What is Cryptocurrency?
There are decentralized systems that are secured by the blockchain technology and holds virtual currency that is secured by the means of cryptography, this virtual currency is referred to as Cryptocurrencies. One of the main features of cryptocurrency is that it is not issued or controlled by any central authority, this feature enables the cryptocurrency to exist outside the control of the government, theoretically, without any interference.
Features of Cryptocurrency
Listed below are the key features of cryptocurrencies that make them unique
Most cryptocurrencies are decentralized systems that are distributed by a large network of computers and are spread all across the world, this means, that they are not owned by any authority and can exist and sustain outside the controlled system. Each transaction is verified through cryptography and recorded in a publicly distributed ledger called Blockchain.
Because there is no central authority, the users have no need to identify themselves during cryptocurrency transactions. Cryptocurrency uses a private and a public key system to authenticate transactions and when a transaction request is submitted, the decentralized system will then verify and record the transactions on the Blockchain.
Transactions are Irreversible
All cryptocurrency transactions are irreversible and the transaction can only happen if the respective key owner initiates it and once initiated it cannot be undone. While it is not all that impossible to modify the transactions, the secure nature of blockchain makes it extremely difficult to do so.
Cryptocurrencies are usually are limited in number and that is coded in the algorithm when the digital form of currency is created. This is done on purpose to prevent its digital currencies from being manipulated and to stop the value from decreasing over time.
Types of Cryptocurrencies
Since the inception of cryptocurrencies, there have been various types of cryptocurrencies that have been created
- Bitcoin (BTC)
- Litecoin (LTC)
- Ethereum (ETH)
- Etherum Classic
- Ripple (XRP)
- Bitcoin Cash (BCH)
- Zcash (ZEC)
- Stellar Lumen
- Tether (USDT)
- Libra (LIBRA)
- Monero (XMR)
- EOS (EOS)
- Bitcoin SV (BSV)
- Binance Coin (BNC)
What Are Some of The Advantages of Cryptocurrencies?
Though cryptocurrency transaction are unregulated, they are secure and they come with a lot of benefits
Reduction in Fraud
Typically in credit cards, a transaction can be reversed using chargeback, this is a feature that is exploited a lot by fraudsters. In a cryptocurrency transaction, that is not the case and that is because of the irreversible nature of cryptocurrency.
International trade has been made easy and more accessible by removing barriers and trade restrictions, in the end, it makes the transaction in different currencies possible.
The blockchain technology which is used in cryptocurrencies makes the transaction instant, unlike other transaction methods which may take hours or days to reflect on your account.
All cryptocurrency transactions are secured and since there is no centralized system, a person has no need to identify himself or send anything else other than what is required. This helps in maintaining confidentiality throughout the transaction.
Cryptocurrency Taxes and More
According to the Internal Revenue Service (IRS), cryptocurrencies should be treated as assets and properties for tax purposes. Meaning, if you own any kind of cryptocurrency then you should treat it like owning other forms of property, like gold or real estate and you are also required to report gains and losses, you also have to pay taxes. Failure to comply may result in heavy penalties, as it is treated as a fraudulent act.
In America, IRS Notice 2014-21 defines virtual currency as property and if anything is purchased using virtual currency, it is liable to be taxed as capital gains, be it long term or short term. In simple words, if you buy anything with cryptocurrency, say bitcoin, then the amount of bitcoin spent on the purchase will be taxed in accordance with the current capital gains rule.
Cryptocurrency Tax Software
There are cryptocurrency tax software that help people in the crypto world to transact with each other while staying compliant with the law. Cryptocurrency tax software acts as the third party data collector, where you can link your cryptocurrency wallet to the software. The cryptocurrency tax software then produces detailed profit and loss reports of the transaction while ensuring that they are compatible with the IRS guidelines.
Best Crypto Tax Software
There are many cryptocurrency tax software, listed below are a few of the best ones
One of the best cryptocurrency tax software, it is a good choice for someone who is looking for a software which is user-friendly. As the user-friendly dashboard allows you to calculate and report taxes with ease, even if it is your first time. Also, they have some really good features like
- CoinTracker has partnered with Coinbase and TurboTax to help streamline the tax reporting process
- Allows connecting with your wallet without any hindrances and gives you access to calculation and reporting tools.