A Guide to Cryptocurrency Basics
In the past decade—and especially more recently with the change in presidential administration—cryptocurrency has taken a front-and-center position on the financial stage. With the potential to reshape how transactions take place, cryptocurrencies like Bitcoin, Ethereum, and others are being increasingly discussed in boardrooms, homes, and tax planning sessions. For businesses and individuals navigating the financial landscape, understanding cryptocurrency basics is becoming more than just a curiosity, it’s an essential aspect of financial literacy. Our team has created this brief primer to get you up to speed on the basics of crypto.
What Is Cryptocurrency?
Cryptocurrency is a form of virtual currency that uses digital cryptography for security. Cryptocurrencies exist on computer networks based on blockchain technology. Blockchain is a digital ledger that securely records transactions across a globally distributed network of computers that has no single controlling authority. The networked computers cross-reference transactions to ensure transparency, immutability, and security.
“Understanding cryptocurrency is becoming more than just a curiosity, it’s an essential aspect of financial literacy.”
Traditional or “fiat” currencies (such as the U.S. Dollar or the Euro) are issued by governments and derive their value from the trust and confidence in the issuing government. However, cryptocurrency valuation is determined by a complex combination of factors, including supply and demand, breadth of adoption and use, competition, speculative interest and market sentiment. For these reasons, plus other factors, such as the lack of stabilizing influence of central banks, cryptocurrency is more volatile than traditional fiat currencies.
Key characteristics of cryptocurrencies include:
- Decentralization: No single entity, such as a government or central bank, controls most cryptocurrencies.
- Transparency: Transactions are recorded on a public ledger, often accessible for anyone to review.
- Security: Advanced cryptographic techniques make it highly secure and resistant to counterfeiting.
- Borderless: Cryptocurrency transactions can occur anywhere in the world without the need for intermediary financial institutions.

Popular Cryptocurrencies
There are thousands of cryptocurrencies in existence. In fact, if you have the technical skill, you can even start your own in less than an hour using an existing blockchain platform. However, there are a handful of cryptocurrencies that have gained widespread use and influence:
- Bitcoin (BTC): The first and most well-known cryptocurrency, often considered digital gold. Created in 2009, it remains a benchmark for the industry.
- Ethereum (ETH): More than just a digital currency, Ethereum powers decentralized applications (DApps) that can be used to manage contractual agreements and other transactions.
- Ripple (XRP): Known for facilitating fast and low-cost international payments.
- Tether (USDT): Pegged to the value of a fiat currency, such as the U.S. dollar, to minimize volatility. Linked or pegged cryptocurrencies such as Tether are referred to as “stablecoins.”
How Cryptocurrency Works
Here’s a breakdown of how cryptocurrencies work using blockchain technology:
- Transactions: Using an online exchange, the user initiates a transaction, such as sending Bitcoin to another user.
- Verification: Miners or validators confirm the transaction’s legitimacy by solving complex cryptographic puzzles.
- Recording: Once verified, the transaction is grouped into a block and added to the blockchain—the master ledger.
- Completion: The recipient receives the cryptocurrency, and the transaction becomes immutable.
- Bypassing the Middleman: Blockchain’s decentralized nature eliminates the need for intermediaries like banks, speeding up transactions and reducing fees.
Why Businesses Are Taking Notice
For accounting professionals and business leaders, cryptocurrency presents new opportunities and challenges. Here’s why it’s gaining traction:
- Investment opportunities: Many businesses view cryptocurrencies as a speculative investment, hoping to capitalize on price fluctuations.
- Lower transaction costs: International transactions using cryptocurrency often incur lower fees compared to traditional methods involving banks.
- Transparency and traceability: Blockchain technology offers a clear audit trail, which can simplify bookkeeping and compliance.
- Customer demand: More consumers want to use cryptocurrencies for purchases, prompting businesses to integrate them as payment options.

Trump and Crypto
President Donald Trump is an advocate for cryptocurrency and has proposed several measures aimed at making the U.S. a crypto leader. These include:
- Creating a Strategic Bitcoin Reserve (SBR): Similar to the strategic petroleum reserve, a government stockpile of bitcoin could create a hedge against inflation and devaluation of the U.S. Dollar while diversifying the government’s investment portfolio and reducing reliance on traditional assets. Appreciation in Bitcoin value could also help reduce the federal deficit without raising taxes. Further, holding substantial Bitcoin reserves could give the U.S. commanding influence over the cryptocurrency market and reinforce the U.S. Dollar as the world’s reserve currency, a position that has been challenged by the rise of cryptocurrencies. It’s important to note, however, that the idea of an SBR is highly theoretical and untested, and it carries the potential for substantial economic risks, especially given the potential volatility of Bitcoin valuation.
- Crypto-friendly regulations: The President intends to deregulate the sector and work with the industry to create new rules that support cryptocurrency growth.
- Appointment of crypto advocates to key positions: President Trump has selected cryptocurrency supporters for important roles, including the Treasury, Commerce, and Securities and Exchange Commission (SEC) leadership.
- Promotion of crypto mining: Trump plans to expand cryptocurrency mining operations. Mining is the process of earning new cryptocurrency by using networked computers to validate blockchain transactions. While initially possible using consumer-grade hardware, mining has increased in complexity and now requires specialized equipment and significant amounts of electricity. The U.S. has emerged as a crypto mining hub, with states such as Texas, Wyoming and Georgia leading the way, thanks to favorable regulations and electricity prices.
- Supporting state-level initiatives: While federal legislation may face challenges, a handful of U.S. states are already considering legislation to establish their own SBRs.
These proposals have contributed to a surge in bitcoin’s value, reaching over $109,000 just hours before Trump’s inauguration. However, critics continue to warn of risks associated with cryptocurrency investments.
Challenges and Risks
The promise and potential of cryptocurrency is certainly exciting; however, like any investment, crypto has inherent risks that are important to understand.
- Volatility: Cryptocurrency prices can be highly unpredictable, leading to significant gains—or losses.
- Regulatory uncertainty: Governments worldwide are still developing regulations, leading to potential legal and compliance challenges.
- Security risks: While blockchain technology is secure, cryptocurrency wallets and exchanges—the platforms used to initiate transactions and store private cryptographic keys—can be hacked. Additionally, if you misplace or lose your private cryptographic keys, you lose access to your currency—it’s irrevocably gone.
- Complexity: Crypto theory and technology is complicated and challenging for the uninitiated.
Crypto and Taxation
One of the most critical considerations for businesses and individuals dealing with cryptocurrency is its tax classification. The IRS considers cryptocurrency as property, not currency, which has distinct implications:
- Capital gains/losses: Buying and selling cryptocurrency can result in taxable capital gains or losses, depending on the holding period and transaction.
- Income reporting: If a business accepts cryptocurrency as payment, it must report the fair market value of the cryptocurrency in U.S. dollars as income at the time of the transaction.
- Record keeping: Accurate records are crucial for reporting purposes, including details on the purchase price, sale price, and transaction date. For example, if a company purchases Ethereum for $1,000 and later sells it for $1,500, it must report a $500 capital gain. Conversely, if the value drops and it’s sold for $800, the $200 loss can offset other taxable gains.
“If you have tolerance for the risks and want to approach this investment frontier, do so with eyes wide open.”
Best Practices for Businesses and Individuals
Cryptocurrency is a different animal when it comes to investing. In addition to its more speculative and volatile nature, the regulatory environment and public policy surrounding crypto is still fluid, and there are as many questions as there are answers. If you have tolerance for the risks and want to approach this investment frontier, do so with eyes wide open, and consider these guideposts to help you avoid pitfalls:
- Educate yourself: Stay informed about cryptocurrency trends, regulations, and technologies. Workshops, webinars, and online resources can be invaluable.
- Consult experts: Work with accountants, tax professionals, and legal advisors who understand cryptocurrency’s complexities.
- Implement strong security measures: Use reputable wallets and exchanges, enable two-factor authentication, and keep backups of your private keys.
- Maintain accurate records: Track every transaction meticulously to simplify tax reporting and avoid penalties.
- Diversify your investments: Mitigate the inherent risks by apportioning your portfolio between various types of cryptocurrencies, including some stablecoin investments.
The Future of Cryptocurrency
Cryptocurrency is still evolving, with emerging applications such as decentralized finance (DeFi), non-fungible tokens (NFTs), and central bank digital currencies (CBDCs). As these innovations grow, so too will their impact on investment strategies and accounting practices.
We’ve arguably reached a point where understanding cryptocurrency basics is no longer optional for businesses and individuals navigating modern finance. By taking a measured approach, knowing the risks and taking thoughtful steps to mitigate them, you can stay ahead of the curve and leverage crypto’s potential as an investment vehicle. As always, consult with professionals to ensure compliance and make informed decisions.