This story originally appeared on LX.com
Cryptocurrency is part computer science and part finance, but don’t let that intimidate you. It’s simple to get started and you don’t have to be an expert.
With a little smart investing and a little luck you can make money online, even in 2021.
First, learn what cryptocurrency is and how it works
Cryptocurrencies are a decentralized form of payment you can use to buy goods online. There are thousands of different currencies from the popular Bitcoin, Ethereum and Litecoin to the meme currency Dogecoin.
Cryptocurrencies run on the blockchain, which is a digital ledger of the currency’s transactions and ensures the same coin is not spent twice. Transactions are processed on the blockchain network of thousands of machines – and in exchange for those computers’ hard work, owners have a chance at receiving a crypto coin.
The new coins are “mined” (meaning minted, or created) when computers solve complex mathematical problems to work out the legitimacy of transactions on the blockchain.
While many people do pay for their purchases with crypto, it’s more widely discussed as a form of investment – spurring whole websites that track the value of a single Bitcoin.
Using exchanges or wallet apps like Coinbase, Crypto.com and BlockFi, users will convert dollars to cryptocurrency and count on their investment increasing in value, just like a stock.
Also like a stock, you don’t pay taxes on crypto gains until you sell and cash out. The capital gains tax you would pay on Bitcoin or other crypto income will vary according to your income in that tax year – if you make under $40,000 per year, you would owe no tax on any crypto gains. They would be taxed at 15% if you earn up to $441,150 and 20% at any higher income, according to CNBC.
Many people invest in crypto because of the ease of buying, selling and trading on apps and websites, according to a CNBC survey.
A cryptocurrency could gain value if a major business announces they will accept it as a form of payment, when changes are made to the mining process, or when notable people like Elon Musk hype up a particular crypto asset. Additionally, value can go up if the demand increases while supply stays limited – for example, once there are 21 million Bitcoins in circulation, no more will be mined.
A cryptocurrency might lose value when a company no longer accepts it as payment, or when a lot of people try to sell at once.
Here are some scenarios to help understand dollars and crypto.
- Holding crypto …….