A cryptocurrency is the broad name to digital technologies that allow you to use electronic and digital technologies to:
- Transfer money into accounts globally
- Record data from your personal accounts
- Invest internationally
Many people have heard of Bitcoin and may not know what it really is. But before this discussion can really take off, it will pay to start at the beginning – with a good old cash transaction. We can start at the cash transaction and work our way up to describing how to move money that isn’t cash, and why you need to be worried about this technology and currency if you are using this system in your business.
The Good Ole’ Dollar
Cash transactions as we know them are straight forward. Cash is known as being representing a physical object or tender, such as a bill or coins in our society. Cash has a predetermined and set value (leaving collectibles out of the conversation here).
Digital Cash Is Sort of Like Cash
Now, let’s move to the idea of digital cash. If you are paying someone one dollar in a digital or electronic cash system, you are transferring one dollar from your account to the other person’s account. This can happen between businesses locally and globally– literally millions of times a day. But you are not handing the physical money over this time. This creates a data file at a central authority, which is best done at a bank. Banks are regulated to keep these transfers of money safe, secure and without fraud. One problem is that these systems are susceptible to hacking, theft and unauthorized access by others, but we’ll assume the system works well on its face.
It’s Down to Bitcoin
Now we are up to transfers of virtual money known as:
Bitcoin is money that has no physical dollar attached to it, and it is in units that can be divided down into 100 million pieces technically. The Bitcoin Blockchain keeps track of the Bitcoin transactions and notes any new Bitcoin units that are made on a ledger. This ledger is massive, as it keeps literal track of the blocks, but anyone using the system can download a copy of the ledger. It is anonymous for the most part, and Bitcoin owners use pseudonyms freely. There is no central authority that verifies the accounts, but there are rules that everyone is meant to follow. If you are starting to feel uneasy, read on, there might be a reason for your queasiness.
Can You Count on Your Bitcoin Wallet?
When you download a Bitcoin, it goes into a Bitcoin wallet that is software pushing fractions of Bitcoin units. These units are easily exchanged to USD (U.S. dollars) or other global currency. The transfers between currencies are handled on exchanges.
The Problem with Bitcoins Is a High Risk of Fraud
As Bitcoins and other cryptocurrencies are created, there are many questions as to the legitimacy of transfers, risk of fraud, risk of tampering with transfers en route to end users, hijacking or hacking into the system, and more worries about veracity of transfers in use. Even though the Bitcoin system uses encrypted message systems, private and public keys, validation procedures, verification of transaction origins, and preferences to avoid double spending – it can all go wrong quite easily.
CryptoCurrency and Estate Planning
If you do have cryptocurrency, don’t forget that to consider it when doing your estate planning. You should not include your private keys, passwords or PINS in your will but you should prepare a memorandum, kept in a safe location, with information that will help your Executor access your cryptocurrency.