Bitcoin hit the market in 2009, followed by Litecoin in 2011, and since then, other virtual currencies have emerged. Investors recognized the potential of these digital assets, seeing them as a viable alternative to fiat money. This led to an exponential growth of cryptocurrencies, most of which are even accepted as payment methods in some markets.
There’s a long list of advantages when transacting with these digital currencies. For starters, payments are processed faster than those that have to go through intermediaries. Every cryptocurrency transaction is recorded on a public ledger known as the blockchain. This makes it possible to track all crypto transactions and makes it impossible to use coins you don’t own, forge crypto, or reverse transactions.
On the flip side, the value of these coins fluctuates dramatically, and they are usually the target of cyberattacks. Since no centralized body regulates its activities, some individuals don’t consider it a safe option. Regardless of these downsides, cryptocurrency is still thriving. On that note, we shall explore how users avoid fees and restrictions by using Bitcoin and other digital assets.
How Crypto anonymity can hide your transactions
Cryptocurrency transactions are touted as anonymous, as it’s believed that these payments can’t be traced to a specific individual. These transactions are completed through an unknown alphanumeric string, which does not reveal the sender’s identity or contact details in any way. The question is, “Are these transactions really anonymous?”
Here’s what you should note: Typically, in order to connect to the Internet, you must present an ID that can be compared to your IP. As a result, the service provider can quickly ascertain who is behind a cryptocurrency transaction through a private WiFi connection. So, it’s safe to say that these transactions are pseudo-anonymous, not totally anonymous.
This anonymity has made many crypto investors wonder whether cryptocurrency affects credit scores. Owning or purchasing cryptocurrencies has no direct impact on your credit score, and that’s because your credit report does not contain any detailed information on your earnings, savings, or assets. Thus, you can buy, sell, make crypto payments, and even take out crypto loans without worrying about their effect on your credit score.
However, keep in mind that while the popularity of cryptocurrencies has skyrocketed in the last few years, only some industries accept crypto transactions. That said, you can use these digital assets only in markets where they’re supported.
What are the most popular transactions for utilizing crypto?
There are certain areas where these digital assets have become widely used, sometimes even more popular than fiat money. Let’s explore these markets below:
Gambling
Online casinos listed at Nongamstopbetsites.com support cryptocurrencies. Punters can use Bitcoin, Ethereum, Litecoin, Tether, and other methods to fund their accounts and cash out their winnings easily. The popularity of these digital assets on gambling sites is due to many factors, one of which is that it doesn’t affect your credit score.
Even using credit cards or bank transfers for gambling won’t directly hurt your credit score. However, while gambling transactions won’t appear on your credit report, some mortgage lenders and loan companies do look at bank statements. Some prospective lenders may not mind these transactions, but frequent or large transfers to betting sites may deter them.
You don’t have to worry about such things when using cryptocurrencies because these transactions don’t show up in a bank statement. Consequently, it has nothing to do with your credit score.
Finance
Investors who keep up with the how-tos of the financial markets consider crypto an excellent investment opportunity. Compared to conventional financial assets like equities and bonds, cryptocurrency diversifies investors. Although there is no historical data on how the cryptocurrency markets have performed in terms of equities or bonds, the values don’t seem to be associated with those of other markets.
Thus, you can get more consistent returns by mixing these assets with a low price correlation. With this, your crypto asset may increase if your stock portfolio decreases, and vice versa. Still, investors should note that if their asset allocation is too geared toward cryptocurrencies, it may make their entire portfolio more volatile.
Crypto Lending
As already mentioned, cryptocurrency doesn’t affect credit scores. This means that you can opt for crypto lending. This decentralized financial service lets investors lend their crypto to borrowers. After that, the lender receives crypto interest payments monthly, just like they would with a standard savings account. However, depending on the platform, these interests are usually higher than a standard savings account—up to 15% APYs.
Can crypto transactions increase your taxes?
The Internal Revenue Service (IRS) considers cryptocurrencies as virtual currencies that can be exchanged for real money. As such, they can be used for trading and count as a unit of account. This implies that any earnings or revenue derived from your cryptocurrencies are taxed.
First, note that if you’re just “holding” and not actively trading or investing in cryptocurrency, you won’t have to pay taxes on any gains. You pay taxes in the following scenarios:
- Suppose you sell or use bitcoin in a transaction. If its market value changes, you will incur capital gains or losses.
- Cryptocurrency payments made for commercial purposes are subject to taxation as business income.
Consider a scenario where you invested in one bitcoin at $7,000 and sold it three months later for $10,000. In this case, you would owe taxes on the $3,000 gain at the rate applicable to short-term capital gains. Your regular tax rate applies to any profits made from the sale of assets held for less than a year. Depending on your yearly income, this may range from 0% to 37%.
The long-term capital gains tax would apply if the sale occurred a year or more after the initial cryptocurrency purchase. For the 2022 tax year, that would be either 0%, 15%, or 20% of your total taxable income. So, crypto taxes are similar to taxes that apply to other assets or properties.
Final Thoughts
Now, you have a good idea of the anonymity of crypto transactions and the markets where it applies the most. You have also learned how taxes apply to these virtual currencies. With this information, you’ll better understand what markets crypto is thriving in and how to avoid fees and taxes when using these assets.
