From: Financial Consumer Agency of Canada
Crypto assets are very risky.
Unlike the Canadian dollar, crypto assets are not legal tender in Canada. A government or central bank doesn’t issue or oversee them.
Crypto assets are also quickly evolving, unstable and complex. You should learn more about crypto assets and their risks before investing or using them. You may also want to consult a financial advisor.
Learn more about choosing a financial advisor.
Federal and provincial/territorial authorities have issued many warnings about crypto assets.
Find out what warnings federal and provincial/territorial authorities have issued about crypto assets.
What are crypto assets
Crypto assets are digital (online) assets that create, verify and secure transactions using the following:
- cryptography, which is a method of securing data
- a peer-to-peer network (a group of computers that store and share files)
- a “blockchain”, also called a ledger system over the Internet to record transactions
One type of crypto assets, often called cryptocurrencies, has attracted worldwide attention. Bitcoin and Ether are examples of cryptocurrencies.
Stablecoins, sometimes called a value-referenced crypto asset, are another type of crypto asset. They’re meant to maintain a stable value.
To try to keep their value stable, stablecoins may:
- be tied to the value of a currency like the US dollar
- be backed by other crypto assets
- use algorithms that trigger purchases and sales to keep their value stable. Algorithms are step-by-step instructions that can be written in code
Stablecoins are also risky. Some have not maintained a stable value.
Learn more about crypto assets from your provincial or territorial securities regulator.
How crypto assets work
Crypto assets are created online. They rely on a decentralized, peer-to-peer (P2P) network. The “peers” in this network are the people that take part in crypto asset transactions. Their computers make up the network.
They record all transactions to a “blockchain”.
What is a blockchain
A blockchain is a visible online record of transactions, also called a ledger. It stores information in a way that makes it more difficult to change or alter. When you buy, exchange or sell crypto assets, each transaction appears on a blockchain.
The growing list of records, called blocks, are linked to one another. Computer networks verify each transaction independently, timestamp them and add them to a growing chain of data. This makes the transactions irreversible. You can’t go back and change them.
Using crypto assets
Very few people or retailers accept crypto assets as a form of payment.
In general, people use them:
- as a high-risk investment
- to exchange them with other people
- to buy and sell them on an open exchange, also called a trading platform
To use crypto assets, you may need to create a digital wallet. A digital wallet is an online service or a physical device, like a hard drive, that stores your crypto assets.
There are 2 types of wallets: hot wallets and cold wallets. A hot wallet is connected to the Internet. A cold wallet isn’t. A wallet provider may manage your wallet for you through a crypto trading platform (CTP). You may also have the option of storing your wallet and managing it yourself.
Two keys protect a crypto asset:
- the public key is like an email address. You use it to receive crypto assets from other people and to identify your wallets on a blockchain
- the private key is like a password that you store in a digital wallet. You use your private key to access your accounts and to send crypto assets to other people
Crypto Automated Teller Machine
A crypto automated teller machine (ATM), also called a Bitcoin ATM, is a machine that allows you to insert cash in exchange for cryptocurrencies. In some cases, you may also be able to exchange cryptocurrencies for cash.
When you use a crypto ATM, the machine:
- reads the bills you insert
- converts the cash into cryptocurrency based on an exchange rate
- sends the equivalent of cryptocurrency to the address you enter
Crypto ATMs operate independently. There’s no connection to your financial institution or the Interac network. You may pay a transaction fee for using a crypto ATM. Exchange fees and rates may vary from one crypto ATM to another.
Risks of using crypto assets
Using crypto assets comes with many risks.
You may be a victim of hacking, fraud and scams
Someone may hack into the technology or platforms used for crypto assets, like online wallet companies or crypto exchanges. They can steal your keys and gain access to your wallets and your crypto assets.
More and more scams focus on crypto assets. Fraudsters use Internet ads, social media or websites telling you to buy crypto assets and promising high returns.
In some types of scams, fraudsters may demand that you make payments by using crypto ATMs.
Learn more about crypto scams from Competition Bureau Canada.
Crypto assets are unstable and high-risk
Crypto assets, including stablecoins, are risky investments because their value may rise and fall suddenly and significantly. These changes in value are hard to predict.
When you exchange your crypto assets for traditional currency, they may be worth much less than when you bought them.
Lack of regulation and protection
Any person or company that trades or advises in securities or derivatives must register with a provincial or territorial securities regulator.
A crypto asset trading platform (CTP), depending on how it operates, may be subject to securities regulation. Some CTPs claim to be registered businesses, but this isn’t the same as being registered with a securities regulator.
Lack of regulation of crypto assets also limits your protection.
You won’t have the same level of disclosure of important information. You also may not have access to a complaint-handling procedure and other consumer protections.
Your deposit is not protected
Federal and provincial/territorial deposit insurance plans don’t cover crypto assets.
For example, the Canada Deposit Insurance Corporation (CDIC) covers eligible deposits in Canadian dollars at member financial institutions if the institution fails.
If the crypto trading platform or wallet provider that has your crypto assets goes out of business or bankrupt, you may lose your money.
Learn more about deposit insurance.
You may have a hard time using your crypto assets
Crypto assets may be difficult to use. You may not be able to exchange them for cash or to use them to purchase goods and services.
Most businesses don’t accept crypto assets as payment.
You may lose access to your crypto assets
If you lose your private key, you lose access to your wallets and your funds.
Transactions are not reversible
Purchases and transactions made with crypto assets are not reversible once verified and confirmed on the blockchain.
This means you may not be able to:
- reverse the payment if you didn’t receive what you paid for
- get your crypto assets back unless the seller agrees to return it
- be able to stop or cancel a payment
Infographic: 7 risks to consider before using crypto assets
Warnings about crypto assets
Securities authorities in Canada have issued warnings about the risks of crypto assets.
Check out the Canadian Securities Administrators warning about the risks of trading crypto assets.
You should contact the provincial/territorial authorities where you live to learn more about these risks.
Find your provincial/territorial securities regulator.
Given the concerns and uncertainties with crypto assets, the federal government has clearly stated that federally regulated entities, like banks, must comply with all applicable legal requirements and any guidance from federal regulators when getting involved with crypto assets.
Learn more about the Statement to entities engaging in crypto-asset activities or crypto-related services.
Protect yourself when using crypto assets
If you decide to use crypto assets, even after considering all the risks, take into account the following.
Check registration
Anyone who sells or provides advice in securities must register with their provincial/territorial securities regulator. Check their registration by using the National Registration Search tool from the Canadian Securities Administrators.
Use the National Registration Search tool.
Find out if the company has faced any disciplinary action.
Check the Canadian Securities Administrators member investor alerts.
Protect your wallets
Take steps to protect your wallets:
- keep your wallets and any backups in a safe place
- don’t share your private key with anyone
- secure your wallets using encryption software
- secure any copies you make and online backups
- use a strong password that contains letters, numbers and symbols to help prevent fraudsters from accessing your crypto assets
Know the merchant’s refund, return and dispute policies
Before you make a purchase using crypto assets, find out:
- what the exchange rate will be
- if refunds are available
- how refunds work: in crypto assets, in Canadian dollars or in store credit
- how to contact someone if there’s a problem
Wait for confirmation of your transaction
Confirmation happens when users on the network verify a crypto asset transaction. It may take 10 minutes or more to receive the confirmation. If you don’t wait, someone may stop the transaction and you could lose your funds.
Understand what the costs will be
Find out what fees apply. These may include fees to exchange crypto assets for cash and trading platform fees.
Think about your future
You should consider the impact on your finances if you lose the money you invested in crypto assets.
The value of crypto assets is highly unstable and can fall suddenly and significantly. You could also lose your money if a crypto trading platform (CTP) or wallet provider goes out of business or bankrupt.
Consider what will happen if you become ill or die and no one can access your wallets.
If no one knows the locations and passwords of your wallets, no one can recover the funds. Consider having a backup plan for your family or peers so they can access them.
Check out Canadian Securities Administrators’ Investor’s guide: Cryptocurrencies.
How tax rules apply to crypto assets
Tax rules apply to crypto asset transactions. If you use crypto assets, you must meet Canadian tax obligations.
Learn more about Canada Revenue Agency’s reporting requirements for crypto assets.
Filing a complaint about crypto assets
If you’re a victim of a crypto asset-related fraud or scam you may contact the Canadian Anti-Fraud Centre.
Learn what to do if you’re a victim of fraud.
If the complaint is about a crypto trading platform (CTP), contact your provincial/territorial securities regulator.
See the list of provincial/territorial securities regulators.
Related links
- Savings and investments
- Fraud and scams
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