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How Does Bitcoin Work in Canada?

Bitcoin was created by Satoshi Nakamoto and was released in 2009. Nakamoto’s vision was to create a digital currency that falls out of the reach of governments and central banks.

Bitcoin is banked with blockchain technology, Bitcoin transactions all over the world are recorded and stored on the blockchain. The blockchain is a public ledger that is found and recorded on all of the computers within the Bitcoin network.

The verification and update process for Bitcoin transactions is referred to as Bitcoin mining. Miners receive Bitcoins as a reward for the verification process.

The current value of a Bitcoin is CA$71,367.15 as of February 21, 2021. However, since May 11, 2020, due to the third halving, Bitcoin mining reward crashed to 6.25 BTC and that is the prevailing rate today.

The reward will continue to halve every four years until the final bitcoin has been mined. Besides, the bitcoin miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block.

Bitcoin is gaining popularity and an increased number of people have started investing in this digital currency. The future of Bitcoin and other digital currencies is bright, and they are probably here to stay.

On February 8, 2021, Elon Musk, the Chief Executive Officer (CEO) of Tesla, revealed that Tesla invested US$1.5 billion in Bitcoin. This triggered a massive buying spree in the cryptocurrency and Tesla plans to accept Bitcoin as a form of payment for its products soon.

Bitcoin provides the opportunity for businesses and individuals across the world to transact with a universal currency that allows fast transfer and negligible fees. Since 2014, Microsoft accepts Bitcoin as payment for some of its products. Newegg, BMW, ExpressVPN, AT&T, Shopify, Bitcoin. Travel, and some other organizations also accept bitcoin as means of payment and transaction.

Despite the bright future, economies around the world are uncomfortable with the development of Bitcoin especially because its ownership is untraceable; government regulation of the cryptocurrency is difficult and inconclusive; need to stabilize the financial sector of some countries which can be hindered by the growth of cryptocurrency; mining of the bitcoin is concentrated in China; taxation of cryptocurrency trade and mining earnings is complicated.

Some countries have taken steps to create a regulatory framework to guide the business while some outrightly disbanded cryptocurrency businesses in their countries. On Feb. 5, 2021, the Central Bank of Nigeria communicated to financial institutions within the country that dealing in cryptocurrencies and facilitating payments for cryptocurrency exchanges are prohibited. 

Most countries warn that citizens who invest and trade on cryptocurrencies do so at their own risk. Some countries also warn that cryptocurrency creates the opportunity for illegal activities, money laundering, and terrorism. Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam also banned all activities involving cryptocurrencies.

Australia and Canada recently enacted laws that brought cryptocurrency transactions and institutions that trade on cryptocurrency under the ambit of money laundering and terrorist financing laws.

How Bitcoin Works in Canada

The history of Bitcoin in Canada dates back to 2018 when a study by the Currency Department of the Bank of Canada revealed that 58% of Canadians hold Bitcoin for investment purposes. According to the same study, 85% of Canadians are aware of Bitcoin.

Weekly Local Bitcoins volumes were fairly low since mid-2018 and into early 2019, with weekly volumes staying around the CA$500 – CA$600 thousand level. Declining interest was observed among Canadians from January of 2018, perhaps due to the bull market Bitcoin has been experiencing during 2018. However, interest begins to ramp up again in mid-2019 as Bitcoin’s price rises.

Canada is a top digital currency-driven economy in the history of Bitcoins. Numerous places in Canada allow people to acquire Bitcoins. Several institutions have taken up Bitcoin as their payment mode for goods and services on online platforms. Canada has over 140 Bitcoin ATMs and 6,000 Flexipin retailers. The ATMs offer people an opportunity to exchange Bitcoin for Canadian Dollars.

In 2013, Waves Coffee House, near Vancouver, opened a Bitcoin ATM which was the world’s first. The government of Canada officially met with its representatives the following year as well the Canadian Committee on Banking, Trade, and Commerce.

Toronto and Vancouver are believed to be the home of Bitcoins in Canada. The two have recorded a high rate of digital currency operations in Canada. In 2014, it was reported that workers based in Toronto preferred their salaries to be paid in Bitcoins rather than the local currency.

The Government’s Regulation of Bitcoin in Canada – Is Bitcoin Legal?

No federal or provincial legislation precisely addresses cryptocurrencies and blockchains in Canada. Canadian Revenue Agency (CRA) declared that cryptocurrencies are taxable as commodities rather than currencies, tax rules do apply to digital currency transactions, and cryptocurrencies such as Bitcoin are subject to the Income Tax Act.

Hence, Bitcoin is assumed to be legal in Canada. Canadian residents are therefore free to buy, sell, and trade Bitcoin, which is regulated under anti–money laundering and counter-terrorist financing laws.

The implication is that any transactions that involve cryptocurrencies will be viewed as if they are barter transactions. On CRA’s website, the agency maintains that any good bought using digital currency must, for tax purposes, be included in the seller’s income tax. CRA has also continued to affirm that barter transactions can allow for the procurement of capital property for Income Tax Act Part C.

Any profits gained from the sales of cryptocurrencies are characterized as capital gains. This is because only a part of that profit is taxable and at the applicable tax rate. When it comes to salary payments using digital currencies, the amount payable will be included in the employee’s income following subsection 5(1) of the income Tax-Act.

How to Buy Bitcoin in Canada?

Bitcoin exchanges require the client to open a digital wallet, usually with blockchain, register, and open an account with the exchange organization. Buying Bitcoin in Canada could be done in various ways:

1. Online Exchanges

Online exchanges are the most popular place to buy Bitcoin for Canadians. Exchanges traded over $2 Trillion in Bitcoin in 2018 despite the year-long bearish market. Some of the popular online exchanges in Canada are VirgoCX, MyBTC.ca, Bitbuy, NDAX, and Bitvo. Online exchanges have many options for funding your account:

It is probably the most universally accepted method for online Canadian exchanges. It’s a Canadian-only, digital interbank transfer method. Over 250 financial institutions across Canada allow their customers to use Interac e-Transfer. It’s extremely fast, and generally has some of the lowest exchange fees. MyBTC.ca and Bitbuy are two of the fastest places to buy Bitcoin using Interac e-Transfer.

  • Bank Wire

A bank wire requires the Bitcoin buyers to visit their bank branch, online exchanges like Coinsquare, MyBTC.ca, Kraken, and Bitbuy accept bank wires, but minimum payments will vary across exchanges. Coinsquare requires a $10,000 minimum for a bank wire, while MyBTC.ca and Bitbuy require $7,500 and  $5,000 respectively. Most platforms charge relatively low fees to fund via Bank wire, this makes these attractive funding options for those who are willing to buy larger amounts of Bitcoin.

The challenge with this option is the need for buyers to visit the bank which can be inconvenient for many Canadians, especially in the winter. The traditional banking system funding turnaround time, which is often long, can be frustrating when using Bank Wires.

Flexepin sells vouchers with unique pin codes that can be entered on many online services, to fund accounts or make purchases. Since these vouchers can be bought at retail stores and several locations across Canada, they are great for users looking to use cash or not get hit with huge credit card cash advance fees. Moreover, Bitbuy is a trusted exchange that will accept the Bitcoin buyer’s voucher and enable the buyer to buy bitcoin in a bit.

Many credit card companies consider buying Bitcoin to be a ‘cash advance’ because you are exchanging one currency for another. It means the buyer will be paying high fees from his or her credit card company, not to mention the high fees charged by exchanges. Exchange fees are typically 7% to 10%, and credit card payment is available on Canadian exchanges such as Coinberry and Coinsquare.

2. Bitcoin Automatic Teller Machines (ATMs)

Bitcoin ATM is users that want to buy their Bitcoin using cash and stay anonymous, this is one of the best options, but it comes at a price. Bitcoin ATMs will typically cost users much more in fees that range from 6-8% above market price.

There are hundreds of Bitcoin ATMs that are located all across the country. Canada has the most Bitcoin ATMs per capita, out of any country in the world.  

3. Over-The-Counter (OTC)

An OTC trade is a private trade between two parties, without the supervision of an exchange. If you are buying large amounts of Bitcoin, CA$25,000 plus, at one time, OTC should be your choice, as it will protect you from a market phenomenon known as slippage.

Slippage for Bitcoin transactions occurs when the amount of Bitcoin you are buying exceeds the amount available at the live quoted price.  Part of your order ‘slips’ to the next available (higher) sale price, and you end up paying more than your quoted market price.

Buyers can expect to pay 2-5% greater than the market price when doing an OTC transaction which can fluctuate based on fees and market conditions. Both VirgoCX & Bitbuy offer an OTC desk with competitive rates.

4. Peer-To-Peer Network

An older and more outdated, way to buy Bitcoin in Canada is by using a Peer-to-Peer (P2P) network. P2P network is an online marketplace that allows two users to make a transaction with no middle man helping to facilitate the transaction.

The most popular P2P network to purchase Bitcoin is Localbitcoins.com. Localbitcoin.com offers an escrow service to protect the buyer of the Bitcoin although, people have been swindled by certain people on P2P networks so it is important to do a background check on each seller/ buyer and never conduct a transaction outside of previous thresholds.

5. In-Person Bitcoin Retail Location

This option is for buyers and sellers that prefer to go to a retail location for all your shopping and talk to a real human. Bitcoin brokerage or a foreign exchange center that also offers cryptocurrency would best describe this option.

Canada-based MyBTC.ca offers the ability for you to pay with cash or an Interac Debit card at CA$6,000 plus; Canada Post has outlets all over Canada and Netcoins offers retailers the opportunity to sell Bitcoin and other cryptocurrencies at thousands of locations. Bitcoin traders on the West Coast may check out Bitcoiniacs, they operate in-person Bitcoin stores.

Conclusion

Canadians patronage of Bitcoin is reflected in the ease of Bitcoin purchase from Bitcoin exchanges and the ability to purchase goods and services across sectors with Bitcoin.

Fees are relatively competitive among the Bitcoin exchanges. Canada could be considered as one of the more advanced markets in moving away from the use of Fiat Currency for day-to-day living.

The immediate challenge is the workability of Bitcoin for those looking to use it in the more remote areas of Canada, most of the ATMs and Bitcoin exchanges are located in the most populated areas and cities.

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