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Digital Currency: What are the risks? Part 1in Tax Advice Information and Updates
There are very few protections in place when using digital currencies. As digital currencies are not issued or governed by a single organization such as a central bank or government, you will have fewer protections when using them. It is not like using a credit card or debit card where there are groups of people that can handle complaints with regards to your account. When using digital currencies, even your wallet provider is not required to help you get your funds back should something go wrong with your transactions.
Your deposit is not insured. As mentioned, having a wallet provider does not insure you from transactions gone wrong. It is your sole responsibility to protect your digital currency wallet. Currently, federal and provincial insurance plans do not cover digital currency. The Canada Deposit Insurance Company, for example, only covers eligible deposits in Canadian dollar at member financial institutions if that institution fails. So in the event that the currency exchange or wallet provider that has your digital currency fails or goes bankrupt, your funds will not be protected.
Investments may be high risk. As we’ve seen in the news, Bitcoin’s value has been changing pretty quickly. Digital currencies’ values can go up and down over a very short period of time which is why they are difficult to predict.
There are a few more risks that are involved when using digital currency that we want to discuss. Please check back for part 2!