With sweeping cryptocurrency regulations set to be put in place by the White House in the coming weeks, it’s important to brush up on crypto for those looking to get into the investing game. There’s no telling how broad the changes may be or how that will change the way the crypto landscape works, but with the possibility of a strong regulatory network helping the crypto market boom, get started on it with our beginner’s guide!
What Is Blockchain?
Blockchain technology is far from new, but with crypto exploding the way it has, many new investors want to learn about the tech that drives it.
Blockchain is a type of shared database that differs from your typical table-centered database in that it stores chunks of data linked together in a chain, forming an irreversible and easily confirmable timeline of events. It is not inherently only meant for cryptocurrency, but crypto is by far the most common use for it.
Because the nature of blockchain is that the data entered into it is irreversible, it is used as a ledger to track transactions for Bitcoin and other crypto that are permanently recorded and viewable by anyone using the blockchain.
It is a transparent, easily accessible, and decentralized technology that allows the users participating in it to have control over their assets, which makes it an attractive option for many.
There’s More Than Just Bitcoin
While Bitcoin has become synonymous with cryptocurrency, there are hundreds of different kinds of cryptocurrencies on the market. Most of these fall under two main types of crypto: Coins, such as Bitcoin, or Tokens, which are not intrinsically valuable themselves, but represent value, similar to the US Dollar.
Some coins are available in limited amounts–Bitcoin’s creators have stated that there are only 21 million in existence–and others, like Ethereum, are unlimited in supply. Ethereum, currently the number two crypto asset in the world, was designed to operate as a form of currency on its own blockchain that allows users to build and monetize apps, while Bitcoin was designed as an alternative to traditional currencies.
Some time after Bitcoin exploded, other cryptocurrencies called stablecoins started popping up. These are tethered to the value of the US Dollar, and are designed to offer stability and transparency to its users.
There’s a crypto for everyone out there, and you can find them all here!
Crypto Is A Capital Asset
Crypto is a capital asset for now, so treat it accordingly. This means that many of the common transactions that are performed with crypto would require the investor to report any gains on the 8949 tax form, such as sale of crypto for cash, exchange of one currency for another, or using crypto to pay a merchant.
In addition to any gains and losses you incur, you need to report receipts of earned crypto as income, such as mining or staking crypto, receipt of any airdropped tokens, or payments you received in the form of crypto.
Check back once the White House announces its regulatory plans for crypto!