Cryptocurrencies: How They Work

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Welcome. I am Olivier Wagner from 1040 Abroad and will provide an overview of taxation of cryptocurrency, Non-Fungible Tokens (NFTs), and Decentralized Finance

First disclaimer: While cryptocurrencies and NFTs have been gaining traction, these are an extremely volatile asset class.

Likewise, it’s an ever-changing environment, so please contact me before taking anything here as true as it may have changed.

Let’s start with a review of blockchain and the building block that lead us to where we are today.

We have building blocks:
– Blockchain
– Cryptocurrency
– Smart Contracts
– Tokens

Blockchain

Written by Olivier Wagner | Posted in Cryptocurrencies: How They Work • Cryptocurrency And Taxes

The virtual currencies that have gotten the most attention are cryptocurrencies, which are used to transact business directly between two parties without going through a banking system.

Using a cryptocurrency is very different from paying with traditional currency. It’s a process with its own unique digital features, a distinctive underlying technology, and a highly specialized vocabulary.

To understand how cryptocurrency works, let’s look at a situation where it may be used.

Let’s assume you are selling a mountain bike to your cousin, using Bitcoin for the transaction. Each of you would each have a digital wallet that contains your private key—an alpha-numeric code of at least 16 characters (punctuation marks are encouraged!) that is far more comprehensive than a PIN. The private key, which should be kept entirely secure, enables you spend the Bitcoins allocated to your account.

Written by TaxConnections Admin | Posted in Cryptocurrencies: How They Work