Last updated on May 3rd, 2024 at 08:17 pm
Introduction
In recent years, there’s been a radical shift in the way we express our love and appreciation for others. Instead of traditional gifts, like flowers, chocolates, and teddy bears, people are increasingly opting for digital currencies such as Bitcoin, Ethereum, and others.
Notably, in 2021, Ethereum was the top cryptocurrency in terms of donation volume, with a staggering $30.79 million in donations. While gifting someone cryptocurrencies may seem unconventional, it can be an excellent way to introduce them to the world of digital assets or support their existing investments.
However, there’s a catch! Before diving headfirst into cryptocurrency gifting, it’s essential to understand the process thoroughly. You need to ensure that you’re gifting safely and effectively.
This article thoroughly explores the intricacies of gifting cryptocurrencies. We’ll explore the step-by-step process involved in giving digital assets as a gift and provide tips to ensure you’re doing so securely and responsibly. By the end of this read, you’ll be equipped with the knowledge needed to give crypto gifts confidently.
Explained in Simple Terms: How Cryptocurrencies Work
Cryptocurrencies are digital currencies that use complex codes, called cryptography, to secure and confirm transactions and regulate the creation of new units. They are decentralized and run independently of a central bank, which makes them different from conventional currencies since they are not controlled by a government or financial entity.
To understand how cryptocurrencies work, we need to look at the technology behind them (i.e., blockchain). A blockchain is a decentralized digital ledger that is shared among many computers. It is used to keep track of transactions between computers and is designed to be immutable, transparent, and secure.
Blockchain technology enables the transfer of cryptocurrencies from one user to another. When someone wants to transfer cryptocurrency to another person, they use a unique address called a public key. This public key identifies the user’s digital wallet where they can receive payments from other users. To verify the transaction, the user signs it with a private key that only they have access to. This private key guarantees the transaction’s validity and reliability.
Once the transaction is verified and added to the blockchain, it can’t be changed or undone. This makes cryptocurrency transactions safe and impervious to hacking. However, because of their anonymity, cryptocurrencies can be used for illegal activities such as money laundering, tax evasion, and unauthorized purchases.
Unlike traditional currencies (fiat) issued by banks, new units of cryptocurrencies are produced through a process called mining. This involves solving complex mathematical equations to verify transactions and add new blocks to the blockchain. Miners are rewarded with new cryptocurrency units as incentives for maintaining the network’s security and efficiency.
Why are Cryptocurrencies Good Gifts?
Cryptocurrencies make excellent gifts for several reasons. They offer unique advantages over traditional forms of currency, making them more versatile, easy to send and receive, secure, and potentially lucrative. Here’s why you should consider crypto gifts:
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High Versatility
Unlike traditional currencies, cryptocurrencies aren’t limited by political or institutional boundaries. They can be used to pay for goods and services anywhere in the world. This means that the recipient of a cryptocurrency gift can use it to buy anything they want from any country.
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Easy to Send and Receive
Cryptocurrencies don’t require intermediaries like banks, making it easy to send and receive money quickly. This makes them an ideal gift for people without access to traditional financial services or those in countries with weak financial infrastructure.
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Robust Security
Cryptocurrencies use sophisticated encryption techniques to protect transactions, making them highly secure and almost impossible to hack or steal. This makes them an excellent choice for gifts because the recipient can be confident that their gift is safe.
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Great Potential for Growth
Cryptocurrencies are highly volatile, and their value can change rapidly within short periods. While this poses some risks, it also presents opportunities for the recipient to benefit financially if the cryptocurrency’s value increases.
How to Send Crypto Gifts
Step 1. Select the Cryptocurrency You Want to Give.
Before gifting cryptocurrency, decide which coin to send since some platforms only support specific cryptocurrencies. While Bitcoin is the most popular, other cryptocurrencies, such as Ethereum, Dogecoin, and Ripple (known as altcoins), are also available.
Sending Bitcoin is relatively easy, as most platforms support it. However, sending a lesser-known altcoin may require prior knowledge of the crypto space and possession of a crypto wallet.
Step 2. Select the Method for Sending the Cryptocurrency
There are various methods to send cryptocurrency. The most straightforward is to use the gifting feature of reputable investment apps, cryptocurrency exchanges, or peer-to-peer payment apps. Alternatively, you can send crypto directly from your wallet to the recipient’s or create a new wallet for them and load it with funds.
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Using Payment or Exchange Apps
Coinbase, Cash App, and Robinhood are three popular platforms that allow you to gift cryptocurrencies. Here are each platform’s unique requirements and limitations:
- Coinbase
You can use a Coinbase account to send any of the 150+ supported coins. To send the gift, you’ll need the recipient’s email address, as well as one of the available greeting cards and a personalized note.
- Cash App
You can use Cash App to send Bitcoin (BTC) to someone’s email address, phone number, or Cashtag. You can send at least $1 or 0.00001 BTC.
- Robinhood
You can also use an approved Robinhood Crypto account linked to a bank account to gift one of the seven supported cryptocurrencies.
Several other platforms offer cryptocurrency gift cards as well. However, it is best to avoid less popular platforms.
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Using a Crypto Wallet
You may be able to send crypto directly to someone’s existing crypto wallet rather than using a third party to manage the transfer. You’ll need to know their crypto wallet address and ensure the tokens you send are on the same blockchain.
Asking for these details may ruin the surprise, so another option is to create a new software wallet or purchase a hardware wallet for them. You then load the crypto tokens directly into the new wallet. Your gift, in this case, would include the recovery phrase (key). The recipient has to trust you didn’t keep a copy of the phrase, or they will transfer the cryptocurrency to another wallet they fully control.
Step 3. Guide the Recipient in Receiving and Storing the Cryptocurrency
If you gift cryptocurrency through an app, the recipient must first sign up for the platform and may have to verify their identity before they can claim the gift.
The process is usually straightforward, but you may want to give them a brief orientation on how to use the app. If the recipient does not claim the gift within 14 to 30 days, the platform may return it to you.
If you gift a wallet with cryptocurrency in it, emphasize the importance of keeping the recovery phrase safe and private since anyone with that phrase can access and control the funds in the wallet.
Some Tips To Help Gift Cryptocurrencies Safely
Cryptocurrency wallets are a popular target of sophisticated hacks, scams, and phishing attacks. When deciding which cryptocurrency to give as a gift, you should always prioritize safety. Here are a few tips to help you avoid a crypto-related security issue:
Stick to Large-Cap Cryptocurrencies
The smaller the crypto project, the less likely it is to make a good gift. Altcoins with a low market capitalization are much more likely to lose value or turn out to be scams. It’s best to stick with popular large-cap cryptos like Ethereum or Bitcoin.
Use Only Popular Crypto Wallets and Exchanges
If the recipient is new to cryptocurrencies, choose wallets and exchanges with a large user base and a long history in the industry. Also, select crypto apps with a simple user interface to help take the complexity out of navigating the crypto world for gift recipients.
Ensure the Recipient Understands the Fundamentals of Cryptocurrency.
Cryptocurrency is quite a fascinating and technical concept. New crypto “hodlers” should take a fundamentals course on sending and storing crypto. Ensure the recipient understands how important private keys are and how to safely send tokens when trading them
Confirm Wallet Compatibility
Always double-check that the wallet address to which you’re sending your cryptocurrency is on the correct blockchain. For instance, you can only send tether USDT (TRC20) only to a USDT (TRC20) address. If you USDT (TRC20) sent to a USDT (ERC20) address will be lost forever.
Take your time to confirm that the recipient’s wallet is on the correct blockchain before you send it. Also, relate this crucial information to them so they won’t make mistakes when dealing with the crypto.
Are Crypto Gifts Subject to Taxation?
In most cases, gifting cryptocurrency is not a taxable event. However, if the amount of crypto transferred exceeds the gift tax allowance, the recipient must report to the IRS (Internal Revenue Service) when they sell the asset and realize a capital gain or loss.
If the recipient sells the gifted crypto for a profit within one year, it is considered a short-term capital gain and taxed as ordinary income. If the sale takes place after a year, it is regarded as a long-term gain and is taxed at a lower capital gains rate.
The taxable profit is calculated based on the donor’s initial purchase price. For instance, if the donor bought a coin for $200 and the recipient sells it six years later for $1,000, the recipient may be taxed on the profits, provided other capital gains requirements are met.
The rules for capital loss deductions for investors are somewhat different. A capital loss is only recorded if the asset is sold for less than the price paid and its fair market value at the time it was gifted.
If You Receive a Crypto Gift, What Should You Do?
The first step is to verify the transaction and confirm if the cryptocurrency was indeed sent to you by someone you know. This is an essential step in ensuring the security of your cryptocurrency wallet. If you can confirm that the sender is legitimate, you can proceed to the next step. However, if you have doubts about the sender’s authenticity, it’s best to take precautionary measures.
After confirming the legitimacy of the sender, the next important step is to prepare for any potential tax implications. Generally, you won’t be liable to pay taxes on your cryptocurrency until you sell or spend it. Nonetheless, it’s advisable to be well-prepared beforehand.
You should keep a record of the date you received the crypto gift, the gifter’s cost basis, and the cryptocurrency’s fair market value at the time of receipt. This information will come in handy when calculating your capital gain or loss for tax purposes and help you provide proof if necessary.
Can I Buy Cryptocurrency With a Gift Card?
Definitely! You can use platforms like BitCard to purchase a gift card that can be presented as a cryptocurrency gift. Additionally, you may utilize peer-to-peer exchanges like Paxful to exchange a gift card obtained from Amazon or other stores for cryptocurrency.
Looking to Gift a Bitcoin Wallet? Here’s How to Do It!
Looking to give someone a Bitcoin wallet as a gift? It’s actually quite simple! All you need to do is find a trustworthy Bitcoin gift card provider, place your order, and complete the payment process. Once the payment has been processed, a gift card worth the deposited amount will be sent to the email address you provided.
Redeeming the gift card is also a breeze. The recipient can simply visit the provider’s website and enter the code displayed on the gift card. Voila! The Bitcoin wallet is theirs to use.
In Conclusion;
- Giving cryptocurrency as a gift is a distinctive and thoughtful gesture to express appreciation for someone’s interests or share your own. While the value of this gift can potentially increase over time, it’s crucial to consider the recipient’s ability to handle the cryptocurrency and willingness to accept the possibility of its value decreasing.
- Although there are multiple ways to give cryptocurrency as a gift, it’s important to exercise caution. Some approaches may not be as reliable as others. The article provides insight into secure and uncomplicated ways to gift crypto, particularly via exchanges or gift cards.
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