Cryptocurrency vs Money – Basic differences and similarities
Cryptocurrency is digital property that comes with an exact numeric value, which is recorded to eight (8) decimal places. That looks like this: 0.12345678. That’s 6 more decimal places than the dollar which only goes two (2) decimal places (aka cents). The fact that cryptocurrency comes with an exact numeric value makes it very similar to money. Some cryptocurrencies (i.e. Bitcoin or Zcash) have the term “coin” or “cash” in their name, and since they call it cryptocurrency, its only natural to think of it as money. However, the term “cryptocurrency” is a somewhat misleading term to the beginner student or learner of cryptocurrency. Currency is money and cryptocurrencies are digital property. This eludes most people who are new to cryptocurrency. However, this is the first and most important lesson to learn about cryptocurrency!
Cryptocurrency is not actual money in the USA
A nation’s government establishes the form of the money for their nation, such as the dollar for the USA. Cryptocurrency was not created by a national government. Cryptocurrency was not created for a specific nation. Therefore it’s not sanctioned, endorsed, and/or recognized by any government as actual money.
Another reason cryptocurrency is not money is because money was intended to give goods and services a stable economic financial numeric value. In other words, the ability to give goods and services an exact, fair, and non-fluctuating monetary buying and selling price. However, cryptocurrency can be purchased with money like any other type of property, and that cryptocurrency will gain or lose value every minute based on its market value, just like stocks. Money does not gain or lose value based on market value which is based on supply and demand. Money only increases in value when the prices of goods and services decrease (aka deflation), and money only decreases in value when the prices of goods and services increase (aka inflation). This is not the case with cryptocurrency, a digital property, which has a fluctuating market value.
Profiting from Cryptocurrency
Gains on buying and selling cryptocurrency are taxable because the IRS identifies cryptocurrency as property, not money. As a result, tax rules (not real estate tax rules) that apply to property transactions, like selling collectible coins or antiques that can appreciate in value, also apply to cryptocurrencies such as Bitcoin, Bitcoin cash, Litecoin, Zcash, and other cryptocurrencies.
In summary, cryptocurrency is digital property, and digital property is a financial asset!
