Cryptocurrency has taken investors on a wild trip ever since Bitcoin started in 2008, following the publication of the renowned Bitcoin white paper that described this revolutionary technology and decentralized digital currency. The first cryptocurrency, bitcoin, gave rise to more than 22,000 more cryptocurrencies, including ethereum, litecoin, dogecoin, and others.
Yet is cryptocurrency “real” money? How does it fare in terms of value compared to the US dollar? And how secure is crypto? Here is an examination of the parallels and discrepancies between cryptocurrencies and fiat money, particularly the US dollar.
Because it may be used to exchange goods, services, or other currencies, such as cash or other cryptocoins, some individuals may view cryptocurrency as “real” money. The idea of recognizing bitcoin as a “legitimate asset class,” or as actual money, has been discussed by U.S. institutions for a number of years. The federal reserve and American banks do not, however, currently see bitcoin and other cryptocurrencies as actual money.
When Is Crypto Treated Like Real Money For Tax Purposes?
Cryptocurrency is considered a property or digital asset by the IRS, so if you sell it for a profit, you’ll have to pay capital gains taxes. The majority of cryptocurrency transactions are not subject to taxes until the cryptocurrency is cashed out and converted into dollars, traded for another coin or currency, or used to make a purchase. Cryptocurrency may be taxable by the IRS as income in certain situations. The government may tax any cryptocurrency you get as payment, as part of mining or staking operations, at your marginal income tax rate.
If you bought, sold, traded, or earned cryptocurrency in 2022, you should consult a tax expert about how to report your gains and losses on your state and federal tax returns.
Differences Between Crypto and U.S. Fiat Money
Cryptocurrency was developed as a substitute for fiat money. They differ significantly as a result.
Backing: Like the U.S. dollar, cryptocurrency is not backed by any assets like gold or silver. The federal government, however, backs the American dollar. Cryptocurrency differs from traditional money since it is decentralized and not backed by any authority.
Physical Assets: Due to its lack of physicality, cryptocurrency differs from traditional currency. You cannot physically hold bitcoin, ETH, or any other altcoin.
Volatility and Use Cases: Finally, the value fluctuations of cryptocurrencies also tend to be more erratic. Fiat money is used to make various kinds of purchases, yet it only has certain use cases. While some cryptocurrencies have applications, such as their use on Web3 or in stabilizing blockchains, many are simply worth what investors are willing to pay for them.
Cryptocurrencies’ Similarities to U.S. Fiat Currency
Cryptocurrency and American currency both have the ability to be used for the exchange of goods and services. Cryptocurrency income is occasionally taxed similarly to cash income.
With the belief that the value would rise in the future, investments can be made in both dollars and cryptocurrencies.
Does Crypto Turn Into Real Money?
While the U.S. government may or may not accept cryptocurrencies as legal tender in the future, you may sell them for U.S. dollars much like stocks or bonds by doing so privately on the blockchain or through a cryptocurrency exchange.
Disclaimer: Cryptocurrencies are complex, risky, and speculative; they are also quite volatile and susceptible to secondary activity. Performance is unpredictable, and past success does not ensure future success. Before depending on this information, take into account your own circumstances and seek your own counsel. Before making any decisions, you should also confirm the specifics of any product or service (including its legal status and any regulatory requirements) and examine the websites of the appropriate regulators. There may be holdings in the cryptocurrencies mentioned by Finder or the author. The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
You might also like:
- Worldcoin: The Controversial Iris Scanning Cryptocurrency Idea
- Bitcoin Is the New Gold, According to BlackRock CEO Larry Fink.
- As interest in bitcoin and digital assets grows, is it time to put it to the test?
- Most Rapidly Increasing Cryptocurrencies in 2023.
- Cash vs Crypto: Is Crypto a Real Money?
Share: Cash vs Crypto: Is Crypto a Real Money?