Here is your whistle-stop tour to investing in cryptocurrency in Ireland. This 9-minute read will give you a good overview of all the basics you need such as where to buy crypto, how to store it, how crypto is regulated in Ireland, how it is taxed, as well as how to avoid scams and losing your money by making stupid mistakes.
Recommended Crypto Exchanges for Irish investors
There are two different financial eco systems now, the traditional financial world and the crypto world.
We all know the traditional financial world very well, where we use government-backed fiat currencies such as the Euro and the Dollar and borrow from centralised institutions like banks and credit unions.
To move between the traditional fiat currencies and crypto, we must use some sort of ramp that joins both worlds. Centralised Crypto exchanges such as Coinbase and Binance provide this role – they allow you to deposit Euros from your traditional bank and exchange them for several 100 different crypto coins and tokens they have listed on their exchanges.
Good alternatives brokers: Kucoin, Kraken, Crypto.com, Gemini, Bitstamp.
The benefit of using a real crypto exchange is that you can actually use your cryptocurrency. What I mean by this is you have actual control of your crypto assets and you can freely exchange them, send them to other people, store them, stake them, or do whatever you want with them.
Stock Trading Brokerages that also offer crypto Trading.
There are many brokers that allow you to invest in crypto currencies to get exposure to the price appreciation but you will be quite limited in what you can do, in most cases you won’t be able to transfer your assets from the broker or even use your crypto in DeFi.
Brokers such as Revolut, BUX Zero, eToro, Interactive brokers, and many more all offer you the opportunity to invest in crypto, but your crypto is held in custody by the brokers, and there are certain risks associated with that – not your keys, not your crypto.
Know the different types of Crypto Coins/Tokens
According to Coinmarketcap.com, there are over 21,500 different crypto assets you can invest in (an absolute minefield!), and we can further categorise them according to their use cases.
Bitcoin: deserving a whole category of its own, Bitcoin is the largest and oldest cryptocurrency that was famously created by an unknown mystical figure – Satoshi Nakamoto.
To this day Bitcoin is one of the more secure and decentralised crypto projects you can invest in, but its downsides are that it is slow and the network cannot facilitate smart contract. Thus lately its main use case for many has been as a store of wealth.
Smart Contract Blockchain/ Layer One Tokens: These are the tokens of the networks which all other projects are built on. Smart contract platforms make up the majority of the top 20 cryptocurrencies by when ranked by market cap.
Examples: Ethereum (ETH), Cardano (ADA), Solana (SOL), Avalanche (AVAX), Polkadot (DOT)
Stable Coins: Cryptocurrencies due to their size can be very volatile assets, which can add a lot of complexity if you plan on using them for everyday needs.
Stablecoins are pegged to assets that aren’t volatile such as US Dollar and are often used for payments.
Examples: Tether (USDT), USD Coin (USDC), Binance USD (BUSD)
DeFi Projects: Decentralised Finance is basically like a bank without the middle man.
You can provide liquidity to a market and in exchange, you will earn rewards. Also, you can be the borrower. Although, unlike the traditional finance world, you will have to put up sufficient collateral to cover your borrowings, which is one of the current downsides to DeFi.
Examples: Uniswap (UNI), Pancakeswap (CAKE), Sundaeswap (SUNDAE), Aave, Compound (COMP)
Safety level: many of the biggest hacks we see in crypto happen to DeFi projects, over $3bn has been stolen in 2022 all related to DeFi hacks.
NFTs: Non Fungible Tokens can be anything really, but they are currently primarily used to create unique collectibles for items such as artwork, drawings and music.
Examples: Bored Ape Yacht Club, Crypto Punks
Safety level: beware NFTs may be subject to a lot of manipulation and even rug pulls
Exchange Tokens: Many popular exchanges have their own crypto tokens that can be used on their platform and often form part of different trading pairs – e.g BTC/BNB on the Binance exchange.
Examples: Binance Coin (BNB), Cronos (CRO), Kucoin Token (KCS)
Oracles: Blockchains are completely decentralised and therefore cannot communicate with the outside world, without the aid of oracles. An oracle can send information such as the USD/EUR exchange rate, interest rates, or any other variable that is required for a smart contract to function in a decentralised manner.
Examples: Chainlink (LINK), Band Protocol (BAND)
Safety level: these projects provide real utility, but there are not many large projects outside of Chainlink at present, so be careful to do thorough due diligence on any other projects before you invest your money.
Metaverse: nobody knows exactly what the metaverse will end up being in a couple of years’ time, there haven’t been many successful crypto projects in the metaverse category to date. Projects that have been created have mainly been for games and the sale of virtual land.
Examples: Decentraland (MANA), The Sandbox (SAND), Axie Infinity (AXS)
Safety level: the Metaverse is still in its infancy and nobody knows what form it will take, if it takes off at all – beware of projects trying to build hype around the metaverse theme without any actual fundamental plans backing them.
Memecoins: Often started as a joke, Memecoins trade on purely on momentum with no fundamental investment case for them apart from getting some social media attention. The teams behind these projects are often completely anonymous
Examples: Dogecoin (DOGE), Shiba Inu (SHIB)
Safety level: beware these tokens may be subject to a lot of manipulation and even rug pulls
Storing your crypto safely
Crypto custody is a very important topic to learn about when you start investing in cryptocurrency. You have a couple of options when it comes to storing your crypto, and they all have varying levels of security.
– Leave it with an exchange: Some people decide that the best option for them is to leave their crypto on an exchange like Coinbase or Binance. This delegates the responsibility of your crypto security to someone other than youtself.
The downside of leaving crypto on an exchange is you are vulnerable to the solvency of the company behind this exchange, if they were to go bankrupt you may be left in a precarious position where you could lose all your holdings.
Also, crypto exchanges have a huge target on their back from hackers as they hold such large quantities of crypto in custody. Hackers will get a much bigger pay day by going after crypto exchanges rather than individuals.
– Store in a soft wallet: you can take personal control of your private crypto keys and store them on your own device by using a soft wallet.
Now, these wallets will vary depending on what crypto you are investing in. Some of the big exchanges such as Coinbase and Binance (Trust Wallet) have their own wallets that you can use.
Although they have still proven to be safe, you are always vulnerable to being hacked when you are connected to the internet.
– Hard Wallet: these wallets help you keep your crypto in cold storage and completely offline using a small device that looks like a USB key. Hard wallets greatly improve your security level once you keep your passphrases close to your chest.
There are two major suppliers of these devices; Trezor and Ledger.
How to protect yourself from being ripped off
Like with any new craze, there will always be people there trying to make a quick buck off vulnerable people who do not understand the space.
This is also true for crypto, there are scammers everywhere you look, trying to trick you in many different ways.
A couple of important points to note:
- Never trust any person who reaches out to you on social media about the latest project that is ‘going to the moon’
- Many influencers get paid to promote projects, so take any content you see on the likes of YouTube with a pinch of salt (I get these offers all the time!).
- Only buy crypto on official exchanges or with trusted brokerages.
- Only follow official social channels for updates on the cryptocurrencies you are invested in.
Regulation of Crypto in Ireland
The two most important pieces of legislation that affect crypto assets and service providers in Ireland are:
- The 5th Anti-money laundering directive of the EU
- Markets in Crypto-assets Regulation (MiCA) – in the pipeline
Although there are currently no direct regulations of cryptocurrencies in Ireland that have been transposed into law – the EU has big plans and is one of the first governmental agencies looking to take the lead in regulating crypto assets.
It is clear that we will never see cryptocurrencies banned in Ireland as the EU approach is to foster innovation when it comes to crypto but to ensure consumer protection at the same time.
One current bit of legislation that currently affects the crypto industry in Ireland is The 5th Anti-money laundering directive of the EU. Any Virtual Asset Service Providers (VASPs) that operate in Ireland now have to register with the Central Bank and a public register of approved VASPs will be viewable.
As of November 2022 – just two firms have successfully registered and are fully compliant with these laws – Gemini and Zodia Custody.
Taxation of Cryptocurrency in Ireland
You’ll be glad to know that there is no unique set of rules that you have to follow when it comes to taxation in Ireland. All the same rules that apply to stocks and other assets also apply to crypto.
Key points to note:
- Profits are taxed at 33%
- You get an annual exemption of €1,270 per annum
- If you exchange one crypto for another it is a taxable event
- Losses can be carried forward and offset against future profits
- Staking reward income is taxed at your income tax rates similar to dividends.
Tax payment Dates – Captial Gains
For any profits made between 1 January 2022 and 30 November 2022 , the tax deadline will be 15th of December 2022.
For any profits made between 1 December 2022 and 31 December 2022 , the tax deadline will be 31 January 2023.
Filing Date – Capital Gains Tax
Separately, you must also file a Capital Gains Tax return (Form CG1) by 31 October 2023 which summarises all of your profits, losses and exemptions for the prior year.
If you are receiving any staking rewards or interest from yield farming/defi then this should be included in your annual income tax return.
The tax deadline for any income earned during 2022 is 31 October 2023 ( Form 11 or Form 12).
For a full guide on the taxation of cryptocurrencies in Ireland – read more here.
DeFi vs CeFi
Another area to be aware of that is particularly a hot topic at the moment the difference between CeFi and DeFi.
CeFi refers to centralised private companies such as Celsius (now filed for bankruptcy) and Blockfi which offer you high interest rates on your crypto. At its peak you could get above 12% interest on Stablecoins such as USDC, which was about 10 times more than being offered by a bank.
Of course, it was all too good to be true as these companies were involved in shady practices such as rehypothecation and lending out people’s crypto to risky customers. Greed took over and now people are paying the price.
So be careful, when you see that some platform is offering you a crazy return on your crypto for providing liquidity – it will often end in tears.
DeFi on the other hand is a completely different kettle of fish, this offers anyone the ability to borrow or lend without the need for a middle man. In most cases though borrowers will have to put up collateral of 1.5 or 2 times the borrowed amount to even get the loan in the first place.
For this reason, DeFi hasn’t been used for real-life purposes, it has been used more so for creating leverage and avoiding tax. But as the space grows further we should see more and more RealFi projects come on stream that will offer more real use cases that can be used in everyday life.
The Crypto space is ever evolving, and therefore I will make the guide a living document that I will periodically update for the latest ongoings and developments.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.