Chainlink is a decentralized oracle network that provides information that certain smart contracts need to perform their designated functions.
Smart contracts are blockchain-based, decentralized virtual agreements that can execute automatically when certain conditions are met. They are computer protocols designed to enforce, verify or apply an agreement. These digital contracts can automate contractual agreements while getting rid of the need for lawyers, notaries and other related services.
Chainlink gathers information from a decentralized network of information providers referred to as oracles. To ensure that the data is accurate, each oracle stakes a certain amount of collateral. If the oracle provides inaccurate data, it will be forced to forfeit that collateral. In this way, oracles are monetarily incentivized to give information that accurately reflects what’s happening in the real world.
Oracles have become a useful tool in the decentralized finance (DeFi) space, as much of DeFi is powered by smart contracts that need to source their prices from a decentralized place. This might be one factor that has led to the continued rise of coins like LINK.
Related: What is the Ethereum virtual machine?
What is the Chainlink Network?
Chainlink provides real-time price data to smart contracts. The smart contracts in question then use the data to perform some other function — swapping one token for another, for example.
LINK was launched in 2017. The idea came from a previous project of its parent company, SmartContract.com. They had once tried to develop an oracle solution for blockchains but failed to do so in a decentralized manner. Centralized oracles are thought to be unreliable because if they source false data, it will be recorded in the blockchain and there will be no way for anyone to fix it.
Blockchains are designed to get their data from on-chain information. This makes them more secure and tamper-resistant. But sometimes, smart contracts require off-chain data from the real world. Things like fiat currency exchange rates or any other external type of data can only be integrated on-chain through oracles like Chainlink.
What is LINK Coin?
Chainlink crypto (LINK) is used to keep the network running smoothly. LINK is intended to provide an incentive for those who participate in the Chainlink network to source reliable data. This helps ensure that the smart contracts being fed Chainlink information will receive accurate data.
Smart contracts can use LINK to pay for the information they need, and oracles can use LINK as collateral. There are 1 billion LINK tokens total. They exist as ERC20 tokens on the Ethereum blockchain.
Chainlink Price
As of early November 2021, LINK was the 15th largest cryptocurrency by market cap, according to data from Coinmarketcap.com. The price was around $33, triple its $11 price at the start of 2021. The all-time record high LINK price was $52.19, reached on May 8. In September 2017, about the time the project launched, the LINK coin price was less than $0.17.
LINK can be traded on exchanges, where traders try to buy low and then sell higher later to make a profit. It’s important to be mindful of crypto rules and regulations and cryptocurrency taxes when trading.
Programmers also use Chainlink crypto to fund the oracle-driven information that powers some smart contracts. If someone wants to create a decentralized way for people to swap one cryptocurrency with another, as with Kyber Network (KNC), for example, they need real-time data on what the appropriate exchange rate would be. This information comes from oracles like Chainlink.
Should You Invest in LINK Coin?
Altcoins are generally considered to be speculative investments that carry high risk. There are few other investments available to the average person that carry greater risk and volatility.
If an investor has done all the research necessary to understand what the Chainlink cryptocurrency is, how it works, and what it was designed for, then those with the necessary capital and risk tolerance might choose to take a chance on LINK. But as always, it’s common investment wisdom to never risk more than you can afford to lose.
Benefits of Investing in LINK Coin
One potential advantage that could work in Chainlink’s favor is that the network tends not to compete with other types of cryptocurrency. Instead, it helps to add value to other projects, particularly those in the DeFi space.
While there are other oracle networks out there, and likely will be more in the future, Chainlink is currently among the most well-known and trusted brands in this area. Should they continue to be a leader in the ecosystem, the LINK token might potentially see increased growth and adoption.
Disadvantages of Investing in LINK Coin
The drawbacks of LINK are largely the same as those of other altcoins. Volatility can be extreme and liquidity might not always be there when traders need it most. Competing projects could arise and see faster adoption, at which point Chainlink crypto could become irrelevant.
It’s also worth noting that thousands of altcoins have failed in the past for various reasons, with their values dropping to zero.
How to Buy LINK cryptocurrency
Buying LINK is not unlike buying any other cryptocurrency. Here is a simplified rundown of the basic steps.
- Create an exchange account. After learning how crypto exchanges work, an investor will want to create an account with an exchange that offers trading for the Chainlink cryptocurrency. Many prominent exchanges trade Chainlink, including Kraken, Coinbase and CEX.io.
- Deposit either Bitcoin or some fiat currency, depending on what trading pairs the exchange has available. Buying crypto directly with a credit card is also an option on many exchanges, although this tends to incur higher fees (not only from the exchange — credit cards often treat crypto purchases as a cash advance, which comes with additional fees).
- Buy LINK. Simply select the trading pair that includes LINK and the currency held in your account. For example, if a user had Bitcoin and wanted to buy LINK, they would select the pair called “BTC/LINK.” If they had dollars, it might be “USD/LINK.” For a stablecoin like USDC, it might be “USDC/LINK.” Enter a buy order for the desired amount of coins at a desired price.
Alternatively, on exchanges that include order books in the user interface (like Binance), simply select the sell order (sometimes called an “ask” order) with the lowest price and buy from it.
After having acquired LINK tokens, advanced users may want to consider moving their crypto off of an exchange and into a hardware wallet that supports LINK. This method of crypto storage provides additional security for long-term holdings.
The Takeaway
Decentralized oracle networks like Chainlink are designed to provide a trusted decentralized source of information for smart contracts. For investors, LINK token is just one more potential cryptocurrency they might decide to trade.
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC. SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA, the SEC, and the CFPB have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Crypto taxes 2021: How to pay taxes on cryptocurrency
Over the past decade, cryptocurrency has slowly but surely become one of the hottest investments on the market. While many people were initially skeptical of crypto’s staying power and appeal, the rise of cryptos like Bitcoin has caught the attention of an increasing number of investors. But the IRS is also homing in on crypto taxes—and it’s important that investors know the basics regarding how to file and how to pay taxes on cryptocurrency.
Unfortunately, the IRS doesn’t exactly make it easy to understand how to calculate crypto investors’ tax liability, so a lot of the responsibility to get it right lands on the individual investor.
Of the 6 things to know before investing in crypto, the fact that crypto is taxed is right up there on the list. Read on to learn all you need to know about crypto taxes, including how to file and pay taxes on cryptocurrency.
Related: Guide to taxes and cryptocurrency
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There are many rules and regulations governing crypto, but the most basic thing to understand is that crypto investors are required to report their holdings and gains to the IRS when they file their taxes.
The IRS views cryptocurrencies (which it refers to as “virtual currencies”) as property. Not currency. And because of that, Uncle Sam wants to know what you’re holding, and many crypto holders will have tax liabilities . PDF Fileassociated with their holdings.
As they would with any other property they might own, crypto holders who purchased crypto like a stock or other asset will need to keep track of their crypto transactions. They’ll also need to report the value of their holdings (in U.S. dollars) on their tax filings.
One caveat: cryptocurrency received as a gift or a transaction, or that is mined, is instead treated as income by the IRS, and taxed accordingly.
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In many ways, investing in cryptocurrencies like Bitcoin is similar to investing in other assets, like stocks or bonds. Likewise, taxes are determined in similar ways.
For instance, when an investor buys and later sells a stock, they have a tax liability on their realized gains. They made money, or income, from the sale, and now owe taxes against that income. It’s a similar situation when it comes to tax on cryptocurrency.
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Here are some situations in which crypto investors will generate a tax liability on their holdings:
- Cryptocurrency is sold for cash: If you made a profit, that’s a capital gain. Depending on how long you held the crypto before selling, it would either be a short-term or long-term capital gain.
- Cryptocurrency is used to purchase a good or service: Technically, here you are selling your crypto for dollars, then using the dollars to pay for a good or service. In the selling, capital gains taxes may apply.
- Converting one cryptocurrency to another (exchanging cryptos): Converting or exchanging one crypto for another is selling the one to purchase the other. As a result, you may have to pay tax on the sale of the first crypto.
- Being paid by an employer in cryptocurrency: Even if you get paid in crypto, it will get taxed as income.
- Mining cryptocurrency: Proceeds from mining are typically taxed as income. It’s also possible for some miners to be taxed as a business.
- Crypto is acquired via an “airdrop” or “hard fork”: In the event of a hard fork that results in new coins, those new coins are taxed as income.
Make no mistake about it, if a return is generated—positive or negative—or some type of income is realized from holdings, your crypto will need to be reported to the IRS. This is why it’s important to keep track of any and all crypto transactions.
Many crypto exchanges will keep track of an investor’s transaction history (like a brokerage would with stocks). But it’s not a bad idea to make individual notes, too. Or, if you’re not quite sure what to do, consult a professional.
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When it comes to filing and paying taxes on cryptocurrency, here are the steps that should be taken.
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Reference the list of above to check if any of your transactions may have generated a tax liability. If so, it’s likely you’ll have a return to report to the IRS.
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These will need to be reported on your tax return (your exchange can likely provide these in a document for you.) This is a paper trail for the IRS to follow.
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The IRS requires specific forms depending on the activity an individual has conducted with their crypto. That could include making calculations on Form 8949 and then reporting the results on Schedule D of Form 1040 , which outlines and summarizes capital gains or losses. Or, Form 1099-MISC , which is used to report income from rewards if the amount exceeds $600 for the year.
If you do owe taxes as a result of your crypto investing activity, you can pay the IRS directly. But since crypto taxes can be complicated, don’t be shy about reaching out to a professional for help.
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When it comes to lowering your crypto tax liability, many of the same strategies that are used against traditional investments, like stocks, apply to crypto holdings. Here are a few examples:
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The buy-and-hold strategy is simple: The longer an investor holds on to their crypto, the lower their potential tax bill when they do eventually exchange it for cash. If it was held for a year or longer, then long-term capital gains tax rates apply On the other hand, if the investor sells their crypto after holding it for less than a year, then short-term rates apply
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If a loss is realized on a crypto holding, it can be used to offset the gains made on other holdings. This is called “tax-loss harvesting,” and is a common tactic used to lower tax liabilities on other investments. Investors can use tax-loss harvesting to offset as much as $3,000 in non-investment income.
One thing to keep in mind, though, is that if crypto is somehow stolen or lost, investors are out of luck. They won’t be able to apply the loss against their gains to lower their liability.
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The IRS classifies crypto as property, and property donations are tax-deductible and not subject to capital gains taxes.
Here’s how this might work in an investor’s favor: If an investor bought a Bitcoin for $10,000 and it now has a value of $35,000, they would owe capital gains taxes on that $25,000 gain. By donating it, they can avoid those capital gains taxes and also take a deduction “generally equal to the fair market value of the virtual currency at the time of the donation if you have held the virtual currency for more than one year,” according to the IRS.
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Depending on the circumstances, crypto may be taxed as income, or as property.
Cryptocurrency taxes are very real, as are the consequences of ignoring tax liabilities. There are stiff penalties for people who are caught avoiding or otherwise failing to report investment income.
But by keeping track of your crypto holdings and transactions, managing your cryptocurrency tax liabilities shouldn’t be too difficult. As always, you can and should contact a professional if you feel like you’re in over your head.
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB . PDF File, have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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