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Understanding Dollar Valuations And Cryptocurrencies: By Financial Experts

A Bitcoin and a $100 bill

Technology, digitalization, and software advancements are making their presence felt in every aspect of our lives. Right from your automobile that comes with connected car tech to the security features of your new home, technology is helping make our lives easier and safer.

One area where the impact of technology, the internet, and digitalization is being felt is in global finance. The world’s financial systems are being increasingly influenced by technology.

Our ‘money, its usage, storage, trading, and investing have undergone a sea change in the past decade. If you thought net banking was revolutionary, you might have been blown away by the advent of internet money- cryptocurrencies!

While there are vociferous supporters of cryptocurrencies, there are steadfast critics too. The critics think that cryptocurrencies are fallible and do not offer the convenience, security, and usage options as their traditional dollar does.

In this article, we are going to understand and shed light on dollar valuations and cryptocurrencies. We will also try to bust some myths around the same.

How to Understand Dollar and Cryptocurrencies in Similar Scenarios: An Analysis

In this section, we are going to look at five probable scenarios and compare the same with regard to dollars and any other cryptocurrencies. If you are looking to earn some free cryptocurrencies, do check out this awesome resource-

The purpose of this is to show you how both are equivalent to one another in different aspects-

1. Holding Dollar Cash and Cryptocurrencies

What do you do with any physical dollars (cash)? You hold it in your wallet or purse, right? With cryptocurrencies, you do the same. You hold them in a digital wallet. Let us try to explain this in the form of a real-world example.

Remember the time you used to receive postal mails. Well, now you do the same in your Gmail! This is exactly similar to that. You are holding money in a digital account just as your emails now come on a Gmail account.

2. Saving Dollar Cash and Cryptocurrencies

Most of us want to ensure that we are putting aside some percentage of our earnings in the savings account. You can store your cryptocurrencies in savings deposits in banks and on exchange platforms in much the same way you use your dollars.

In both instances, you stand to make a gain in terms of earning some interests. Just like how banks and financial institutions pay you a small interest for deposits in savings, so do crypto exchanges and even banks!

3. Borrowing Against Savings in Cash and Cryptocurrencies

Most of us are familiar with the practice of borrowing from our Retirement Accounts and Savings. We keep depositing money in our retirement savings for several years and then borrow in lieu of the same. With cryptocurrencies, you can exactly do that.

If you have cryptocurrencies stored away, you can deposit the same in a vault and borrow cash in lieu of the same. Most banks and financial institutions have started this practice and service for customers.

4. Trading Stocks and Tokens in Cash and Crypto

If you are aware of how the stock markets work, then you can easily start trading digital crypto tokens. The process is simple. It works in exactly the same way as shares in a stock market.

You buy when the price is low and sell it when you think you stand to make a decent profit. Just like stocks, holding for long-term gains and profits is encouraged. Digital tokens work on the Blockchain network and all the transactions and transfers are accounted for.

Common Myths associated with Cryptocurrencies when compared to Dollars

In this section, we will try to bust some myths that people have about cryptocurrencies when compared to dollars.

1. Understanding how Cryptocurrencies work is too Complex and Technical

Do you know what is an Automated Clearing House? Or are you aware of how a High-Risk Merchant Account Works?

Or, my personal favorite, what is automated clearing and settlement on interest? If you have no clue on any of the above questions, you are poor as far as your knowledge of how the dollar works is concerned.

You don’t need extensive knowledge to understand how cryptocurrencies work. The rule and philosophies of money are the same.

2. Cryptocurrencies can always crash at a minute’s notice

Any financial commodity when it starts is unstable. The same was true for cryptocurrencies as well.

However, in the last few years, it has not only matured as an asset class but continues to be stable just like the stock of a Fortune 500 company.

You have steady valuations, steadfast investors, and mainstream acceptance and awareness. All this is allowing cryptocurrencies to avoid volatile shifts in valuations and price fluctuations.

3. Cryptocurrencies are not backed by anything, so they do not have any value

Do you know how your traditional Dollar is backed? Or, how does the Dollar determine its value? Sorry to break it down for you, nothing is backing the dollar!

In the 1960s, the US removed the backing, which was gold, when the oil and energy revolution started. The dollar has value simply because the government says so.

Yes, there is fundamentally no other asset that is determining or holding up the value of your dollar in the last five decades.

4. Cryptocurrencies can be hacked and become a target of cybercriminals

Data points out that in the last three years, online attacks on net banking, credit, and debit cards were far more than they were in the realm of cryptocurrencies.

The Blockchain Network, on which most credible cryptocurrencies operate and run is infallible. Ever since its inception two decades back, it has never been compromised even once.

The same cannot be said about banks, payment gateways, and financial lenders. They are subject to routine hacks and data steals.

5. Cryptocurrencies Invite the IRS’s Wrath

Did you know that you stand to save much more on your taxes on crypto than you do in traditional dollar cash?

Yes, crypto gains are taxed as Capital Gains in the same way your property is taxed. If you are not buying or selling and simply holding your crypto, you do not pay any taxes!

This means that not only are you not inviting the IRS’s wrath, but this is a far better and attractive way to help you save taxes!

The Bottom Line

In this resource article, we have tried to look at understanding how the dollar sizes up against cryptocurrencies. There is a reason why leading exponents across all niches feel that cryptocurrencies are the future of our financial systems. They have shown a lot of promise, especially in terms of presenting themselves to the demands of the new world order. If you have any questions or would like clarifications, let us know in the comments below.

More on this topic:

Cryptocurrency Taxes: 4 Strategies For Traders

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