In this 3-part educational series, we’ll discuss bitcoin and other cryptoassets, including background on the exciting new asset class, how your Solo 401k plan can hold crypto compliantly, and the tax advantages of using your Roth Solo 401k plan to grow your gains tax-free.
The Solo 401k by Nabers Group provides you with unique advantage: Buy Crypto Assets with your retirement funds.
With the rise of bitcoin and other cryptocurrencies, it seems “experts” have been crawling out of the woodwork left and right.
We’ve been investing in bitcoin since April 2013.
Nabers Group is by far the most experienced IRS-approved document provider in the industry helping you to compliantly structure your retirement account so you not only can purchase crypto, but hold your own keys. That means you’re in charge of what types of coins you want to buy, and how much, and you don’t have to compromise safety by handing over your private keys to a stranger.
Nabers Group CEO and Founder, Jeff Nabers, created one of the world’s first cryptocurrency hedge funds and is at the forefront of investing in this new and exciting market.
Blockchain technology is a space that is constantly innovating and moving quickly. You’ve got to be able to keep up. With our expertise in getting things done, we can show you how to invest in crypto in your retirement account safely and swiftly, so you can join the rocket ship as it’s taking off!
Background: Cryptocurrencies Demystified
Bitcoin was born with Satoshi Nakamoto’s ground-breaking white paper, released on October 31, 2008.
In it, Nakamoto writes Bitcoin is to be, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network…We have proposed a system for electronic transactions without relying on trust.”
The proposal behind bitcoin, cryptocurrencies, crypto assets and related digital technology is to accomplish 2 objectives:
- Create an electronic system for online transactions without the need for a financial institution or third party
- Have an immutable ledger (“the blockchain”) no one can alter to maintain trust in a trust-less system to eliminate double-spending and other accounting shenanigans
These objectives were truly groundbreaking at the time, and continue to drastically alter the financial system as we know it now.
Who the real Satoshi Nakamoto is remains a mystery, but their legacy has created a completely new way of thinking about transacting.
What is the Blockchain?
The blockchain is a digital ledger where transactions are recorded publicly and chronologically. The blockchain is “open source” computer code, which means anyone can see it, read it, attempt to alter it, hack it, or change it.
In the decade since its inception, there have been zero successful attempts to hack or bring down the bitcoin blockchain.
Every time a transaction is made on a blockchain, it is recorded. Anyone can run the bitcoin blockchain protocol on their computer. Thousands of computers distributed across the world are all running the bitcoin blockchain computer program at once, meaning there is no single point of failure due to server crashes, power outages, etc. In other words, the blockchain never turns off.
When enough transactions are recorded on a “block”, it becomes part of a blockchain and a new block begins. The entire historical blockchain of every single bitcoin transaction in existence is recorded on this immutable ledger.
This creates a layer of transparency in accounting and transacting the world has never experienced before.
As you’ll learn, crypto assets have now grown to be far more than currencies. The creation of Ethereum brought the rise of “smart contracts” wherein computer code is created so a contract is executed without any third party involvement (or third party risk).
This opened up a whole new world of possibility with “utility tokens” serving specific purposes for almost every market imaginable.
Bitcoin has had a spectacular rise to stardom over the last 11 years, with returns of over 16,000,000%.
Nabers Group CEO Jeff Nabers, also a prominent crypto asset hedge fund manager, often states the time period we are experiencing now is similar to the rise of the Internet in 1994.
In 1994, the Internet’s new and exciting technology was just beginning to make inroads into our society. But, at that time, we had no idea how powerful or pervasive the technology would become in our everyday lives.
Cryptocurrency Asset Classes
There are over 1500 types of crypto assets and growing. A sample is listed below:
- Bitcoin: the “grandfather” of cryptocurrencies. Holds the #1 market dominant spot among over 1500 cryptocurrencies
- Ethereum: 2nd largest market cap coin. Known for creating the ability to execute “smart contracts”. Many “altcoins” (non-Bitcoin cryptocurrencies) are “ERC20” tokens, meaning they are built upon the Ethereum blockchain
- Litecoin: Originally built as a “sidechain” of bitcoin, Litecoin aims to have faster transaction times with lower transaction fees. Many think of it as “bitcoin lite”
- Ripple: Centrally controlled cryptocurrency favored by banks and financial institutions. Many blockchain purists question the motives behind Ripple creators as they alone have the ability to create more coins. This coin does not have any mining.
- Bitcoin Cash: New cryptocurrency created from the Bitcoin “hard fork” in August 2017.
- Monero: Digital currency focused on privacy in transacting, claims to be 100% untraceable
- EOS: similar to Ethereum, EOS aims to create a decentralized operating system for developers to build applications such as cloud storage, server hosting, etc
- NEO: China’s version of Ethereum. Meant to serve as a platform on which to build tokens
Small and Micro-Cap Coins
- Gnosis: ERC20 token (built on Ethereum protocol) meant to be used in trading in the forecasting market
- KickCoin: ERC20 token meant to fundraise and help settle payments
- Blockstack: Aims to create a decentralized Internet for users to run apps and data locally
- Filecoin: One of the largest ICOs to date, having raised $257MM in just a few hours. Filecoin is a token and platform used to pay for and obtain blockchain-based data storage space
How is Cryptocurrency Created?
Most cryptocurrency is created through mining. Mining is a process of validating transactions on a public immutable ledger (the blockchain) by having computers solve complex mathematical equations. For their effort, “miners” are rewarded with cryptocurrency.
On a practical level, this involves having a high tech computer (known as a mining rig) connected to the Internet to run a blockchain. In the early days of Bitcoin, miners could run the bitcoin blockchain on their home computer and were rewarded with multiple bitcoin per day. This contributed to the rise of early “Bitcoin Millionaires”.
Anyone with the proper computer hardware and access to an Internet connection can be a miner.
As more coins are mined, the reward decreases over time. This means it takes more electrical power and more work for the computer to generate cryptocurrencies for helping to create and maintain the blockchain.
The Law of Supply and Demand
Bitcoin functions similar to gold in that only a certain number of bitcoin will ever exist. Like gold, bitcoin cannot just be created out of thin air.
Many cryptocurrencies have a fixed supply over which no more of the token can be created or mined. This fixed supply creates a demand (and price) for the cryptocurrency. Only 21million bitcoin will be mined in total. That might sound like a lot, but as of today’s writing, over 16 million bitcoin are already in existence.
Like gold, if bitcoin is destroyed it cannot be recreated. This fixed supply has created a large demand for bitcoin. It also means that the miners have to work harder for a smaller reward.
Can your retirement account own crypto?
Yes! Cryptocurrency and other crypto assets are allowed inside of the retirement accounts just like gold, real estate, stocks, bonds and ETFs.
Stay tuned for Part II of our Crypto Education Series:
Bitcoin in your Solo 401k
Do you have questions about bitcoin? Have you purchased crypto personally? Let us know your questions and thoughts in the comments below!