How Is Cryptocurrency Taxed? (A Comprehensive Guide)

One of the most important economic stories of the modern era is the alternative to traditional currencies. Commonly called “crypto” and sometimes referred to as “digital currency,” its most popular examples are Bitcoin and Ether, but there are thousands of others. What is a cryptocurrency, why do authorities tax it, and how does it figure into your financial situation?

Simply put, crypto is a new kind of medium of exchange represented by binary data that is owned by individuals. The sensitive data is stored via high-security cryptography (hence the name “crypto”) in a digital database. These records do three things. They keep track of ownership transfers, control the issuance of new coins and operate to keep all the transaction records fully secure.

Even if all of that sounds theoretical, the reality for millions of crypto owners is that their alternative currency has real value; is taxable in many countries and is treated as a capital asset. But they are subjected to capital gains and capital loss rules for purposes of taxation. It can be spent like regular money and held for long-term gains, just as stocks; and is even mined (created) for profit. Still, the taxation regulations vary from one country to another. Always consult a tax advisor to fulfill your legal obligations before venturing into crypto investments. 

In this article, you will learn the fundamentals of crypto taxation. But, we advise you to seek professional advice as the regulatory framework does not apply to all countries or jurisdictions. 

What Gives Cryptocurrency Value?