Cryptocurrency has been around for more than a decade, and the most popular cryptocurrency, Bitcoin, has hit its all-time high in October 2021. As it is a decentralized digital currency, the government and authorities are unable to control it, unlike fiat money. Though it is entirely based in a digital network, the public is able to view a publicly shared ledger that records all the confirmed transactions (or blockchains) on it.
Where did cryptocurrency originate from?
The first ever cryptocurrency that has been invented is the Bitcoin (BTC). In 2008, a person or a group under the name ‘Satoshi Nakamoto’ published a white paper and mined the first block of Bitcoin on 3rd January 2009. 9 days later, on 12th January 2009, Hal Finney received 10 bitcoins from Nakamoto.
Several years later, Ethereum (ETH) was launched in 2015. It is currently the second largest digital currency after Bitcoin. As of October 2021, there are 6,826 cryptocurrencies, but it is believed that 90% of the crypto market is made up of the top 20 cryptocurrencies. Within this group of close to 7,000 cryptocurrencies, it also consists of meme coins such as Shiba Inu (SHIB) and Dogecoin (DOGE).
Pros and cons of holding cryptocurrency
What started off as a way to bypass local banks to send money to others is now largely used for investment gains. It is also easier to get your hands on these digital coins and several payment platforms, e.g. PayPal (US only), have started to accept it as a method of payment. Before blindly investing a huge amount into crypto, it is important to understand the potential risks and advantages of holding cryptos.
In Singapore, capital gains are not taxed. As such, individuals who purchase cryptocurrencies for the purpose of investment are not subjected to tax on the profit. The purpose of holding the cryptocurrency, period of holding, and frequency of transactions are some factors that are taken into consideration to determine if the profit is a capital gain or a remuneration of service/product.
Another advantage of holding cryptocurrencies is that the transactions are confidential. For instance, when you make an online purchase using your credit card as the payment method, you will need to enter a One Time Password (OTP). This process serves as a way to prevent scams, but it brings in a third-party bank to handle the transaction. On the flip side, by making transactions using cryptocurrencies, it removes any third-party and the transaction is only done within those directly related to it.
Being an unregulated currency, there is a high risk of holding crypto due to the volatility of the cryptocurrency market. It is close to impossible to forecast the dip or growth of cryptocurrency, unless you are an experienced analyst who is updated with the crypto news. This highly volatile market is demonstrated when Elon Musk tweeted “#Bitcoin 💔” alongside with a meme in June 2021. As a result, the value of Bitcoin dipped by more than 7% on the same day.
Additionally, the presence of cryptocurrencies makes it easier for illegal transactions to take place as the government is unable to track these transactions. This makes it easier for criminals to exploit unwary crypto investors into committing illegal activities for them.
Types of cryptocurrencies and its platforms
There are different types of cryptocurrencies globally – with Bitcoin being the most popular and Ethereum following closely after it. Cardano (ADA), Binance Coin (BNB), and Tether (USDT) are also the top few popular cryptocurrencies currently. Before deciding on which crypto to purchase, it is crucial to understand that crypto investments are of a high risk, but it does come with a higher return.
In order to purchase these crypto coins, you will need to have an account on a crypto platform (or exchange) and a wallet to store these coins. A few widely used crypto platforms include: Binance, Crypto.com, Kraken, Gemini, and Coinbase. These platforms offer a variety of crypto coins and the trading fees start from 0.25%. Other things to take note of is the security fee and the availability of the cryptocurrency that you are interested in. It is also important to note that all five crypto exchanges, except Kraken, allow you to purchase BTC and ETH using SGD.
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