How to Track Cryptocurrency in 2020
Although at one time, cryptocurrency was considered to be the preferred medium of exchange for covert or clandestine operations, it is possible to track cryptocurrency. Crypto news today recommends that you keep records of when you acquire cryptocurrency, for what purposes you use it, and if you sell it.
Not only does it help keep your bookkeeping straight, it helps when your country expects you to pay taxes or account for your financial situation.
Not only is it possible to track your computer-generated currency, such as Bitcoin or its many imitators, you should maintain meticulous records not only of how and when you acquire it, but also its value at the time of any given transaction.
Software Solutions for Tracking Currency
- CoinTracker: A well-known software solution for keeping track of your cryptocurrency. It will record purchase price or value at acquisition, and subsequent exchanges.
- Coinbase: Acts as a virtual wallet for transactions, while keeping track of coin values and exchanges.
- Chainalysis: Used to track behavior of cryptocurrency, especially between wallets where the owners are suspected of criminal activity.
Why Track Crypto?
There are a variety of reasons to track your cryptocurrency. One of the most cogent for many businesspersons or individual investors is to remain complaint with your local tax laws, and to prove that you are not part of a money laundering or some other type of criminal behavior.
Another is to properly credit or debit your account or wallet when you make a cryptocurrency transaction. Such transactions might include earning the coins by mining or by purchasing them, using coins to buy goods or services, or selling the coins to realize capital gains.
Anonymity vs Pseudonymity
Most types of cryptocurrency are generated through a blockchain process referred to as “mining.” Due to the nature of the “mining”, blockchains do keep track of who has earned the coins and with subsequent transactions.
This is essential to prevent coins from being spent twice or not being properly credited to an account. Dig deep enough and there will be some sort of record of cryptocurrency exchanges.
The accounts might be numbered, a pseudonym might be used, but almost all mediums of exchange require some record keeping. Therefore, owners of cryptocurrency are never completely anonymous. There must be an identifier of some sort for both sides of an exchange.
The IRS and Cryptocurrency
In the United States, the Internal Revenue Service has chosen to treat cryptocurrency, such as Bitcoin, as property rather than currency.
Therefore, it is subject to the same rules as would affect real estate, art collections, or similar items. For example, if you sell it for more than you gave for it, you will need to pay taxes on it.
You can subtract the cost of mining from its value at the time of acquiring it through mining. If you use it to purchase goods or services, it is at that time subject to capital gains or losses, just as if you had sold it.