Crypto assets
Learn more about crypto assets before you use or invest in them. Find out how they work, what protections may apply and how to file a complaint.
Understanding crypto assets
Crypto assets are digital assets. They use:
- cryptography to help secure data
- a peer-to-peer network, which is a group of computers that store and share files
- a blockchain to record transactions online
Tip
Before you use or invest in crypto assets, learn more about the risks. You may also want to consult a financial advisor.
Types of crypto assets
There are two main types of crypto assets:
- cryptocurrency, for example, Bitcoin and Ether
- stablecoin, sometimes called a value-referenced crypto asset
Stablecoins try to maintain a stable value. To try to do that, they may:
- be tied to the value of a currency like the US dollar
- use other crypto assets to support their value
- use algorithms to trigger purchases and sales
Stablecoins are also risky. Some haven’t kept a stable value.
Learn more about stablecoins on the Ontario Securities Commission's website.
Blockchain
Crypto assets exist only in digital form and operate on blockchains. A blockchain is a shared online record of transactions. It stores information in a way that makes it difficult to change. Crypto assets rely on peer-to-peer networks.
In these networks, users connect directly to one another. Computers in the network store, verify and share transaction information.
When you buy, exchange or sell crypto assets, the transaction appears on the blockchain. The computer networks verify the transaction. They add a time stamp, group transactions into blocks and link them into a chain. Once a transaction is recorded on the blockchain, you generally cannot change or reverse it.
Digital wallets
A digital wallet is an online service or a physical device, like a hard drive, that stores crypto assets.
To use crypto assets, you may need to create a digital wallet.
There are two types of wallets:
- hot wallets, which connect to the Internet
- cold wallets, which don’t connect to the Internet
For example, a wallet provider may manage a hot wallet through a crypto trading platform. You may also be able to store and manage your own wallet, such as a cold wallet that’s not connected to the internet.
Two keys protect your crypto assets:
- a public key, like an email address, used to receive crypto assets and identify your wallets on a blockchain
- a private key, like a password, stored in your wallet and used to access it and send crypto assets
Crypto automated teller machines
A crypto automated teller machine (ATM), or Bitcoin ATM, lets you put in cash to get cryptocurrency. You may also be able to get cash for your cryptocurrency.
When you use a crypto ATM, the machine:
- reads the bills you insert
- converts the cash based on an exchange rate
- sends the equivalent amount of cryptocurrency to the address you enter
Crypto ATMs work independently. They are not connected to your financial institution or the Interac network.
You may pay a transaction fee. Exchange fees and rates may vary from one machine to another.
Tax rules
Tax rules apply to crypto asset transactions. If you use crypto assets, you must meet tax obligations in Canada.
Learn more about Canada Revenue Agency’s reporting requirements for crypto assets.
Purchases
Very few businesses accept cryptocurrency for payments.
In general, you can use crypto assets:
- as a high-risk investment
- to exchange them with others
- to buy and sell them on an open exchange, also called a trading platform
Knowing the risks of crypto assets
Crypto assets are very risky. Their value is unstable and can change quickly.
Unlike the Canadian dollar, crypto assets are not legal tender in Canada. A government or central bank doesn’t issue or oversee them.
Infographic: 7 risks to consider before using crypto assets
Warnings
Regulators in Canada warn consumers about crypto assets.
To learn more:
- read the Canadian Securities Administrators warning about trading crypto assets
- contact the provincial or territorial regulator where you live
- find your provincial or territorial securities regulator
Crypto assets are risky. Although crypto assets are generally not issued or overseen by a government or central bank, the federal government has set clear expectations for federally regulated entities engaged in crypto-asset activities.
Fraud and hacking
Someone may hack the technology or platforms used for crypto assets. This includes online wallet companies and crypto exchanges.
This person may steal your keys, get into your wallet and take your crypto assets.
Fraud involving crypto-assets is becoming more frequent. Fraudsters use Internet ads, social media or websites to get you to buy crypto assets and promise high returns.
In some types of fraud, they may demand payment through crypto ATMs.
Learn more about crypto scams in this news release from Competition Bureau Canada.
Unstable value and investment risk
Crypto assets, including stablecoins, are risky investments.
Their value may rise or fall suddenly and by a large amount. These changes are hard to predict.
When you trade crypto for cash, it may be worth much less than what you paid.
Regulation and protection
People and businesses that offer securities or derivatives trading services or advice must register with a provincial or territorial securities regulator.
A crypto asset trading platform (CTP) may also need to follow rules. This depends on how it operates.
Some CTPs claim they’re registered businesses, but that does not mean a securities regulator has registered them.
Tip
Less regulation of crypto assets means less protection. You may not get the same important information, complaint-handling process or other protections.
Deposit insurance
Federal and provincial and territorial deposit insurance plans do not cover crypto assets.
If a crypto asset trading platform or wallet provider fails, you may lose your money.
Learn more about deposit insurance.
Access and use
Crypto assets may be hard to use. Most businesses don’t accept crypto assets as payment.
You may not be able to exchange them for cash or use them to buy goods and services.
If you lose your private key, you lose access to your wallet and your funds.
Irreversible transactions
Purchases and transactions made with crypto assets are irreversible once the blockchain verifies and confirms them.
This means you may not be able to:
- reverse a payment if you didn’t receive what you paid for
- get your crypto assets back unless the seller agrees to return them
- stop or cancel a payment
Protecting yourself when using crypto assets
If you decide to use crypto assets knowing the risks, take these steps to protect yourself.
Registration checks
Anyone who sells or gives advice on securities must register with a provincial or territorial securities regulator.
Before dealing with someone, check their registration using the National Registration Search tool from the Canadian Securities Administrators.
Use the National Registration Search tool
You should also check:
- if the company has faced disciplinary action
- the list of crypto asset trading platforms authorized to do business with Canadians
Learn more about investor warnings and alerts on the Canadian Securities Administrators' website.
Fees and costs
Find out what fees apply. These may include:
- fees to exchange crypto assets for cash
- trading platform fees
Wallet and private key protection
To protect your wallets from fraudsters:
- keep your wallets and backups in a safe place
- do not share your private key
- secure your wallets with encryption software
- secure any copies and online backups
- use a strong password with letters, numbers and symbols
Transaction confirmation
Users on the network confirm a transaction. This may take 10 minutes or more.
If you don’t wait for confirmation, someone may stop the transaction. You might lose your funds.
Refund and dispute policies
Before you buy something with crypto assets, check:
- what the exchange rate will be
- if refunds are available
- if a refund is in crypto assets, Canadian dollars or store credit
- how to contact someone if there’s a problem
Illness or death
Think about what will happen if you become ill or die.
If no one knows where your wallets are or how to access them, no one can recover your funds.
Set up a backup plan so your family or trusted peers can access your crypto assets.
Learn more in the Canadian Securities Administrators’ Investor’s guide: Cryptocurrencies.
Filing a complaint about crypto assets
If you’re a victim of fraud related to your crypto assets, you may report it to the national fraud reporting system.
If your complaint is about a crypto asset trading platform, contact your provincial or territorial regulator.
Learn how to report cybercrime and fraud.