Unless you have been marooned on a desert island for the last decade you have probably heard of cryptocurrency, or “crypto”. With a cryptic name like that, many of us (admittedly including myself) are wondering just what on Earth is it. Well, let’s see if we can get to the bottom of this mysterious concept and what it means to us.
What is Cryptocurrency?
Cryptocurrency is a digital form of currency that, unlike traditional currencies like dollars or euros, has no physical form. There’s no mint, no paper bills, and no coins. Cryptocurrency exists entirely online, in the virtual world of the internet and computing, and is accessed using specialized software instead of traditional banking institutions.
Why was Cryptocurrency Created?
Cryptocurrency offers an alternative form of payment that isn’t controlled by central authorities like governments or banks. It’s often used to buy goods and services online, such as apps or games, and many people also view it as an investment to trade for profit.
The name “cryptocurrency” comes from the cryptographic techniques that make it possible to securely buy, sell, and trade without needing a third party like a bank.
How Does Cryptocurrency Work?
Cryptocurrencies rely on a technology called blockchain. Think of blockchain as a virtual ledger that keeps tamper-resistant records of all transactions. It prevents digital currencies from being copied or spent twice, solving one of the key issues faced by earlier digital currencies.
Mining Cryptocurrency
Some cryptocurrencies, like Bitcoin, are created through a process known as mining. This involves solving complex puzzles with powerful computers to verify transactions. The reward for successfully mining? Newly created Bitcoins! However, this process is extremely energy-intensive.
Popular Cryptocurrencies
With over 20,000 different cryptocurrencies available for trading, it can be overwhelming to choose where to start. Here are some of the most well-known and reliable options:
Bitcoin (BTC)
Bitcoin was the first cryptocurrency and remains the most valuable and popular. It’s the original and still the leader of the pack.
Litecoin (LTC)
Litecoin, often referred to as Bitcoin’s cousin, was created to simplify payments and make transactions faster and cheaper.
Dogecoin (DOGE)
What started as a joke, Dogecoin (named after the internet-famous Shiba Inu dog) has surprisingly gained significant value and attention.
Ethereum (ETH)
Ethereum is known for handling more complex financial transactions than Bitcoin, particularly because of its ability to run smart contracts.
Cardano (ADA)
Cardano competes with Ethereum, providing a platform for handling complex financial services while emphasizing research-based development.
Solana (SOL)
Solana is touted as a faster, more cost-effective alternative to Ethereum, making it attractive for developers and investors.
Stablecoins (Tether, USDC)
Stablecoins are designed to maintain a stable value by being pegged to real-world assets like the US dollar, making them a safer option for risk-averse investors.
As well and managing your crypto portfolio it is also just as important to keep your accounts in order to manager your taxes. Managing crypto taxes is vital and utilising crypto accounting software can greatly assist in this process. Compliance is crucial to avoid legal consequences, penalties, and fines. By accurately reporting cryptocurrency transactions, individuals can calculate gains or losses, maximize deductions, and minimize tax liabilities. Additionally, adopting crypto accounting software streamlines the tax management process, making it more efficient and reliable. Ultimately, adhering to tax regulations fosters the integrity and acceptance of cryptocurrencies in the financial landscape.
