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Defining Cryptocurrency
Cryptocurrency has become a household and worldwide name. It is almost impossible to go on the internet and not find new updates and reports on it. We know that Bitcoin is a type of cryptocurrency, but what exactly is a cryptocurrency?
Cryptocurrency is defined as a digital asset which exists in binary form which is primarily used to function as a medium of exchange. Unlike cash in hand, cryptocurrency uses a sophisticated encryption system known as cryptography to secure transactions.
Usage and Creation
Cryptocurrency uses a decentralized control system and the cryptocurrencies are independent of any institution, which means they are not regulated or under any central authority. Blockchains are used as a database to allow secure transaction of cryptocurrencies.
Understanding how to create cryptocurrencies can be a complicated process for many, especially those unfamiliar with coding and programming, but in layman’s terms, modifying an existing process to generate a fork and building a new blockchain is how it’s made.
A mining process is used to generate more coins of existing crypto. Crypto is not a completely legalized mode of exchange, and even has restrictions and penalties in certain countries.
Cryptocurrency in Accounting
If you are dealing in crypto, it is important and necessary even to hire a cryptocurrency accountant in the UK or become one yourself, especially considering the taxation laws. Learning and studying cryptocurrency daily will keep you updated on the latest figures, as well as avoid any sort of malware.
Things to consider as a cryptocurrency accountant
- Crypto is a virtual currency- This of course we know, as it has been clarified above. It is digital and does not include cash in hand. However it can still be used to trade and purchase goods and services and even in investments such as stocks to make profits.
- Cryptocurrency transactions are subject to tax- This applies to all transactions, and depending on whether there is a profit or loss, each is taxable.
- More coins equals higher accounting levels- If a user transacts more than one type of coin, many factors come into play such as cost base calculation and fair market values, which often make a cryptocurrency accountants job a little more tedious.
- Different tax laws for different purposes- This depends on the motive behind crypto transactions. If these transactions are merely for hobby purposes, only half of the gains will be subject to tax, whereas if it is for business purposes, all the gains would be subject.
Mistakes Cryptocurrency Clients Make
While understanding crypto as well as having or being an accountant, it goes without saying that clients will make certain mistakes along the way. It is only natural, but as a good cryptocurrency accountant, it is important to be aware of these mistakes so they can be rectified at earliest.
For instance, a lot of clients may not fully disclose their assets and transactions for tax reporting. It is important that they do so if they want to avoid getting in trouble with the IRS. Many clients also give false information regarding data or even omit some of it. Most commonly, there can also be miscalculations related to profit and loss.
