How ERC-404 Brings Fungible Tokens and NFTs Together

How ERC-404 Brings Fungible Tokens and NFTs Together

Non-fungible tokens (NFTs) have been one of the hottest trends in the crypto world, attracting millions of dollars and users to the digital art, collectables, gaming, and metaverse sectors.

However, NFTs also have some limitations, such as high transaction costs, low liquidity, and lack of interoperability. To address these challenges, a new token standard has emerged on the Ethereum blockchain called ERC-404. This standard combines the features of fungible tokens (FTs) and NFTs, creating a new type of token that can be both fungible and non-fungible, depending on the use case.

Today we explore what ERC-404 is, how it works, what are its benefits and drawbacks, and whether you should invest in it or not.

Key Takeaways

  • ERC-404 is an experimental token standard aiming to merge fungible and non-fungible tokens on the Ethereum blockchain.
  • It addresses NFT limitations like high costs and low liquidity and offers flexibility and enhanced interoperability, including features like fractional ownership.
  • However, it’s not yet an official standard and may lead to complexities and competition.
  • While ERC-404 brings innovation, some view it as over-hyped and potentially overshadowed by existing standards like ERC-1155.
  • Its true impact remains to be seen in both technology and market adoption.

What is ERC-404?

ERC-404 is an experimental token standard built on the Ethereum blockchain that aims to combine the functionalities of ERC-20 tokens (fungible tokens) and ERC-721 tokens (non-fungible tokens, or NFTs) into a single standard.

This means that ERC-404 tokens can be both fungible and non-fungible, depending on the specific implementation. For example, a token can start as an FT and be traded with other tokens of the same kind without losing any value, but once it is used or redeemed, it can become an NFT and gain unique characteristics and value. Alternatively, a token can start as an NFT and be fractionalized into smaller units that can be traded as FTs, but once the units are recombined, the token can regain its NFT identity.

The idea was proposed by the Pandora team, a project that is building a metaverse platform where users can create, explore, and trade digital worlds and assets. The first token to use this standard is the $pandora token, which represents a Pandora Box, an NFT that contains a Replicant, a unique digital creature that can evolve and interact with other Replicants. The $pandora token can be traded as an FT on decentralized exchanges (DEXs) like Uniswap, but once it is opened, it reveals the Replicant NFT inside, which can have different attributes and values.

How Does ERC-404 Work?

ERC-404 works by linking every issued token to an NFT, which acts as the source of truth for the token’s state and ownership. The NFT can have a base unit, which defines the minimum amount of tokens that can be transferred or exchanged.

For example, if the base unit is 100, then the token can be divided into 100 fractions, each representing 1% of the NFT. The token can also have a total supply, which defines the maximum number of tokens that can be issued for the NFT. For example, if the total supply is 1000, then the token can be minted up to 1000 times, each representing 0.1% of the NFT.

The standard defines four main functions for the token contract:

  • Mint: This function allows the token creator to issue new tokens for a given NFT up to the total supply limit. The function also checks if the NFT exists and if the token creator is the owner of the NFT.
  • Burn: This function allows the token holder to destroy tokens and reduce the total supply. The function also checks if the token holder owns enough tokens to burn and if the NFT exists.
  • Transfer: This function allows the token holder to send tokens to another address. The function also checks if the token holder owns enough tokens to transfer and if the NFT exists. Additionally, the function updates the ownership of the NFT according to the token balance. For example, if the token holder transfers all their tokens to another address, the NFT ownership is also transferred to that address. Conversely, if the token holder receives enough tokens to reach the base unit, the NFT ownership is also transferred to them.
  • BatchTransfer: This function allows the token holder to send multiple tokens to multiple addresses in one transaction. The function also checks if the token holder owns enough tokens to transfer and if the NFTs exist. Additionally, the function updates the ownership of the NFTs according to the token balances.

What Are the Benefits of ERC-404?

ERC-404 offers several advantages over the existing token standards, such as:

  • Increased liquidity: Being able to trade NFTs as fungible tokens on DEXs massively increases liquidity. This solves a major limitation with existing NFTs, which often suffer from low trading volume and high price volatility due to their uniqueness and scarcity.
  • Lower costs: Being able to batch transfer multiple tokens in one transaction reduces gas fees and saves time. This also solves another limitation with existing NFTs, which often incur high transaction costs due to their individuality and complexity.
  • Greater flexibility: Being able to switch between fungible and non-fungible modes gives token creators and users more options and possibilities. For example, token creators can use ERC-404 to create dynamic and interactive NFTs that can change their state and value based on certain events or actions. Token users can use it to access fractional ownership of NFTs, which lowers the barrier to entry and expands the potential market.
  • Enhanced interoperability: ERC-404 tokens can interact seamlessly with protocols and platforms in both the fungible token and NFT spaces, bridging these previously disconnected areas. For example, ERC-404 tokens can be used as collateral, governance, or utility tokens in DeFi protocols, or as assets, rewards, or currencies in NFT platforms.

What Are the Drawbacks of ERC-404?

ERC-404 is not without its challenges and limitations, such as:

  • Experimental status: As mentioned above, the ERC-404 is not an official Ethereum standard yet, but rather an experimental one that is subject to change and improvement. This means that there may be bugs, vulnerabilities, or compatibility issues with the standard, which could pose risks for token creators and users. Moreover, there may be legal and regulatory uncertainties regarding the status and treatment of such tokens, especially in jurisdictions that have strict rules for crypto assets.
  • Complexity: It is a complex and novel token standard that requires a deep understanding of blockchain technology and smart contracts. As this is new, developers who want to create them need to study the standard and its functions. Users who want to interact need to have a clear grasp of the token’s behaviour and logic, as well as the risks and benefits involved.
  • Competition: ERC-404 is not the only token standard that aims to combine fungibility and non-fungibility. There are other standards that have similar or different approaches, such as ERC-998 and ERC-1155. These standards may offer different features, advantages, or disadvantages than ERC-404, and may attract more adoption or support from the crypto community. Time will tell.

Should You Invest in ERC-404?

The answer to this question depends on your risk appetite, investment goals, and research. ERC-404 is a new and innovative token standard that has a lot of potential but also a lot of uncertainty. Investing in them could be rewarding but also risky. Therefore, you should do your own due diligence before investing in any crypto asset and only invest what you can afford to lose. Here are some factors to consider before investing:

  • The token’s use case: What is the purpose and value proposition of the token? How does it benefit from the ERC-404 standard? What problem does it solve, or what opportunity does it create? How does it compare to other tokens in the same or similar sector?
  • The token’s performance: How has the token performed in terms of price, volume, and market capitalization? What are the factors that influence its demand and supply? What are the trends and patterns that indicate its future direction?
  • The token community: How large, active, and engaged is the token community? How do they support and promote the token? How do they interact with the token team and other stakeholders? What are their feedback and opinions on the token?

Looking Forward

Taking this opportunity, I spoke to people in the industry asking how they look at this new standard. The feelings on the ground are mixed.

Batulzii, former chairman of the board at Cryptocurrency & Blockchain Association of Mongolia highlighted that ERC-404 increased liquidity for NFTs: “By making NFTs divisible and tradable like tokens, it helps overcome the inherent illiquidity issue of traditional NFTs. This can attract more investors and boost the overall NFT market.

“Fractional ownership unlocks new possibilities for ownership and investment, as people can now access valuable NFTs they couldn’t afford entirely, opening up participation to a wider audience.”

Batulzii, who is also the technology lead and founder of Sanchirtech, also warned that this new standard is still experimental and untested and that its complex design could harbour security vulnerabilities that haven’t been fully explored.

Alex Atashkar, co-founder of Seed.Photo, articulated the vision of their platform as the NFT marketplace dedicated exclusively to photographers. He emphasized the significance of not just showcasing art but anchoring it in genuine ownership and said that Seed.Photo’s is integrating the ERC-404 standard

Atashkar highlighted the team’s excitement about the potential of the ERC-404 standard for its unique capability to enable shared ownership of a single NFT by multiple wallets, a breakthrough in the digital art space. This feature opens up myriad possibilities, including tokenization for diverse purposes such as securing loans, staking, and collective art ownership.

From a crypto exchange perspective, I have asked John Inzo, Social Media Manager at HTX to comment on the topic. “This will be an interesting experiment to see how this will help or hurt Ethereum long-term.”

The Bottom Line

To sum things up, ERC-404 is a hybrid token standard that combines the features of fungible and non-fungible tokens, creating a new type of token that can be both fungible and non-fungible, depending on the use case.

I must say that ERC-404 is an exciting and innovative token standard that is revolutionizing the NFT space, but it is not for everyone. To be very honest, I personally think that ERC-404 is more hype than reality. The previous ERC-1155 could almost achieve the main functions of ERC-404, and ERC-1155 is more mature than ERC-404. The latter now seems to be just a modified version of the former. But we shall wait and see how the technology — and market reaction — plays out.

 

 

Source: https://www.techopedia.com/how-erc-404-brings-fungible-tokens-and-nfts-together

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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How to Profit Off the Bitcoin ETF Hype: A Guide for Crypto Traders

How to Profit Off the Bitcoin ETF Hype: A Guide for Crypto Traders

Bitcoin ETFs are one of the hottest topics in the crypto space right now. These are exchange-traded funds that track the price of Bitcoin (BTC) and allow investors to gain exposure to the cryptocurrency without having to buy or store it directly.

Bitcoin ETFs are seen as a way to bring more legitimacy, liquidity, and institutional adoption to the crypto market and lower the barriers of entry for retail investors.

However, Bitcoin ETFs are not yet approved in the U.S., the world’s largest and most influential financial market.

The Securities and Exchange Commission (SEC) has been reluctant to give the green light to any of the dozens of applications that have been filed over the years, citing concerns over market manipulation, investor protection, and regulatory oversight.

The signs are the first batch of Bitcoin ETF proposals are likely to get approval as early as this week, which include ETFs from BlackRock, Fidelity, and Grayscale.

The anticipation and speculation around the possible approval of Bitcoin ETFs have created a lot of hype and volatility in the crypto market, especially for Bitcoin, which surged past $47,000 in the last day.

Many analysts and investors believe that the approval of Bitcoin ETFs could trigger a massive rally for the cryptocurrency, as it would attract billions of dollars of inflows from institutional and retail investors looking for a regulated and convenient way to access the crypto space.

But how can crypto traders profit off this hype? What are the best trading strategies and focus to adopt in this scenario? In this article, I will explore some of the options and considerations that crypto traders should keep in mind when dealing with the Bitcoin ETF hype.

Strategy #1: Buy the Rumor, Sell the News

One of the most common and simple trading strategies that can be applied to the Bitcoin ETF hype is to buy the rumor and sell the news.

This means that traders should buy Bitcoin when there is positive speculation and anticipation about the approval of Bitcoin ETFs and sell it when the actual news or decision is announced.

This strategy is based on the assumption that the market tends to price in the expected outcome of an event before it happens and that the actual outcome may not live up to the hype or may already be reflected in the price. Therefore, traders can take advantage of the price movements that are driven by the market sentiment and expectations rather than by the fundamental facts.

For example, if the market expects that the SEC will approve a Bitcoin ETF, the price of Bitcoin may rise in anticipation of this event, as more investors buy Bitcoin in hopes of benefiting from the increased demand and exposure that an ETF would bring.

However, when the SEC actually announces its decision, the price of Bitcoin may drop, as some investors may sell their Bitcoin to lock in profits, or as the market may realize that the approval of a Bitcoin ETF is not as bullish or impactful as expected.

Conversely, if the market expects that the SEC will reject a Bitcoin ETF, the price of Bitcoin may fall in anticipation of this event, as more investors sell in fear of losing value or missing out on other opportunities.

However, when the SEC actually announces its decision, the price of Bitcoin may rise, as some investors may buy back at a lower price or as the market may realize that the rejection of an ETF is not as bearish or detrimental as expected.

Therefore, traders who follow this strategy should monitor the market sentiment and expectations around the Bitcoin ETF approval and buy or sell Bitcoin accordingly before the actual news or decision is announced. They should also set a clear exit plan and take profit or stop loss targets, as the Bitcoin price may reverse quickly after the news or decision is announced.

Strategy #2: Trade the Breakouts and Pullbacks

Another trading strategy that can be applied to the Bitcoin ETF hype is to trade the breakouts and pullbacks. This means that traders should buy or sell Bitcoin when it breaks out of a certain price range or level and when it pulls back to retest that range or level.

This strategy is based on the assumption that the market tends to move in trends and that the breakouts and pullbacks are signals of the strength and direction of the trend. Therefore, traders can take advantage of the price movements that are driven by the momentum and trend-following behavior of the market.

For example, if the price of Bitcoin is trading in a sideways range and it breaks out of the upper boundary of the range, this may indicate that the market is bullish and that a new uptrend has started. Traders who follow this strategy should buy Bitcoin when it breaks out of the range and set a stop loss below the range.

They should also look for a pullback to the upper boundary of the range, which may act as a support level, and buy more Bitcoin when it bounces off that level.

Conversely, if the price of Bitcoin is trading in a sideways range and it breaks out of the lower boundary of the range, this may indicate that the market is bearish and that a new downtrend has started.

Traders who follow this strategy should sell Bitcoin when it breaks out of the range and set a stop loss above the range. They should also look for a pullback to the lower boundary of the range, which may act as a resistance level, and sell more Bitcoin when it rejects that level.

Therefore, traders who follow this strategy should monitor the price action and trend of Bitcoin and buy or sell accordingly when it breaks out or pulls back to a certain price range or level.

They should also use technical indicators, such as moving averages, trend lines, and Fibonacci retracements, to identify the potential breakout and pullback levels and to confirm the direction and strength of the trend.

Strategy #3: Hedge with Bitcoin Futures and Options

A third trading strategy that can be applied to the Bitcoin ETF hype is to hedge with Bitcoin futures and options. This means that traders should use Bitcoin derivatives, such as futures and options contracts, to reduce their risk and exposure to the price fluctuations of Bitcoin.

This strategy is based on the assumption that the market is uncertain and volatile and that the outcome of the ETF approval is unpredictable and impactful.

Therefore, traders can use Bitcoin derivatives to protect their existing positions or to speculate on the price movements of Bitcoin without having to buy or sell the underlying asset.

For example, if a trader is holding a long position in Bitcoin and expects that the SEC will approve a Bitcoin ETF but is not sure when or how the market will react, the trader can hedge their position by buying a put option on Bitcoin.

A put option is a contract that gives the buyer the right, but not the obligation, to sell the underlying asset at a specified price and time. By buying a put option, the trader can lock in a minimum selling price for their Bitcoin in case the price drops after the approval of the ETF.

The trader can also profit from the put option if the price of Bitcoin falls below the strike price of the option minus the premium paid for the option.

Conversely, if a trader is holding a short position in Bitcoin and expects that the SEC will reject a Bitcoin ETF but is not sure when or how the market will react, the trader can hedge their position by buying a call option on Bitcoin.

A call option is a contract that gives the buyer the right, but not the obligation, to buy the underlying asset at a specified price and time. By buying a call option, the trader can lock in a maximum buying price for their Bitcoin if the price rises after the Bitcoin ETF is rejected. The trader can also profit from the call option if the price of Bitcoin rises above the strike price of the option plus the premium paid for the option.

Therefore, traders who follow this strategy should use Bitcoin derivatives to hedge their positions or to speculate on the price movements, depending on their expectations and risk appetite.

They should also understand the mechanics and risks of Bitcoin derivatives, such as leverage, margin, expiration, and liquidity, and choose the appropriate contract type, size, and duration for their trading objectives.

Focus: Short-Term Profits or Long-Term Position?

The final question that crypto traders should ask themselves when dealing with the Bitcoin ETF hype is whether they should focus on short-term profits or long-term position.

This depends on their trading style, goals, and risk tolerance, as well as on their view and outlook on the crypto market and the Bitcoin ETF approval.

Traders who are looking for short-term profits should focus on capturing the price movements and volatility that are generated by the Bitcoin ETF hype and use strategies such as buying the rumor and selling the news or trading the breakouts and pullbacks.

These traders should be agile and flexible and be ready to enter and exit the market quickly and frequently, as the market conditions and sentiment may change rapidly and unpredictably. These traders should also use technical analysis, indicators, and tools to identify the entry and exit points and manage their risk and reward.

Traders who are looking for a long-term position should focus on building and holding their exposure to Bitcoin and use strategies such as hedging with futures and options or dollar-cost averaging.

These traders should be patient and disciplined, and be ready to withstand the price fluctuations and volatility that are inherent to the crypto market and use fundamental analysis, research, and news to support their view and outlook. These traders should also use risk management techniques, such as diversification, portfolio rebalancing, and stop loss orders, to protect their capital and profits.

The Bottom Line

The Bitcoin ETF hype is a major catalyst and driver for the crypto market, and it offers many opportunities and challenges for crypto traders.

Depending on their expectations, objectives, and risk appetite, crypto traders can use different strategies and focus to profit off the Bitcoin ETF hype, such as buying the rumor and selling the news, trading the breakouts and pullbacks, or hedging with Bitcoin futures and options.

However, crypto traders should also be aware of the uncertainty and volatility that surround the Bitcoin ETF approval and be prepared for any possible outcome and scenario.

We will end this article with an important reminder that a trading strategy or a cryptocurrency’s past performance does not guarantee future returns.

With this in mind, we urge readers to do their own research (DYOR) and to be mindful of fear-of-missing-out (FOMO) when investing in cryptocurrencies. Remember, cryptocurrencies are extremely volatile and considered risky investments.

This article should not be considered investment advice and is for information purposes only.

 

Source: https://www.techopedia.com/how-to-profit-off-the-bitcoin-etf-hype-a-guide-for-crypto-traders

FAQ

What are Bitcoin ETFs, and why are they significant in the crypto market?

Bitcoin ETFs, or exchange-traded funds, track the price of Bitcoin, allowing investors exposure to the cryptocurrency without directly buying or storing it. They are seen as a means to bring legitimacy, liquidity, and institutional adoption to the crypto market, lowering entry barriers for retail investors.

What trading strategies can crypto traders adopt during the Bitcoin ETF hype?

Traders can consider strategies like 'Buy the Rumor, Sell the News,' 'Trade the Breakouts and Pullbacks,' and 'Hedge with Bitcoin Futures and Options.' The choice between focusing on short-term profits or long-term positions depends on individual trading styles and risk tolerance. However, it's crucial to be aware of the uncertainty and volatility surrounding the Bitcoin ETF approval.

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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How to Avoid Paying Taxes On Your Crypto

How to Avoid Paying Taxes On Your Crypto

Cryptocurrencies have become a popular and lucrative form of investment for many people around the world. However, they also come with tax implications that vary depending on the jurisdiction and the type of crypto activity undertaken. Here, we’re going to explore how to avoid unnecessary taxes and how to remain compliant in your country.

Method 1: Hold Your Crypto for More Than a Year

One of the simplest ways to avoid paying taxes on your crypto gains is to hold your crypto for more than a year before selling or exchanging it. This is because most countries treat cryptocurrencies as capital assets, and apply different tax rates depending on how long you hold them.

In the US, if you hold your crypto for more than a year, you will pay long-term capital gains tax, which ranges from 0% to 20%, depending on your income level. However, if you hold your crypto for less than a year, you will pay short-term capital gains tax, which is the same as your ordinary income tax rate, which can go up to 37%.

By holding your crypto for more than a year, you can significantly reduce your tax liability. However, this method also has some drawbacks. First, you will have to deal with the volatility and risk of the crypto market, which can affect the value of your investment. Second, you will have to keep track of the cost basis and holding period of each crypto transaction, which can be complicated and time-consuming.

Method 2: Use Tax-Advantaged Accounts

Another way to avoid paying taxes on your crypto gains is to use tax-advantaged accounts, such as Individual Retirement Accounts (IRAs) or Roth IRAs in the US, or Self-Invested Personal Pensions (SIPPs) or Individual Savings Accounts (ISAs) in the UK. These accounts allow you to invest your money without having to pay taxes on the gains until you withdraw them, or not at all.

For instance, if you use a traditional IRA in the US, you can contribute up to $6,000 per year (or $7,000 if you are 50 or older) with pre-tax dollars. This means that you can reduce your taxable income by the amount of your contribution. Then, you can invest your money in cryptocurrencies or other assets within the IRA account without paying any taxes on the gains. However, when you withdraw your money from the IRA account after reaching the age of 59.5, you will have to pay income tax on the withdrawals.

Alternatively, if you use a Roth IRA in the US, you can contribute up to $6,000 per year (or $7,000 if you are 50 or older) with after-tax dollars. This means that you cannot deduct your contribution from your taxable income. However, you can invest your money in cryptocurrencies or other assets within the Roth IRA account without paying any taxes on the gains. Moreover, when you withdraw your money from the Roth IRA account after reaching the age of 59.5 and holding the account for at least five years, you will not have to pay any taxes on the withdrawals.

However, this method also has some limitations. First, you will have to follow the rules and regulations of the account provider and the relevant tax authority regarding contribution limits, withdrawal rules, and eligible investments. Second, you will have to lock your money in the account until you reach a certain age or face penalties for early withdrawal. Third, you will have to find a reliable and reputable custodian that offers cryptocurrency investment options within these accounts.

Method 3: Harvest Your Losses

Try to avoid paying taxes on your crypto gains by harvesting your losses. This means selling or exchanging crypto that has decreased in value since you acquired it and using the losses to offset your gains from other crypto transactions or other sources of income.

For example, in the US, if you sell or exchange your crypto at a loss, you can use the loss to reduce your taxable income by up to $3,000 per year. If your net loss exceeds this amount, you can carry forward the excess loss into future tax years until it is fully used up. This way, you can lower your tax bill and also reduce your exposure to the crypto market.

Unsurprisngly, this method also has some challenges. First, you will have to keep track of the cost basis and holding period of each crypto transaction, this can be a complex task. Second, you will have to be careful not to trigger the wash sale rule, which prevents you from claiming a loss if you buy back the same or substantially identical crypto within 30 days before or after the sale. Third, you will have to accept the fact that you are realizing a loss on your investment.

Method 4: Donate Your Crypto

You can avoiding paying taxes on your crypto gains by donating your crypto to a qualified charitable organization. This means that you transfer your crypto directly to the charity without selling or exchanging it first. This way, you can avoid triggering a taxable event and also claim a tax deduction for the fair market value of your donation.

In the US, if you donate crypto that you have held for more than a year to a qualified charity, you can deduct the full market value of your donation from your taxable income, up to 30% of your adjusted gross income. However, if you donate crypto that you have held for less than a year or to a non-qualified charity, you can only deduct the lesser of the cost basis or the market value of your donation, up to 50% of your adjusted gross income.

As with the others, this method also has some issues. First, you will have to find a charity that accepts cryptocurrency donations and verify its tax-exempt status. Second, you will have to obtain a written acknowledgment from the charity that states the amount and date of your donation and whether you received any goods or services in return. Third, you will have to report your donation on your tax return.

Method 5: Move to a Tax-Friendly Jurisdiction

Another possible route to avoid paying taxes on your crypto gains is to move to a tax-friendly jurisdiction. This means that you could relocate to a country or region that has low or no taxes on cryptocurrency or income in general. This way, you can reduce or eliminate your tax liability on your crypto profits and also enjoy other benefits of living somewhere new.

Some of the countries or regions that are known for their favorable tax treatment of cryptocurrency include Singapore, Portugal, Malta and Germany.

Obviously, this method also has some drawbacks, such as uprooting your life, applying for residency and visas and having to deal with double the amount of financial paperwork.

Summing Up

Cryptocurrencies offer many opportunities for investors who want to diversify their portfolio and increase their wealth. However, they also come with tax implications that vary depending on the jurisdiction and the type of crypto activity. There are ways to overcome these obstacles, but before you embark on any of them, do your research, weigh up the pros and cons and act according to the law.

Be sure to check out our regular postings on crypto tax to stay up to date.

 

Source: https://www.financemagnates.com/cryptocurrency/how-to-avoid-paying-taxes-on-your-crypto/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j