As the first decentralized digital currency, Bitcoin was introduced in 2009 under the name Satoshi Nakamoto. It’s still not considered a mainstream currency. However, it is slowly gaining its footing as a valuable investment option.
Many experienced and new traders look to delve into the abundant possibilities that it offers as an investment. It has risen and is still in the nascent phase of development. This is why it faces a lot of challenges. Some of the difficulties while investing in bitcoins are listed below.
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Transaction Fees
The slow transaction is one of the significant challenges faced when buying bitcoin. The time taken for completion of a bitcoin transaction has increased dramatically. This problem has been there for some time. Many traders feel frustrated because of this. It is mostly related to the way the blockchain system processes these transactions.
Blockchain is a decentralized technology that acts as a digital ledger for all crypto transactions. It takes about an hour for any transaction to get verified in a normal situation, but sometimes, the transaction stays unverified forever.
The platform you use has a significant role to play in this. Choose a crypto exchange that can process the transaction at a faster pace. Some platforms might charge an extra fee for this. It is seen that transactions with higher fees get verified early than the ones with a lower fee.
So, if your purchase is worth the extra bucks, you must not hesitate to spend it. Otherwise, your transaction will also end up in the long queues of pending transactions.
Go for Privacy and Safety Features
Privacy is another challenge that investors face when buying Bitcoin. Many assume that bitcoin is a private system, whereas it is not. Bitcoin operates on blockchain technology. Blockchain is an online ledger that stores all the transactions taking place through peer-to-peer networks. Decentralized blockchain technology has enabled people worldwide to connect through a chain of networks.
The transactions are quick, breaking all the boundaries of time and place. But, because this database is public, it has emerged as the biggest drawback of bitcoins. The transaction recorded is there to see by anyone. And, it is open to public scrutiny and analysis. Anyone can collect and publish the transaction if they have some knowledge to crack it.
One way to overcome this hurdle is by using a new bitcoin address every time you get a new payment. Using multiple wallets for different purposes is another way to isolate your transactions. If you do that, it’s nearly impossible to trace or connect your transactions.
Choose a Reliable Platform
When bitcoin came into the public sphere, it became a source of money laundering and illegal activities online. As an anonymous source having no control of the local governments, it was the easiest way to purchase illegal items. It is a concern that many of you face when buying bitcoin.
But now, when bitcoin is slowly entering the mainstream, government agencies regulate the platform where all the transactions happen. This aspect is taken care of by governments of countries that have accepted it and made it legal.
The companies or the exchanges that offer bitcoin trading are now regulated in Canada. The financial intelligence unit, FinTRAC (Financial Transactions and Reports Analysis Centre of Canada), now governs the exchanges to prevent money laundering and terror financing activities.
Similarly, AUSTRAC (Australian Transaction Reports and Analysis Centre) regulates the exchanges in Australia. So, when you select a platform, make sure that it is registered under the regulating bodies to protect you as an investor.
Keep an Updated Tax Report
Under the current law, bitcoin transactions are subject to income tax. The rule of a barter system, in which one commodity is exchanged for another, applies in the bitcoin transactions. It merely means bitcoin trading will be subject to capital gains taxes. If you purchase a bitcoin and then sell it, you will need to report the profit earned under capital gains.
Under the barter system, if you purchase something that costs $20 and pay for it in bitcoin of $20 that initially cost you $15, the margin of $5 is technically a capital gain. Now, this record-keeping can be quite exhausting as bitcoin value keeps changing. For this, a good solution is to select a platform that offers features like individual tax reporting. You will be able to download your tax report.
You can overcome the challenges mentioned above with the right choice of platform. A reliable, safe, and user-friendly platform can help you tackle privacy issues and save you from criminal activities or frauds. Features like 2-factor authentication, password security, and biometrics login safeguard your account from hackers.