Ever since Bitcoin burst onto the scene, there's been a lot of talk – and often, confusion – about what it's really for. You've probably heard the question: "Can I buy a coffee with Bitcoin?" It's a common way to gauge its usefulness, but it might be missing the bigger picture.

Many people, especially early critics, have framed Bitcoin as a direct competitor to everyday money like the U.S. dollar, which is used for small, daily purchases. This naturally leads to critiques about Bitcoin's transaction speed and fees, especially when you stack it up against giants like Visa or Mastercard. While these comparisons are understandable, especially given Bitcoin's "electronic cash" label, they might overlook a more profound purpose baked into its design.

The truth is, Bitcoin, as envisioned by its mysterious creator Satoshi Nakamoto and shown by its very architecture, is much better suited as a peer-to-peer system for moving significant amounts of value directly between people and as a rock-solid settlement layer. It's not primarily designed to be the go-to currency for your daily grocery run, replacing the dollar in every wallet. Because of this, its transaction capacity, while always a hot topic, might actually be just fine for what it does best. Bitcoin's real magic lies in its power to let people send value securely and without anyone's permission, cutting out the traditional financial middlemen.

So, let's dig into what Bitcoin is truly about. We'll look at Satoshi's original vision, compare Bitcoin to the dollar, see why it shines for big-money transfers, tackle the "scalability" question, explore the problems in old-school finance that Bitcoin aims to fix, and see how it stacks up against gold.

The whitepaper wanted to create a "digital representation of hard cash." This "electronic cash" was meant to have cash-like features: it's a bearer instrument, it settles directly between parties, and it offers some privacy.

The "cash" in "Peer-to-Peer Electronic Cash System" brings to mind the finality and directness of physical cash, especially when used to settle big debts. When a large sum is paid in physical cash, the deal is usually instant and can't be undone between the parties. Bitcoin's design for non-reversible transactions fits this "hard cash" idea. In contrast, small everyday payments through traditional channels often have consumer protections that allow relatively easy reversals. This is very different from how physical cash works for settlement and from Bitcoin's "electronic cash" design. So, the "cash" Satoshi Nakamoto imagined seems more like the robust, settlement-style cash used for definite value transfer, not just digital pocket change for quick, small buys.

To see these differences more clearly, here's a comparison of Bitcoin's base layer with traditional retail payment systems like Visa, which use currencies like the U.S. dollar.

The very things about Bitcoin's transaction process that get criticized from a retail payment view actually become strengths for settlement:

The idea of a settlement layer can also mean Bitcoin serves as a base for other layers or systems. These secondary systems might handle more, faster, cheaper transactions but could ultimately anchor their security and achieve final settlement on the super-secure and decentralized Bitcoin blockchain. While some argue other blockchains might be better for smart contracts as a global settlement layer, Bitcoin's unmatched security and decentralization make it a strong contender as the ultimate trust anchor for value.

In this light, Bitcoin's slowness and the cost of its Proof-of-Work security aren't bugs but essential features when you consider its role as a high-security settlement system. High-value settlements demand extreme security and practical irreversibility. Bitcoin's Proof-of-Work, the ~10-minute block interval, and the cumulative work of multiple confirmations are all designed to provide this level of security, making it incredibly difficult and economically foolish to try to reverse confirmed transactions. These features, which make it seem slow and costly for retail transactions, are necessary trade-offs for a system prioritizing robust, secure settlement. Judging Bitcoin's base layer by retail payment network standards is like comparing apples to oranges; its design is optimized for a different, and arguably more critical, set of priorities essential for a global, non-government settlement system.

If we primarily see Bitcoin as "digital gold", its function leans more towards preserving wealth, long-term investment, and settling large value transfers – much like physical gold is used. Gold isn't typically used for everyday small buys like groceries. Gold's role is more as a foundational monetary asset.

The "digital gold" narrative thus strengthens the argument that Bitcoin's main utility isn't as a high-speed medium of exchange for daily commerce. The very features that make Bitcoin like gold, such as its verifiable scarcity, decentralization, and non-sovereign nature, are those most valued in a long-term store of value and a system for settling large, peer-to-peer transactions where trust and finality are critical. Aspects where Bitcoin differs from an ideal daily payment currency, like its current base-layer transaction speed or its historical price swings, are less damaging to, and in some ways are byproducts of, its role as "digital gold." This framing aligns Bitcoin's technical design with its perceived main use case, making the "scalability problem" for retail payments less of a central issue if that's not its primary job.

Here’s a table comparing Bitcoin and gold on key characteristics relevant to their role as stores of value:

So, what's the takeaway from all this? Bitcoin's foundational design and core features make it a unique player: a peer-to-peer electronic system for moving significant value and a robust settlement layer. The Bitcoin white paper aimed to create a system that sidesteps traditional financial middlemen, allowing direct, final transactions — features most vital when big money is involved or when censorship resistance is key. Bitcoin's architecture, with its decentralized proof-of-work, fixed supply, and transaction processing, fits the needs of a secure and resilient network for settling large sums globally, rather than trying to outpace retail payment networks in speed and volume. The "digital gold" comparison further highlights its suitability as a non-government store of value and a way to preserve and transfer wealth differently from traditional fiat currencies.

Bitcoin doesn't need to replace the U.S. dollar or other major currencies in all their roles, especially not as the go-to for everyday retail buys, to be a massive success and a valuable innovation. Its strength is in offering a distinct, non-sovereign, peer-to-peer monetary system that meets specific needs and solves particular problems that traditional finance either can't or won't handle effectively. This includes enabling censorship-resistant transactions, offering a potential inflation hedge for long-term savers, allowing more efficient large-value cross-border transfers, and providing a financial rail for people in underbanked regions or those facing financial exclusion.

Understanding Bitcoin's core principles, its design trade-offs, and the problems it was built to solve is crucial for accurately seeing its role and potential. Common criticisms that only focus on its limits as a retail payment system, like its base-layer transaction speed or short-term price swings, often miss the point by not recognizing its primary strengths and intended uses. Bitcoin's role in the evolving global financial world is more likely to be specialized and complementary to existing systems, rather than a direct, all-in-one replacement. It offers a powerful alternative for users and situations where its unique features of decentralization, security, finality, and scarcity are most prized. As the digital economy grows, Bitcoin's function as a peer-to-peer settlement network and a non-sovereign store of value is likely to become even more clear and important.

It is important to note that while Bitcoin has shown impressive returns over the past 15 years, its performance can be highly volatile. The cryptocurrency market is known for its price fluctuations, and investors should carefully consider the risks and potential rewards before investing in cryptocurrencies.

Between the stories we see on the internet, the countless memes, and the growing library of buzzwords, it's hard to research today's economy without running into some references to cryptocurrency. This is especially true over the last couple weeks with the collapse of the second-largest crypto exchange, FTX, and the effects of that reverberating through the investment industry.

Cryptocurrency is a type of digital currency that exists electronically. You can use crypto like the way you use cash. You can invest in it, use it to buy things, and keep it in your (digital) wallet.

Cryptocurrency could be a sound investment for one person and not a good fit for another. As with any investment or currency, there are a few pitfalls to consider before jumping headlong into the world of crypto. Below are some of the most significant drawbacks to consider as you research crypto and buying, investing, or transacting with crypto.

It's difficult to find an article about cryptocurrency that doesn't contain some hyperbolic claims about the currency's performance. An article from Bloomberg shares some tweets from bitcoin fanatics that say crypto will be the world's biggest benefactor, is the best monetary asset ever, has saved lives, and may one day hit $100,000 or even $1 million.

To an uneducated investor, all of these claims might sound like magic, but as with any asset it's important to remember that we can't see into the future, and we have no idea how it will perform in the coming years. Approach these claims as hesitantly as you would those regarding any other asset.

Another pitfall is that cryptocurrency accounts aren't backed by the government like traditional bank accounts. There are some third-party companies where you can store your digital wallets, but if something happens to those companies, the government has no obligation to step in to help get your money back. This is the big issue facing investors who stored their digital assets on the FTX exchanges, as well as other recent centralized crypto providers that also collapsed and filed bankruptcy such as Celsius and BlockFi.

In addition to not being backed by government protection, most cryptocurrency payments don't come with legal protections like credit or debit card purchases do. If you need to dispute a purchase you made using crypto, the process could be long and complicated, if not impossible. In addition, most purchases using crypto aren't reversible. This lack of purchase protection and insurance could be a deal-breaker to some.

There are two main ways to store your crypto: on a centralized platform or exchange (Coinbase, Gemini, Unchained, River, etc.) or self-custody. The basics are that storing your digital assets on a centralized exchange is similar to keeping your money in the bank (i.e. Chase, Bank of America, Wells Fargo) or your stocks with a broker/dealer (i.e. Schwab, Fidelity, etc.). The issue there is, as mentioned above, your assets are not insured. If the centralized platform fails, you could lose some or all your assets. Failures can be in different forms. For example, there's always the risk of cybersecurity breaches, hacking, fraud/market manipulations, and other technological risks. Unfortunately, that's the current state of things with centralized platforms, but could change as the industry becomes regulated and standards are set.

When you self-custody you do have access to the various decentralized finance (DeFi) platforms and services that exist. However, DeFi presents its own set of risks, making self-custody not the perfect solution to avoiding the issue issues with centralized platforms. This is especially evident this year with the number of hacks on various decentralized finance (DeFi) platforms. DeFi platforms have the advantage of not being subject to the errors of individuals that run a centralized exchanges and trading firms (such as what happened with Alameda Research, FTX, Celsius, Three Arrows Capital, BlockFi, Voyager, and others), but each platform will only be as secure as its code. Hackers could find and exploit bugs and security holes in the code of platforms and smart contracts that could allow them to steal assets. That makes it important to research DeFi platforms and services before using them.

With self-custody, it's important to consider human error risks when deciding where to store it once you do purchase digital assets. What would happen if you forgot your password or someone stole your laptop? How would you access your digital wallet? The New York Times famously covered the story of Stefan Thomas, a German-born programmer who had two attempts remaining to guess the password to his digital wallet worth $220 million at the time of writing. Or James Howells of the UK who mistakenly threw a hard drive with 7,500 bitcoin on it (worth more than $500 million when bitcoin was at its all time high a year ago) and has been trying to convince the government to allow him to search the landfill for the hard drive. Cryptocurrency and digital wallets give a new meaning and horror to the prompt "Forgot your password?"

Wherever you choose to store your digital assets, a way to help protect your assets is to diversify where you store them. If you choose a centralized platform for storage, you can store your digital assets across multiple platforms and exchanges. That way if an exchange collapses, you wouldn't lose everything in one place. The same goes for self-custody. You could store your digital assets across multiple wallets, and store the wallets and private keys in different places, so if one location is compromised you don't lose everything all at once.

Lastly, cryptocurrency is still relatively new as an asset class and technology and needs more time to mature. You can buy more things with crypto now than you could in past years, but you can't buy everything with crypto. Being a new asset class, it has taken time off regulations to be put in place to make the industry safer for the general consumer. Crypto and digital assets can be complex and are not as user-friendly as some existing traditional finance services. It's not as difficult as it may seem once you get used to it, but there's still a learning curve. Over time, purchasing and transacting with crypto will become easier, and then it will be more welcoming to the average user. You can think of it how the Internet was in the 80's and early 90's, before the first graphical web browsers for the World Wide Web became available. You had to know UNIX commands and type everything you wanted to do instead of point and click with a mouse. In time, the Internet became easier to use, and the same will happen from crypto and digital assets.

Cryptocurrency and digital assets will only grow as a major player in the economy and in our lives in general. Before jumping in it's worth taking time to consider its drawbacks. Strateon Intelligent Wealth is here to educate, guide, and advise clients with this new technology and asset class.

When it comes to investing, the common terminology says that you're investing in "the markets" or Wall Street. But what do these terms mean, and how are markets defined?

Simply put, financial markets are where traders and investors buy and sell assets. Markets can be used as a way for businesses to reduce risk and raise capital. Through markets, investors can buy into these companies in a way that hopefully makes money. The benefits of financial markets in a capitalist economy are numerous, from bringing confidence to the economy and helping to fund entrepreneurial ventures to providing liquidity to businesses.

Several types of financial markets can be invested in, including but not limited to stocks, bonds, derivatives, and commodities.

The stock market is a financial market where companies can go to raise capital to expand. Investors can buy the shares of a company—called stocks—through a broker-dealer. Stocks may be traded on listed exchanges, such as the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotations (Nasdaq) stock market. Indexes such as the Standard and Poor's 500 (S&P 500) Index and the Dow Jones tracks the averages of a group of companies that are publicly traded.

Mutual funds and ETFs (as well as some other types of investments) allow you to buy a bunch of stocks at once without having to pick them out individually. You may have seen mutual funds as an option for investing in your 401(k), for example.

Bonds are used when companies need to raise a large amount of money. Unlike stocks, bonds are a security in which an investor loans money for a defined period at a preestablished interest rate. Furthermore, unlike stocks, in which there is no guarantee of financial gain, bonds are more like a loan agreement. The bond market sells securities, such as notes and bills issued by the United States Treasury.

Derivatives entail a more complicated financial market. Essentially, a derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (e.g., a security) or set of assets (e.g., an index). Derivatives are secondary securities whose value is solely derived from the value of the primary security that they are linked to. In and of itself, a derivative is worthless. Rather than trading stocks directly, a derivatives market trades futures and options contracts, as well as other advanced financial products, which only have as much value as the primary security.

Commodities markets involve physical goods that are bought, sold, and traded. These are also considered alternative assets. Whereas stocks and bonds are more akin to financial contracts, commodities markets deal in physical goods. There are four main types of commodities markets: energy, metals, agricultural products, and livestock.

The previous markets covered have existed for decades. A new market that has only been around for a little over a single decade is the cryptocurrency, or digital asset, market. You may have heard of Bitcoin or Ethereum, the top two cryptocurrencies. This new market involves a variety of digital assets, from cryptocurrencies that are designed to be a replacement or alternative to traditional fiat currency, a token to represent some other asset, or a new way to interact with and transact with traditional financial markets.

Many consider crypto to be the future of the financial system as well as many other things we interact with today. Digital assets and cryptocurrencies are very new, can be purchased and transacted with in a variety of ways, and can appear to be a very complex system today. Fortunately, Strateon Intelligent Wealth is among the few financial planners and advisors that provides clients with education, guidance, advice, and even training on using cryptocurrencies and digital assets.

If you've come to the conclusion that purchasing or investing in digital assets and cryptocurrencies is the right thing for you, you may be confused about how and where to purchase them. Digital assets and cryptocurrencies are complex, so learning how to buy cryptocurrencies can be confusing.

Fortunately, Strateon Intelligent Wealth is available to educate and guide clients through the process of purchasing digital assets and cryptocurrencies. This guide is a general overview on the options available to individuals for purchasing their first cryptocurrency.

What is an on-ramp? The term on-ramp is used to describe a service that offers the ability to convert fiat currency to cryptocurrency. If you already read the Strateon Intelligent Wealth Insights article Addressing Common Objections to Bitcoin you'll remember that fiat currency is technically what the US dollar is, and that's a currency that's not backed by anything tangible, and is instead backed by the good faith and credit of the government issuing it. When you hear or read fiat or fiat currency it's referring to any traditional currency that you're used to.

You may also hear of the same services referred to as off-ramps. An off-ramp is simply does the opposite task or converting cryptocurrencies to fiat and then allowing you to withdraw the fiat currency to a bank account. Many cryptocurrency exchanges operate as both an on-ramp and an off-ramp.

With the number of options available, there are five main factors that will influence where you purchase your cryptocurrencies.

If you live in the United States, there are some states that restrict where and how cryptocurrencies can be purchased. It's important to check your state's regulations to see what limits, if any, there are. Fortunately, California is not one of the states with a lot of restrictions at this time. This means that if a cryptocurrency exchange is authorized to operate in the United States, most likely California residents can use them. The same cannot be said for some other states. Again, make sure any service you plan to use for purchasing cryptocurrencies is legal in your state. If a service is not, and you do purchase cryptocurrencies with that service, you may not be able to get your cryptocurrency out or your funds back.

Not all cryptocurrencies are available from every on-ramp. Depending on what you want to buy, you may have to purchase from multiple places, which may mean opening accounts at more than one exchange.

This refers to how you're going to pay for your initial crypto purchase. Common payment methods available include credit cards, debit cards, ACH bank transfers, and wire transfers. It's important to note that each exchange or on-ramp solution has it's own offerings for payments and the fees will differ.

Generally, you'll find the fees to be significantly higher for credit cards and debit cards, and some will charge fees for ACH transfers while others will not. Each exchange will have different trading fees, as well as different fees for withdrawals.

It's important to note that digital assets and cryptocurrencies are not covered by any regulator-required insurance. For many of the services where you can hold fiat currency there is no FDIC insurance. However, there are some that do have FDIC insurance for your US dollars held there. For all of the on-ramps where you can hold cryptocurrencies there is no SIPC insurance like you would find with a traditional broker-dealer or custodian of traditional securities.

As the regulation landscape surrounding digital assets changes we may see FDIC and SIPC insurance become available or even a requirement for cryptocurrency exchanges and custodians to provide, but that is not for certain and there is no way of knowing when that could happen if it does. In the meantime, some cryptocurrency exchanges and custodians do have their own insurance that they have purchased to cover a limited amount of assets.

There are different types of on-ramps. Below are the three main types that you'll encounter.

A centralized exchange is a service that operates much like a traditional broker-dealer, except that instead of traditional securities you trade cryptocurrencies. Examples of centralized exchanges include Coinbase, Binance.us, Gemini, Kraken, and Crypto.com. There are more as well, and Strateon Intelligent Wealth does not promote or recommend any particular centralized exchange.

With most of these exchanges you can ACH or wire transfer funds from your bank account and then purchase cryptocurrencies that are offered by the exchange. There may be no cost for ACH or wire transfers, but some will charge fees depending on how you initiate the transfer of funds. For example, there are two ways to make an ACH transfer with Kraken. One has fees, but the other doesn't. You may also be able to purchase cryptocurrencies on these exchanges with a credit card or debit card, but keep in mind the fees are higher. Also, some credit cards charge additional fees for purchasing cryptocurrencies with credit cards, or put more limitations than they do for traditional transactions.

There are a number of advantages to central exchanges. They typically will allow for a greater number of cryptocurrencies available for purchase. You can deposit fiat from your bank or you can deposit cryptocurrency from another exchange or wallet. You can also withdraw fiat to your bank account or cryptocurrencies to another exchange or wallet.

Many centralized exchanges also have two ways in which you can buy or sell cryptocurrencies. The first is an easier method called a market order. With a market order, you simply set the amount of the cryptocurrency, or the fiat amount, you want to purchase or sell and the order is executed at whatever the market price is. If you say you want to buy $1,000 of bitcoin, then you'd receive a certain amount of bitcoin that's equal to $1,000 based on whatever the going price was at that moment. If you say you want to sell 0.01 bitcoin, then you would receive a certain amount of fiat currency that's equal to whatever 0.01 bitcoin was worth at that moment.

The other way to buy or sell cryptocurrencies on a centralized exchange is by placing a limit order. With a limit order you can specify the amount of fiat currency you want to spend and also the price of the cryptocurrency you want. So you could specify $1,000 or bitcoin at $43,000. The order wouldn't be filled until there is a seller that also wants to sell bitcoin at $43,000 per bitcoin.

On many exchanges the trading fee that is charged for market orders is higher than the fee for a limit order, also known as a maker/taker fee. Sometimes the market order trading fees can be double the maker/taker trading fees.

On some exchanges there may be no visible fees. Instead, the exchange only places market orders and makes a profit from the difference between what a seller is willing to sell for and what the market price is. This is called a spread. It's generally invisible to the individual investor.

As mentioned previously, there are also fees for withdrawals. Some exchanges may charge fees for certain fiat withdrawals, and also place daily and monthly limits on withdrawals. For most people, these limits usually won't matter. Some exchanges also charge fees for cryptocurrency withdrawals. For example, if you want to withdraw bitcoin to send to an external wallet, they may charge 0.0001 bitcoin to transfer. So if you wanted to withdraw your entire bitcoin holdings of 0.01 bitcoin to your external wallet, you would pay 0.0001 bitcoin in fees to the exchange and then receive 0.0099 bitcoin in your external wallet.

With centralized exchanges that are authorized to operate in the United States, you will have to complete a KYC (know your customer) process. This is mostly to prevent use by those who live in states where it is not yet legal, as well as help prevent fraud and money laundering. KYC is typically pretty simple, and mostly easier within a smart phone app that on a computer. If you're opening a new account, it's recommended to use the mobile app for the service to open the account to make the process quicker and easier. The process consists of taking a picture of the front and back of your drivers license, a live picture of your face or a picture of you holding a code you write down on paper, and maybe a picture of a utility bill. Some centralized exchanges will require KYC to do anything on their platform, some will require it for higher limits deposit, purchase, and/or withdrawal limits, and some will require it before you can withdraw any fiat currency or cryptocurrency.

A key characteristic of centralized exchanges is that if you keep your digital assets and cryptocurrencies on the exchange, the common thought is that technically your do not actually own the assets in your account. You may hear the phrase "Not your keys, not your crypto," and this is essentially where the thought comes from. The centralized exchange owns the assets and holds them for you, and would fulfill an "I owe you" if you request to withdraw the assets to an external wallet or another exchange.

For those that already have a wallet or some other place to send cryptocurrencies to, there are services that offer a simple and quick way to purchase cryptocurrencies. These services includes Wyre, Moonpay, Ramp, Transak, and others. Strateon Intelligent Wealth does not promote or recommend any particular service for purchasing cryptocurrencies. With this type of service, purchasing cryptocurrency is as simple as selecting the cryptocurrency, specifying the fiat amount or the cryptocurrency amount, specifying the wallet address to send the cryptocurrency, and then entering credit card, debit card, or bank account details. The transaction is completed rather quickly with the cryptocurrency sent to the specified wallet address in a matter minutes or a few hours depending on the blockchain. The important thing to consider with this method of purchasing cryptocurrency is that the fees are high. The fees could be as high as 5% plus network fees. Also, if you pay with a credit card you would likely have to pay additional fees that the credit card company will charge for this type of transaction.

Most people are familiar with personal payment services such as Venmo and PayPal. These services offer the convenience of easily sending money from your bank account or credit card to another person or company. Now they both also offer the ability to purchase cryptocurrency. It's important to note that with Venmo and PayPal you can only buy and sell cryptocurrencies. You cannot send cryptocurrency to another person or to your own external wallet.

There's another personal payment app option, though, that allows you to send and receive Bitcoin to other people and even to your own external wallet. That app is called Strike. With Strike you deposit fiat currency and then can send whatever amount your want as Bitcoin to another Strike user or any Bitcoin wallet address.

Note that Strateon Intelligent Wealth does not promote or recommend any particular service or app for purchasing cryptocurrencies.

Although these and other personal payment apps are limited in the cryptocurrencies available, and they may only allow you to buy and hold in their respective accounts, they are among the easiest ways to quickly begin purchasing cryptocurrency. This is especially true if you already have an existing account with them.

Making your first cryptocurrency purchase can be complex and confusing. Strateon Intelligent Wealth is here to help clients select and make purchases of digital assets and cryptocurrencies, offering not only advice, but also education and instruction so that clients understand and know how to use these new technologies and services.

With tax day just a month away, it's a good time to take a look at how cryptocurrencies are taxed. There are similarities to how other assets and property are taxed, but there are also differences. Furthermore, the taxation of cryptocurrencies is different than many people expect. Here's a brief rundown on how cryptocurrencies are taxed.

Believe it or not, digital assets and cryptocurrencies don't work like typical currencies. They are instead considered property and are taxed as such. Even something as simple as spending cryptocurrency to buy something can cause you to pay taxes on that cryptocurrency. Here are some common digital asset situations that create a tax liability.

If you purchased a digital asset or cryptocurrency and then sell or exchange that digital asset for a profit, then that profit is considered a gain and you must pay taxes on the gains.

If you gift more than $15,000 in digital assets to an individual, then the gains of the portion of the gift that is greater than $15,000 is taxable.

This is the one that really catches a lot of people by surprise. When you spend cryptocurrency, you must pay taxes on any gains. For example, you bought bitcoin at $20,000. You decide to spend some of your bitcoin to buy a new iPhone when bitcoin is valued at $40,000. The bitcoin is considered to be sold at that price when you use it to purchase something else. In this example, it would be a 100% gain, so 50% of whatever is spent is considered a taxable gain. If you spend iPhone is $800 in bitcoin to purchase the iPhone, then $400 of the purchase is taxable.

This is another one that surprises many people. Similar to the example above, if you exchange one digital asset or cryptocurrency for another digital asset or cryptocurrency, you are considered to be selling the digital asset and then using the proceeds to purchase the other digital asset. If there are any profits or gains from the sale, then those are taxable. For example, you exchange 1 bitcoin for 14 ether. If you have a 20% gain in that bitcoin, then 20% of the value of the exchange is taxable.

It's important to note that in any of the transactions above, whether selling, gifting, or exchanging digital assets, only the capital gains are taxed, not the full amount of the digital assets. To know how much is taxable, one would subtract the price that was paid (including fees) from the proceeds that are received, the value exchanged, or the amount gifted.

Additional income tax events may include (but many not be limited to):

• Receiving an airdrop

• Interest earning in DeFi lending

• Cryptocurrency earned from liquidity pools and interest-bearing accounts

• Receiving cryptocurrencies as income instead of fiat currency

Unfortunately, this is currently still a gray area. The IRS has not provided clarity on whether mining or staking cryptocurrencies is taxable. However, there's an ongoing case against the IRS regarding when staking rewards should be taxed. The debate surrounds whether staking rewards should be taxed when they're earned or when they're sold. The plaintiffs in the case argue that newly created property, such as furniture or other manufactured goods, is usually taxable only at the point of sale, and that digital assets should be treated the same. The IRS did refund the taxes the plaintiffs had paid, but didn't provide clarity for future matters, so it's unclear which direction it will go. Until there is more clarity, it is best to discuss these particular situations with your tax professional.

The good news is that the same rules that apply to traditional investments regarding capital gains also applies to digital assets. If you sell the digital asset less than 12 months after purchasing it, then ordinary income tax is assessed on any gains. If you have held the digital asset for more than 12 months then long-term capital gains tax is owed on any gains. Capital gains tax rates are 0%, 15%, or 20% depending on your filing status and income level.

Capital losses from selling digital assets that have declined in value may be deducted from capital gains to reduce capital gains taxes. Also, as with traditional assets, up to $3,000 in capital losses may be deducted from ordinary income to reduce income tax liability per year. Additional losses beyond the $3,000 could be carried over into the next tax year.

Currently, the wash sale rule that applies to traditional securities investments, does not apply to digital assets. The wash sale rule states that if you sell an asset at a loss you cannot deduct the losses if you have purchase the same or significantly similar assets with a 61 day window that is 30 days before or 30 days after the sale. If that happens you don't completely lose the deduction, as the amount of the loss is added to the cost basis. With digital assets, you don't have to worry about the wash sale rule. You can sell a digital asset at a loss and then repurchase the digital asset at the same price to take advantage of the loss deduction against other capital gains. An important note here is that this is only how it is right now. There will be new regulation coming that may change this and the wash sale rule may apply to digital assets in the future, and that could also be made to take affect retroactively. As always, confer with your tax professional before making any decisions that may affect your tax liability.

Figuring out digital asset holdings, transactions, gains, and losses can be a very difficult task. One way to use use a spreadsheet to track every digital asset holding you have and the transactions with each that includes how much you paid, the amount of the asset, the value of the asset, and any fees paid. For anyone that has a number of different digital assets located in different exchanges or wallets and a multitude of transactions, this can be a very daunting task. Fortunately, there are a number of services that are available to make the process either easier or completely automated and headache-free.

If you need assistance, as always, it's recommended to consult your tax professional to see what they use and recommend, or what they can do to help you with the process.

Whereas Bitcoin has a maximum limit of 21 million bitcoin that will ever be created, Ethereum's ether does not have such a limit. There are currently 118 million ether in circulation, and that number will continue to grow. However, Ethereum's transition to Proof-of-Stake changes how new ether is mined and how transaction fees are assessed. The new method will actually burn some of the ether that is paid as transaction fees for each transaction. Burn is a term used in cryptocurrency to describe the process of taking coins out of circulation. It typically involves sending the coins to a non-existent wallet address or a wallet address that is not accessible by anyone. It is akin to burning US dollars, hence the word burn. Burning coins limits the amount of new ether entering circulation as each block is added to the blockchain, resulting in a slow-down of inflation and potentially result in deflation of the value.

It is possible to send and receive ether anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Ethereum allows its users to be in full control of their money. Because it's decentralized there is no authority that can take your money from you.

It is possible to send and receive ether anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Ethereum allows its users to be in full control of their money. Because it's decentralized there is no authority that can take your money from you.

There is no fee to receive ether, and many wallets let you control how large a fee to pay when spending. Higher fees can encourage faster confirmation of your transactions. Additionally, merchant processors exist to assist merchants in processing transactions, converting ether to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Ethereum, they can be offered for much lower fees than with other payment services.

Ethereum transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.

Ethereum users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Ethereum payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Ethereum users can also protect their money with backup and encryption. Further, an Ethereum wallet cannot be brute-force hacked, or at least none have been hacked yet. For more details on this, read the Strateon Intelligent Wealth Insights article Addressing Common Objections to Bitcoin.

All information concerning the Ethereum network and the ether money supply itself is readily available on the blockchain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Ethereum protocol because it is cryptographically secure. This allows the core of Ethereum to be trusted for being completely neutral, transparent, and predictable.

Ethereum lacks a central authority that could censor users. For example, because apps can run on top of Ethereum, it's possible for a social media platform like Twitter to run on the Ethereum blockchain. Without a central authority, the only way for a user to be censored (i.e. a tweet removed or a user banned) would be if a majority of the rest of the community voted to do so.

Everything that has advantages also has disadvantages, and it's important to be aware of them so you can weigh the pros and cons for yourself. Here are some of the most prominent disadvantages for Ethereum.

Many people are still unaware of Ethereum or are not using it yet. More businesses are beginning to accept Ethereum and other cryptocurrencies because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from network effects.

The total value of ether in circulation and the number of businesses using Ethereum are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. In theory, this volatility will decrease as Ethereum markets and the technology matures. This is a new asset class and a for of currency at the same time, so it's difficult to imagine and know how it will play out.

Ethereum software is still in active development, and may always be. New tools, features, and services are being developed to make Ethereum more secure and accessible to the masses. Some of these are still not ready for everyone. Most exchanges and markets for ether are new and lack full regulation, and may offer no insurance. In general, Ethereum is still in the process of maturing.

Ethereum is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Ethereum is not anonymous and cannot offer the same level of privacy as cash. The use of Ethereum leaves extensive public records. Various mechanisms exist to protect users' privacy, but it is possible to track transactions and accounts. This is a disadvantage for some, but could also be seen as an advantage as it does help make Ethereum less enticing to bad actors who would use it for fraud or criminal activity.

Some concerns have been raised that private transactions could be used for illegal purposes. However, it is worth noting that Ethereum will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Ethereum cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted. Additionally, Ethereum is also designed to prevent a large range of financial crimes.

Ethereum is often compared to Bitcoin. Although the two cryptocurrencies have similarities, there are some distinct differences. Whereas the Bitcoin blockchain was created to only support the bitcoin cryptocurrency with the purpose as a method of monetary exchange, the Ethereum blockchain was created as a programmable network that can run applications and support a number of different cryptocurrency coins and tokens that serve various purposes. Both serve different purposes and different utility, so there is not really any kind of one is better than the other comparison or any purpose of choosing one over the other.

There are two main common ways to acquire ether.

Another way is to have someone send you ether to your own Ethereum wallet. To do this you need to create a wallet. There are different kinds of wallets and many of each kind are available. That topic will be covered in a future Strateon Intelligent WealthStrateon Intelligent Wealth Insights post. Once you have your own cryptocurrency wallet you can select the option to receive ether and then essentially follow the same steps as above.

Sending ether from your own wallet works pretty much the same way, except that there is usually a confirmation screen where you confirm the recipient's address, the amount of ether being sent, and the gas fee. Most wallets allow you to customize the gas fee, so you could pay a lower gas fee, but have a longer transaction time, or you can pay a higher gas fee to settle the transaction quicker. Some wallets will require approving the transaction using private keys on a separate device. This is a security feature of some wallets to protect your wallet from becoming subject to malware or hacking of your computer or mobile device. Again, more on this later in a future Strateon Intelligent Wealth Insights post.

The key here is that it's actually pretty easy to transfer ether from one person to another. It's almost as simple as if you were typing in someone's email address or phone number to pay with Apple Pay, PayPal, Venmo, or other similar payment services. The key difference is that the account address is much longer and you have to be extra careful to make sure the address you're sending to is the right one. Also, the transaction will most likely settle in a matter of minutes so the recipient won't have to wait to be able to use the money that was sent to them.

To begin to understand digital assets and cryptocurrency the best place to start is where it all began and with the most prominent digital asset and cryptocurrency of them all – Bitcoin.

The software that runs on the Bitcoin network is a decentralized blockchain ledger. For an overview of blockchain and its benefits, read the Strateon Intelligent Wealth Insights post What is Blockchain and What are the Benefits of Blockchain and Cryptocurrency? The Bitcoin network is made up of thousands of computers that compete to process blocks in the blockchain. Each block is a group of transactions that are being verified and settled, and has an equation to solve. The first miner to solve the equation with the correct matching hash for that block gets to verify and settle the transactions and commit the block to the Bitcoin blockchain ledger. Other miners then confirm the transactions in the block to ensure the security of the network.

With Bitcoin, there is a new block added to the blockchain approximately every 10 minutes. The time fluctuates slightly depending on the number of transactions, network load, and the difficulty the the equation the miners are trying to solve.

Bitcoin mining got its name because those who mine bitcoin receive bitcoin when they solve the equation first, similar to mining gold. Anyone can start mining Bitcoin, and the more miners mining bitcoin the more secure the network becomes because of increased decentralization. If you want to mine bitcoin you simply need to buy the appropriate bitcoin mining hardware, install the software, add your bitcoin wallet address, and then run the software. There are even companies that exist where you can buy the hardware and they run it for you for a fee.

The main reason bitcoin miners mine bitcoin is because the winning miner is rewarded handsomely with bitcoin. Currently, miners receive transaction fees and, most importantly, 6.25 bitcoin for each block. If bitcoin is valued at $40,000, that's more than $250,000. At this time there are approximately 900 new bitcoin mined each day, meaning there's $36 million available for miners every day. You can probably see why bitcoin mining has become a multi-billion dollar industry all its own.

This is the biggest question a lot of people have. For many, the concern is that there's no tangible value to Bitcoin or bitcoin. That concern and confusion is understandable if you don't know how bitcoin works and why it's so special as a monetary system and store of value.

The important thing to consider is that things generally have value because people agree it's worth what it costs or what they are willing to spend on it. For example, a smart phone costs what it does not just because of the cost to manufacture it, but also because the companies making and selling them have done research to determine what the public is willing to spend on them. They've determined the value the public places on the products. It's the same especially for artwork. A Van Gogh has value because people who want to own a Van Gogh are willing to pay up to a certain amount of money for it. Bitcoin is similar in that regard, except that there is a potential utility of Bitcoin that's being invested, rather than a love of the art or a desire for social status.

Remember that 6.25 bitcoin miners can win for each block? That number changes. When Bitcoin first started, miners received 50 bitcoin for every block. In 2012 that was reduced to 25. In 2016 it was reduced to 12.5, and in 2020 it was reduced again to 6.25. This process is called the Bitcoin Halving. The next halving will be in 2024, at which time miners will then earn 3.125 bitcoin per block.

One important result of the halving is that every time so far that there's been a halving the price of bitcoin has spiked. The price of bitcoin was only $12 before the 2012 halving. The following year it reached $1,000. The price of bitcoin dropped to $670 by the time of the second halving in 2016, but then a year after the halving it was $2,550 and hit an all-time high at the time of $19,700 by the end of 2017. Bitcoin was at $8,787 in May 2020. Several months later it reach a new all-time high of approximately $42,000, followed by additional new all-time highs of approximately $58,000, $61,000, and $69,000 throughout 2021. Although the price of bitcoin is highly volatile, history has shown so far that the halving is typically followed by a significant increase in the price. However, keep in mind that history doesn't always repeat itself and there is no way of knowing what the price of bitcoin will be in the future. It could go up, but it could also go down.

You may be wondering, why is there a halving and why does bitcoin go up in price? That is where the matter of inflation vs. deflation comes in.

Inflation is simply described as the increase in prices of goods due to a decrease in the value of the currency. Inflation is currently the highest it's been in 40 years. This is in large part due to an over-abundant money supply and supply chain issues. The over-abundant money supply is a result of the government printing a lot of money and putting it in circulation over the past couple years. In February 2020, the amount of U.S. currency in circulation was $1.8 trillion. Currently the amount is $2.23 trillion. That's a 23.6% increase in the US currency in circulation in only 2 years. The reason for it was to stabilize the economy and prevent a recession as a result of the COVID-19 pandemic. It worked, but at the same time an extra supply of money in circulation causes the buying power of the currency to decrease. With the supply chain and a number of consumer goods being in short supply, difficult to get, or not available at all, we get increased prices. Add those two factors together and you have the high inflation we're currently experiencing.

This is where deflation comes in. Every 4 years or so the bitcoin mining reward will be cut in half. This will happen until 2140 when the last bitcoin is mined. That means there's a finite amount of bitcoin that will ever exist. That finite amount is 21 million bitcoin. There are almost 19 million bitcoin in circulation right now, so there isn't a whole lot more to be mined.

This brings us to a couple ideas for the increase of the value of bitcoin.

One of the most basic concepts for economics and the valuing of something is supply and demand. The simple concept is that the value or price of something increases when there is a lower supply than the demand for it, and the value or price decreases with a higher supply than the demand for it. With a limit to the number of bitcoin that will ever exist, the price should increase as the usage and demand increases.

If there are no miners then there is no bitcoin. and miners can't be expected to pay the costs of mining without something in return. What they get in return is bitcoin. The bitcoin they receive has to at least cover their mining costs. At this time, that is about $250,000 give or take depending the current price of bitcoin. In 2024, when the bitcoin mining reward is cut in half, miners probably wouldn't continue mining if their compensation drops to about $125,000. To keep their compensation at about the same amount, it is possible that the value of bitcoin could double some time afterwards to bring their compensation back to around the same amount as it is now or at least to an amount that is profitable for them.

Those two concepts are very big and important factors for the potential future value of bitcoin. However, there is no way to know for sure as history doesn't tell us what the future holds for bitcoin. User adoption is important too, as the value of bitcoin is also reliant on its use, as use does create value. Just like any fiat currency, if people are using it then it should have a value.

This brings up another unique feature of cryptocurrencies when compared to fiat currency. With the US dollar we can break a dollar down to 100 cents. You can't break it down any further than that since the cent is the smallest unit of currency in the US dollar system. With Bitcoin, you can actually break a single bitcoin into 100 million parts. Each part is called a satoshi, named after Satoshi Nakamoto. You'll also hear or read them referred to as sats for short. There are 100 million satoshis in each bitcoin, so each bitcoin can be broken down to 8 decimal places. For example, if one bitcoin is worth $40,000, then one US dollar ($1.00) is worth 0.00002500 bitcoin or 2500 satoshis (or sats). Bitcoin is actually very flexible in this regard as one satoshi won't equal one dollar until (or unless) the value of bitcoin reaches $100 million, and one satoshi won't equal one cent until (or unless) the value of Bitcoin reaches $1 million.

There are two main common ways to acquire bitcoin.

Another way is to have someone send you bitcoin to your own bitcoin wallet. To do this you need to create a wallet. There are different kinds of wallets and many of each kind are available. That topic will be covered in a future Strateon Intelligent Wealth Insights post. Once you have your own cryptocurrency wallet you can select the option to receive bitcoin and then essentially follow the same steps as above.

Sending bitcoin from your own wallet works pretty much the same way, except that there is usually a confirmation screen where you confirm the recipient's address, the amount of bitcoin being sent, and the transaction fee. Most Bitcoin wallets allow you to customize the fee, so you could pay a lower fee, but have a longer transaction time, or you can pay a higher fee to settle the transaction quicker. Some wallets will require approving the transaction using private keys on a separate device. This is a security feature of some wallets to protect your wallet from becoming subject to malware or hacking of your computer or mobile device. Again, more on this later in a future Strateon Intelligent Wealth Insights post.

The key here is that it's actually pretty easy to transfer bitcoin from one person to another. It's almost as simple as if you were typing in someone's email address or phone number to pay with Apple Pay, PayPal, Venmo, or other similar payment services. The key difference is that the account address is much longer and you have to be extra careful to make sure the address you're sending to is the right one. Also, the transaction will most likely settle in a matter of minutes so the recipient won't have to wait to be able to use the money that was sent to them.

It is possible to send and receive bitcoin anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money. Because it's decentralized there is no authority that can take your money from you.

When you pay with a credit card, you might receive authorization right away, but it could take a few days for the transaction to actually be on your credit card account. For merchants, it's the same delay, if not longer, before they can have access to those funds. For checks, it could be even longer. Depending on the amount it could take a week. For an ACH transfer it could take a few days, but some merchants require up to 10 business days. Wire transfers could take a few days as well, even with high fees, especially for international transfers. With Bitcoin, transaction settlement times could take as little as a few seconds (using something like the Lightning Network). Most do take longer, from 10 minutes to a few hours, but the speed at which Bitcoin transactions are able to verify and settle is significantly faster and less expensive than with the traditional banking system.

There is no fee to receive bitcoin, and many wallets let you control how large a fee to pay when spending. Higher fees can encourage faster confirmation of your transactions. Fees are unrelated to the amount transferred, so it's possible to send 100,000 bitcoins for the same fee it costs to send 1 bitcoin. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with other payment services.

Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.

Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption. Further, a bitcoin wallet cannot be brute-force hacked, or at least none have been hacked yet. For more details on this, read the Addressing Common Objections to Bitcoin.

Everything that has advantages also has disadvantages, and it's important to be aware of them so you can weigh the pros and cons for yourself. Here are some of the most prominent disadvantages for Bitcoin.

Many people are still unaware of Bitcoin or are not using it yet. More businesses are beginning to accept Bitcoin because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from network effects.

The total value of bitcoins in circulation and the number of businesses using Bitcoin are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. In theory, this volatility will decrease as Bitcoin markets and the technology matures. This is a new asset class and a for of currency at the same time, so it's difficult to imagine and know how it will play out.

Bitcoin software is still in active development, and may always be. New tools, features, and services are being developed to make Bitcoin more secure and accessible to the masses. Some of these are still not ready for everyone. Most exchanges and markets for bitcoin are new and lack full regulation, and may offer no insurance. In general, Bitcoin is still in the process of maturing.

Bitcoin is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Bitcoin is not anonymous and cannot offer the same level of privacy as cash. The use of Bitcoin leaves extensive public records. Various mechanisms exist to protect users' privacy, but it is possible to track transactions and accounts. This is a disadvantage for some, but could also be seen as an advantage as it does help make Bitcoin less enticing to bad actors who would use it for fraud or criminal activity.

Some concerns have been raised that private transactions could be used for illegal purposes with Bitcoin. However, it is worth noting that Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Bitcoin cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted. Additionally, Bitcoin is also designed to prevent a large range of financial crimes.