Cryptocurrency is a digital form of money. It differs from other currencies in that it is purely virtual (not printed on a bill or coin) and most are decentralized (not issued from a central bank). Transactions are secured by cryptography using a decentralized network of computers.
Cryptocurrencies utilize a blockchain (a network system that shares data and keeps a record of all transactions made) and they are stored in digital wallets. Bitcoin is generally recognized as the first cryptocurrency. Other popular cryptocurrencies include Ethereum, Binance Coin, Solana, Ripple and Polkadot.
While not yet widely accepted or used for real estate transactions in Boston, real estate sales involving cryptocurrency are emerging in other locations, such as this offering in New York City.
Here are some potential pros and cons for real estate buyers and sellers to consider.
2. Convenient, Speedy and Efficient – Cryptocurrency transactions are done instantly, even international and overseas transactions
3. Utilize Value of Existing Asset – If you already have a large investment in cryptocurrency and are able to complete a purchase with it directly (as opposed to liquidating it into U.S. dollars or another currency), it may avoid potential costs.
1. Volatility – The value of each cryptocurrency has fluctuated drastically.
2. Complicated Tax Implications – There is uncertainty on how transactions involving cryptocurrency will be taxed, since in some cases cryptocurrencies have been considered property for tax purposes and subject to capital gains tax.
3. Lack of Widespread Acceptance – Sellers may not accept payment in cryptocurrency; similarly, not all buyers may be comfortable putting their funds into cryptocurrency.
4. Value Risks – Cryptocurrencies have no hard collateral or central bank/government behind them.
5. Security Risks – Risk of losses due to hacking.
6. Financing Challenges – Banks seem wary of participating in transactions involving cryptocurrency.
* IMPORTANT NOTE: Cryptocurrency is an emerging industry and there are very likely legal and tax implications that are not yet clear. This article is NOT intended to provide legal or tax advice. Please consult with an attorney or a qualified tax professional.