Questions About Cryptocurrency
The IRS is also looking for taxpayers earning cryptocurrency for services provided or performed without reporting the income. The new question seems simple, but perhaps not. If you look to the instructions for the 2020 IRS Form 1040 regarding “Virtual Currency” as guidance regarding the new question. How many people use cryptocurrency? Over 70 million people use cryptocurrency, but this number.
Although media is full of bitcoin-related news, cryptocurrencies (like bitcoin) are still not mainstream, hence they represent a promising investment opportunity. But what these cryptocurrencies are and how they work is unknown to the vast majority of Americans. So we want to help out by providing answers to what we think are the 5 most commonly asked questions about cryptocurrencies. Without further ado, here’s what we’ve got…
1. What are cryptocurrencies and how are they different from regular, fiat currencies?
For one thing, cryptocurrencies exist only in computers, whereas regular, fiat currencies also have their “material form” as paper money and coins. Nevertheless, even fiat currencies are mostly exists only as numbers in a computer system, with paper money presenting just a fraction of total amount of all the money in circulation. So for the most part, even the fiat currencies exist as digital records.
On the other hand, behind every fiat currency is a government body — or multi-country body in case of Euro — that makes sure the value of the money is relatively stable. However, sometimes they can’t do much as we’ve seen in the case of Brexit and British Pound.
2. How cryptocurrencies work?
For pretty much every cryptocurrency there is a distributed ledger or a publicly viewable list of transactions. The “distributed” part means there is more than one copy of the ledger, making sure that no transaction on the network is ever lost. The so called “miners” keep the system rolling by broadcasting the information about every transaction to the public ledger.
Once a transaction has been made, it is placed in a pool of pending transactions, whose order of addition to the chain is determined by competing miners. The fastest miner to solve a math problem gets to add that transaction to the end of the blockchain, effectively determining a unique order.
Each transaction is completed using the sending wallet’s private key; the signature is unique for every transaction, so it cannot be duplicated. Moreover, a message cannot be altered or the resulting signature will no longer be valid. Finally, since transactions are lumped together in blocks, if one transaction changes — the hash output of the entire block changes, making it impossible to modify blocks undetected.
The Bitcoin network — and systems of other cryptocurrencies for that matter — doesn’t store balances; rather, balances are based on previous transactions and calculated by the Bitcoin wallet apps and services.
Also read: Top 7 Questions About Bitcoin Transactions
3. What are the benefits of cryptocurrencies?
Cryptocurrencies are decentralized and deregulated, while offering (pseudo) anonymity and increased transaction transparency. Whether we are talking about Bitcoin or any other big cryptocurrency, it is not based in any single country or jurisdiction, because the ledgers and servers are spread out over the globe. Also, because there is no central bank, the system is distributed and therefore not easily manipulated either by large institutions or by governments. On the other hand, it is this lack of oversight that makes bitcoin that much more volatile than fiat currencies (while also making them an interesting investment).
4. Where do cryptocurrencies get their value from?
The truth is that cryptocurrencies do not have an intrinsic value. But that the same goes for regular, fiat currencies — they are no longer backed by gold (at least most of them). Instead, we trust our governments for that, and we also have vendors accepting fiat currencies.
While cryptocurrencies are far from going mainstream, they are increasingly being accepted as a method payment by a growing number of vendors. As of December 2014, you could use bitcoins to pay for products and services at Microsoft, Dell, Newegg, Expedia, Overstock.com, TigerDirect and Time Inc. among others. As more and more businesses start to accept cryptocurrencies, they will appreciate in value.
5. In addition to Bitcoin, what are other popular cryptocurrencies?
Bitcoin is not the only game in town. Other popular cryptocurrencies include:
- Ethereum (ETH) – which goes beyond peer-to-peer money transfers to also allow developers to build apps that run on top of the platform.
- Litecoin (LTC) – created in 2011 by Charlie Lee, a MIT graduate and former Google engineer – it is often referred to as “silver to Bitcoin’s gold.”
- Ripple (XRP) – it is a technology that acts as both a cryptocurrency and a digital payment network for financial transactions.
- Dash – formerly known as Darkcoin and XCoin, it offers all the same features as Bitcoin plus instant transactions (InstantSend), private transactions (PrivateSend), and decentralized governance (DGBB).
- Zcash (ZEC) – “If Bitcoin is like http for money, Zcash is https,” is how Zcash defines itself, offering privacy and selective transparency of transactions.
Cryptocurrency Article
Of all the alternative cryptocurrencies — there are more than 900 of them — Ethereum is arguably the most promising one, having managed to get support of such big corporations as Microsoft, Samsung, J.P. Morgan, Deloitte, and others. We can’t offer a “direct investment advice” here, but I guess you understand what I wanted to say, right? 😉