Education

Lost in the Blockchain: Unraveling the Case of Lost Bitcoin

Written by admin05/06/2023

Despite the burgeoning popularity of Bitcoin and other cryptocurrencies, a significant portion of the digital wealth remains locked away, lost in the digital ether due to forgotten passwords, discarded devices, and abandoned wallets. Analysis from reputable sources suggests that about 20% of all existing Bitcoin tokens, roughly 3.7 million, are considered lost, given they have not been moved from their respective addresses in five years or more​​.

The structure of cryptocurrencies places a strong emphasis on privacy and security, making Bitcoin and its counterparts a double-edged sword. Bitcoin investors typically hold their tokens in digital wallets, protected by cryptography and only accessible via private keys.

Read More: The Meaning Behind Not Your Keys, Not Your Coins

This high level of security ensures that it is very difficult for unauthorized individuals to access these holdings. A cold wallet, one that is used offline, is generally seen as a secure way of storing digital assets. However, if the wallet owner loses access to their key, the wallet and its contained tokens may be permanently inaccessible​​.

As an example, Stefan Thomas, a software developer involved in the world of cryptocurrency, has been trying for years to figure out the password to his IronKey, which holds 7,002 Bitcoin. Another case is of an IT worker in the UK, James Howells, who has even tried digging up a landfill site to find his hard drive containing a digital wallet housing 7,500 bitcoins. He threw away the drive back in 2013 when the coins were essentially worthless​.

The loss of Bitcoin is not without its industry. Cryptohunters have arisen to help investors recover lost funds, employing various investigative tactics and tools to aid in their efforts. These hunters typically charge a fee ranging from 5% to 40% of the funds recovered​​. However, the successful recovery of Bitcoin remains a challenging and often fruitless endeavor due to the inherent security of the cryptocurrency.

While the loss of such a significant quantity of Bitcoin can be frustrating for individual investors, it should not substantially impact the broader cryptocurrency industry. Bitcoin is easily split into very small denominations, unlike fiat currency, allowing for the loss of a sizable quantity of BTC without an overall impact on the currency itself. Even as miners approach the final BTC, the rate of loss of tokens can continue for years without significantly impacting the functionality of the coin​​.

However, the inherent risks of cryptocurrency investments should not deter prospective or current investors. A series of steps can be taken to prevent the loss of Bitcoin. These include:

  1. Understanding the unique risks of Bitcoin investments, as cryptocurrency does not have built-in protections that are commonly associated with traditional financial systems​.
  2. Using a wallet to store and protect your Bitcoin. A hot wallet, connected to the internet, provides accessibility but less security, whereas a cold wallet, kept offline, offers increased security​​.
  3. Choosing a reputable exchange to buy or sell Bitcoin. Security should be a top consideration when choosing an exchange, and it is beneficial to use an exchange that has not been hacked and has robust insurance provisions​​.
  4. Developing good internet habits to protect against potential hacking attempts. This includes using a password manager, using long and complex passwords, and maintaining up-to-date antivirus and anti-malware programs​​.

The story of lost Bitcoin serves as a stark reminder of the unique challenges posed by the digital nature of cryptocurrencies. As the adoption of Bitcoin and other cryptocurrencies continues to grow, the focus on secure storage and responsible management of these digital assets will only become more critical.

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Education

What is Bitcoin Backed By?

Written by admin11/05/2023

The Bitcoin Phenomenon: A Mirage or a Masterpiece?

With Bitcoin making headlines and turning heads in the financial world, skeptics often find themselves questioning the ‘real’ value of this digital currency. The entire concept seems to be shrouded in mystery, primarily because Bitcoin is a virtual asset and isn’t tied to any physical commodity or government directive. However, to understand Bitcoin’s value, we need to take a step back and examine the nature of money itself.

    The value of CAD, much like other fiat currencies, is fundamentally based on our shared belief and trust in its value. In this example of fiat money, the CAD is backed by the faith and trust of the Government of Canada.

    From Gold to Belief: The Evolution of Money

    Once upon a time, our money was backed by gold, a tangible asset. This was known as the gold standard, or the Bretton Woods System. But after many economic ups and downs (and a dash of global drama), the world decided to shift to the fiat model in the early 1970s when President Richard Nixon announced that the United States would no longer exchange gold for U.S. currency.

    This means our money is no longer tied to a physical commodity. Instead, it’s backed by the trust we have in our government and its economic stability.

    Bitcoin: The Digital Trust Manifested

    Now, back to Bitcoin. What is it backed by? While it may not have a physical entity underpinning its value, Bitcoin is backed by something equally, if not more, robust—mathematics and cryptography.

    Bitcoin operates on blockchain technology, a decentralized ledger system maintained by countless computers worldwide. These computers solve complex mathematical problems to validate transactions, a process known as proof-of-work. Transactions are irreversible and are final settlement. This intricate system ensures security, transparency, and trust, making Bitcoin not just a piece of code but a well-structured digital asset.

    Unlike fiat currencies, Bitcoin’s supply is capped at 21 million, creating a sense of digital scarcity, akin to gold. This scarcity, coupled with increasing acceptance and demand, gives Bitcoin its value. What is becoming increasingly more apparent is the value that Bitcoin displays has caught the eye of governments across the globe.

    Central bank digital currencies (CBDCs) are being discussed, even directly on the Bank of Canada’s website. There’s only one issue, CBDCs will again be backed by governments that can use them to easily track your transactions, instead of the decentralized nature that creates part of Bitcoin’s lure.

    HoneyBadger and Bitcoin: Navigating the Crypto Landscape Together

    As Bitcoin continues to gain acceptance and make waves in the financial world, HoneyBadger is here to help you navigate the crypto landscape. We provide secure, quick, and user-friendly access to Bitcoin through our crypto ATMs and online portal, spread coast to coast across Canada.

    So, is Bitcoin a worthy investment? That’s a question that depends on various factors, including your financial goals, risk tolerance, and understanding of cryptocurrencies. Like any investment, it’s essential to do thorough research and make informed decisions. And when you’re ready to embark on your crypto journey, HoneyBadger will be right here, ready to guide you every step of the way.

    Bitcoin may not be backed by a physical commodity or a government decree, but it is backed by a combination of cryptography, a global network of computers, and the belief of millions in it. That said, why should we trust our money in the hands of governments and not in the hands of the masses?

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    Education

    From Pizza to Penthouses: Why is Bitcoin Worth So Much?

    Written by admin17/04/2023

    How Much is Bitcoin Worth?

    If you’ve been keeping an eye on the digital asset scene, you know that Bitcoin has gone from being worth mere cents to over USD$30,000 and is now known as a powerhouse in the world of investments. So, how did we end up here? Sit back and let’s dive into the world of Bitcoin valuation.

    Bitcoin: Digital Gold or a Mere Mirage?

    First, let’s address the question: why is Bitcoin valuable at all? The answer lies in its unique combination of currency-like characteristics and people’s perception of its worth.

    Bitcoin’s non-counterfeitability and easy transferability make it similar to traditional currencies, however, its limited supply is a key difference. Bitcoin’s value hinges on the demand that savvy investors and crypto enthusiasts place on it, much like other assets, like artwork, that derive value from their perceived worth.

    A New Asset, Not Backed by Traditional Means

    Unlike fiat currencies that have states backing them, Bitcoin does not enjoy the same support. Rather, Bitcoin is supported by its immense decentralized network of computers. Bitcoin’s value is often compared to gold, as both have limited supply and are considered valuable by investors. Gold has been a popular choice for centuries, and some believe that Bitcoin might take up a similar mantle in the digital age.

      The Rollercoaster Ride of Bitcoin Valuation

      Bitcoin’s value is driven by factors like mainstream and institutional adoption, regulations around transactions, and the safety of ownership. It is sensitive to news, both positive and negative, as well as regulatory developments. 

      For example, Bitcoin prices have been positively impacted by announcements from companies like Tesla and Square adopting the cryptocurrency as a means of payment and investment for their balance sheets. Meanwhile, events like the Mt.Gox hack, FTX bankruptcy, and China’s ban on cryptocurrency mining have had negative impacts.

      Navigating the Future of Bitcoin

      Predicting the future value of Bitcoin is like trying to predict the weather in Canada – it’s a tricky business. The cryptocurrency’s value depends entirely on public perception and a myriad of factors that can change quickly. However, as interest in Bitcoin continues to grow among both mainstream and institutional investors, it’s clear that this digital asset is carving out a place for itself in the world of investments.

      As the cryptocurrency landscape evolves, it will be fascinating to see where the future takes Bitcoin and how its value continues to develop. Who knows, maybe Bitcoin will finally rise above USD$100,000 before 2024.

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      Education

      How Many Satoshis Are in a Bitcoin?

      Written by admin11/04/2023

      Today, let’s unravel the mystery behind the smallest unit of Bitcoin, the Satoshi (or Sats for short), and explore how this tiny denomination has made a significant impact on the world of digital currencies.

      What is a Satoshi?

      In the ever-evolving landscape of cryptocurrencies, one term stands out as the most microscopic unit of measurement: the Satoshi. Named after the enigmatic and pseudonymous creator of Bitcoin, Satoshi Nakamoto, a single Satoshi represents a hundred millionth of a Bitcoin (0.00000001 BTC).

      Why So Many Decimals?

      One might wonder why Bitcoin has such a large number of decimal places. The answer lies in its ingenious design. Unlike traditional fiat currencies that rely on central banks to control inflation, Bitcoin has a finite supply capped at 21 million coins. This limited supply ensures scarcity, which in turn drives up the value of the cryptocurrency over time.

      With such a limited number of coins and an ever-increasing global demand, it was crucial to create a system that allowed for smaller transactions. Thus, the Satoshi was born. This minuscule unit enables users to conduct microtransactions, paving the way for Bitcoin’s widespread adoption as a viable currency for day-to-day transactions.

        Satoshis in Action

        Let’s consider a real-life example to better understand the importance of Satoshis. Imagine you’re purchasing a burger for USD$10. With the current price of Bitcoin hovering around USD$30,000, that burger would cost roughly 0.00033333 BTC. By converting this figure into Satoshis, we arrive at 33,333 Satoshis – a much more manageable and understandable figure for a day-to-day transaction.

        Satoshis and the Future of Bitcoin

        As Bitcoin continues to gain traction worldwide, the relevance of Satoshis in everyday transactions will only grow. The Lightning Network, a second-layer payment protocol built on top of the Bitcoin blockchain, further enables the use of Satoshis for instantaneous, low-fee transactions. This network significantly expands the possibilities for Bitcoin to function as a true currency, enabling even the smallest of transactions to be completed efficiently and affordably.

        Embrace the Satoshi

          The Satoshi, both captivating and intelligent, is a testament to the foresight and innovation of Satoshi Nakamoto. By creating a system that allows for microtransactions, Bitcoin’s reach extends far beyond traditional fiat currencies, ensuring a bright future for cryptocurrency adoption in Canada and around the globe.

          So the next time you visit a HoneyBadger ATM, remember that you’re not just buying or selling Bitcoin – you’re investing in the legacy of Satoshi Nakamoto and the boundless potential of digital currencies. After all, it’s the little things – or in this case, the Satoshis – that can make the biggest difference.

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          Education

          What’s the Bitcoin Fear and Greed Index?

          Written by admin28/03/2023

          The Bitcoin Fear and Greed Index is a popular tool that measures the overall sentiment and emotions surrounding the cryptocurrency market. It was first introduced by Alternative.me in 2018 and, as its name suggests, the index aims to capture the fear and greed of Bitcoin investors and traders by analyzing a range of factors.

          The index is calculated on a scale of 0 to 100, with a score of 0 indicating “extreme fear” and a score of 100 indicating “extreme greed.” Its score is calculated based on various metrics such as price volatility, trading volume, social media sentiment, and Google Trends data.

          The higher the score, the more optimistic investors are about the market, and the lower the score, the more pessimistic they are.

          In total, the five factors comprising the index are weighted as the following:

          • Volatility (25%)
          • Market Momentum/Volume (25%)
          • Social Media (15%)
          • Dominance (10%)
          • Trends (10%)

          *Surveys (15%) are currently paused from the list of factors.

          The main indicator within the index is price volatility, which measures the magnitude of price swings in the market. If the market is experiencing high volatility, the fear index will increase, meaning that investors are feeling more anxious and fearful about the market. Conversely, if the market is stable, the index will be lower, suggesting that investors are feeling more optimistic and greedy.

          Another key indicator that the index uses is trading volume. When trading volume is high, it indicates that there is a lot of interest in the market, which can lead to higher prices. If trading volume is low, it means that there is less interest in the market, which can lead to lower prices.

          The index also factors in social media sentiment and Google Trends data to gauge the overall sentiment of the market. If social media sentiment is positive and Google searches for Bitcoin are high, it suggests that investors are feeling bullish about the market. Conversely, if sentiment is negative and searches for Bitcoin are low, it indicates that investors are feeling bearish.

          The highest rating was on June 29th, 2019, with a Greed Score of 95. During this time, the Facebook Libra project hype was luring in risk-takers while the price was climbing to incredible heights before sharply correcting.

          The lowest rating was on June 19th, 2022, when Bitcoin’s price dipped below USD$20,000 for the first time since December 2020.

          The Bitcoin Fear and Greed Index Twitter account has over 670,000 followers and posts daily with the current day’s rating.

          Latest Crypto Fear & Greed Index

          Ethereum has its own Fear and Greed Index and Twitter account.

          While the Bitcoin Fear and Greed Index is a useful tool for understanding the overall sentiment of the market, it is important to remember that it is just one indicator among many. Investors should always do their own research and analysis before making any investment decisions.

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          who is on the bitcoin rich list?
          Education

          Who’s on the Bitcoin Rich List?

          Written by admin15/03/2023

          Bitcoin, the world’s first cryptocurrency, has been making headlines for years. Despite the volatility and controversy surrounding it, Bitcoin has attracted a lot of attention from investors and enthusiasts alike.

          As Bitcoin continues to gain more mainstream acceptance, it’s worth taking a look at who the biggest players in the Bitcoin world are. Or as some people call the biggest players, “whales.” Here is an overview of the richest people, countries, companies, and institutions in terms of the amount of bitcoin they own.

          The Bitcoin Rich List

          • Satoshi Nakamoto – The mysterious creator of Bitcoin, who has never been identified, is estimated to have around 1 million bitcoins. At today’s market value, that puts his net worth at over US$24.4 billion.
          • Barry Silbert – Founder and CEO of Digital Currency Group, Barry Silbert is a prominent figure in the world of cryptocurrency. It is unknown how much he personally owns, but his digital currency investing firm, Greyscale, holds plenty which we will get to later in this article.
          • The Winklevoss Twins – Famous for their legal battle with Mark Zuckerberg over the ownership of Facebook, the Winklevoss twins are also major players in the Bitcoin world, They are the founders of the cryptocurrency exchange, Gemini and reportedly own around 100,000 bitcoins, worth over $2.4 billion.

          • Michael Saylor – CEO of business intelligence firm MicroStrategy, Michael Saylor is known for his bullish outlook on Bitcoin. He has invested heavily in the cryptocurrency and reportedly owns 17,732 bitcoins, worth over $432 million.

          • Chamath Palihapitiya – A former Facebook executive and founder of Social Capital, Palihapitiya has been an outspoken advocate for Bitcoin. He reportedly owns around 26,000 bitcoins, worth over $630 million.

          Countries Bitcoin Rich List

          • El Salvador – In September 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender. The country has purchased over 2,381 bitcoins so far, worth over $58 million.

          • Bulgaria – The Bulgarian government seized over 200,000 bitcoins from a criminal organization in 2017. The bitcoins are currently worth over $4.8 billion.
          • The United States – The US government has seized a significant amount of bitcoins in various criminal investigations. It’s unclear exactly how much the government owns, but estimates range from tens of thousands to hundreds of thousands of bitcoins.

          Richest Companies in Bitcoin

          • Tesla – In February 2021, Tesla announced that it had purchased $1.5 billion worth of Bitcoin. The company also indicated that it may purchase additional bitcoins in the future.
          • MicroStrategy – As mentioned earlier, MicroStrategy CEO Michael Saylor is a major Bitcoin bull. The company has invested heavily in Bitcoin and currently owns over 130,000 bitcoins, worth over $3.1 billion.
          • Square – In October 2020, Square announced that it had purchased $50 million worth of Bitcoin. The company’s CEO, Jack Dorsey, is a well-known Bitcoin enthusiast.

          Richest Insitutions in Bitcoin

          • Grayscale Bitcoin Trust – Grayscale is a digital currency asset management firm that allows investors to gain exposure to Bitcoin through a trust. The Grayscale Bitcoin Trust currently holds over 630,000 bitcoins, worth over $15 billion.
          The Grayscale booth at the Exchange ETF Conference in Miami Beach, Florida, U.S., on Wednesday, April 13, 2022. Photographer: Eva Marie Uzcategui/Bloomberg
          • Binance – Binance is the largest cryptocurrency exchange in the world by trading volume. The company holds a significant amount of Bitcoin on behalf of its users, although the exact amount is not publicly known. As of November, Binance holds $74.7 billion worth of crypto in its reserves and approximately 40% are its own tokens.
          • Fidelity Investments – Fidelity is one of the largest asset managers in the world. The company has been exploring the potential of Bitcoin and blockchain technology and has reportedly invested in Bitcoin mining companies.

          *All prices are represented in US dollars.

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          Finance

          What Will Happen to Crypto in 2023?

          Written by admin09/01/2023

          2022 was a tumultuous year for the crypto industry. Crypto markets have fallen over 50% since their peak in 2021, while stock markets and bond markets globally have fallen in double digits.

          Terra (LUNA)

          The Terra ($LUNA) crypto token crashed from $120 to $0.002, a 99.9% correction between May 11 to May 12. Along with LUNA, the TerraUSD ($UST) stablecoin endured a significant crash from $1 to $0.30. The Terra blockchain was a platform created to peg stablecoins to fiat money, initially founded by 31-year-old South Korean Do Kwon. 

          Combined, $LUNA and $UST had a market capitalization of roughly $50 billion, and the reasoning behind the crash is still unconfirmed. Interpol issued an arrest warrant for Kwan but was recently thrown out by a South Korean judge.

          Three Arrows Capital

          In June, Three Arrows Capital, a Singapore-based cryptocurrency hedge fund failed to meet its margin calls and repay the money lent from cryptocurrency broker Voyager Digital. The hedge fund subsequently filed for Chapter 15 bankruptcy in the United States. Not surprisingly, Voyager Digital declared bankruptcy the following month.

          FTX

          Arguably the biggest crypto story of the year was the fallout of FTX, one of the world’s largest crypto exchanges and custodians led by founder Sam Bankman-Fried, also known as ‘SBF.’ 

          At the moment, SBF has pleaded not guilty in New York federal court to eight charges related to the collapse of FTX and hedge fund Alameda Research. He is facing charges of conspiracy to commit wire fraud and securities fraud, individual charges of securities and wire fraud, money laundering and conspiracy to avoid campaign finance regulations. In total, SBF is facing 115 years in prison.

          In sum, FTX was once valued as a $32 billion company that used QuickBooks for its accounting methods, freely transferred client funds back and forth between FTX subsidiaries and Alameda Research and spent millions of dollars donating to U.S. Democratic politicians and even shadow donations to Republican politicians. FTX filed for Chapter 11 bankruptcy in the U.S. in November.

          At this time, it appears FTX will be remembered as one of the biggest financial frauds in history. Depending on the total amount of money and crypto that bankruptcy auditors uncover, it will likely rank as the second largest financial fraud, right behind Enron.

          Scams in 2023?

          2023 has only just begun, and we are already hearing rumblings about further scams and potential defaults.

          Logan Paul and CryptoZoo

          Uncovered by a leading investigative journalist in the financial industry, Coffeezilla has put forward information that could incriminate famous YouTuber Logan Paul on his crypto game titled CryptoZoo.

              Binance

              This may shock most of our readers, but those in the industry wonder if Binance is financially stable after the FTX collapse. Largely, Binance has never revealed its liabilities and in fact, Binance CEO, Changpeng Zhao (also known as ‘CZ’) has indicated that the big four auditors have difficulties auditing crypto firms.

              “Many of them don’t even know how to audit crypto exchanges” – CZ, December 2022 

              Binance originally invested as a shareholder in FTX in 2019 and exited while receiving $2.1 billion in its own stablecoin ($BUSD) and in $FTT (FTX Tokens) as part of the deal. Now if Binance is forced to claw that back to FTX creditors, one wonders if Binance can remain afloat.

              What Will Happen to Crypto in 2023?

              With 2022 behind us, let’s throw out some of our predictions on what will happen to crypto and Bitcoin in 2023.

              1) Bitcoin Sees Positive Returns

              Often regarded as a hedge against inflation, we were able to put Bitcoin to the test with elevated inflation levels across the globe in 2022. As it turns out, Bitcoin’s return performed worse than U.S. stock markets. That said, Bitcoin’s network and decentralized nature have remained strong throughout a tough 2022. Crypto’s reputation was dented by the crises and scandals, but the salability and strength of its network have cemented itself as here to stay for the long run.

              Even Cathie Wood, the CEO of ARK Invest who posted a 150% return on her ARK Innovation ETF in 2020, believes that Bitcoin’s price is still on pace for US$1,000,000 by 2030.

              Bitcoin’s price chart since 2013. (Source: coinmarketcap.com).
              2) Global Bitcoin Adoption

              Currently El Salvador and the Central African Republic (CAR) are the only nations in the world where Bitcoin acts as legal currency. That will change in 2023 with likely candidates Saint Kitts and Nevis, Venezuela and Paraguay. In November 2022, Terrance Drew, the Prime Minister of the Caribbean nation of Saint Kitts and Nevis indicated the country may adopt Bitcoin Cash (BCH) as legal tender.

              Venezuela is a likely candidate as over 10% of its population owns cryptocurrency while its current year-over-year inflation rate stands roughly around 155%. Bitcoin would be regarded as a more stable currency for Venezuelans.

              Paraguay is a possibility as Carlitos Rejala, a member of Paraguay’s Chamber of Deputies has proposed a bill to have Bitcoin as legal tender in the country. Whether the bill is passed is up for debate, but Rejala has indicated he is willing to run for President which would accelerate the possibility.

              3) Regulatory Battles

              With the fall of FTX, the Ontario Teacher’s Pension Plan wrote down its stake to zero, taking a US$95 million loss barely a year after initially investing in the company. The loss has a limited impact due to the size of the fund ($242.5 billion) but these losses catch the attention of regulators and politicians. 

              We saw a movement towards further oversight in December in Canada and we will likely see more. The Canadian Securities Administration announced that it will require all crypto exchanges seeking registration to sign undertakings before they are formally under regulatory watch.

              This will take time as the wheels of government take a strong push to move, especially in an industry as complex and new as cryptocurrencies. Will 2023 be the year that regulators finally reach their limit?

              4) Rebuilding Trust

              Not only in crypto, but in many other industries like tech, rising interest rates, high inflation and a looming recession has forced many businesses to cut costs and cut them quickly. Years of zero interest rates will do that to an economy, where founders, venture capitalists and angel investors were flooded with cash and invested in any startup with a pulse.

              The crypto industry in 2023 will have to rebuild and regroup. Over-leveraged firms and poor exposure to bad counterparties will not be tolerated in crypto anymore. New firms that come into the space will have to demonstrate integrity, trust and positive cash flows in order for the industry to rise again.

              5) The Rise of Self-Custody

              Trust is at an all-time low in exchanges, which inevitably will lead to a rise in users holding their crypto in self-custody wallets. When trust is low, incumbents will consolidate, pushing investors to obtain crypto from financially stable institutions and place them in self-custody, which ultimately lowers the risk of default for many retail investors.

              If you do not own the keys, do you really own your Bitcoin?

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              Cryptocurrency and taxes in canada is a complicated subject
              Education

              Simplifying Cryptocurrency and Taxes in Canada

              Written by admin28/12/2022

              Is Crypto Taxed in Canada?

              The short answer, Yes. The Canada Revenue Agency (CRA) is quite transparent about the fact that crypto is subject to income tax.

              It is important to note here that crypto is considered a commodity by the CRA and not cash. Bitcoin and other cryptocurrencies are also not recognized by traditional banks and brokerages as legitimate currencies. This will be useful as you read through the guide.

              As crypto is a relatively new commodity, tax implications have and continue to evolve. The CRA has a full guide for cryptocurrency users and tax professionals. That being said, crypto and tax are complicated subjects and we would advise speaking to a tax professional for further questions and information.

              When Do You Owe Taxes on Crypto?

              From a high-level perspective, you owe taxes when disposing of your crypto. Examples can include:

              • Selling or trading it
              • Giving it as a gift
              • Converting it to government-issued currency, such as Canadian dollars
              • Using it to buy goods or services

              Other types of tax implications involving crypto include:

              • Mining cryptocurrency
              • Being paid by your employer in cryptocurrency
              • Staking crypto in Proof-of-Stake currencies

              Because cryptocurrency is considered a commodity, simply buying and storing the crypto in a wallet will not trigger a taxable offense.

              Most people will pay tax on cryptocurrency gains from the disposition of crypto assets. When filing your income tax return, you will need to know how to value your cryptocurrencies. Valuing the crypto depends on whether it was used as capital property or inventory. The CRA has more detailed information on the difference between the two.

              Transferring crypto is tax-free. (Source: Koinly.io).

              Types of Taxes That Apply

              • Business Income

              Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income.

              • Capital Gains

              If the sale of a cryptocurrency is not for carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has a capital gain.

              • Goods and Services

              Where a taxable property or service is exchanged for cryptocurrency, the GST/HST that applies to the property or service is calculated based on the fair market value of the cryptocurrency at the time of the exchange.

              Source: Canada.ca/en/revenue-agency

              How To Calculate and Report Crypto On Your Taxes?

              It is very important to keep track of all financial records of your activities relating to your cryptocurrency. This information is vitally important when filing your tax returns for the 2022 fiscal year.

              Keeping full records of all crypto-related activities is absolutely necessary when filing tax returns.

              First and foremost, you should figure out whether your cryptocurrency earnings are capital gains or business income.

              Making profits while trading cryptocurrencies, such as Bitcoin or Ethereum is considered a capital gain, much in the same respect of stocks and gold.

              What does this look like? We’ll outline an example scenario below:

              Johnny purchases 1 Bitcoin, which at the time was valued at $2,000. He then decides to hold onto it for two years, during which the value of 1 Bitcoin comes to $5,000. Johnny decides to convert his lone Bitcoin into Canadian dollars.

              The difference in value when Johnny bought and sold is:

              $5,000 – 2,000 = 3,000

              Johnny has earned $3,000 from his cryptocurrency trading activity. His earnings are due to capital gains and thus he is taxable on 50% of the value, or $1,500.

              If Johnny had earned his 1 Bitcoin by mining, it would be a different scenario and actually be considered as business income. The CRA considers 100% of the amount you make from mining crypto for tax purposes and must be reported on your returns using a T2125 form.

              Avoiding Tax on Crypto

              You cannot outright avoid all taxes, but there are ways to reduce your tax bill. This may seem obvious, but at the moment you cannot directly invest in cryptocurrency through a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).

              BUT, you can buy into an Exchange-Traded Fund (ETF) that invests in Bitcoin through a brokerage in these registered accounts.

              The gains on crypto ETFs in your RRSP are not taxed, provided you do not convert them to cash and withdraw the money. For TFSAs, your gains from crypto ETFs are not subject to tax on withdrawals.

              These crypto ETFs track certain coins and ultimately you would not own the actual coins, but shares in the ETF.

              Donating Crypto to Charity

              Donating crypto is rather interesting because it is viewed as a commodity, not as a currency, which complicates matters. An example of this is detailed below:

              You buy 1 BTC in December 2019 for $5,000. You then donate this BTC to a registered charity in December 2022 when the fair market value of BTC is $20,000.

              According to the CRA, the charity you donate to can only issue a $5,000 receipt for your donation and your donation is a disposition. You’ll need to pay Capital Gains Tax on the difference in value, so $15,000.

              Can The CRA Track My Crypto?

              Part of the essence of cryptocurrency is its anonymity. It’s almost 2023 and we still do not know the identity(s) of Satoshi Nakamoto, the founder and creator of Bitcoin. It is along these same lines that it may seem that the CRA will not find out if someone does not report their earnings or dispositions.

              The reality is, the CRA is very capable of tracking your income and finding out if you did not report all your income through audits and investigations.

              The consequence of failing to report any instance where crypto is taxable is the same with Canadian dollars: tax evasion. This should be avoided at all costs and it is wise to report your earnings as accurately and honestly as possible.

              Bitcoin Taxation in Canada Still Evolving

              It is important to understand that cryptocurrency is still a relatively new innovation for investors. The CRA does provide a detailed guide on the tax obligations associated with crypto.

              An area that could receive some attention is the possibility that a single Bitcoin transaction can include thousands of sub-transactions inside it. The idea of keeping track of thousands of transactions seems rather daunting for a single individual. Possibly there may be a solution to this in the future.

              Another example is the lack of consistency in accounting methods for Canadian crypto businesses, whether they use the First In First Out or Weighted Average methods.

              That said, the CRA is continuing to develop and correctly detail taxable instances for crypto.

              While much of the phrasing used by the CRA may not correctly correspond to the phrasing used in the cryptocurrency space, it is evolving and becoming easier to understand and apply than in prior years.

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