After nearly a decade under the surface, cryptocurrency has rocketed into the mainstream consciousness of consumers, financial institutions and governments. Whether it’s Bitcoin’s staggering—and stabilizing—value, the Ethereum blockchain powering next-generation art, or the growing appetite of everyone from financial titans to superstar athletes to add cryptocurrency to their asset mix, it’s clear that crypto is here to stay.
With that in mind, these are six of the most vital things to know about cryptocurrencies right now, from Bitcoin’s impact on the environment to how regulators are starting to mature their thinking around crypto. But given how fast the industry is moving, these six trending storylines are only the tip of the crypto iceberg.
CoinDesk, a media platform for the next generation of investors, has been reporting on this evolution of the global financial system since 2013. And for those eager to dive into the latest in decentralized finance, central bank digital currencies, NFTs and more, the publication will host the most anticipated crypto and blockchain event of the year. Consensus by CoinDesk, on May 24-27, 2021, will host more than 10,000 attendees at thought leadership panels, educational workshops, networking experiences and more to immerse you in the big ideas disrupting digital finance and decentralization today. If you’re interested in learning more, register for Consensus now (or for CoinDesk’s free event, Unlocked 101).
From lead blocker to leading in blockchain
In 2019, Carolina’s offensive lineman Russell Okung tweeted, “Pay me in Bitcoin” — an appeal that was met with equal parts curiosity and skepticism. Eighteen months later, Okung announced that he would be “paid in bitcoin,” converting half his paycheck using the startup Zap Strike to do it.
Okung’s interest in how cryptocurrency could potentially serve professional athletes better than fiat currency goes deep. He penned a 2019 op-ed for CoinDesk outlining how valuable Bitcoin and other cryptos can be to athletes like him. “As leaders, we have so much more to offer society than a few hours of weekly entertainment,” Okung writes. “I am hungry for long term, sustainable solutions that can demonstrate that our economic power is not only real, but vastly undervalued and overlooked.”
Now other organizations and players are following Okung’s lead, with reports of one athlete converting their entire 2021 salary in cryptocurrency and another receiving a mix of cryptocurrencies as payment for an endorsement deal for a cryptocurrency investment app. Sacramento’s professional basketball team has offered to pay players in Bitcoin, furthering their reputation as one of the most crypto-friendly teams in sports. Dallas’s basketball team and Oakland’s baseball team have also seen the promise of crypto being an option for consumers: Both organizations are allowing fans to buy suite tickets using crypto like Bitcoin and Dogecoin.
Art in the age of cryptocurrency
One common misconception about non-fungible tokens (NFTs) is that they’re akin to owning a piece of digital art stored on the actual blockchain. But storing an image or video file on the blockchain would be prohibitively expensive and resource-consuming. When you win an auction for your favorite gif or meme, what you’re actually being issued is a token that contains metadata about the location of that “original” image.
The market for NFTs is booming, and everyone from Twitter CEO Jack Dorsey, celebrity Paris Hilton, and whistleblower Edward Snowden wants in. Beeple sold his decade-long digital art project “The First 5000 Days” for an eye-watering $69.3 million in Ethereum, shattering the Christie’s auction house record for both the price of an NFT sold at auction and the price for a sale made in cryptocurrency. A month later, Sotheby’s dipped its toe in the market and sold its first NFT by the artist Pak for $16.8 million.
Are the recent headline-making NFT sales a frothy market finally boiling over, or a sign that a new strain of art was finding legitimate footing in a mainstream marketplace? It’s increasingly looking like the latter scenario is coming to bear. Entire marketplaces, platforms and security infrastructures are being set up to support the NFT market, and major investors as well as blue chip venture capital funds are investing millions in NFT platforms like OpenSea and SuperRare.
Vitally, NFTs are also opening a new, more democratic door between artists and patrons, where supporters can have a direct hand in realizing the vision of their favorite musician, designer, or fine artist. Musicians are looking at NFTs as a way to deepen their connections with fans, while fine artists in countries like Nigeria are able to access a global marketplace for their digital work. Whether an NFT price ever reaches the lofty heights of Beeple’s work again doesn’t really matter; they’ve already transformed the creative world.
Why banks are finally embracing crypto
The relationship between the old-school financial institutions and disruptive potential of cryptocurrency has long been icy. But recently, there’s been a thaw. Part of the detente can be credited to consumer demand: There is a growing population of investors that want cryptocurrencies as a part of their portfolios and banks need to field those requests or risk losing high net-worth clients. But banks are also realizing that blockchain can provide some massive operational upside when it comes to security and verifying transactions.
There’s also a small but growing number of federally chartered banks that specialize in digital assets, an encouraging sign that may open the door for a more streamlined crypto banking infrastructure. (A federal charter means that banks focused on cryptocurrencies won’t have to apply for charters on a state-by-state basis to do business.) Legacy institutions around the country are learning that they need to adjust to the realities of a digitized economy, or risk losing crypto savvy customers in the process.
Cryptocurrency and the environment
There’s no way to talk about cryptocurrency without discussing Bitcoin’s impact on the environment. Bitcoin takes a massive amount of energy to mine, and a recent CoinDesk report estimates that Bitcoin makes up 0.58 percent of global energy consumption. CoinDesk suggests that the energy used to mine it is better thought of as a proportion of a country’s energy consumption. According to the same CoinDesk report, Bitcoin mining accounts for 0.23 percent of the United States’ total energy use, slightly less than the amount video games consume and a fraction of what activities like commercial lighting or building ventilation requires.
CoinDesk Research also found the energy mix driving Bitcoin mining operations is significantly more reliant on renewable sources of energy than major industrial economies; 39 percent of Bitcoin mining was powered completely by renewable energy sources, a higher rate than the US, UK, Japan, France, and Mexico. Additionally, powerful voices in the Bitcoin and cryptocurrency community have been adamant about making crypto more sustainable, and several leaders in the industry have joined the Crypto Climate Accord which aims to power all cryptocurrency mining operations on renewable energy by 2025.
Cryptocurrency goes to Washington
Even as Bitcoin and other cryptocurrencies have risen in popularity and become accepted global currencies, governments have been slow to craft a regulatory structure around them. That’s beginning to change, as the U.S. House of Representatives recently passed a bill that would finally direct the government to take a close look at how the U.S. treats digital currencies. If passed, the bill would give consumers groups, experts, and industry thought leaders the opportunity to influence the future of the regulatory structure that governs cryptocurrency.
In 2020, the U.S. Department of Justice’s Cyber Digital Task Force published an 83-page cryptocurrency enforcement framework that gave the government wide remit to act against users and exchanges. By creating a legal infrastructure that includes the perspectives of the cryptocurrency community, governments will be able to treat digital currencies like an innovative asset class rather than a potential source of friction.
The dollars and cents of cryptocurrency taxes
For tax purposes, cryptocurrencies have been treated like a “property” since 2014. That means that, much like equities or precious metals, they’re subject to capital gains taxes rather than income taxes—at least most of the time. There are certain circumstances that require you to claim cryptocurrency as income rather than property, including being paid in crypto for services or work, crypto earned as block rewards from mining, or interest earned from decentralized finance lending. You can find more activities where you might be required to file cryptocurrency holdings as income on Coindesk here.
Whichever way you claim your crypto holdings, make sure you keep good records of your activity and understand which activity is considered income and which is considered capital gains. It could mean the difference between a smooth tax season and a bumpy one. If you want to learn more, start with CoinDeks’s guide to cryptocurrency and taxes.