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6 More Common Cryptocurrency and Digital Asset FAQs

Estimated reading time: 3 minutes, 6 seconds

As we acknowledged in our first post in this series, the cryptocurrency asset class is a little more complex than more common alternatives like real estate or private equity. While many investors are interested in this asset class, some are hesitant to enter the space without learning more about Bitcoin, blockchain, and all things cryptocurrency.

Remember that Kingdom Trust cannot give advice on what you should invest in. However, we hope these answers help you determine whether digital assets are right for you and your investing goals.

In the second part of our FAQs on the topic, below are six more common cryptocurrency and digital asset questions.

1. What is a digital asset wallet?

Wallets store the private keys (see below) to digital assets and help manage the addresses. They do not hold the cryptocurrency. A wallet is essentially a set of addresses, in which transactions can be sent into and out of if the wallet has the keys. If not, the wallet contents can be viewed only.

And many types of wallets exist, particularly hot or cold storage wallets, hardware wallets, mobile wallets, and paper wallets. The type of wallet is generally indicative of the level of security for the wallet. Unfortunately, the names utilized sometimes overlap. For instance, a hardware wallet is a type of cold storage wallet. That’s because “cold storage” refers to storage not connected to the Internet, which may be in the form of some hardware device.

2. What is a digital asset key?

A key is a long grouping of numeric values involved in digital asset transactions, usually as hex or alphanumeric strings. These can be either public or private keys, with the former functioning like account numbers or transaction instructions and the latter used only to digitally sign transactions.

3. What is a digital asset exchange?

An exchange is a digital platform allowing buyers and sellers to trade digital assets with both conventional fiat (such as U.S. dollars) and digital currencies (such as Bitcoin).

4. Is it legal to use or invest in digital assets?

It’s no secret that the blockchain and cryptocurrency created a new paradigm for regulators and investors. In the United States (and of special importance to retirement investors) the Internal Revenue Service (IRS) has defined cryptocurrency as property. Because of this definition, it can be utilized and invested with just as any other type of property. Any questions of legality, particularly the law for your home country, should be directed to your financial and legal advisors.

5. Are digital assets a safe investment?

Like any investment, digital assets are subject to significant loss (including a complete loss of principal). In addition, crypto investors remain concerned about hacks, key thefts, and questionable initial coin offerings (ICOs).

But just as with traditional and other alternative assets, the proper research and knowledge will go a long way to protecting your investment. The more you research the specific investment, the exchange(s) you use, and the technology and security utilized, the better chance you’ll have of worrying only about a decline in value. It’s also imperative you use a service provider(s) in compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations.

6. Should I invest in cryptocurrency and digital assets?

While this is a common question, this is inevitably one we cannot answer. Kingdom Trust does not give investment advice, whether for an entire asset class or a specific investment. This is a question to ask your advisor, weighing all potential risks and benefits against your investment goals.

Have you already discussed this with your advisor and are interested in investing in digital assets with taxable or non-taxable funds? Or are you seeking solutions for institutional digital custody? Whether it’s for retirement or non-retirement investing, Kingdom Trust is here to help! Chat with us directly on this page with instructions on how to proceed!

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