Cryptocurrency is a digital currency that uses cryptography [means “secret writing,” the ability to exchange messages that the intended recipient can only read] to secure transactions and regulate coin creation. It is a decentralized type of currency, meaning it does not belong to any form of government or country.
Cryptocurrency has gained a reputation for being volatile, unregulated, and difficult to understand. Digital currencies have been under scrutiny among investors and traders for many years because they can be affected by political decisions, legislation, and other economic factors. But it has also been a hot topic in the technology world as many people have been developing blockchain-based applications to revolutionize industries from medicine to finance.
There are many different types of digital currencies available on the market today. The most widely known digital currency is Bitcoin. It was first introduced in 2009 on the heels of the economic recession. In October 2021, it set a new record high; its price has been hovering around $66K per coin. Other notably known digital currencies are Ethereum, Dogecoin, and many others.
If you are a U.S. citizen reading this blog, this is very important; cryptocurrency is subject to taxation by the I.R.S. In 2014, the I.R.S. issued a notice declaring that cryptocurrency is property, not currency, for tax purposes. Therefore, you may have a capital gain that’s taxable at either short-term or long-term rates. In addition, just as when buying or selling stock, every year, you must submit a Form 8949. This I.R.S. form is used for reporting the sales and disposals of capital assets. Some examples of capital assets include stocks, bonds, and, yes, cryptocurrencies.
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Royal, Ph.D., J. (2018, April 9). Bitcoin taxes in 2021: A guide to tax rules for cryptocurrency. NerdWallet. https://www.nerdwallet.com/article/investing/bitcoin-taxes
Frankenfield, J. (2021, August 9). Cryptocurrency. Investopedia. https://www.investopedia.com/terms/c/cryptocurrency.asp