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The national registration search contains the names of all individuals and firms who are registered to sell securities in Canada, with the exception of those registered solely with the Ontario Securities Commision (OSC).

ASC ExternalSite > Investors > Investor Resources > You ASC'd Blog > Posts > Briefing you on Bitcoin

March 16
Briefing you on Bitcoin

What is bitcoin?

Bitcoin is one form of virtual currency or crypto-currency, a type of money that is created, held and traded electronically. Unlike most traditional currencies, bitcoin is not printed – it is powered by a technology known as blockchain. Blockchain is a public database that performs the job of validating and transmitting each bitcoin transaction. The process is chronological and historical and once completed, every bitcoin transaction is permanently stored in blockchain (barring technical security issues as outlined below).

Bitcoin was introduced in 2008 as an alternative to the conventional currency medium of exchange. It can be bought and sold and some sellers allow it to be used to purchase goods electronically. Bitcoin took off as a currency on the black market (Silk Road) and has since gained interest and notoriety due to media and major retailers accepting it as a form of payment (e.g., dating site OkCupid accepts bitcoin as currency, as does Overstock.com). Its continuing adoption within the commercial sphere has resulted in legitimate and wider tradability with other forms of currency making it harder to ignore than when it was previously used for illicit transactions.

What are the risks?

There are various ways to invest in bitcoin, including purchasing it with the expectation that its value will increase (similar to buying U.S. dollars), trading based on bitcoin’s price volatility or investing in bitcoin-related companies. As with any investment, investors should conduct their own research and familiarize themselves with the major risks associated with bitcoin before investing.

Opportunity for fraud

New inventions or innovative technologies are often used by fraudsters as scam bait. They may tempt investors by marketing a bitcoin investment opportunity as a way to get into a unique, cutting-edge space, promising or guaranteeing high investment returns. Fraudsters may solicit investors through forums and online sites frequented by members of the bitcoin community.

Decentralization

Unlike traditional tender, such as the Canadian dollar or Swiss Franc, bitcoin is not issued, backed or administered by a central bank or government agency and there is no obligation on any party to accept it as a form of payment. Because bitcoin lacks any central governing authority, its minimum valuation can never be verified and its value is solely determined by market volatility. The likelihood of dramatic fluctuations in the value of bitcoin create a greater risk for those buying it or using it to make or receive payments.

Security and technical issues

Bitcoins are stored as electronic files within individual computers and are not protected from hackers, online theft or data corruption.

Tax implications

The CRA ruled that like any commodity, gains or losses resulting from using or trading bitcoin are subject to taxation. Capital gains or profit earned through investing in bitcoin are converted to Canadian dollars to determine taxes owed. The fluctuation and volatility of bitcoin’s valuation may have a significant impact on the taxes you owe.

Bitcoin regulation

Numerous regulatory authorities such as the U.S. Securities and Exchange Commission, FINRA and NASAA have issued investor alerts warning of the increasing risk for fraud, including red flags to watch for and what to be wary of when doing your research. Various government agencies are analysing how to regulate bitcoin and investors should keep on top of legislative developments in this fast-evolving area.

Helpful Links

SEC Investor Alert on Virtual Currencies

What you should know about digital currency (CRA)

SEC Investor Alert on Virtual Currencies