Compounding Your #DeFi Returns While Earning Income – (Chris Coney) WCSS:037

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June 9, 2023


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Start your formal crypto education for free and earn tokens at — This episode is actually based on a question that was submitted to me by someone who looked at enrolling in my DeFi Masterclass, so I thought I’d break this out into a fuller explanation. Let’s take an up to date example based on my direct experience. In March of 2021 I decided to do a Michael Saylor and take some of the spare cash I had and put it into crypto. Michael Saylor does this with his company Microstrategy, and he does it exclusively with Bitcoin. I decided that I would take a bit more risk and put the cash into Ethereum. Now we can debate whether Ethereum is in fact a higher risk investment than Bitcoin in another episode, suffice to say that I thought so at the time. Turns out that was a good decision because between the 1st of March 2021 and the time I’m recording this, Bitcoin was only up 3.6%. In that same time period, Ethereum is up 168%. So my investment is worth about 2.5 times what it was when I started. Right off the bat there I have a capital gain. I could now sell that investment, subtract the tax free allowance we get in the UK and then pay the capital gains tax on the difference. So let’s put some hard numbers on that. In the UK, each year, we are allowed to make the first £12,300 of capital gains tax free. Then anything in excess of that incurs capital gains tax of 20%. Now I’m not an accountant so this is to the best of my knowledge and should not be taken as professional advice, because it isn’t. So far this is all pretty straightforward, the next part is where it gets a bit more complex. So I have option 1 as I’ve just laid out, which is to sell my investment, pay the tax and call it a day. But I haven’t actually done that yet. Instead I am thinking about putting the Ethereum I bought on deposit with a platform like Nexo. If I’m willing to lock up the Ethereum for 1 month at a time they’ll pay me 8%. Bear in mind the interest is paid in the asset I deposited. So it’s 8% on the Ethereum balance and has nothing to do with the dollar value. Now since Nexo is paying me interest, the way to account for this changes completely. Firstly, this new income is no longer a capital gain, it’s income. And in the UK, I’d have to account for that income at the cash value, at the moment it was paid to me. Nexo pays interest daily, which sounds great from an investment perspective, but from a tax and record keeping perspective, it’s a nightmare. If I deposit 1 Ethereum on Nexo at 8%… That right now is a $3,820 asset earning 0.02% interest per day.
That works out to $0.76 per day. But it’s not 76 cents, it’s 0.0002 ETH. But the taxman doesn’t care about that. As far as they are concerned I received 76 cents of income on that day, which I need to account for as income, and pay income tax on. The only way to stay in sync with the tax accounting, would be to swap the 0.0002 ETH I earn each day into British Pounds. Only then would I have the exact amount of cash to match the income I need to report. What this does mean though is that I have completely scuppered the possibility of compound interest, since my ETH balance never increases. Now this might be OK because I’ve turned my investment into a cash flowing asset, and still have the possibility of it continuing to increase in capital value. If that happens and the interest rate remains the same, the income from that investment will also rise. It will also fall as the value of Ethereum falls as well though. Taking the interest out immediately in order to match the tax records is arguably the safest approach since I’m guaranteed to have enough cash to cover the tax bill. I could, however, take more risk and allow the two to go out of sync. Here’s what I mean by that. Let’s say I swing completely to the other end of the extreme and let all my interest pile up day after day increasing my Ethereum balance. Not only do I then benefit from compound interest, but the capital value of the Ethereum I earn in interest also has the chance to go up. Now that does get complicated from a tax point of view. Because the interest is paid daily, each transaction has to be tracked separately. So I need to record the transaction for the purposes of income tax, but I also need to track the capital value of each interest payment in case I make a capital gain… on the Ethereum I earned as interest. That means I might end up paying both income tax and capital gains tax on that Ethereum interest payment. With this riskier approach, at the end of the year when it comes time to pay the tax bill, my account value may be much higher. First because I earned compound interest, and second because the interest I earned also gained in value with Ethereum rising. But investment gains are a double edged sword. The more you make, the more you pay. The Cryptoverse features reading the news from various sources. Each episode lasts approximately 15 minutes and includes my moral, ethical and philosophical interpretation of current events. If you’d like to be kept up to date on Bitcoin, cryptocurrencies and blockchains by someone who believes in the free market, equality of opportunity and the value of education then subscribe to The Cryptoverse today. Video Source

Crypto Currency Resources & Recommended Products

The following lists are tools and resources that I put together to help anyone that is interested in crypto get a head start. It can be quite daunting when you first get into cryptocurrencies. There is some much information out there and some much uncertainty.

Disclaimer This new crypto movement is an economic revolution. While it may be an exciting time to get started with crypto currencies, this digital gold rush has a plethora of bad information out there. The recommended products below are based on my own experience with my own personal use of these products.

Disclaimer: I am not a finical advisory. I do earn a small commission if you choose to purchase any of the recommended products below. Please make sure that you do your research before you purchase any Cryptocurrencies related products or services.


Crypto Currency Wallet & Coin Exchange

Coinbase is one of the worlds leading cryptocurrency wallets. It also gives people the option to purchase and trade digital currencies like that of Bitcoin, Bitcoin Cash, Ethereum Classic, Ethereum and Litecoin.

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Cryptocurrency Exchange

Binance is one of the worlds fastest growing cryptocurrency exchanges. Because of its trading volume and the number of altcoins it trades it will be one of the worlds biggest crypto exchanges in the world.

While Coinbase is still the easiest way to get into cryptocurrencies, Binance trades a lot more Altcoins compared to that of Coinbase. If you want to purchase Altcoins like Cardano ADA, Ripple XRP, Steller Lumens, TRON, Dash and Monero then Binance is your first port of call. 

In order to trade here, you must hold some cryptocurrencies first. So it's best to purchase some Ether or Litecoin from Coinbase and transfer it too Binance.

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Cryptocurrency Hardware Wallets

One of the most popular Hardware Cryptocurrency wallets is that of

Ledger Nano S. The Ledger hardware wallet provides a secure offline solution for cryptocurrency traders to store their digital data. 

Commonly knowns private keys the Ledger hardware wallet gives users a multi cryptocurrency offline storage solution. Because of essential, these hardware wallets are similar to that of a USB key, it provides security by hosting the private keys offline making them difficult for hackers to access your cryptocurrencies.

It hosts some of the more common crypto coins but also some fewer know Altcoins Bitcoin Gold, Ark, Bitcoin, Bitcoin Cash, Digibyte, Dash Dogecoin and Ether.

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Digital Crypto Currency Wallet 

The Exodus Wallet is desktop cryptocurrency storage solution. It can be used with Mac and PC which has compatibility with a popular cryptocurrency exchange called Shapeshit. Which gives the user the ability to trade cryptocurrency with in the Exodus Wallet.  This feature alone makes the Exodus wallet a very popular choice with beginner crypto traders.

The interface is very intuitive making it very easy to understand and use for anyone that's starting out with investing in cryptocurrencies. The Exodus Wallet is one of the most popular lite wallets, even with a number of crypto storage assets, it doesn't require your system to download the complete blockchain.

While the Exodus Wallet is free to download and a very secure piece of software, please note that it does take between 1-3% fee with the exchange of cryptocurrencies. Click Here To Watch Walk Through Video On The Exodus Wallet.


Cryptocurrency Browser

The Brave Browser is just like most web browsers, it allows you to surf the web, find videos, websites and allows you to download content from the web. But with a few difference with it's set up compared to that of Google Chrome. It was set up by the same creators as that of Mozilla, basing their software on open source code similar to that of Google Chrome.

Brave has in built ad blocking technology to stop intrusive ads. It also integrates with the cryptocurrency Basic Attention Token {BAT} to pay users for their attention for displaying less intrusive ads.

Brave keeps 15% of the less intrusive ads, giving content publishers 55% per cent which is good for bloggers and vloggers, last but not lease even users of the Brave browser will receive 15% off the revenue. It also gives users the option to donate BAT to content creators or sites they love.

One of the striking features of the Brave Browsers is that it removes a ton of tracking pixels which cause websites to load slower. This gives you a much faster experience when visiting websites online


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