Beginner‘s Guide: How to use cryptocurrencies

Reading this article means you are already on the way, taking the most important first step. Informing yourself. While diving into the world of blockchain and cryptocurrencies is way easier than you might think, there are a few things you should know before you start.

There are still huge regulatory differences because cryptos are still pretty new currencies. While most countries allow trading cryptocurrencies, some have made cryptos illegal. This means there is no general answer to this question.

Whether cryptos are legal or not is not even a black or white issue. Their status as a currency differs from country to country, resulting in regulatory differences.

In Canada for example, it is legal to buy and sell digital currency on open exchanges. Despite this legality cryptocurrency is not considered to be legal tender. Consequently, they are banned from banking. This means Canadian citizens are not able to buy cryptocurrencies with their credit card.

You can check the legal status of cryptocurrency on the official channels of your country. For a quick overview, you can also use the service of the library of congress. It covers the laws and policies of 130 countries.

How to purchase cryptocurrency

Purchasing cryptocurrencies is as easy as getting any other currency. You only need an exchange. An exchange accepts payments in your currency (USD, Euro, etc.) and gives you whatever kind of coins you want for it.

On top of that such exchanges are not limited to buying and selling currencies themselves. If you want to trade with others directly, they offer specialized platforms. If you do not want to trade with others, without a partner securing the trade, there are even websites offering an escrow service.

In fact we wrote a guide which will help you find the best fitting exchange. Note, there are several important aspects you need to consider when choosing an exchange.

How to store your currency?

While it is optional to put your currency in a wallet when using fiat money, it is indispensable when using cryptos. Besides the name, there is not much they have in common. Unlike your physical wallet, the prime function of a cryptocurrency wallet is not to carry money with you.

These wallets are basically programs or web services that handle all your interactions for you. Consequently, they have more in common with a traditional bank account. Like a bank account, there is no specific place where your currency is stored. It is more like a list of transactions between accounts stating how much money the bank enables you to use. Only when it comes to losing it or being robbed/hacked, it is like using a physical wallet. In such a case you will lose all your funds irreversibly. So security is a top priority when choosing a wallet.

We recommend you read our guide on which wallet fits your needs best, because there are many different providers who offer this service.

How to spend cryptocurrencies?

Cryptocurrencies are most often used as an extremely safe (but also very volatile) investment option. There is a limit to the amount of coins that can be produced. This is why you do not need to be afraid of inflation because of someone producing more and more coins. For example, there will never be more than 21 million Bitcoins.

Furthermore, their value does not depend on your political location and is accepted almost anywhere in the world.

Other than investment you can also use cryptos for recreational purposes. There are a lot of games especially designed to use crypto-currencies. Some, like LiteBringer, are designed to run on the blockchain, making the assets as safe as the currency itself.

Nevertheless, the use of cryptocurrencies is not limited to investment and gaming. There are very good reasons for the use of cryptocurrencies besides that. For example, supporting charity organizations. Believe it or not, using cryptocurrencies makes donating easier, faster and safer.

To collect donations local organizations have to partner up with an international umbrella organization. Even a non-profit organization has a number of expenses until the funds reach the people in need. On top of that, you don’t really know where your money is going.

Apart from that it can take several days transferring the money. It takes 1-3 days until your donations arrive at the international partner‘s and at least the same time again until the local organization can actually use the money.

When a country is hit by catastrophes like earthquakes or floods, a few days can be way too long to ensure efficient help and to save lives. When using Bitcoin, a transaction is finished in 10 minutes, or 2.5 minutes if you are using Litecoin.

Are there taxes?

One of the biggest misconceptions regarding cryptocurrency is, that it is anonymous. That is simply not true. It may be hard to trace a wallet to a person but it is possible. Once the owner of a wallet is known, it is in fact easy to monitor the transactions. The reason for this is that the transactions are publicly available and cannot be faked. This means, not caring about taxation is a bad idea.

The good news is, in nearly every country of the world cryptocurrencies are VAT exempt. So you do not have to pay VAT when selling Bitcoin like with any other financial product. Nevertheless, there is also some bad news, e.g. when you want to trade with other cryptocurrencies or altcoins.

For tax authorities, an altcoin is just like a Bitcoin. This means, it is not a financial product, but a property. Consequently, you not only need to keep track of all your altcoin trades but also need to account for the Bitcoin price when buying and selling.

Just like with the legal status, there is no general answer to whether cryptocurrencies are taxed or not in your country. If you are uncertain about your tax laws and are planning to invest large sums, you should contact a local tax consultant to be safe.