Cryptocurrencies: Buyer beware

(NC) These days, ads encouraging people to invest in cryptocurrencies seem to be everywhere. If you’re considering getting into crypto assets, it’s important to understand the risks and benefits of the various types.

Crypto is not the same as cash

Cryptocurrencies, such as Bitcoin and Ether, are a form of digital asset.

You should think of them as an investment. Unlike cash, they are not issued by a central bank, and their value can fluctuate wildly.

To try and limit these fluctuations, another type of crypto asset was created: stablecoins. They are meant to maintain a stable value. Stablecoins may be tied to the value of a currency, such as the U.S. dollar. They can also be backed by other crypto assets or use algorithms that trigger purchases and sales to stabilize their value.

However, the value of stablecoins can also go up and down abruptly, just like other crypto assets.

Risks of using crypto assets

In general, people use crypto assets as an investment, but this comes with many risks that you should be aware of.

• You may become a victim of hacking, fraud and scams. Someone may hack into the technology or platforms used for crypto assets, stealing your keys and gaining access to your wallets and your crypto assets.
• Crypto assets are unstable and high-risk. Their value may rise and fall suddenly and significantly, including stablecoins.
• Your deposit is not protected. If the crypto trading platform or wallet provider goes out of business or bankrupt, you may lose your money.
• You may have a hard time using your crypto assets. Most businesses don’t accept crypto assets as payment.
• You may completely lose access to your crypto assets if you lose your private key.
• Transactions are not reversible. You may not be able to stop or cancel a payment.

How to protect yourself

If you decide to use crypto assets, here are ways to protect yourself.

• Check the platform’s registration. Anyone who sells or provides advice in securities must register with their provincial or territorial securities regulator. Find out if the company has faced any disciplinary action.
• Protect your wallets. Keep your wallets and any backups in a safe place. Don’t share your private key with anyone. Use a strong password.
• Know the merchant’s refund, return and dispute policies. Before you make a purchase using crypto assets, find out what the exchange rate will be, if refunds are available and how they work.
• Wait for confirmation of your transaction. Confirmation happens when users on the network verify a crypto asset transaction. It may take 10 minutes or more.
• Understand the costs and find out what fees apply. These may include fees to exchange crypto assets for cash and trading platform fees.

Before you buy crypto assets, consider the impact it could have on your finances. Given that the value of crypto assets can fluctuate significantly, you should not invest money you cannot afford to lose.

Learn more at canada.ca/money.