of the broad definition of the word “broker”, which is defined in the bill as a person who “is responsible for regularly providing any service performing transfers of digital assets on behalf of another person”.

The Electronic Frontier Foundation explained that this means anyone can be considered a broker, including software developers and bitcoin miners themselves. “The mandate to collect customer names, addresses and transactions means that almost any business, even tangentially related to cryptocurrency, may suddenly be forced to monitor their users,” EFF said.

What do big banks and mainstream institutions think of bitcoin?

Big banks have started to embrace cryptocurrencies, but haven’t offered the warmest embrace. JPMorgan Chase now has its own digital currency called JPM Coin and has granted wealth management clients the ability to invest in cryptocurrency funds.

However, the bank’s own Chairman and CEO, Jamie Dimon, said late last year, “I personally think bitcoin is worthless.” Regardless of his personal feelings, Dimon explained that he wants to be able to give his clients “legitimate and as clean as possible” access to these currencies.

Wells Fargo also offers cryptocurrency funds to its wealthy customers, while Goldman Sachs trades bitcoin futures with a cryptocurrency merchant bank called Galaxy Digital.

At the Fed, Chairman Jerome Powell raised the possibility of the United States launching its own digital currency and said it would render bitcoin useless. At a hearing in September, Republican House Rep. Ted Budd of North Carolina asked Powell if that meant he would ban or limit cryptocurrencies like China, to which Powell replied that he had “no intention”.

Last month, the Federal Reserve released a report examining the costs and benefits of a digital currency, without issuing a recommendation for or against.

Treasury Secretary and former Fed Chair Janet Yellen has expressed skepticism about cryptocurrencies, telling CNBC that she doesn’t think bitcoin “is widely used as a transaction mechanism” and fears “that it is often used for illicit financing”.

“It’s an extremely inefficient way to transact, and the amount of energy consumed to process those transactions is staggering,” she continued.

The bitcoin mining process is energy-intensive, with research showing that it results in 30,700 tons of e-waste every year, equivalent to the waste the entire country of the Netherlands produces from equipment information technology and telecommunications such as cell phones and computers. .


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