Cryptocurrency

Cryptocurrency is a virtual currency you can exchange online. Cryptocurrencies are recorded in digital ledgers called “blockchains.” When you buy cryptocurrency, you typically hold it in an online “wallet”. There is no need to use a bank to move crypto from one person to another. 

Last Reviewed: March 2023

Using the term currency does not mean they are the same as real currency. They are not legal tender the way paper bills or Canadian coins are. 

In Canada, cryptocurrencies are either a capital gain or business income, unless they are a hobby. The CRA determines this on a case-by-case basis. They are not a security the way stocks are though other countries do consider them securities. 

Last Reviewed: March 2023

There are many different types of cryptocurrency with many different names. Bitcoin is a commonly known one. Some cryptocurrencies are worth more than others. Anyone can create a new type of cryptocurrency. 

There are two general ways to make cryptocurrency: “proof of work” and “proof of stake”. Within those two types, there are lots of different kinds of coins. Explaining how they are created helps explain the difference. See the What is “mining”? FAQ below for more information. 

Last Reviewed: March 2023

Mining creates new coins for proof of work type cryptocurrency. It is a complex system. You create a new coin by having a computer “work” to calculate a mathematical combination. Each new combination it guesses creates a new coin, or part of a coin. 

For proof of stake, coins are created by having computers calculate in a pool together to come to a consensus. A consensus validates the coin. This is called “minting” or “validating” instead of mining. The more someone participates in validating, the more coins or parts of coins they earn. It uses less energy compared to proof of work.

Last Reviewed: March 2023

Mining crypto is not something the average person can do well. Mining crypto requires a powerful computer, which is expensive. You can still mine on more ordinary computers. But mining uses a lot of the computer’s resources, and it only creates a small amount of crypto at a time. The stronger the computer, the faster and better it can calculate and mine. You will always be competing with other people around the world who have stronger computers than you.

Last Reviewed: March 2023

No. Coin is a misleading term. There are no physical forms of cryptocurrency. You can exchange crypto for money online and vice-versa. 

Last Reviewed: March 2023

Beware of something that seems too good to be true. Some people may try to sell you on fake schemes that promise to triple how much money you put into crypto. 

If you are buying cryptocurrency, choose a verified website to do it with safely. One way you can verify a website’s safety is by checking the Alberta Securities Commission’s website. They have a caution list of investment websites to beware of. They also have a list of properly registered Alberta investment firms, some of which may trade in cryptocurrency. See the What is the Alberta Securities Commission? FAQ below for more information. 

The value of cryptocurrency can change quickly, which sometimes means it becomes very valuable very fast. But this also means its value can plummet and may never return to what you bought it for. There is no way to guarantee you will make money with it or when it will change. In terms of investments, it is not said to be very stable. 

Crypto can also be harder to track than regular money. Even though anyone can see a transaction on the blockchain, it can be hard to tell who it is going to. 

Last Reviewed: March 2023

The Alberta Securities Commission is an organization that oversees Alberta’s securities laws and protects investors. They can give fines, freeze assets, and ban people from the market if they do not follow the rules. They can also prosecute people under criminal law on behalf of the government. The Commission does not give advice on investing though, and they cannot get lost money back for you.

The Commission does not oversee cryptocurrencies themselves, but does keep check on investment firms that use cryptocurrencies. 

Last Reviewed: March 2023

It can be hard to get back money lost through a crypto scam. Like other types of financial scams, the money can be sent to people overseas and is hard to trace. 

See the Is cryptocurrency anonymous? FAQ below for more information. 

Last Reviewed: March 2023

Yes and no. Anyone can see transactions made on the blockchain. However, the transaction destination shows only as a wallet, which does not have a person’s name on it. 

Last Reviewed: March 2023

Depending on how you use income from cryptocurrency, it can be a capital gain or business income (or a capital loss or business loss). It is not employment income. Speak to a tax consultant to get a better idea of which category you fit into if you are a cryptocurrency investor. 

Last Reviewed: March 2023