What Is Cryptocurrency? 5 Things to Know About Crypto

Bitcoin is the most known and the most valuable cryptocurrency today. Since its inception in 2007, the crypto market has exploded. 

Today, there are more than 1500 cryptocurrencies in circulation. Besides bitcoin, other cryptos such as Litecoin, Ether (Ethereum), and Dogecoin have stepped and are on the rise.

However, most people still don’t know as much about cryptocurrencies. This article looks at the top five things you should know about crypto. 

What Technology Supports Cryptocurrencies

Cryptocurrency is a virtual currency that only exists electronically. It is a peer-to-peer payment system that does not rely on a centralized banking system.

However, what makes crypto unique is the blockchain technology behind it. Blockchain technology is a database that stores records of all transactions of cryptocurrency.

The information is stored in blocks which are then linked together. As a result, the information is stored in chronological order.

One benefit of blockchain is decentralization, and no single person or group can control crypto. The other benefit is that there is no counterfeit risk since a coin cannot be spent twice.

Who Can Launch a Cryptocurrency?

Going by recent history, almost anyone can launch their cryptocurrency. All you need to have is the technology set up. This is why there are so many new cryptos out there. Cryptocurrencies are launched through Initial Coin Offerings (ICOs).  

Although this is a good thing, it also opens the door for scammers and fraudsters. This is why you should always do your research on the creators of any crypto before committing to it.

The whitepaper is an excellent place to start your research. In addition, you should learn more about the team behind the coin.

What Can You Buy with Crypto?

Cryptocurrencies are still some distance from replacing traditional currencies. This is primarily down to the level of acceptance.

Bitcoin, the most popular crypto, is widely accepted with some global brands such as Microsoft, Subway, Overstock, and Shopify.

You can buy anything from a video game to an airline ticket. However, your ability to use your crypto depends on its acceptance. 

We recommend sticking to the known crypto such as Dogecoin, Litecoin, and Ethereum. Keep the details of crypto wallets and accounts secure to protect your investment.

Cryptocurrency is Taxable

The lack of regulation makes cryptocurrencies attractive for criminals. However, this doesn’t mean you can escape the long reach of the IRS. The first question on the 1040 tax form is about cryptocurrency. The laws require you to disclose if you sold, sent, received, or bought any crypto that year.

Failure to report your cryptocurrencies can land you in trouble. The IRS will already know about it so you might as well report it and save yourself some time and penalties. Uncle Sam is informed by an automated underreported whenever you receive Form 1099-B or Form 1099-K from your crypto exchange.  

Fortunately, not everyone who marks yes on the tax form is taxable. The IRS only wants a piece of your gains if you reach a certain threshold. So do be afraid to tick yes even if you are holding some assets in your wallet.

Where to Buy Cryptocurrency?

Do you want to receive crypto from someone who already has some like a relative or as payment? The most common way to get your hands on crypto is by purchasing some. To do that, you must first have an exchange account and a wallet for storage. 

Pick an exchange you are most comfortable with, and you are good to go.

Before you can buy crypto, the exchange account must be linked to a payment method. Once the account is up and running, you load up money and buy any of the crypto listed above. It is a good idea to store most of your crypto holdings in a wallet to protect your investment.

Popular Crypto Exchanges and Trading Platforms: