Table of Contents
- 1 What are the risks involved?
- 2 Value and Scope: The dawn of a new economy?
- 3 The need for Crypto Tax Software:
- 4 Popular Crypto Tax Software
What is a cryptocurrency?
Cryptocurrency is an internet-based medium of exchange that uses cryptographic functions to carry out financial transactions. It is based on block-chain technology, and its most prominent characteristic is the absence of a central entity. Usually, a central server is placed to ensure that there is no double-spending between the two parties in a payment network.
However, in a decentralized system such as this, there exists no such server. Hence, each entity in this peer to peer network (P2P) is required to have a list of all the transactions to make sure the future transactions are valid. Transactions occur when the private key of the sender signs them. Once the private key signs the transaction, it is broadcasted to the entire peer to peer network and sent from one peer to the next. If you were to send bitcoins to a friend, your private key would have to sign the transaction for it to happen.
Dealing with cryptocurrencies has always been as confusing to the Indian market. Set rules and protocols for tax on stocks and property have been in place for the market to follow, but such regulations for cryptocurrencies still seem to be as amorphous as ever. There is a massive amount of confusion and uncertainty about the current cryptocurrency laws and the introduction of possibly unfavorable laws in the future.
The reality is that the general population is more likely to buy into the hype and mainstream perception of regulation as opposed to the actual laws. The RBI had merely restricted banking access to cryptocurrency entities, but the Indian population assumed the RBI had declared cryptocurrencies illegal. Regardless, if you're profiting from cryptocurrencies, you ought to pay taxes for the same. You will need to use crypto tax software for the same.
What are the risks involved?
Any sane person is bound to ask this question, given how confusing cryptocurrencies seem to be. Cryptocurrencies have a few critical traits that are different from real-world currencies.
Once the transaction is confirmed, it cannot be reversed by ANYONE. You cannot contact your bank or any other entity to change, modify, or reverse your purchase. In other words, there exists no safety net.
Safe and Secure
The transactions may be irreversible, but they are definitely secure. The owner of the private key is the only entity that can send cryptocurrencies. However, It is impossible to hack the system due to the immensely complex cryptography system.
Cryptocurrencies or accounts cannot be traced back to their real-world identities. You receive bitcoins on addresses that are chains of 30 characters. It is possible to analyze the transaction flow but not determine the real-world identities of the accounts in question.
No need for permission
There is no centralization whatsoever, and hence, you do not need permission to use cryptocurrencies. You can download the software in minutes and send or receive bitcoins or any other currency. There is no gatekeeper.
Value and Scope: The dawn of a new economy?
Being the irreversible, pseudonymous, and secure means of payment that cryptocurrencies are, they are completely independent of political influence. This means it is impossible to prevent someone from using bitcoin (or any other cryptocurrency). The emergence of bitcoin paved the way for the dawn of a new economy. Cryptocurrencies are termed digital gold.
Cryptocurrencies constitute money that is independent of politics and promises to increase its value over time. It is not surprising that people all over the world are buying into cryptocurrencies at an ever-increasing rate to shield themselves from the devaluation of their respective national currencies, especially in Asia.
As you may have understood thus far, cryptocurrencies have their own merits and demerits and in turn, are as risky as they are rewarding. Regardless of public perception, cryptocurrencies are here to stay and irrevocably change the economy. You can decide to be a part of this revolution or stand on the sidelines and watch the action from a distance.
The need for Crypto Tax Software:
Calculating cryptocurrency taxes proves to be a tedious task for most people. Its complexity only goes up with the increase in the number of transactions. Fortunately, there exist various crypto tax software that you can use to simplify the process of paying crypto taxes. Crypto tax software can also be used to generate crypto tax reports.
Popular Crypto Tax Software
TokenTax provides one of the simplest ways to report your cryptocurrency capital gains and income taxes.TokenTax is the only crypto tax platform that supports every major exchange. For the exchanges with no imports, you can simply upload a file with your trading data, and their platform will automatically import your information.
CryptoTrader.tax allows cryptocurrency traders to calculate their capital gains or loss exposure in a matter of minutes. Their user-friendly interface makes it easy to import your trades and ensure that you are not overpaying your taxes. Their platform currently supports currencies like Coinbase, Bittrex, Gemini, Binance, and Poloniex.
CoinTracker is a crypto-asset tracker and tax reporting software. Its platform automatically synchronizes your asset balances and transactions from your exchange accounts.
Its interface displays all the digital assets you own and their associated trading history.
CoinTracker also provides a performance tracker, which provides you with a clearer picture of your crypto investment performance over a period of time.
It is one of the first and most popular tax calculators for cryptocurrency investors. Its online platform allows users to import cryptocurrency and purchase data throughout the year from a number of major crypto exchanges.