What is Cryptocurrency?

The answer is yes.  What makes crypto different than credit or debit cards?  Crypto does not have an interchange system between the transfer of funds. The interchange network provides a centralized system where transactions are monitored.  When we make a purchase at a store whether in person or online.  We insert our credit or debit card in a card reader it will then say transaction accepted or declined.  Behind the scenes there is a network name interchange a third-party network of payment processors.

A message is sent from the merchant's bank to the interchange network the interchange network will send a message to the customers bank or credit card company asking does this person have these funds.    An electronic message is sent saying yes approve the transaction or no transaction declined.  Credit Cards and Debit Cards are not digital money because the currency it's self is backed by the US Dollar.  Meaning a 5 cent Nickle coin is still 5 Cent.  It is just transferrable in a different way.

Digital currency is created inside a computer.  It is a system of codes that linked on a blockchain.  Think about a chain gang everyone is tied together.  This currency has never existed anywhere other than the computer.  Like a barter system it derives its value from what the members of the exchange declare the value to be.  Unlike a barter exchange where you can barter a cow for a goat.  This is not the case, you can by and sell the crypto currency for whatever someone will pay for it.  This is why it is called decentralized currency.  There is no banking system involved.  Just a series of computer transactions.  This is what is meant by digital currency.

Crypto is taxed two ways:

1. Unearned long term capital gain or capital loss income.  Like any investment that is traded on the New York Stock Exchange or any Exchange.  The profit is recorded on a 1099 (B) Brokerage Statement and tax as short-term capital gain or loses or long-term capital gain or losses.  Or if you go to a merchant who accepts Crypto currency like Starbucks you purchase a Caramel Latte Frappuccino and a bacon egg and cheese breakfast sandwich you pay for it with Bitcoin.  That is considered a short-term distribution and is taxes like ordinary income.

1. Ordinary earned income and employer pays you in Bitcoin.  The employee will receive a W2 with taxes withheld for the value of the consideration.   If your pay is 1000.00 you have to value the Bitcoin at 1,000. and claim this amount on your taxes.