A Digital World

Paul Miloe, CRPS®

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Occasionally, we have been asked if the U.S. will adopt a digital currency and then move to eliminate paper (fiat) currency.  In recent months, there were rumors that this change was imminent and could be enacted soon.  Fortunately, this hasn’t happened, and we don’t think it will.  However, knowing more about digital currency is wise as there is a global trend of growing usage. 

When it comes to digital currency, there are two primary types: Central Bank and Crypto.   For Central Bank Digital Currency (CBDC), the central bank of the issuing country has provided a regulated currency that can either be used along with or instead of their paper (termed “fiat”) currency.  As a regulated currency, CBDC may offer some protection to users not found with the other forms of digital currency.  CDBC is touted as providing individuals and businesses with a means of utilizing a central currency that could be more efficiently transacted and provide expanded access to users vs. paper money.  In creating CBDC, the central bank should consider the benefits provided, how to keep users privacy protected, how to thwart criminal usage of CBDC, and more.  Concerns over CDBC are many and include lack of access by those less tech savvy or unbanked and centralized control over access and usage of CBDC whereby one could be cut off from their money by the central bank or government.    

By contrast to CBDC, Crypto (think of the various “coins” out there) is typically an unregulated form of digital currency built using blockchain technology.  The blockchain yields the coins and there is typically a finite number of coins available within the chain.  However, coins then trade on private platforms and can be subdivided into smaller amounts, so the availability of coins is not limited by the number of coins created via the blockchain.  The creation of the coins and the transactions that follow are managed and secured by the usage of cryptography.  Cryptography allows for data to be sent securely between parties and allows transactions to be done anonymously and securely.  While this can be good in some instances, history has shown the dark side of crypto where ransoms have been paid without the ability to trace or consequence.  With crypto, the middle step of a bank or credit-card company acting as an intermediary on a transaction is removed.  While there can be value in this, the risks of crypto are numerous as this currency is not tied nor backed by a central bank, has been very volatile in price, and has limited real world usage (but that is growing).  There is also the chance of total loss should a holder of crypto lose access to their digital wallet (either held via an exchange or directly via a hardware wallet) or have that wallet hacked and their coins stolen. 

The Federal Reserve has a FAQ page on CBDC – https://www.federalreserve.gov/cbdcfaqs.htm and it notes where the U.S. is on the development a CBDC, the risks, concerns, usage, and more.  Eventually, some form of CBDC will likely be introduced, and then users could facilitate various transactions with it just as done currently with paper money.  If and how CBDC would be taxed is an open question.  For Crypto, it is taxed as property, so whether a coin is traded on an exchange, or used in a transaction related to consumer goods, capital gains taxes apply.  In the early years of Crypto, many mistakenly believed no tax was due as Crypto was its own entity and no 1099 was provided by an exchange, but that has never been the case.  Here in the U.S., the owner of Crypto is obligated to report transactions to the IRS, and failure to do so is considered tax evasion.  Be careful and be sure to discuss any Crypto transactions with your tax professional. 

{Note – On May 23rd, the U.S. House of Representatives passed a bill known as the “CBDC Anti-Surveillance State Act” to essentially block the U.S. from creating a CBDC.  The bill is not yet law as it would still need to be voted on and approved by the Senate and then avoid a veto by the President.}

Please note that neither Cetera Advisor Networks LLCB nor any of its representatives give legal or tax advice. For complete details, consult with your tax advisor or attorney. Crypto-Currencies, Digital Assets, and other Block-Chain related technology (such as Bitcoin, Ethereum, NFTs and others) are not securities, not regulated, and not approved products offered by Cetera Advisor Networks LLC (the firm). Crypto-currencies and other block-chain related non-securities products cannot be recommended, offered, or held by the firm.

Paul Miloe


Paul Miloe has been actively working as a financial advisor with Albitz/Miloe & Associates, Inc. since 1996. He graduated from University of California, Santa Barbara in 1994 with a Bachelor of Science degree. Paul is a Chartered Retirement Plans SpecialistSM. His focus centers on personal and retirement planning, life insurance, annuities, college savings plans, and senior issues, including long-term care insurance. In addition to his role as CCO of our firm, Paul is also a Branch Manager for Cetera Advisor Networks, LLC (member FINRA/SIPC). Paul, and his wife, Mary, are lifelong residents of the South Bay, and along with their two children, and are active in their community via sports, school, and community service.

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