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# Token Classification Framework: Main Types Of CryptoAssets?

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Electronic trading has recently taken over as most stock trades are now done virtually. Words like bitcoins and cryptocurrency are being thrown around, but how many people understand what these currencies are?

The framework for the classification of tokens is based on five dimensions. Understanding these dimensions forms the basis for understanding the types of cryptographic tokens and how they are used. These dimensions are purpose, utility, technical layer, legal status, and the underlying value.

## The Five Dimensions of Tokens

### Technical Layer

Tokens are implemented depending on the technical layer of the blockchain system on which it is based. Under this, we have several types of tokens including the blockchain-native tokens, non-native protocol tokens, and app tokens.

Blockchain native tokens include Bitcoin, Ether and Ethereum, and Steem. These tokens are critical to the operation of the blockchain as they form an integral component of it.

The non-native type of tokens is unlike the former because they are implemented in a crypto economic protocol rather than directly on the token. They are tracked on an underlying blockchain to which it is not integral, and an example of it is the Decentralized Oracle Protocol and the Augur.

App tokens are the other type based on the technical layer dimension of tokens, and an example is Wisdom, Gnosis, and SAFE Network.

## Purpose

Tokens can also be classified depending on their goal. Cryptocurrencies are tokens whose use is global, as they are intended to be used as “pure” cryptocurrencies. They also have the advantage of functioning as a store of value.

Another type of token under the purpose dimension is the network one. Network tokens are intended to be used within a specific system. This could be a software or an application. Examples are Gnosis, Stacks, and Blockstack.

Finally, investment tokens, just as their name suggests, are used to invest in entities or assets passively. They act as a promise of share value in an asset or a future success but have little to no significant functionality. Examples are Neufund and Digix Gold.

### Underlying Value

Even though most tokens have a monetary value attached to it, the source of this value varies. For example, asset-backed are tied to some asset in the real world, like a piece of land. Network value tokens have their value linked to the value and development of an application or network. An example of an asset-based token is GOLD and GoldMint while Ether and Ethereum are examples of network value tokens.

### Utility

What is the usefulness of a particular token? How does the token provide utility to its users? The ways to provide utility can be by giving one access to a digital service or by allowing the user to actively contribute to a work system. Usage tokens give access while work tokens give one the right to participate in a system.

Hybrid tokens are another subdivision under utility, and they provide the user with both access and the right to contribute to a system.

### Legal Status

The jurisdiction of a token in a country is dependent on the regulations on electronic trading. As such, tokens can be divided into utility, security, and cryptocurrencies. What can be defined as a cryptocurrency in one country may be a security token in another. Cryptocurrencies can be used as a store of value and medium of exchange while security and utility tokens may not necessarily have the same characteristics. As tokens are a relatively new medium of exchange, some countries may not have regulations regarding them.

The classification above should help one understand how cryptocurrencies are used and how they are valued.

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# Initial Coin Offering Investing: Top 7 ICO Research Factors To Study Before Buying

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### 2. Transactions Are Traceable And Untraceable

Depending on who you ask and how much information you know. Bitcoin has a public permanent blockchain ledger that details how much a bitcoin wallet or public address is holding.

But, that’s all the information there is about that. You cannot find an associated name, address or phone number of the individual. Now you understand why we said it can be both traceable and untraceable at the same time.

Before anyone can determine your public address, they’ll need to know that it’s your first. That’s the only way they can determine that you own the wallet. This is how the FBI caught the founder of Silk Road, the world’s erstwhile biggest online drugs market.

### 3. Bitcoin Mining Is Getting Harder

Some people prefer mining bitcoin as a means of generating passive income. In the heydays, that used to be a moneymaker. Nowadays, not so much.

Because there’s a limit to the amount of bitcoins that can be in circulation -21 million- it’s getting harder to mine bitcoins. As a result, you have many people jumping ship and mining other less limiting cryptocurrencies.

Eventually, chances are people would mine that amount of bitcoins, resulting in max supply. When that happens, bitcoin mining as an income generating strategy will be retired.

### 4. 10,000 BTC For Two Pizzas

One of the most popular facts about bitcoin is, about a year after it was created, someone paid 10,000 BTC for two pizzas on May 22, 2010 –this is why Bitcoin Pizza day is marked on the same date every year.

### 6. Bitcoin’s Network Is Incredibly Powerful

You know how the world’s best supercomputers are thought of as something of a legend? Well, turns out bitcoin’s network is 500 times more powerful. This is because the network has a computing power of 2,046,364 Pflops/s. This is more power than 500 of the world’s fastest and most powerful supercomputers.

### 7. Transactions Are Irreversible

Here’s why you need to be careful about the address you’re sending money to. If you send some funds to the wrong address, you better pray real hard that the receiver is kind enough to send your money back.

And if you send it to a nonexistent address, your funds are gone all the same. In conventional payment networks, you just have to request a refund if you send money to a wrong account.

With bitcoin, that money is gone. And it’s worse because there’s no way to reach the receiver because, that information is not public at all. So, be careful with sending funds.

### 8. Bitcoin Investment Can Be Financially Rewarding

Early adopters of bitcoin made a fortune from the cryptocurrency. Even those who invested early 2016, made at least 6 times their money. The returns from bitcoin is singlehanded responsible for the term “cryptomillionaire”, as it has made quite a few guys millionaires.

If you bought just 100 BTC in 2013 for about $400, that 100 BTC would be valued at$750,000 today. And if you had sold in December, that’d have been an easy $1.8 million. While the cost of getting into bitcoin is pretty high now, it still has the potential to grow over the next few years. There are speculations that it could it the$100k mark within a few years.

So, if you’ve got the cash, bitcoin is still the most financially rewarding and stable cryptocurrency to invest in.

### 9. Lost Wallets Are Irretrievable

Retrieving lost wallets is almost impossible. The same goes for losing your private keys or password. There’s no way to request a password reset or get your private keys back.

This is why you need to keep your private keys, passwords and wallets safe. Many people who bought bitcoins in the early days and promptly forgot about it, or were unable to retrieve their details have regretted that decision.

Don’t be one of those people. Keep those wallets really close.

### 10. Costs Nothing To Send Funds

You know how you would have to pay some fees to send funds through your conventional financial institutions?

Well, that’s nonexistent with bitcoin transactions. You can send any amount of bitcoins you want without paying a dime in network fees. Now, sending funds was really fast in the past –more like instant.

But with the increased transaction volumes, your transactions can take some time to reflect.

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# Cryptocurrencies Taxes Guide: How Bitcoin & IRS Reporting Works?

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Tax season is right around the corner. That means, filing taxes, lots of paperwork and everything that makes us all dread the tax season. As if it’s not enough that you already have to deal with so much, you now need to worry about the role that cryptocurrencies play in your taxes.

For many people, the question often is, are cryptos taxable?

Should I include them when I’m filing my taxes?

Does the IRS even recognize cryptos as an investment or financial instrument, considering that even the SEC hasn’t really decided on what to make of it?

Well, the answer is yes, unfortunately.

You see, the IRS has determined that cryptocurrencies are in the same category as property. The document outlining this is the Notice 2014-21, which is accessible on the IRS website.

In summary, the document highlights the IRS’s recognition of cryptos as property and refers to it as a Convertible Virtual Currency. This means that it can be exchanged for FIAT currencies like the dollar.

What they didn’t highlight however, is how to go about filing the taxes for cryptos. It is assumed that the process will be in a manner similar to that of properties.

Whatever the case, the IRS considers every action involving the buying, selling and exchange of cryptocurrencies as taxable events. So, if you were to buy some Tether (USDT) with cash, that’s a taxable event.

If you exchange that for Ethereum (ETH), that’s another taxable event. However, if you move the Ethereum from the exchange e.g. Binance to your personal Myetherwallet, that’s not considered a taxable event.

Bottom line, any FIAT to Cryptocurrency or Cryptocurrency to Cryptocurrency exchange you make within a fiscal year, will be taxable. So, as long as it implied reward of some sort –whether you profit from it or not is moot- you will pay taxes on it.

However, if you hold it in keeping without selling or exchanging, you will not be taxed –this is even more so when you move from one of your wallets to another.

### So, How Do You Determine How Much To Pay The IRS?

Well, since cryptocurrencies are taxed pretty much the same way as your property, assets, investments, stocks or bonds, you will need to factor in your capital gains and losses before paying the taxes.

This means that to determine the correct amount you need to pay, you’ll have to first determine the following:

• Date of initial cryptocurrency purchase or exchange
• The exact costs involved in the transaction (this also includes any costs, charges or fees accrued in the process; not just the cost of the cryptocurrency you purchased)
• Date of cryptocurrency exchange for cash or sale
• Exact price at which cryptocurrency was sold and total income/revenue from the sale (this also includes charges and fees)

While it’s true that tracking your trades might be somewhat overwhelming particularly if you do a lot of trading, the reality is this might be one of the best ways to protect yourself from the IRS.

The IRS will not accept negligence or ignorance as an excuse. So, you should actively seek to document all your trades. Also, there’s the added advantage of tax reports provided by certain exchanges.

These exchanges understand that there could be tax problems associated with their traders’ accounts. So, they have taken the initiative of making tax reports of their trades available on the exchange. Check your exchange to see if they offer such services –usually comes free of charge too.

### How About Capital Gains and Losses For Taxes?

When it comes to cryptocurrency tax filings, there are different types of gains and losses. For the capital gains, there’s the

• Short term gains
• Long term gains

Short term gains are usually placed in the same category as income. So, whatever you make from your trades will most likely be subject to tax at your current tax bracket. Long term gains however, are taxed differently, and are usually lower than your short term capital gains. Long term capital gains often refer to the profits you make from “hodling” your cryptocurrency.

So, if you bought 10 ETH when it was priced at $7.95 in November 2016, and then stored it until December 2017, when it was valued at over$1,300, you will pay taxes on the profit made from holding the cryptocurrency. In this instance, that would be the $1,292.05 you made per ETH after subtracting the$7.95 from the $1,300. Losses on the other hand is how much you lost from the investment. If, using the earlier example of 10 ETH, you bought at$1,300 in December 2017, and sold recently at $800, your capital losses would be valued at$500 per ETH.

You’ll need to report this too in your tax filing and deduct it from your taxes. Please note however, that you can only claim up to \$3,000 in losses.

Also, with the Tax Cuts and Jobs Act kicking in this year, this might be the last time to claim tax losses on property –remember cryptocurrencies are categorized as property. So, if your ethereum wallet was hacked or you lost your cryptocurrency, this is the right time to claim those losses. You won’t get that opportunity in 2019.

## Cryptocurrencies Taxes Guide Conclusion

If you had a great year with cryptocurrencies last year, chances are you might be tempted to completely skip the inclusion of your cryptocurrency gains and proceeds from your tax declarations and filings.

Well, we wouldn’t recommend that. The IRS is pretty serious about cryptocurrency proceeds tax as evidenced in their requisitioning of date from Coinbase. It’s only a matter of time before they do the same for all other popular exchanges. Once they do, you could potentially be in trouble.

It’s best to just file the taxes and be done with it. Better to be free and solvent so you can take advantage of the opportunities that 2018 will present, than be in jail because you omitted your crypto portfolio.

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