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 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.
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.
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.
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||Use this classification when a transaction is adding new money into your crypto portfolio. This could be when you do a bank transfer to your exchange.|
|Airdrop||Use this classification for all airdrops you receive. Tax implications are not clear yet so we let you decide in the tax report page how you want to handle the cost basis of these.|
|Bounty||Any sort of small amounts of crypto that you received for doing some work. Example: Sharing a crypto projects post, Coinbase Earn etc.|
|Fee||If a transaction sent out is a cost for sending the transaction.|
|Gambling||Funds you used for gambling.|
|Gambling Income||Money you made from gambling with crypto such as Poker, Roulette etc.|
|Gift Received||If you received crypto as a gift use this classification. Taxwise this has different implications depending on the country you pay taxes in.|
|Gift Sent||If you gifted crypto to someone|
|Hardfork||The coins you received when a chain split happened.|
|ICO||If the funds that you sent out are funds that went to purchase tokens through an ICO|
|Ignored||This classification means that this transaction will not be calculated in the tax calculations. Taxwise it just means that this transaction is not taken into account.|
|Income||If you received income in crypto use this classification. You will then be taxed income tax on this.|
|Interest Paid||If you borrowed funds and you had to pay a certain amount of interest.|
|Internal||A transfer that happened between your wallets/exchanges. With this classification, we transfer the initial buy price to whatever wallet you are sending it to.|
|Lending||Funds that you sent out to a lending protocol or are using to lend out on a centralized platform.|
|Lending Income||If you lent out your crypto and earned interest.|
|Liquidity Pool||Any sort of income you made from providing coins to a liquidity pool. Example: Uniswap LP.|
|Lost||Funds that have either been lost or where you got scammed.|
|Margin Fee||The fee that you pay when leverage trading|
|Margin Gain||Some Margin exchanges create a new deposit for the profit from a margin trade, use this classification for those “deposits”. Gains you made from trading with leverage.|
|Margin Loss||Some Margin exchanges create a new deposit for the loss from a margin trade, use this classification for those “deposits”.|
|Masternode Income||Funds you make from your master node.|
|Mined||Use this classification if a transaction was mined. Taxwise this has different implications based on the country you live in.|
|Mining||Any coins you receive from mining operations|
|OTC||Any trade that happened over the counter or peer to peer. Example: You buying or selling crypto directly to your friend, or you using an OTC desk.|
|Payment||If a transaction was a payment for a product or service use this classification.|
|Remove Funds||Use this classification when a transaction is reducing the money you have in your crypto portfolio. For example when you cash out fiat into your bank account.|
|Staked||Use this classification if a transaction was staked. Taxwise this has different implications based on the country you live in.|
|Staking||Coins that you are using to stake.|
|Staking Income||Coins that you earn during staking.|
|Swap||Any sort of token exchange that happens on a decentralized exchange|
Deposits and Withdrawals Classifications in ACCOINTING.com
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.