Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides.
What exactly is cryptocurrency?
Crypto is digital money. At its core, cryptocurrency is typically decentralized digital money designed to be used over the internet. In other words, Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. The easiest way to think of tokens is to compare them to casino chips or arcade game tokens—you will need to
exchange real currency for the cryptocurrency to access the good or service.
Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the biggest, most influential, and best-known. In the decade since, Bitcoin and other cryptocurrencies like Ethereum have grown as digital alternatives to money issued by governments. Right now, the leaders trading cryptocurrencies by market capitalization are Bitcoin, Ethereum, Binance Coin, Solana and Tether.
Cryptocurrencies are usually not issued or controlled by any government or other central authority. Theyʼre managed by peer-to-peer networks of computers running free, open-source software. Generally, anyone who wants to participate is able to. Even though a bank or government is not involved, crypto is considered secure because all transactions are vetted by a technology called a “blockchain.” Regardless of lack of government/central authority control, Blockchain is and remains cryptocurrencyʼs “security blanket.” Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security. A cryptocurrency blockchain is similar to a bankʼs balance sheet or ledger. Each currency has its own blockchain, which is an ongoing, constantly reverified record of every single transaction ever made using that currency. Unlike a bankʼs ledger, a crypto blockchain is distributed across participants of the digital currencyʼs entire network. No company, country, or third party is in control of it; and anyone can participate. A blockchain is a breakthrough technology only recently made possible through decades of computer science and mathematical innovations.
Currencies have developed and transformed since their inception. To what do you attribute this rise of a new currency in our day and age?
In a nutshell, cryptocurrencies offer an important benefit for any investor: a price that moves independently of the economy, rather than changing with it like so many other investments. More high-minded fans say digital assets are simply the future of finance, allowing transactions to sidestep middlemen, with fees tied to a currency thatʼs not beholden to any government. That is, the rise of a new currency is considered attributable to:
A. The desire to take complete control over his/her own assets. Cryptocurrency blockchains allow individuals to take complete control over their assets.
B. Cryptoʼs ability to transfer value online without the need for a middleman like a bank or payment processor, allowing value to transfer globally, near instantly, 24/7, for low fees.
C. Crypto emerging as the new “safe haven” against market volatility and inflation. Cryptocurrencies, especially Bitcoin, is now being considered as a safe-haven asset against market volatility and inflation. The current societal and economic climate also brings about a situation for people to hold less cash and stay hedged against market swings. Recently, there has been a trend where public companies (such as Square, Microstrategy) are converting their cash treasuries into cryptocurrency, considering it to be a better store of value … Many companies have since followed this trend. The confidence of corporate giants on cryptocurrencies has added more merit to it as a currency and value store. There is an increase in the desire to convert oneʼs cash into crypto because of its deflationary nature; crypto is perceived to be a better store of value and a hedge against inflation.
D. Easier access to the public. By redistributing power away from the government and Wall Street and to the people, cryptocurrency will democratize finance … As a digital currency that can be used as both—a store of value and a mode of exchange, cryptocurrency has not only gained attention as a legitimate payment method, it has established its footprint as a new asset class.
Are cryptocurrencies here to stay? If so, to what extent? Will they be used for groceries or will cryptocurrencies be exclusive to larger or more selected transactions?
Whether you love them or hate the idea of them, Cryptocurrencies are here to stay… Cryptocurrencies have surged so much that their total value has reached nearly $2.5 trillion (rivaling the worldʼs most valuable company, Apple…), and have amassed more than 200 million users. At this size, itʼs simply too big for the financial establishment to ignore.
Cryptocurrency is more than just a financial news talking point. For example, it has “normal-life” applications that are now being implemented in the food industry. Restaurants such as Bubba Gump Shrimp Company and Mortonʼs The Steakhouse, will start to accept Bitcoin and other cryptocurrencies as a form of payment for meals. Similarly, major U.S. companies and retailers such as BMW, Microsoft and AT&T have pitched their hat into the crypto ring…. Even major credit card companies are now trending towards enabling cryptocurrency payment options. What is clear is that digital currencies are gaining traction with consumers (especially millennials).
Despite many of the arguments in cryptocurrencyʼs favor, is it wise to tread carefully considering its instability?
Bottom line is that Cryptocurrency is still unregulated and for that reason alone, it is definitely wise to tread carefully …Given its lack of regulation and exposure to cyberattacks, treading carefully is smart. If you are new to the Crypocurrency space, an option is to take ‘baby stepsʼ when entering the Crypto ring. For example, a safer (but potentially less lucrative) alternative is to first buy the stocks of companies with exposure to cryptocurrency. When asking “Is cryptocurrency safe?” the more comprehensive answer is “it depends….” Several factors make cryptocurrency not entirely safe, at least currently, while other signs are emerging that cryptocurrency is here to stay. Even Venmo is now marketing to its users that it can “put to good use” the money sitting in their Venmo account by buying Bitcoin, Ethereum, and more … in just a few taps.
Cryptocurrency risk is very real; at a minimum, one must be aware of the four fundamental risks:
Cryptocurrency exchanges are vulnerable to cyberattacks.
Cryptocurrency exchanges, more so than stock exchanges, are vulnerable to being hacked and becoming targets of other criminal activity. These security breaches have led to sizable losses for investors who have had their digital currencies stolen. Safely storing cryptocurrencies is also more difficult than owning stocks or bonds.
Competition remains fierce among thousands of blockchain projects.
Thereʼs also no guarantee that a crypto project you invest in will succeed. Competition is fierce among thousands of blockchain projects, and projects that are no more than scams are also prevalent in the crypto industry. Only a small number of cryptocurrency projects will ultimately flourish.
Regulations might be against the crypto industry in the future.
Regulators may also crack down on the entire crypto industry, especially if governments continue to view cryptocurrencies as a threat rather than just an innovative technology. The United States Securities and Exchange Commission is of the position that investors simply do not yet have enough regulatory protection from the swarms jumping into crypto finance, issuance, trading, and lending.
Products based on cutting-edge technologies have intrinsic volatilities.
With cryptocurrencies being based on cutting-edge technology, that also increases the risks for investors. Much of the tech is still being developed and is not yet extensively proven in real-world scenarios.
Suzanne DeWitt is the founder and managing partner of DEWITT PLLC. Her work includes the structuring, formation, and operation, on a cross-border basis, of a variety of alternative investment products, including U.S. and non-U.S. hedge funds, private equity funds, hybrid funds, and funds of-funds, as well as private banking and international tax and trust planning for high net worth clients and financial institutions. She can be reached at 305-563-7000 or firstname.lastname@example.org.
International tax attorney Suzanne Dewitt knows a thing or two about creating tax-effective strategies for her wealthy clients. She is considered a financial artist who takes a canvas and paints a picture, which is the design principle of tax minimization. It is a delicate balance that she has mastered — the art of utilizing high-end artwork as a tax savings strategy to yield profitable results. For more information, visit dewittpllc.com
An appreciation for art goes beyond the aesthetic. Leading Miami attorney Suzanne DeWitt designs tax savings strategies utilizing high-end artwork for many of her clients.
Suzanne DeWitt is the founder and managing partner of DEWITT PLLC. With over 21 years of experience in international tax and private wealth planning, she is an expert in the areas of global tax minimization and crossborder wealth planning. Her work includes global tax and trust planning for very high net worth clients, as well as the structuring, formation, and operation, on a cross-border basis, of a variety of alternative investment products, including U.S. and non-U.S. private equity funds. Additionally, Ms. DeWitt represents a number of significant global companies in their global tax planning projects. Here, Suzanne DeWitt demystifies the role of a “Tax Lawyer” and describes what tax planning actually means.
A Tax Lawyer is not an accountant. Tax planning is not tax preparation. Tax planning is a Tax Lawyerʼs analysis and arrangement of a
clientʼs financial situation in order to develop tax strategies to maximize tax breaks and minimize tax liabilities in a legal and efficient manner. For Tax Lawyers, tax planning involves the research and analysis of applicable law and taking financial and business positions in support of any recommended tax plan. Accountants, on the other hand, are like historians. Accountants analyze a taxpayerʼs financials, receipts, checkbook, and other reports from that prior year to develop a governmental financial statement (i.e., a tax return) for the IRS that discloses what happened during that period, after the year is over. Accountants are an integral cog in any Tax Lawyerʼs tax planning wheel.
Comprehensive tax planning does not stop at legal jargon and technical analysis; it should be ‘translatableʼ into an easy-to-understand
framework. An effective tax lawyer should not simply recite complex statutes and case law to their client and expect the client to just
accept that the recommendation will reduce their taxes. Sound tax planning includes the ability to fully explain sophisticated recommendations to clients in a manner that can be easily understood by anyone.
Tax planning benefits are maximized when tax planning is proactive. Business owners conduct transactions every day. For example, they negotiate prices and terms prior to engaging in a transaction. This principle also applies to tax planning. Unfortunately, business owners put off organizing their taxes until the year is nearly over, or sometimes, forget about their taxes altogether until after the year is closed. Once the year is complete, there are far-fewer means of reducing taxes, meaning an increased risk for the overpayment of taxes. Tax planning is financial planning in preparation for tax efficiency. It aims to reduce oneʼs tax liabilities and optimally utilize tax exemptions, rebates, and benefits, as much as possible. The bottom line is that tax planning is most effective when it commences at the beginning of the year, as the available number of tax reduction strategies expands dramatically.
It is synergistic. Tax planning considers both the financial consequences and benefits across multiple perspectives. These varied perspectives include personal benefits, business benefits, ownershipʼs succession wishes, current and desired retirement planning, ownershipʼs estate planning wishes, and asset protection. Tax planning also considers the impact of several laws including federal income tax, federal employment/payroll tax, state taxes, creditor laws, and state legal structure. In the same fashion that a general contractor must consider various components when planning to build a house, a strategic tax planning team must simultaneously contemplate diverse elements. Giving any single aspect more attention than the other can result in optimization of one element while tax may be substantially increased in another area. Therefore, because all aspects of a business ownerʼs tax situation are viewed in concert, the result is overall tax minimization and asset protection.
It is collaborative. Because strategic tax planning examines several components concurrently, tax attorneys rarely work alone when examining a business ownerʼs position. Due to the interrelation between the business owner and the business, as well as the dynamic between different taxes, legal structure, industry, and ownership, some tax planning recommendations may overlap with other areas and thus a good tax lawyer understands that any decision made with the benefit of the business owner in mind, is made jointly with a team of advisors. This collaborative effort results in a coordinated plan which has considered all aspects of the business owner, including the business retirement, estate planning wishes, succession wishes, and asset protection.
Suzanne DeWitt is the founder and managing partner of DEWITT PLLC. With over 21 years of experience in international tax and private wealth planning, she is an expert in the areas of global tax minimization and cross-border wealth planning and implementation.
Suzanne recently shared a list of reasons as to why practicing Tax Law leads to a happy practice.
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