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About 145 million American adults say that they own or have owned cryptocurrency. Statistically, thats more than half of your co-workers, neighbors and friends.

Its also about the number of Americans who own stocks.

Even though its not regulated by a government agency, cryptocurrency is becoming mainstream. However, President Biden recently signed an executive order to address cryptocurrency risks with a whole-of-government approach that could make cryptocurrency even more attractive to investors as well as traditional banks and credit unions.

For the near term though, cryptocurrency remains a volatile, speculative asset that will likely continue its gut-wrenching booms and busts. Thats not to say that cryptocurrency doesnt belong in a well-diversified portfolio, but I recommend that my clients first educate themselves about cryptocurrency before deciding whether or not to invest.

As Warren Buffet said about investing in cryptocurrency: I get into enough trouble with the things I think I know something about. Why in the world should I take a long or short position in something I dont know about?

Here are some important concepts to get comfortable with.

Say you order a new set of patio furniture online. A credit card company or payment processor like PayPal acts as a middleman between you and the seller.

However, if you want to buy that patio set with cryptocurrency, theres no middleman. You conduct transactions directly with the merchant. The cryptocurrency network assigns a public and a private key that becomes your unique address. You then use your private key to digitally sign the transaction.

Theres no bank or third-party fees. You store your cryptocurrency in either a hot or a cold digital wallet. You can get a software-based hot wallet from an exchange like Coinbase or a provider like Electrum or Mycelium. A cold wallet is a small, encrypted portable device from providers such as Trezor and Ledger Nano.

Its unclear which cryptocurrency names will survive, but the true value is likely in the underlying blockchain technology. Initially created to power Bitcoin, the granddaddy of cryptocurrencies, today theres thousands of blockchains for digital currencies like Ethereum, Litecoin, Dogecoin, Tether and many others.

(As a side note, Dogecoin began as a joke referring to 2013 meme with a Shiba Innu dubbed Doge.)

The blockchain uses a digital ledger to duplicate and distribute your patio furniture transaction to computers across the blockchain. Peer-to-peer computer networks verify and time-stamp each transaction. Instead of a central authority like a bank with the associated costs and infrastructure, a network of users verifies the data.

The growing list of records, called blocks, are linked together using cryptography. Crypto mining verifies the next block on the blockchain. Miners are rewarded with cryptocurrency tokens plus any fees paid by the exchanging parties.

Because the transaction appears across the entire network of computers on the blockchain, its extremely difficult to change, hack or cheat the system. For countries with poor or corrupt financial institutions, cryptocurrencies based on blockchain protect against criminal activity. Theres also an element of integrity since users can rate each other, weeding out unscrupulous users.

That doesnt mean that blockchain is totally hack-proof. Hypothetically, if a group of miners was able to take control of more than 51% of the blockchains mining hash rate or computing power, they could halt payments, reverse transactions, or double-spend coins.

Blockchain does have a few negatives. All those computers and the processes involved in mining cryptocurrency are energy hogs, making it environmentally unfriendly. Cambridge University found that Bitcoin mining takes more electricity annually than it takes to run Argentina.

And because blockchains require huge amounts of computing power over a distributed network, they are slower than centralized databases. The Bitcoin blockchain can only process 4.6 transactions per second, so it takes about 10 minutes to process a Bitcoin transaction. In contrast, the Visa network can process more than 1,700 transactions per second.

Blockchain is a transformative technology and has applications outside of cryptocurrency in healthcare, art, travel, legal, insurance and countless others. Think of any transaction that requires a central clearing authority, such as wire transfers or settling trades.

Here are just three possible uses of blockchain:

The IRS classifies crypto as a type of property rather than a currency. If you use digital currencies to buy or sell goods and services, you have to pay taxes. Using cryptocurrency can leave you with an unexpected tax bill.

For example, the patio furniture seller that receives your Bitcoin as payment has to pay taxes on its current value. You may owe capital gains taxes if the realized value of the sales transaction is greater than the price you paid for the cryptocurrency.

Buying crypto with cash and holding it isnt a taxable event, but if you acquire digital currency from mining, you have to pay tax on the value immediately. Getting paid in crypto also triggers tax liability. Transferring crypto from one digital wallet to another isnt taxable, but converting from one cryptocurrency to another is.

Investing in crypto also has tax implications. If you sell crypto at a profit, you have to pay tax on the difference between what you bought it for and the sale price.

If this sounds like a lot of recordkeeping it is. The IRS requires you to maintain records sufficient to establish the positions taken on tax returns. That means documenting receipts, sales, exchanges and the fair market value of your crypto assets. But unlike stocks, you dont receive a Form 1099-B that shows you the cost basis of your transaction. If you use cryptocurrency for day trading, transactions could total in the thousands.

One bit of good news tax-wise is that it is possible to use tax loss harvesting to write off some losses. Like equity losses, you can deduct up to $3,000 of crypto losses against ordinary income per tax year and carry losses beyond $3,000 forward until death.

The value of cryptocurrency is largely driven by supply and demand. Unlike government-backed (fiat) currencies, in which governments have the option of printing more money to increase supply, the majority of cryptocurrencies have published supply limits according to their token minting and burning plan. There will only ever be 21 million Bitcoins. When demand outpaces supply, cryptocurrencies rise in value, sometimes dramatically.

Stablecoins aim to provide a less volatile type of cryptocurrency by pegging the coins value to another currency, commodity or financial instrument. For instance, the USDF Consortium, a membership-based association of FDIC-insured financial institutions, is trying to further the adoption of a bank-minted tokenized deposit (USDF) that is pegged to the U.S. dollar and will be insured for up to $250,000 by the FDIC.

A stablecoin that turned out to not be stable at all rattled the markets. TerraUSD, which relies on algorithmic coin supply management, lost its peg to the U.S. dollar, and its Terra cryptocurrency lost 98% of its value in just 24 hours.

Unlike other assets that have built-in protections like FDIC-insurance, you are responsible for protecting your crypto assets. Youll want to use two-factor authentication with a strong password and additional verification, such as fingerprint or facial recognition. Dont buy crypto at the local coffee shop; use a secured internet connection.

Your digital key a 256-bit long string of alphanumeric characters is the only way to access your crypto assets. Hopefully, you wont ever lose your private key. If you lose the key or throw away your cold wallet, the crypto is lost forever.

Seems unlikely? Tell that to James Howells, who accidentally threw an old hard drive into the trash, which was taken to the local landfill. He was never able to recover about $181 million in Bitcoin. Or Mark Frauenfelder, who wrote down his key for his hardware wallet on a piece of paper which the cleaning people threw in the trash. Or Stefan Thomas who would have over $100 in cryptocurrency if he could remember his password.

James, Mark, and Stefan are not alone: One analysis found that of the 18.9 million Bitcoins in circulation, 3.7 million have been lost by owners.

If you die, your cryptocurrency is treated as a probatable asset. But because its decentralized, your beneficiaries may not be able to access it unless you include your cryptocurrency assets in your estate plan with instructions on how to access them.

In 2009, when Satoshi Nakamoto (a pseudonym for an individual or group of individuals) released a white paper detailing Bitcoin, the coin had no value. By February 2011, it hit $1. A decade later, it hit $68,000. A few months after that, it lost half its value.

Lots of investors panicked and sold. Historically, a bear market is the best time to invest since you are buying low with the hope of eventually selling the asset for more than you bought it for. Should you employ the same strategy with cryptocurrency?

Possibly. But first, think long and hard about your risk tolerance. Do bear markets give you angst? Do you feel compelled to sell equities and turn to the perceived safe haven of fixed income when economic news is bad? If yes, then investing in cryptocurrencies may not be right for you.

However, if you are willing to ride the highs and lows and already have a healthy emergency savings fund, have paid off all your high-interest debt, and are on track with your retirement savings and other financial goals, you can consider adding cryptocurrency as an alternative asset to a diversified portfolio.

If you are interested in investing in cryptocurrencies or even the underlying blockchain technology and dont want to invest directly, companies are beginning to offer ETFs and mutual funds that offer exposure to companies involved in blockchain technology and cryptocurrency. This certainly makes investing much easier, but if the value skyrockets, youll have to share in the spoils.

Also understand that the SEC does not insure cryptocurrency against exchange failures or theft. Some exchanges offer insurance, but it doesnt protect against breaches or someone stealing your private key.

It can be easy to get caught up in crypto excitement especially when you hear about overnight millionaires and day traders making incredible profits but the lows can be excruciating. Just as you would with any speculative asset, set a maximum threshold for cryptocurrency in your portfolio and stick to it.

Senior Vice President, Financial Planning, Carson Group

ErinWoodistheSenior Vice President of Financial Planningat Carson Group, where she develops strategies to help families achieve their financial goals. She holds Certified Financial Planner, Chartered Retirement Planning Counselor andCertified Financial Behavior Specialistdesignations.

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Should I Invest in Bitcoin or Other Cryptocurrency? - Kiplinger's Personal Finance

When Bitcoin launched in 2009 its consensus mechanism, how its blockchain processes and verifies new transactions, was based on what is called proof of work. Since its inception many other blockchains have arisen and some went with a different approach to find consensus called proof of stake.

Bitcoin is still the top dog as the worlds biggest cryptocurrency but the number two and most widely used, Ethereum, has finally ditched proof of work. After much delay, and a significant amount of testing, the Ethereum blockchain implemented The Merge and is now using proof of stake. So, what is the difference between the two consensus mechanisms? Is one better than the other?

The benefit of blockchain technology, both for proof of work and proof of stake, is that it uses a communal and immutable ledger which is verified by numerous computer nodes making it decentralized. This creates enhanced security, greater transparency, and instant traceability according to its advocates.

In a proof of work blockchain, the computer nodes compete with each other to be first past the post in solving complex mathematical puzzles to add a new block to the chain, and with it all the rewards.

In the case of Bitcoin miners, those running powerful computers to solve the puzzles, 6.25 Bitcoin for each block they successfully mine. This amount will halve sometime in 2024 and will continue to do so until the maximum supply of 21 million has been exhausted, roughly in 2140. After that miners will receive fees from the transactions to maintain the network.

However, this competition between the nodes means that proof of work requires vast amounts of energy to run those number crunching computers. In the case of Bitcoin, its consumption was slightly less than that of Argentina. This has been just one strike against blockchain technology and crypto assets creating opposition to wider adaptation of the technology.

One of the selling points for the adaptation of proof of stake through The Merge is that the switch will reduce its energy consumption by 99.95 percent. According to Digiconomist, a website that tracks cryptos energy consumption, Ethereum uses far less energy than before The Merge but a single transaction still has a carbon footprint equivalent to 10,794 VISA transactions or watching Youtube for 812 hours.

Proof of stake does away with the need for the massive computations to add new blocks to the chain. Instead, those with a stake in the network get to participate in the validation mechanism. Validators place a minimum stake of 32 Ether, the digital coin of the Ethereum blockchain, but the larger the stake, the better chance of being selected to check that new blocks propagated over the network are valid and thus the monetary reward that comes with it. But this wont necessarily block small participants as investors can commit holdings to a stake pool operated by exchanges.

If your only concern is saving energy, proof of stake is clearly head and shoulders above, however each one has its own uses and neither solves the problems that have plagued cryptocurrencies and assets. Crypto has also come into the crosshairs of government regulators due to its use for nefarious ends, scams and hacks that have resulted in people losing over $1 billion since the start of 2021, as well as their highly volatile nature.

Proof of work is much slower than proof of stake. For example, Ethereum expecting to perform up to 100,000 transactions per second after the transition in addition to the launch of its shard chains. Thats up from only 30 transactions per second on its proof-of-work blockchain. However, proof of work is considered more secure and able to maintain a decentralized network.

Ethereum counters that proof of stake should make its blockchain more secure by increasing the cost for a potential perpetrator of a 51-percent attack. Thats when miners with majority network control can interrupt the recording of new blocks. Likewise, the community can recover the honest chain collectively should an attack overcome the crypto-economic defenses.

Still there is the worry that Ethereums switch could reduce its decentralized nature and funnel more power to large firms. That in turn raises the specter that it would be easier for governments to apply pressure that a staking service comply with an order to censor certain transactions. Brian Armstrong, the CEO Coinbase, the largest US exchange accounting for 14 percent of all staked Ether, has said that he would rather shutter the companys staking service than comply with any such hypothetical order.

Continued here:
Cryptocurrency blockchain technology: What is proof of work (PoW)? - AS USA

The number of websites promotingcryptocurrency giveaway scams to lure gullible victimshas increased by more than 300% in the first half of this year, targeting mostly English and Spanish speakers using celebrity deepfakes.

Security researchers at cybersecurity company Group-IB have identified more than 2,000 domains registered in 2022 specifically for this purpose.

A report published today notes that the amount of fake giveaways involving cryptocurrency have increased five times compared to the same period last year.

Each of these sites has an average reach of about 15,000 viewers. If this data is accuarte, scammers have a targeting pool of about 30 million people. The use of top-level domains (TLDs) that are considered more trustworthy (.COM, .NET), and .ORG) have also contributed to this success.

Group-IB says that scammers abuse several video platforms to promote the fake giveaways in live streams with deepfakes of Elon Musk, Garlinghouse, Michael J. Saylor, and Cathie Wood. YouTube is first on the list, followed by Twitch.

The promotional streams comefrom accounts that have been hijacked or rented from underground hackers who receive between 10% and 50% of the earnings, depending on the size of the channel.

The more subscribers the channel has, the harder it is to block the stream, as it would take a higher number of reports to trigger YouTubes moderation system.

Additionally, the scammers have set up campaigns using the image of El Salvadors president, Nayib Bukele, who has declared Bitcoin a legal tender in the country, or soccer playerCristiano Rolando who signed an exclusive partnership with Binance this summer.

This shows that scammers are quick to adjust to new developments in the field and take advantage of the current context to promote realistic scams.

Group-IB explains that the primary reason behind the sudden surge of cryptocurrency scams this year is the significant rise in the broader availability of tools that help in their making.

The phenomenal growth of fake crypto giveaways can be explained by a significantly enhanced arsenal and availability of tools for crypto scammers, even with low technical skills, explains the cyber-intelligence firm.

Group-IB revealed that forums used by scammers make up a full-fledged marketplace that can help even first-time non-tech-savvy scammers carry out a crypto fraud scheme, the researchers say.

Russian-speaking forums today offer a dedicated market for hacked YouTube accounts, viewer boosting services, detailed tutorials on how to set up scams, drag-and-drop website creating platforms, bulletproof hosting services, and deepfake creation tools.

Moreover, these forums are stamping grounds for scam mentors, fake giveaway promotion specialists, and various service contractors, so the fraudsters don't need any knowledge to run these campaigns.

Group-IB says a complete crypto stream design costs around $200, while the production of a celebrity deepfake video would set the crooks back around $30.

Fake giveaway landing pages cost between $200 and $600, manuals are sold for around $100, and fully automated toolkits range between $500 and $1,500 per month.

"Scams targeting crypto enthusiasts are becoming increasingly common, and their scope and sophistication are growing. Crypto giveaway scams have evolved into a profitable illicit market segment. Small-time scammers and more advanced cybercriminals band together, allowing them to automate and streamline operations. - Group IB

Prospective investors and digital asset enthusiasts should be vigilant about cryptocoin giveaways and always do a thorough check of the details behind such promosbefore providingany sensitive information.

When a celebrity-endorsed promotion on YouTube looks too good, an easy way to figure out if it's a scam or not is to check the channel name and history. If its not the official channel of the celebrity, the giveaway is most likely a scam attempt.

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Fake cryptocurrency giveaway sites have tripled this year - BleepingComputer

In many ways, STEPN (GMT 2.80%) has been one of the standout success stories for the crypto community in 2022. Since its launch in March, STEPN is up roughly 320% for the year. What makes STEPN stand out is that it pioneered an entirely new concept: move-to-earn gaming. Until this year, if you had told someone that you could earn crypto by buying a pair of digital sneakers online and then going out for a walk in your neighborhood, people would have thought you were crazy. But the idea was so novel that investors immediately grasped its significance.

So what might be a similar type of concept that will captivate the crypto community next? This needs to be more than just "the next hot non-fungible token (NFT) project" or the "next big meme coin." This needs to be a huge, macro storyline that impacts the entire blockchain and crypto industry and galvanizes investors to think big about crypto in 2023. One such storyline might be the "Internet of Blockchains" concept from Cosmos (ATOM 4.10%).

One big problem the blockchain and crypto industry faces right now is interoperability, and this is exactly the problem that Cosmos is trying to solve. Quite simply, different blockchains have a hard time talking to each other. Sending digital assets from one blockchain to another blockchain can often be unnecessarily complex or expensive. So Cosmos is trying to become the blockchain that helps cryptos talk to each other. It is calling its approach the "Internet of Blockchains."

Image source: Getty Images.

The concept of interoperability might sound simple and obvious, except that it's not. Most people don't realize how difficult it is to exchange data and digital assets (such as NFTs) across blockchains that are not compatible. It would be as if two people could not communicate because they are using phones with different mobile operating systems. Or think about two people not being able to send email messages to each other because they are using different email clients.

Interoperability is a pressing technological issue right now, and that's why the Internet of Blockchains approach could be so huge for Cosmos if it manages to solve this problem. Using the Inter-Blockchain Communication (IBC) protocol, for example, two different blockchains can seamlessly exchange data and assets.Using the Cosmos software development kit (SDK), blockchain developers can easily create app-specific blockchains that plug into the Cosmos ecosystem. Some of the highest-profile blockchains in the world -- including Cronos (CRO 4.61%), which is the blockchain for Crypto.com -- have been built using the Cosmos SDK.

One reason I think the story of move-to-earn gaming took off this year is that it was an easy concept to understand. You didn't have to understand anything about blockchain architecture or crypto governance tokens to understand that a fun gaming experience that can also make you money. This made for an incredibly attractive investment thesis for putting money into STEPN.

So it was interesting that, in August 2022, New York-based investment manager VanEck put out a $140 price target for Cosmos, based largely on the concept of blockchain interoperability. This, of course, raised a lot of eyebrows, given that Cosmos is currently trading at only around $15. What did these money managers in New York know that most retail investors did not? All of a sudden, YouTube crypto influencers started to post videos online about Cosmos getting ready to explode in 2023.

Now, this is not to say that Cosmos is going to become the next STEPN. Cosmos is still relatively tiny, with a market capitalization of a little more than $4 billion, and many people probably have never heard of it. And there are many other developer communities also working on the concept of blockchain interoperability, so there is plenty of competition for Cosmos.

However, based on our collective experience around move-to-earn gaming, it is possible to see how an incredibly high concept crypto can become "sexy" if people are making money from it. Could the same thing happen with Cosmos? Over the past 30 days (about the time of the VanEck report), Cosmos is up about 30%.

For now, I'm taking a wait-and-see approach with Cosmos. I still need to dig more into the technical specifications of Cosmos. But I'm definitely paying attention now that Cosmos ranks as one of the top-performing altcoins of the past month.I'll be checking out the upcoming Cosmoverse 2022 conference in late September and putting Cosmos on my watch list for the remainder of the year.

Dominic Basulto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cosmos. The Motley Fool has a disclosure policy.

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Will This Cryptocurrency Be the STEPN of 2023? - The Motley Fool

Over the past seven years, Ethereum (ETH 2.72%) has been one of the best-performing cryptos in the world. Since its launch back in 2015, Ethereum is up an eye-popping 247,225%.

However, investors are unlikely to ever see those types of returns from Ethereum again. Ethereum has skyrocketed in value to become the No. 2 cryptocurrency in the world, with a total market capitalization of about $200 billion, making it much harder to duplicate those returns in the future.

So what should you do if you missed out on Ethereum? One option is to search out other Layer 1 blockchains that could eventually take over from Ethereum during the next crypto bull market. And surely one of the top prospects in this regard is Solana (SOL 290.43%). Even though Solana is now trading at a more than 85% less than its all-time-high back in 2021, it has the type of unlimited upside that could make it the next Ethereum.

Image source: Getty Images.

In terms of overall performance, Solana is already far superior to Ethereum. Take transaction processing speed, which is often considered to be one of the most important metrics for measuring the performance of a blockchain. Solana can theoretically process 65,000 transactions per second. Ethereum, on the other hand, can still only process 15 to 20 transactions per second.

Moreover, Ethereum is still plagued by high transaction fees, known as gas fees. Even after The Merge, a much-anticipated system upgrade scheduled for this week, it is unclear how much of a performance boost Ethereum will really get. Meanwhile, Solana continues to earn props as a potential Ethereum killer.

Performance metrics matter, because they are what can attract users, developers, and investors. In turn, this critical mass of users and developers is what leads to a strong, vibrant ecosystem. Simply stated, users migrate to a particular blockchain if it is cheaper and easier to use.

And developers will also move if it offers superior scalability and performance. For this reason, we are already starting to see a strong influx of developers into Solana.

In fact, Helium, one of the biggest blockchains in the world is now voting to migrate its entire technological infrastructure over to Solana.As a result, Solana's ecosystem is growing faster than Ethereum's, and this has important implications for growth projections we use to model Solana in the future.

In the last crypto bull market, Ethereum led the way, thanks to all of the innovations it introduced in the form of non-fungible tokens (NFTs), smart contracts, and decentralized applications (dApps). By nearly any metric, Ethereum is still the leader in overall blockchain activity. However, it's no longer necessarily the case that Ethereum has the most innovative blockchain ecosystem.

Just consider all of the innovation coming out of Solana over the past 12 months. There has been the launch of the Phantom digital wallet, the launch of the new Solana Pay payment network, the introduction of entirely new genres of blockchain gaming, and the launch of Saga, the world's first-ever "crypto phone." On top of that, Solana has now emerged as the primary rival to Ethereum in the NFT market, thanks to the success of projects such as the Magic Eden NFT marketplace.

There's reason to think that Solana has really only scratched the surface of what is possible with mobile crypto. Solana, for example, has already released a software development kit (SDK) for mobile crypto, so it clearly believes that this could be a future, high-growth category.What other blockchain has its own mobile phone and SDK?

And don't forget about the metaverse and blockchain gaming. Over the past 12 months, we've seen Solana announce major new future opportunities in these areas in major tech hubs like Dubai.

During the peak of the last crypto bull market, analysts were putting out some incredibly aggressive price targets for Solana. While those numbers now seem, in hindsight, to be remarkably optimistic, there is still a lot of upside potential to Solana.

Given that Solana is currently trading at about $35 right now, even if it just retraces its path back to an all-time high of $260 from almost 12 months ago, that would still be a sevenfold return on investment. But some analysts have suggested that Solana could eventually hit $1,000, creating even more upside potential for investors who get in now.

The really exciting part about Solana is that it is continuing to build during a down market. At the same time, the Solana brand is continuing to gain traction with young users.There are also a number of exciting catalysts coming in 2023, including the new Saga crypto phone.All of this leads me to think that Solana could be a no-brainer way to profit in the next crypto boom if you missed out on the initial stratospheric returns of Ethereum.

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Missed Out on Ethereum? Buy This Cryptocurrency Now - The Motley Fool