Before money was invented, people bartered for goods and services. From there, coins were created with the most common being gold and silver. Coins evolved into paper bills and then credit and debit cards. Online payments evolved as an exchange type with the growth of ecommerce. As of 2009, cryptocurrency came into play as our first virtual form of currency.
Bitcoin and Ethereum are two of the most popular versions of cryptocurrency, but there are more than 5,000 different cryptocurrencies in circulation. Bitcoin is the most widely traded and Ethereum the world’s second-largest cryptocurrency. Each cryptocurrency is known to have different advantages Ethereum’s infrastructure enables it to host smart contracts and allows users to build apps on top of its technology, making it an attractive alternative to Bitcoin.
Cryptocurrency is not a tangible thing. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.
Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger that records transactions in code and is enforced by a disparate network of computers. Everyone who uses a cryptocurrency has their own copy of this ledger to create a unified transaction record. Software logs each new transaction and every copy of the blockchain is updated simultaneously with the new information to keep all records identical.
Units of cryptocurrency are created through a process called mining, which involves using sophisticated computer hardware to solve a complex computational math problem that generates the release of new currency into circulation. Cryptocurrency can also be purchased from brokers or online exchanges.
The first step in buying crypto consists of choosing a crypto trading service or venue. Popular services include cyrpto exchanges, payment services and brokerages. Crypto exchanges are the most convenient option because they offer a breath of currencies and features for trading. These exchanges require you have a “wallet”. If you select a brokerage, you must connect their exchange with a payment option. Once all set, you can place an order. The Longmont Community Foundation has partnered with The Giving Block service to process gifts of crypto. They use the Gemini exchange to process orders and sales transactions.
The IRS classifies cryptocurrencies as property, so gifts of cryptocurrency to 501 (c)3 charities like the Longmont Community Foundation are tax deductible. Please contact your tax or financial advisor for more information.