All about Digital Currency, Part 1

by in Tax Advice Information and Updates
All about Digital Currency, Part 1
Bitcoin has been all over the news these past few months and it is getting more and more popular with Canadians. But before jumping in on the Bitcoin bandwagon, let’s take a step back and re-learn the basics of what we are getting into.

First of all, cryptocurrencies are not issued by or governed by any government or central bank.

So what is digital currency?
Digital currency is electronic money. It is not available as bills.

Cryptocurrencies are a type of digital currency created through computer algorithms. And as everyone knows, Bitcoin is the most popular type of cryptocurrency nowadays.

As mentioned, digital currencies are not created by any single organization such as a central bank. These are based on a decentralized, peer-to-peer (P2P) network. Peers in this network are referred to people that take part in digital currency transactions and their computers make up the network.

How are digital currencies used?
Digital currencies can be used to buy goods and services on the internet and in stores that accept digital currencies. You can also buy and sell digital currency on open exchanges which are similar to a stock market called digital currency or cryptocurrency exchanges.

To be able to use your digital currencies, you will need to create a digital currency wallet to store and transfer digital currencies. You have the option to store your wallet yourself or have a wallet provider manage your digital currency for you.

You will need a public key to identify your wallet and a private key to be used to unlock your wallet and access your money. These keys are made up of a random sequence of numbers and letters.

All transactions using digital currencies are recorded to a public ledger called a blockchain that everyone can access.

On our next blog, we’ll look at how Bitcoin ATMs work and how digital currencies are taxed. So stay tuned!

Source: https://www.canada.ca/en/financial-consumer-agency/services/payment/digital-currency.html
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