Bitcoin was created in 2009, and an increasing number of people have had their curiosity triggered with every year that has passed by.
History has never seen a decentralized payment system like this, so it is understandable that people have become curious.
If you’re considering becoming a crypto trader, nothing is more vital than having your fundamentals in check. This article should be helpful to novice crypto traders.
What is a cryptocurrency?
A cryptocurrency is an internet-based medium of exchange. Financial transactions are secured by cryptographic functions.
Cryptocurrencies are not governed by a central authority like a bank, which is not the case with FIAT currencies like the US dollar.
Cryptocurrency transactions occur via cryptographic functions, and therefore, they cannot be hacked.
Cryptocurrencies are utterly immune to political influence and manipulation. Of course, this is a revolutionary factor because this is the only asset that successfully functions in the absence of a regulatory body.
The private key of the sender must sign a transaction for it to take place. When it is confirmed, the information of this transaction is sent throughout the entire network.
Cryptocurrencies are relatively new to the market. Its amorphous and cryptic nature has caused massive amounts of confusion for the average user. Aside from its working, crypto taxes have proven to be an absolute nightmare for crypto traders.
Future of Cryptocurrencies
Since cryptocurrencies are entirely immune to external influence, no one can stop you from using them.
Bitcoin, in particular, is becoming increasingly valuable every year. There is no surprise that Bitcoin has captured the world’s attention. Many people have started investing in Bitcoin to protect themselves from the devaluation of their national currencies.
Cryptocurrencies are both a blessing and a curse, depending on your priorities. You could either jump on the bandwagon and invest in this new currency, or you could watch it revolutionalize the market like never before.
Regardless, it looks like cryptocurrencies are here to stay and change the economy beyond recognition.
Risks for crypto-traders
It is no secret that cryptocurrencies are risky in some ways. However, they do have traits to their credit that make them unique.
Nobody can reverse or undo transactions once they are confirmed. The idea of approaching your bank or any other central authority to cancel your operations is futile.
Banks cannot control cryptocurrencies owing to the complexity of the Blockchain technology that cryptocurrencies are based on.
Of course, this means cryptocurrencies are not affected by external influence.
While you can map the flow of the transaction, there is no way to find the real owner of the crypto account. The user receives bitcoins on addresses that are chains that have multiple characters.
Due to decentralization, crypto traders do not require permission to use Bitcoin. Unlike in the case of FIAT currencies, there are no gatekeepers.
Value of cryptocurrencies
Given that cryptocurrencies are immune to government manipulation and influence, the potential and scope of cryptocurrencies have no limits.
It is entirely understandable that the population is considering investing in a revolutionary currency like this. It is also understandable that banks see this payment system as a threat to their monetary policy. As mentioned, cryptocurrencies have critical advantages and disadvantages, that you, as a crypto trader can leverage, depending on your objectives.
Irrespective of your stance on cryptocurrencies, they are here to stay and irrevocably change the economy and financial world as we know it.
Filing crypto taxes
Cryptocurrencies are treated the same as property when it comes to tax. There are two types of capital gains tax: short-term and long-term capital gains.
If you sell your cryptocurrency within a year from the purchase date, you would have to pay short-term capital gains tax on the profits made from your cryptocurrency.
However, if you sell your cryptocurrency after one year from the date of purchase, you would be prone to long-term capital gains tax. Depending on your taxable income, your tax rate could be 0%, 15%, or 20%,
To avoid paying short-term capital gains tax, which is higher than long-term capital gains tax, it is recommended that you hold onto your cryptocurrency for more than a year.
Invaluable tools for crypto-traders
Apart from the complex nature of the cryptocurrencies, filing crypto-taxes seems to stop most people from getting into the world of cryptocurrencies.
However, if you are willing to invest your time and money in cryptocurrencies, be sure to search for a reliable cryptocurrency tax calculator. Crypto tax calculators are indispensable tools for crypto traders. Here are a few:
Zenledger provides a fantastic cryptocurrency tax calculator for crypto traders. Crypto traders can import their cryptocurrency transactions and calculate capital gains and income accordingly.
ZenLedger has a tool that generates various parameters, such as capital gains, income, donations, closing reports, profit, and loss statements.
Bitcoin Taxes is widely known as an optimal solution for crypto traders. Its online platform enables its users to import their cryptocurrency transactions from several leading crypto exchanges.
This universal calculator estimates capital gains and losses after analyzing the client’s crypto-related activities.
The Libra Tax software connects to the dominant cryptocurrency exchanges like Coinbase to track transactions.
There has never been a better time than now to become a crypto trader and embark on your journey into the crypto-world. The crypto tax tools mentioned above will prove to be invaluable as you file your taxes.