The City of Miami is making strides to position itself as a world leader in cryptocurrency.
In fact, Mayor Francis Suarez announced plans to create and distribute digital wallets to residents last November during an interview with CoinDeskTV.
"We're going to be the first city in America to give a bitcoin yield as a dividend directly to its residents," Suarez said.
Miami also hosted the world’s largest cryptocurrency conference and launched its own digital currency – the MiamiCoin.
The city’s moves were well-received, but many South Floridians are still baffled by the concept of cryptocurrency, NFTs, crypto-mining, and everything else embedded in the crypto-verse.
So, let's take a deep dive into all that is cryptocurrency for a better understanding.
Crypto Decoded 101: What is cryptocurrency and how does it work?
Cryptocurrency is a form of digital money that can be used on the internet and is not backed by a central banking system, as the Federal Reserve does for the U.S. dollar.
“Cryptocurrency is actually backed by a highly complex technology that’s based in cryptography, and that actually is what gives it the value rather than a country saying that this has value,” said NerdWallet spokesperson Chris Davis.
Bitcoin became the first cryptocurrency in the market after it debuted in 2009. It is also the most recognizable digital currency of the bunch. Now, there are thousands of alternative coins, including Ethereum, Litecoin, Dogecoin, and Solana.
Every transaction that is done using Bitcon or any other “Alt-coin” is tracked on a blockchain, which records every transaction that takes place using that crypto.
Rather than being recorded on a single ledger, transactions are widely distributed across thousands of computers in what are called blockchains.
Crypto Decoded 102: What are NFTs?
NFT is an acronym that stands for non-fungible token.
Fungible is the ability to be converted with other goods or assets of the same type such as commodities, company shares, precious metals, and currencies.
Money is a prime example of something fungible, such as a one-dollar bill being able to be converted into four quarters or ten dimes.
When something is non-fungible it means it can’t be reproduced or substituted.
In general, NFTs are collectable, unique, and non-transferrable. They get their value because the transaction proves ownership of the art. When you own an NFT, you can keep or wait for it to appreciate, and then sell or trade it.
NFTs are becoming widely popular, and some have even been sold for a hefty price.
A collage of 5,000 NFTs by an artist known as Beeple sold for $69 million at a virtual auction last March. It became the third-highest price ever achieved by a living artist at Christie’s, a world-renowned auction house.
The buyer, Vignesh Sundaresen who also goes by the moniker Metakovan, says he would have even paid more for it.
Crypto Decoded 103: Is investing in cryptocurrency safe?
The uncertainty of cryptocurrency has many investors apprehensive about diving into the world of crypto.
One of the biggest misconceptions is that transactions are anonymous and untraceable.
However, cryptocurrencies can be vulnerable at three different levels – the blockchain or network level, exchange level and individual level.
“Right now, there are only two ways to break the crypto network,” said Ray Aria, University of Central Florida computer science professor. “Either you have to break the protocol or you have to hack 50 percent of the computers on the network plus one. Both of them seem to be very difficult to do.”
Exchanges that work on those blockchains are more vulnerable because the code they use to program their exchanges are usually open source and hackers can exploit any vulnerabilities.
The most common way individuals have their crypto stolen are through investment and business opportunity scams, especially through social media. However, there are ways to spot them so you don’t fall victim to one.
Digital money is a relatively new concept, and hackers and scammers are eagerly waiting to exploit any vulnerability at each level.
In 2021, there were more than 20 hacks where at least $10 million in digital assets from a crypto exchange or project were stolen and in at least six of those cases hackers stole more than $100 million, according to data compiled by NBC News.
Crypto Decoded 104: Is cryptocurrency taxed?
Cryptocurrencies are not backed by a federal government agency or central bank, but that does not mean money can be kept without paying taxes.
There are tax implications for most scenarios in the cryptoverse, including buying and selling digital currency for a profit. In some scenarios, those implications can become extremely complicated and confusing.
Crypto accountant Carolina Martinez says digital currencies and taxes are confusing because there is a lot of gray area when classifying them.
For federal tax purposes, cryptocurrencies are treated as property. Similar to stocks, capital gains and losses are taxed.
During the 2021 tax season, the first page of Form 1040 asks: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
Crypto tax experts say most people involved in cryptocurrencies will have to answer "yes."
"Crypto Decoded" is an ongoing NBC 6 South Florida digital series that explores and explains the unknown parts of cryptocurrency. Check back for new episodes and explainers.