There is little doubt that cryptocurrencies like Bitcoin are one of today’s most sensational, talked-about, monitored and controversial subjects in the field of finance, especially in Australia’s commercial districts. In fact, you may already have invested a little bit in Bitcoin without fully understanding what it is just because you don’t want to miss on its opportunities.

But what is a cryptocurrency in its essence? Is it an investment opportunity? Is it taxable in Australia because it is under the Goods and Services Tax (GST)? And how does it really work? These are some of the questions we will explore in this article in the hopes that investors in Australia can get the most enlightened information and make sound investment decisions related to cryptocurrency.

Bitcoin In Its Essence

What people should first remember about Bitcoin is that it is just one of the few but growing list of digital cryptocurrencies today that happen to operate in what is called a decentralized peer-to-peer networking platform. That sounds a lot of technical jargon, doesn’t it? Don’t get intimidated. You don’t have to understand the details behind Bitcoin to get its maximum utility. Just imagine Bitcoin as that online banking app that you have on your phone. You don’t understand how it really works. And yet you use it every day to send money, grow money from its interest and to purchase goods in just a few clicks. Bitcoin is that kind of money, except it all takes place in a computer network. You don’t need to physically go to the banks.

To be more technical, it’s a computer code that works behind a network that works similar to how internet banking works. But how does it differ from traditional banking? Simple: it won’t deal with any actual banks or any international currency exchanges that may lend a currency conversion rate that’s not favorable to you and the rest of the consumers. So it’s an alternative currency mainly rooted in computers to help consumers get a banking system that doesn’t rely completely on, or at least not too much, government’s often malicious regulations. However, since bitcoin is still in its development stage, it’s still volatile and not yet adapting to the mainstream economy. Bitcoin prices still spike so erratically and quickly that the price change happens in a matter of seconds.

The Blockchain

Another thing to remember about Bitcoin is that it won’t work without the help of a technology called blockchain. At the risk of oversimplifying the terms but without losing the core of the information necessary for consumers, this blockchain is the system behind the entire cryptocurrency that records all the activities of the participants of the digital currency. It acts as a log book. It records and verifies all the transactions that happen in the cryptocurrency network, helping any trader in Bitcoin find and trace where the transaction originated, making things more transparent yet anonymously secure.

The Taxation for Cryptocurrencies

If you’ve found the confidence to invest a little capital on cryptocurrencies, know that the Australian Tax Office currently sees the cryptocurrency network as an asset. So any transaction made through Bitcoin and other cryptocurrencies would be taxed depending on the nature of transactions. For example, in personal transactions, any gain or loss in cryptocurrency that’s $10,000 or less is disregarded. If the transaction is made as a capital asset for a long-term investment, it will have to be subject to capital gains tax.