The cryptocurrency industry has its own vernacular. If you plan to buy or sell crypto, it is important to know the definitions of key terms, like blockchain and mining.

A comprehensive cryptocurrency glossary can be found below.

Bitcoin - A digital currency created for use in peer-to-peer online transactions. One of the largest cryptocurrencies in the market, Bitcoin can be used as an alternative payment method, accepted by several major companies such as Microsoft, Whole Foods, and Home Depot.

Blockchain - A digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network. The sequence of the blocks periodically grouped together in a block of recent transactions in the network.

Coins/Tokens - Cryptographic assets can be described as either tokens or coins. The difference between these two is based on the asset’s functionality but in practice the terms can be used interchangeably.

Cryptocurrency - Any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.

Cryptography - The enciphering and deciphering of messages in secret code or cipher and the computerized encoding and decoding of information. Cryptography is the mechanism for securely encoding the rules of a cryptocurrency system.

Earnings Management – Manipulation of accounting numbers and structuring transactions to mislead or influence outcomes depending on accounting numbers.

Fiat Currency - Paper money or coins which have little or no intrinsic value in themselves and are not convertible into gold or silver but are made legal tender by order of a government. Most modern paper currencies, such as the Euro or U.S. dollar, are fiat currencies.

Mining - The activity or process of searching through large amounts of information for specific data or patterns. Mining is a process where a miner solves a transaction puzzle and publishes a block which contains a proof-ofwork and other miners verify the solution.

Miner - Miners are individuals who solve computational problems allowing them to put transactions securely on the blockchain and receive the block reward and a possible fee attached to those transactions.

Nonfungible Token (NFT) - An NFT is a unique digital identifier that is recorded using distributed ledger technology and may be used to certify authenticity and ownership of an associated right or asset. Ownership of an NFT may provide the holder a right with respect to a digital file (such as a digital image, digital music, a digital trading card, or a digital sports moment) that typically is separate from the NFT. Alternatively, NFT ownership may provide the holder a right with respect to an asset that is not a digital file, such as a right to attend a ticketed event, or certify ownership of a physical item.

In Notice 2023-27 (March 2023), the IRS announced the Service’s intention to issue guidance related to the treatment of certain nonfungible tokens (NFTs) as collectibles under IRC Sec 408(m), which would then prohibit NFTs from being eligible as an IRA investment. The distinction also affects whether the collectibles capital gain tax rate of 28% will apply to an NFT. If the NFT’s associated right or asset is a Code Sec. 408(m) collectible (for example, an NFT that certifies ownership of a gem), then the NFT is treated as a collectible. Similarly, if the NFT's associated right or asset is not a collectible (for example, a right to use a plot of land in a virtual environment), then the NFT is not treated as a collectible. If the NFT's associated right or asset is a digital file, the IRS would apply a look-through analysis by asking whether the digital file constitutes a "work of art" under Code Sec. 408(m)(2)(A). If it does, the NFT would be a Code Sec. 408(m) collectible.

Stablecoins

How do Stablecoins Maintain Their Value? - Stablecoins are a type of cryptocurrency that seeks to maintain a stable value by pegging their market value to an external reference. This reference could be a fiat currency like the U.S. dollar, a commodity such as gold, or another financial instrument. The primary goal of stablecoins is to provide an alternative to the high volatility of popular cryptocurrencies like Bitcoin (BTC), which can make these digital assets less suitable for common transactions.

Why Are Stablecoins Important? - Stablecoins play a crucial role in the cryptocurrency ecosystem due to their stability. Cryptocurrencies like Bitcoin and Ether offer numerous benefits, such as not requiring trust in an intermediary institution to send payments anywhere and to anyone. However, their prices are unpredictable and can fluctuate wildly, making them challenging for everyday use. Stablecoins aim to tackle these price fluctuations by tying the value of cryptocurrencies to more stable assets, usually fiat currencies. This stability aims to maintain their value over time and encourages their adoption in regular transactions.

There are primarily three types of stablecoins:

Staking - Staking is when an individual pledges their cryptocurrency toward helping validate transactions on the blockchain. The incentive for staking is earning rewards. Staking rewards are a kind of income paid to crypto owners who help regulate and validate a cryptocurrency’s transactions. In that sense, staking rewards are like a dividend or interest on a savings account but with much greater risk.

The IRS has issued a revenue ruling on when cryptocurrency staking rewards are income and in what year the income is included in the staker's gross income. (Rev Rul 2023-74, 2023-33 IRB). A cash-basis taxpayer must include in gross income the fair market value of the rewards in the tax year in which the taxpayer gains dominion and control over the rewards. The FMV of the rewards is determined as of the date and time the taxpayer gains dominion and control over the rewards.