Types of cryptocurrencies
Bitcoin was created in 2009 by an individual or group known by the pseudonym “Satoshi Nakamoto. “1 As of November 2021, there were more than 18.8 million Bitcoins in circulation with a total market capitalization of approximately $1.2 trillion, although this number changes frequently. Only 21 million Bitcoins will ever exist, preventing both inflation and manipulation.
Competing cryptocurrencies created by Bitcoin’s success and referred to as “altcoins” include Solana, Litecoin, Ethereum, Cardano, and EOS. As of November 2021, the total value of all existing cryptocurrencies will be over $2.4 trillion – Bitcoin currently accounts for about 42% of the total.
The open-source Ripple (XRP) protocol is based on a public database and is further developed by the Ripple Labs company. The Ripple network supports all major currencies and, when finalized, will be used as a foreign exchange market and a peer-to-peer distributed payment method. The altcoin appeared in 2012 and, unlike bitcoin, is not based on the blockchain, nor can the coin be mined. The cryptocurrency has a high market capitalization, can be bought and sold on various online trading venues, and is referred to as the “Bitcoin of banks.”
The Ethereum distributed system enables the creation, execution and management of smart contracts (decentralized contracts). Just like Bitcoin, Ethereum is based on the innovative technology of the blockchain. However, Ethereum is more than just a cryptocurrency, but a global platform for distributed apps (Dapps). The decentralized contracts can be used for virtual organizations or crowdfunding, for example. The internal digital currency Ether (ETH) is used as a means of payment for transaction processing. This has the second largest market capitalization after bitcoin and appeared in 2015.
Although cryptocurrencies call themselves a form of money, the Internal Review Service (IRS) considers them financial assets or real estate. And as with most other investments, the government wants a share of the profits if you make capital gains when you sell or trade them. On May 20, 2021, the U.S. Treasury Department announced a proposal that would require taxpayers to report any cryptocurrency transaction over $10,000 to the IRS.4 Exactly how the proceeds would be taxed – as capital gains or ordinary income – depends on how long the taxpayer holds the cryptocurrency.