Understanding the different types of cryptocurrency transactions is among the initial steps in entering the world of crypto. You may be looking to invest in crypto, or planning to use it for sending/receiving payments, or may be curious- whatever the need may be, knowing the different transactions that take place with cryptocurrency will help you with all that. As you read ahead, you will learn more about the major cryptocurrency transaction classifications.
Mining
Mining is the first transaction of the crypto’s lifecycle. Through mining, you ‘earn’ cryptocurrency by verifying blocks of complex transactions. You are paid to solve a series of complex mathematical problems, which makes mining the only way to gain crypto without paying for it. However, mining involves significant effort and the use of very advanced and expensive hardware.
Buying crypto
Purchasing cryptocurrency requires a crypto wallet and an account with an exchange where crypto is traded. You can buy fractional amounts as well- for instance, with Bitcoin, the smallest unit you can buy is a Satoshi, a 100-millionth part of a Bitcoin. Currently, the value of 1 Bitcoin is around USD 23,113.
Selling crypto for cash
The sale of crypto for cash (USD or whatever currency you are in) happens at the currency’s fair market value at that specific point in time. Bitcoin values fluctuate frequently, and at the time of writing this, 1 Bitcoin was valued at USD 23113.50. The sale of cryptocurrency for cash has tax liabilities depending on the profit or loss incurred, the holding period, and the value of the transaction.
Exchanging crypto
You can also exchange one cryptocurrency for another (for instance, trading Bitcoin for Ethereum). At the time of writing this, you could get 39.56 Ether for 1 Bitcoin. Almost all crypto exchanges support these types of transactions.
Transferring crypto from one wallet to another
You can transfer your crypto from one wallet to another- be it your own or someone else’s wallet. This could be to transfer crypto to another wallet that you own or use it to pay someone or for virtually anything else. Moving crypto requires you to have the destination wallet address or send it via email.
Fork
In terms of blockchain, a fork is what happens when something fundamental about the cryptocurrency changes. In a soft fork, all older nodes still recognize the new transactions, but all older blocks/transactions are made invalid.
However, in the case of a hard fork, the changes made are not backward compatible, and often some community members may want to continue using the older rules. This leads to a split in the cryptocurrency, similar to what happened with Bitcoin and Bitcoin Cash. For every Bitcoin held by a person, 1 Bitcoin Cash was also given after the hard fork.
Classification in ACCOINTING.com:
- Add Funds: Money that was transferred into your portfolio from your bank.
- Airdrop: An asset that was received for free to promote awareness of the asset.
- Bounty: An asset that was received for completing minor tasks, such as watching an ad or completing a survey.
- Fee: An asset that was used strictly as a fee charged for the transaction.
- Gambling Income: An asset that was received as income from gambling.
- Gambling Used: An asset that was used for gambling purposes.
- Gift Received: An asset that was received as a gift with no action or payment in return.
- Gift Sent: An asset that was used to send as a gift with no action or payment in return.
- Hardfork: An asset that was received when an asset migrated to a new contract address.
- ICO: An exchange of one asset for an upcoming asset that is about to be released.
- Ignored: A transaction that should be ignored on our platform. Works the same as deleting the transaction but prevents it from being re-imported.
- Income: An asset that was received as income for work completed.
- Interest Paid: An asset that was used to pay for the interest of borrowed funds.
- Internal: An asset that was transferred from one wallet/exchange to another, while still being in your possession.
- Lending: An asset that was used to send to a lending protocol.
- Lending Income: An asset that was received as income from lending an asset.
- Liquidity Pool: An asset that was received as income/rewards for staking your assets into a liquidity pool.
- Lost: An asset that was sent to the wrong wallet address, was stolen from your wallet/account, or you were scammed out of.
- Margin Fee: An asset that was used to pay for the fee charged when leveraging a trade.
- Margin Gain: An asset that was received as a gain in a margin trade.
- Margin Loss: An asset that was used as a loss in a margin trade.
- Master Node: An asset that was received as income from a Master Node.
- Mining: An asset that was received as income from mining.
- OTC: An exchange of assets that took place in person or over the counter.
- Payment: An asset that was used to pay for a product or service.
- Reconcile: An asset that was added to your portfolio to fix any errors of missing funds. This classification is used only for the assets that get added when fixing any missing funds errors during the review process.
- Remove Funds: Money that was transferred from your portfolio into your bank.
- Staking Income: An asset that was received as income/rewards for staking your assets.
- Swap: An exchange of assets that took place at the same time.
About Crypto Transaction Classifications
These transactions cover almost all the major types that you will see as you trade or use cryptocurrencies. It should help you get started on your crypto journey and take your first steps in the world of the blockchain! As you explore the world of crypto, you can use ACCOINTING.com for an efficient and easy to use way of reporting and managing your entire crypto portfolio. From learning how the market works to filing your taxes- visit ACCOINTING.com to do it all from a single place.