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4 Facts You Didn't Know About Cryptocurrencies

By Matthew Frankel, CFP® – Apr 17, 2018 at 6:34AM

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For example, did you know that there are almost two dozen billion-dollar cryptocurrencies now?

The cryptocurrency market is new and is evolving continuously. Because of this, there are lots of cryptocurrency facts that many people don't know -- even if they understand bitcoin. For example, do you know how many cryptocurrencies there are, or that you might have to pay federal income tax just for spending cryptocurrencies? Here are the details behind those facts, as well as a couple other cryptocurrency facts you may be interested to know.

1. There are more than 1,700 different cryptocurrencies -- and the number is growing

If you think that the cryptocurrency market is made of just bitcoin, Ethereum, and a handful of others, think again. As of this writing, there are 1,715 distinct cryptocurrencies tracked by investing.com, and there are new ones being created regularly. In fact, there were just 1,662 when I wrote an article about the largest cryptocurrencies less than a month ago.

Gold coin with bitcoin symbol.

Image source: Getty Images.

To be clear, not all of these are legitimate cryptocurrencies that serve a useful purpose or have gained any real traction, even among the most devoted cryptocurrency speculators. In fact, of the 1,715 tracked cryptocurrencies, 525 of them have market capitalizations of less than $100,000.

However, there might be more significant cryptocurrencies than you think. Consider these stats:

  • 23 cryptocurrencies have market capitalizations greater than $1 billion.
  • 120 cryptocurrencies have market caps of $100 million or more.
  • 477 cryptocurrencies have attained market caps over $10 million, and most of these have significant daily trading volume.

2. Not all cryptocurrencies are designed as payment methods

Some cryptocurrencies are designed to work in much the same way as traditional currencies like the U.S. dollar. For example, bitcoin is already regularly used to pay for goods and services, and other digital currencies such as Litecoin, Monero, and Dash are intended for the same purpose, with a few changes in how they work.

On the other hand, some cryptocurrencies -- the majority of the top 10 in fact -- aren't designed as payment currencies at all. Rather, they aim to use blockchain technology to solve other problems.

The biggest example of this is Ethereum, which is designed to use "smart contracts." For example, an Ethereum contract can allow money to be distributed only when several people agree. Ripple, the third-largest cryptocurrency, was designed specifically for the banking industry to allow efficient and quick international money transfers.

3. The value of all cryptocurrencies is $324.6 billion

This is the current market value of every created coin of the aforementioned 1,715 cryptocurrencies. And this number has fluctuated tremendously. In 2018, the overall cryptocurrency market cap has been over $825 billion and as low as $250 billion, thanks to the tremendous volatility in the market.

It's also worth mentioning that the cryptocurrency market is very top heavy. Bitcoin alone makes up 42% of the entire market cap, and Ethereum makes up another 15%. In all, the 20 largest cryptocurrencies account for more than 86% of the market.

4. You may have to pay taxes on your cryptocurrencies, even if you don't sell them

Since this article is publishing on Tax Day 2018, it's worth mentioning an interesting concept about cryptocurrencies and taxation.

First of all, as you may or may not know, cryptocurrencies are classified as "intangible property" and are subject to the same capital gains tax system as investments like stocks.

However, there's one big difference. You only have to pay capital gains tax on stock profits if you sell.

To be specific, since bitcoin and some other digital currencies can be exchanged for goods and services, you can realize a taxable profit even if you don't sell them. As an example, let's say that you bought $1,000 worth of bitcoin several years ago, and in 2018 you used that bitcoin (which is now worth much more) to buy a $300,000 Rolls-Royce. Even though you never technically "sold" your bitcoin, you exchanged it for something worth $299,000 more than your cost basis in the bitcoin, so it triggers a taxable event.

Technically speaking, this idea applies to small transactions as well. For example, if you buy a $2 soda with bitcoin you paid $1 for, the $1 difference is subject to capital gains taxes. Now, the IRS is unlikely to come knocking on your door over a $1 gain, but it is the law. Besides, a few dollars of profit here and there can add up quickly.

Matt Frankel owns Ethereum and Litecoin tokens. The Motley Fool has no position in any cryptocurrencies mentioned. The Motley Fool has a disclosure policy.

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