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Category: Crypto

  • Nominated proof of stake (NPoS) explained

    Nominated proof of stake (NPoS) explained

    NPoS stands for nominated proof of stake, the consensus system Polkadot and Kusama use to choose which computers validate transactions. Token holders called nominators back validators with their coins, an election algorithm picks the validator set, and both sides share the rewards and the penalties. This guide explains how that flow works, what you can lose, and how US tax rules treat the rewards.

    Full nameNominated proof of stake
    Used byPolkadot and Kusama
    Two rolesValidators and nominators
    Nominations per account16 on Polkadot
    Unbonding period28 days on Polkadot
    Reward taxOrdinary income when received

    The short definition

    In plain words, nominated proof of stake means you vote with your coins for the validators you trust, and you put those coins at risk if your picks misbehave.

    That second half is what separates NPoS from most “delegated” systems. On Polkadot, a nominator is not a passive voter. Your stake is bonded, it earns a share of the validator’s reward, and it can be slashed alongside the validator’s own stake.

    The design comes from Web3 Foundation research. Its stated goals are to spread stake evenly across as many independent validators as possible, to keep hardware costs low enough that ordinary operators can run a node, and to make it expensive for any one group to capture the network.

    How NPoS works, step by step

    Flow diagram showing five steps: Validators Register, Nominators Bond, Election Runs, Active Set Chosen, Rewards Distributed

    Polkadot runs staking in rounds called eras. An era lasts 24 hours on Polkadot and 6 hours on Kusama. At the boundary of each era, the chain reruns the validator election.

    What happens in one Polkadot era

    1. Validators advertise themselves, set a commission rate and post their own bonded stake.
    2. Nominators bond DOT and name up to 16 validators they are willing to back.
    3. The election algorithm selects the active set and splits each nominator’s stake across their winning picks.
    4. Active validators produce blocks, check parachain data and vote on finality, earning era points.
    5. At the era’s end, rewards are calculated per validator and shared with nominators after commission.
    6. Any misbehavior recorded during the era is flagged for slashing, which applies after a delay.

    Validators

    Validators run the software that produces blocks and finalizes them. They also verify the data coming from Polkadot’s parachains, which is the heavier job. Each validator sets a commission, a percentage of the total reward it keeps before splitting the rest with nominators. Commission ranges from 0% to 100%, and a validator at 100% keeps everything.

    The number of active validators is a governance parameter. Polkadot has run a few hundred active validators since launch and has raised the count through referendums more than once. Kusama, the faster-moving test network, runs roughly a thousand.

    Nominators

    Nominators are the backers. You lock DOT, choose up to 16 validators, and let the algorithm decide how your stake is distributed among the ones that win. You can change your list at any time, but the change only takes effect at the next election.

    Your reward depends on which of your picks actually get elected, how much total stake they carry, and their commission. If none of your 16 picks are elected, you earn nothing that era.

    The election algorithm

    This is the part that makes NPoS distinct. Polkadot uses a sequential version of the Phragmén method, a proportional voting system worked out by the Swedish mathematician Edvard Phragmén in the 1890s. The research team later published a refinement called Phragmms.

    The algorithm has two aims:

    • Elect a set that reflects nominator preferences proportionally, so a group holding 20% of the stake can secure about 20% of the seats and not more.
    • Maximize the minimum backing of any elected validator, so there is no weakly staked validator that an attacker could cheaply knock out.

    Because of that second goal, the chain does not simply hand seats to the richest validators. It actively moves nominator stake toward less-backed candidates. You see the result when you check your account: your stake usually ends up concentrated on one or two of your 16 picks rather than spread evenly.

    How rewards are split

    Rewards in NPoS are not proportional to a validator’s total stake. Each active validator earns era points for the work it performs, and validators that do similar work earn similar points. A validator backed by 2 million DOT and one backed by 1.8 million DOT earn close to the same payout.

    That reward is then split in this order:

    1. The validator takes its commission off the top.
    2. The remainder is divided among everyone backing that validator, including the validator’s own bond, in proportion to stake.

    The arithmetic means nominators on a lightly backed validator earn a higher percentage return than those on a heavily backed one. Say two validators each earn 100 DOT in an era, both charge 5% commission, and one has 1 million DOT behind it while the other has 2 million. Backers of the first share 95 DOT across 1 million, or 0.0095% for the era. Backers of the second get half that rate. This is deliberate. It pushes stake toward smaller operators and keeps the set decentralized.

    Overall yield depends on how much DOT is being issued and what share of all DOT is staked. Polkadot’s inflation schedule is set by on-chain governance and has been changed by referendum, so you should treat any single APY figure you see online as a snapshot rather than a promise.

    Slashing: what you can actually lose

    Slashing is the enforcement mechanism. When a validator is caught misbehaving, a percentage of its bonded stake is destroyed, and the same percentage is taken from every nominator backing it.

    Two offenses matter in practice:

    • Unresponsiveness. A validator that goes offline for most of a session is flagged. A single offline validator is not slashed. The penalty only kicks in when more than 10% of the set is offline at once, because that pattern looks like a coordinated failure rather than one operator’s bad night.
    • Equivocation. Signing two conflicting blocks or two conflicting finality votes. This is the serious one. Penalties start small for an isolated incident and scale toward 100% when many validators equivocate together, since that is what an attack on the chain looks like.

    Slashes on Polkadot do not apply instantly. They sit in a queue for about 27 days, and Polkadot’s governance can cancel a slash during that window if it was caused by a software bug rather than bad intent. That has happened. The delay protects honest operators, but it also means a pending slash can hit you after you have already decided to leave.

    Nominators have one more exposure to understand. Your reward share and your slash share come from the same proportion of stake. If you are a large part of a validator’s backing, you take a large part of any penalty.

    Bonding, unbonding and the 28-day lockup

    Once you bond DOT, it stays locked while it is staking. If you decide to stop, you unbond, and then you wait 28 days on Polkadot (7 days on Kusama) before the coins become transferable. You earn no rewards during that wait.

    The length of that lockup is the biggest practical difference between staking and simply holding. If the price falls 40% in week two of your unbonding period, you watch it happen with no way to sell. Any plan to stake should assume you cannot touch the coins for a month after you change your mind.

    Polkadot added a fast-unstake option for accounts that have been bonded but never actually exposed to a validator. If your picks were never elected, you may be able to withdraw without the full wait. Accounts that were actively backing elected validators still serve the 28 days.

    Nomination pools for small holders

    Direct nomination on Polkadot has a practical floor. The chain limits how many nominators can be counted in an era, and only the largest bonds above a dynamic threshold earn rewards. That minimum active bond has often sat in the low hundreds of DOT, which prices out small accounts.

    Nomination pools, launched on Polkadot in late 2022, solve that. A pool combines many small bonds into one nominating account run by a pool operator. The minimum to join is 1 DOT. You keep the same slashing exposure and the same unbonding period, and the pool operator picks the validators on your behalf. You are trusting that operator’s judgment on validator selection, so you should find out who runs it and how long it has been active.

    NPoS compared with other staking designs

    The names sound similar, so it helps to see the differences side by side.

    Feature NPoS (Polkadot) Delegated PoS (EOS, Tron) Plain PoS (Ethereum)
    Who validates Elected set, a few hundred Small elected set, often 21 to 27 Anyone with 32 ETH
    How stake is assigned Algorithm spreads it proportionally Votes go to top-ranked producers Each validator stakes its own
    Do backers get slashed Yes, same rate as validator Usually no No backers in the base protocol
    Payout per validator Roughly equal regardless of stake Varies by rank Per validator, scales with count
    Exit wait 28 days Varies, often days Queue-based, varies

    The key difference from delegated proof of stake is accountability. In most DPoS chains, you vote for block producers but face no direct penalty if they cheat. In NPoS you do. Polkadot’s designers argue that shared risk makes nominators pick carefully, which keeps bad operators out of the set.

    Consensus design also does not, on its own, determine throughput. How many “transactions per second” a chain handles depends far more on block size, block time and the parachain or sharding layout than on how validators are chosen.

    The risks in plain terms

    Before you stake DOT or any NPoS token

    Staking locks your coins for 28 days after you decide to leave, and a validator’s mistake can destroy part of your stake. The coins themselves can lose all of their value, and nothing about staking is insured by the FDIC or SIPC.

    Beyond price risk and slashing, watch for these:

    • Commission changes. A validator can raise commission at any time. Some set 0% to attract nominators, then move to 100% and pocket the entire reward. The chain now flags sharp commission jumps in many wallet interfaces, but the responsibility to check is yours.
    • Validator churn. Your 16 picks may stop being elected. Rewards drop to zero until you choose new ones.
    • Custodial staking. If you stake through an exchange rather than on-chain, you hold an IOU from that company. If it fails, you are an unsecured creditor. Customers of FTX, Celsius and Voyager learned this in 2022.
    • Phishing. Fake “Polkadot staking” sites ask you to enter your seed phrase. No legitimate staking process ever requires it on a website.

    US rules and taxes on staking rewards

    The IRS treats crypto as property under IRS Notice 2014-21. Staking rewards are addressed directly in Revenue Ruling 2023-14, issued July 31, 2023. It says rewards are ordinary income in the year you gain dominion and control over them, valued at fair market value on that day. On Polkadot, control usually arrives when the payout lands in your account, not when it is calculated.

    That income becomes your cost basis. When you later sell the rewarded DOT, the difference between the sale price and that basis is a capital gain or loss. Record the date and dollar value of every payout. With daily eras, that can mean 365 small income events per year.

    If you stake through a US exchange, the exchange may send you a Form 1099-MISC for rewards above $600. Separately, brokers must report crypto sales on Form “1099-DA” for transactions from January 1, 2025 onward, with cost basis reporting phasing in for 2026 sales. Those forms cover sales, not the staking income itself, so you still need your own records.

    On securities law, the picture has shifted. In February 2023, Kraken paid $30 million to settle SEC charges over its staking-as-a-service program and shut that program for US customers. In May 2025, the SEC’s Division of Corporation Finance published a staff statement saying that certain protocol staking activities, including self-staking and some custodial arrangements, do not involve securities offerings. That statement is staff guidance, not a rule or a court ruling, and it can change. Web3 Foundation has said publicly that it believes DOT is not a security, which is the foundation’s position rather than an SEC finding.

    If you want to verify a US company offering staking, check FinCEN’s MSB registrant search and your state’s money transmitter license lookup. Report suspected fraud at FTC ReportFraud or the FBI’s IC3 portal.

    Other things “npos” can mean

    The search term is shared by a few unrelated fields, so here is a quick sort in case you landed in the wrong place.

    • string::npos in C++ is a constant that means “no position.” Functions like find() return it when they cannot locate a substring. Its value is the largest possible size_t, which is why comparing a position against it works as a not-found check.
    • NPO in medicine is Latin for nil per os, meaning nothing by mouth. It is a fasting instruction before surgery or certain tests, and the length of time varies by procedure.
    • NPO as an organization type means nonprofit organization.

    None of those relate to crypto staking, and nothing in this article applies to them.

    FAQ

    Is NPoS the same as delegated proof of stake?

    No. Both let token holders back validators, but NPoS slashes nominators alongside validators and uses a proportional election algorithm to spread stake. Most DPoS chains do neither.

    How much DOT do I need to nominate?

    Direct nomination only earns rewards above a dynamic minimum that has often been in the low hundreds of DOT. Nomination pools accept as little as 1 DOT. Both carry the same slashing risk and 28-day unbonding wait.

    Can I lose my whole stake as a nominator?

    In theory yes. Equivocation slashes scale toward 100% when a large share of validators misbehave together. In practice, slashes on Polkadot have been rare and small, and governance has reversed some caused by bugs. Rare is not never.

    Are staking rewards taxed if I never sell them?

    Yes. Under Revenue Ruling 2023-14, rewards are income when you gain control of them, at that day’s dollar value, regardless of whether you sell.

    Why does my stake only show on one or two validators when I picked 16?

    The Phragmén election assigns your stake where it best balances the network, not evenly. Your 16 picks are a list of validators you are willing to back, not a split you control.

    Is staked DOT insured?

    No. Crypto is not covered by FDIC or SIPC insurance, and a staking position can fall to zero in value.

  • What is an IDO and how token launchpads work

    What is an IDO and how token launchpads work

    An IDO (initial DEX offering) is a token sale run through a decentralized exchange or a launchpad that feeds one, where buyers pay in crypto from their own wallets and the token starts trading on-chain minutes after the sale closes. It is the DeFi successor to the 2017-era ICO, with more automation and, usually, less paperwork. We explain the mechanics, the memecoin version, the US legal picture and what the IRS expects.

    What it isToken sale via DEX or launchpad
    PaymentCrypto from a self-custody wallet
    Typical allocationA few hundred dollars
    LiquidityAdded to a DEX pool at launch
    InsuranceNone, not FDIC or SIPC
    Tax statusProperty under IRS Notice 2014-21

    Before you join an IDO

    Most IDO tokens trade below their sale price within months, and a meaningful share go to zero. There is no deposit insurance, no cooling-off period and usually no one to sue if the team vanishes.

    What an IDO actually is

    The acronym means initial DEX offering. A project creates a new token, sets a sale price and a hard cap, and sells an allocation to the public through a decentralized exchange or a launchpad that routes to one. The first widely cited IDO was Raven Protocol’s sale on Binance DEX in June 2019, and the format spread across Ethereum, BNB Chain, Solana and Polygon from 2020 onward.

    Three things separate an IDO from a traditional stock IPO. There is no underwriter and no registration statement with the SEC. Settlement happens in a smart contract rather than through a broker. And the token gets a trading market the same day, because the project pairs part of the raised funds with new tokens in a liquidity pool.

    How a launchpad sale works, step by step

    Five-step flow diagram showing the IDO launchpad process from whitepaper publish through token vesting

    Launchpads such as Polkastarter, DAO Maker and Seedify sit between projects and buyers. They screen (lightly) the projects, run the allocation lottery and host the claim contract. The flow is similar across most of them.

    A typical IDO on a launchpad

    1. The project publishes a whitepaper, tokenomics and sale parameters: price, hard cap, vesting schedule.
    2. The launchpad opens an allowlist. Most require KYC, and most tier allocations by how much launchpad token you have staked.
    3. A lottery or guaranteed round assigns allocations, often $100 to $500 per wallet.
    4. On sale day you send USDC, ETH or SOL to the sale contract from your wallet.
    5. At the token generation event (TGE) the project adds liquidity to a DEX and unlocks a first tranche, often 10% to 25%.
    6. Remaining tokens vest over weeks or months, claimable from the launchpad contract.

    The staking requirement is the launchpad’s business model. To qualify for a decent tier you must buy and lock its native token, which means you are already exposed to one volatile asset before the sale begins.

    IDO vs ICO vs IEO

    Feature ICO (2017 style) IEO IDO
    Who runs the sale Project itself Centralized exchange DEX or launchpad
    Custody of your funds Project’s wallet Exchange account Your own wallet to a contract
    KYC Often none Exchange’s KYC Varies, usually launchpad KYC
    Day-one liquidity Not guaranteed Exchange listing DEX pool at TGE
    Typical vetting None Exchange due diligence Light launchpad screening

    The IDO model fixed the ICO’s worst problem, projects that raised millions and never listed anywhere. It did not fix the quality of the projects, and it added a new failure mode: a liquidity pool the team can drain.

    Memecoin launchpads: IDOs stripped to the bone

    A memecoin launchpad takes the IDO idea and removes the whitepaper, the allowlist and the team. Pump.fun on Solana is the best-known example. Anyone pays a small fee to mint a token, buyers purchase along a bonding curve that raises the price with each buy, and once the curve fills (a fixed SOL threshold) the launchpad moves liquidity to a DEX automatically.

    The pitch is fairness: no presale, no insider allocation, same curve for everyone. The reality is that bots and the creator’s own wallets often buy first and sell into the crowd. Research by on-chain analytics firms has repeatedly found that only a tiny fraction of tokens created on these platforms reach the DEX stage, and fewer still hold any value a month later. Treat a memecoin launchpad as entertainment spending, not investing.

    The risks, in plain terms

    Rug pulls. The team removes the liquidity it added at TGE, leaving holders unable to sell. Locked liquidity (verifiable on a third-party locker) reduces but does not remove this risk, since the team can still dump unlocked tokens.

    Soft rugs. Nobody steals anything. The team simply stops shipping, and the token drifts toward zero.

    Contract exploits. A honeypot contract lets you buy but blocks selling. A hidden mint function lets the deployer create unlimited supply. Neither shows up in a glossy website.

    Vesting cliffs. Private-round investors who paid a fraction of your price unlock their tokens on a schedule. Those unlock dates are sell pressure you can see coming if you read the tokenomics.

    Structural losses. Launchpad staking, gas fees, failed transactions during a gas war and slippage on a thin pool all cost money before the token moves at all.

    Some projects are outright fraud dressed as an IDO. If returns are promised, if referral rewards dominate the pitch, or if “staking yield” comes from new buyers, read about how a crypto “ponzi scheme” operates before sending anything. The same caution applies to launchpads selling NFT mints; our “nft explained” piece covers how those differ from fungible tokens.

    US rules: what is law and what is not

    The SEC has applied the Howey test to token sales since its 2017 DAO Report, and it has brought enforcement actions against ICO issuers including Kik and Telegram. A token sold to raise money for a project whose team promises to build value is a strong candidate for a security, whatever the sale is called. Most launchpads geoblock US IP addresses for exactly this reason, and some exclude US persons in their KYC flow.

    Two newer items matter, and we grade them carefully. In February 2025 the SEC’s Division of Corporation Finance issued a staff statement saying meme coins, as the staff defined them, are generally not securities. That is staff guidance, not a rule, not a court decision and not a safe harbor for the platforms that sell them. Separately, Congress has been working on market-structure legislation (the CLARITY Act passed the House in 2025) that would split oversight between the SEC and the CFTC. Until a bill is signed, that is a proposal, not law.

    Memecoin launchpads have also drawn private lawsuits in US federal courts alleging they sold unregistered securities. Those cases are unresolved, so we would not assume either outcome.

    IRS treatment of IDO tokens

    The IRS treats crypto as property under Notice 2014-21. Three taxable moments follow from that:

    Event Tax consequence
    Paying ETH or SOL into the sale Disposal of the ETH or SOL; gain or loss on it
    Receiving the new token Establishes cost basis (what you paid, in dollars)
    Selling or swapping the token Capital gain or loss, short-term if held a year or less

    Airdropped or reward tokens from a launchpad count as ordinary income at fair market value when you gain control of them, per Revenue Ruling 2023-14’s logic on staking rewards. Report sales on Form 8949 and Schedule D. Centralized brokers now issue Form 1099-DA, but DEXs and launchpads generally do not, since Congress repealed the DeFi broker reporting rule in April 2025. The reporting burden is on you, and wallet-level records are the only defense in an audit.

    FAQ

    What does IDO stand for?

    Initial DEX offering: a token sale conducted on a decentralized exchange or through a launchpad that lists the token on one at launch.

    Is an IDO legal in the United States?

    Running one is risky for the issuer if the token meets the Howey test, and most launchpads block US participants. Buying is not illegal for an individual, but you get none of the disclosures or remedies a registered offering provides.

    How much money do people put into an IDO?

    Launchpad allocations are usually capped between $100 and $500 per wallet, plus the cost of staking the launchpad’s token to qualify.

    Can I lose everything in an IDO?

    Yes. Tokens can go to zero through a rug pull, an exploit or plain failure, and no FDIC or SIPC coverage applies to crypto.

    What is a memecoin launchpad?

    A platform that lets anyone create and sell a token through a bonding curve with no vetting, no allowlist and no roadmap. It is the IDO model with every safeguard removed.

  • Where you can spend bitcoin and what you can buy with crypto

    Where you can spend bitcoin and what you can buy with crypto

    You can spend bitcoin on electronics, gift cards, hotel stays, bills, charity gifts and burgers, but almost never by handing bitcoin straight to the store. Most US purchases run through a payment processor, a crypto debit card or a gift card, and the merchant gets dollars. Each route has its own fees, and every purchase is a taxable sale in the eyes of the IRS.

    Direct merchant acceptancerare in the US
    Common routesprocessors, cards, gift cards
    Who gets paid in bitcoinusually nobody, merchant gets USD
    Tax treatmentevery purchase is a sale
    Insurancenot FDIC or SIPC covered
    As ofearly 2026

    How spending bitcoin actually works

    Flow diagram showing four routes for spending bitcoin: payment processor, crypto debit card, gift card, and direct merchant acceptance

    Bitcoin is a network for sending value without a bank. Nothing in US law stops a business from taking it. Nothing requires a business to take it either. The US dollar is legal tender under 31 U.S.C. 5103, and a store can refuse any other form of payment.

    So when you see “we accept bitcoin,” read the fine print. In nearly every case one of four things is happening behind the counter.

    A processor converts it. Companies like BitPay, Coinbase Commerce and Crypto.com Pay sit between you and the store. You send crypto to the processor at a locked exchange rate. The merchant receives dollars, usually minus a processing fee around 1 percent, which the merchant pays. BitPay locks its quoted rate for a short window, roughly 15 minutes, so you are not exposed to a price swing while you confirm.

    A card converts it. Crypto debit cards from Coinbase, Crypto.com and BitPay sell your crypto at the moment you tap, then push dollars through the Visa or Mastercard network. The merchant never knows crypto was involved.

    A gift card converts it. Services like Bitrefill and BitPay’s gift card marketplace sell retailer gift cards for crypto. You then spend the gift card like anyone else.

    The merchant keeps it. A small number of businesses, mostly independent shops, hold the bitcoin they receive. Many of these use the Lightning Network, a second layer on top of bitcoin built for small, fast payments with fees that are typically a fraction of a cent.

    Understanding which route a store uses matters, because it decides what fees you pay and what happens if something goes wrong.

    Before you spend

    On-chain bitcoin payments are final. There is no chargeback, no issuer dispute and no “undo” if you send to the wrong address or get scammed. Crypto itself can lose all of its value, and nothing you hold in a wallet or exchange is FDIC or SIPC insured.

    1. Online retailers that take crypto through a processor

    This is where the biggest brand names sit. The list changes often, so treat any directory as a starting point and confirm on the checkout page before you load a wallet.

    Retailers that have run crypto checkout through BitPay for years include Newegg for electronics and the Dallas Mavericks for tickets and merchandise. AMC Theatres added bitcoin, ether and several other coins at its online checkout in late 2021. Namecheap has taken bitcoin for domains and hosting since 2013. Privacy-focused services such as ExpressVPN, NordVPN and Mullvad accept crypto, and Mullvad accepts it without even asking for an email.

    Shopify stores can turn on crypto payments with a few clicks through Coinbase Commerce, BitPay or Crypto.com Pay. That means thousands of small online shops accept bitcoin without advertising it loudly. Look for the crypto option on the payment page rather than the homepage.

    Big names drop out too. Tesla paused bitcoin payments in May 2021 after a few months. Expedia stopped in 2018. Microsoft has turned bitcoin top-ups on and off for its store over the years. Always check the current state of the checkout, not a blog post from three years ago.

    2. Gift cards, the workaround for everything else

    Amazon, Walmart, Target, Uber, DoorDash, Starbucks and most major US chains do not accept crypto directly. Gift cards are how people spend bitcoin at them anyway.

    Bitrefill lists gift cards and phone top-ups for hundreds of US brands and accepts bitcoin, Lightning, ether, USDC and others. BitPay’s wallet app and browser extension sell gift cards from a similar range of retailers. Coinsbee is another option with a large catalog.

    The trade-offs are real. Gift cards are non-refundable once delivered. Some brands cap the card value or limit how many you can buy per day. Prices track the dollar face value, so you are not getting a discount unless the service runs a promotion. And a gift card is only as safe as the retailer behind it: if the chain goes bankrupt, the card may become worthless.

    3. Crypto debit cards for everyday spending

    A crypto debit card is the closest thing to “spending bitcoin anywhere.” The Coinbase Card (Visa), Crypto.com Visa Card and BitPay Card (Mastercard) all let you fund purchases from a crypto balance. Tap at a gas station, grocery store or restaurant, and the card issuer sells enough crypto to cover the dollar amount.

    Three things to know before relying on one:

    • Every swipe is a sale. Buy a $4 coffee and you have a taxable disposition of a tiny slice of bitcoin. More on the tax rules below.
    • You pay a spread. Card issuers convert at their own rate, which includes a margin over the market price. Read the fee schedule on the issuer’s site, since terms change and vary by card.
    • Availability varies by state. The BitPay Card, for example, is issued to US residents in states where its banking partner operates, and some cards exclude New York or other states. Check the issuer’s eligibility page.

    Do not confuse these with crypto rewards credit cards such as the Gemini Credit Card. Those bill you in dollars and pay rewards in crypto. You are not spending bitcoin with them.

    4. Bills, rent and credit card balances

    BitPay’s Bill Pay feature lets US users pay credit card statements, car loans, mortgages and some utilities from a crypto balance. Spritz Finance offers a similar bill-pay service. In both cases the biller receives dollars; you are simply funding the payment with crypto.

    This can be useful if most of your savings sit in crypto and a bill is due. It is a poor idea if you are selling at a loss under pressure or paying a fee on top of a balance that is already costing you interest. If you are behind on debts and a debt collector is calling, you have rights under the Fair Debt Collection Practices Act regardless of how you pay, and a nonprofit credit counselor costs nothing to consult.

    5. Travel, cars and real estate

    Travala.com books hotels and flights for bitcoin and dozens of other coins. CheapAir has accepted bitcoin for flights since 2013. Several private jet and cruise brokers accept crypto as well, usually through BitPay.

    For cars, a few dealers accept crypto, almost always by converting it through a processor at signing. Real estate deals in crypto do happen, but the title company or escrow agent typically converts to dollars and the transaction must still be reported like any other sale. Expect extra paperwork and a counterparty who wants to know where the coins came from, since money transmitters and escrow firms carry anti-money-laundering obligations under the Bank Secrecy Act.

    6. Restaurants and local shops

    Steak ‘n Shake launched bitcoin payments through the Lightning Network at all of its US restaurants on May 16, 2025. That is the largest US food chain to do so at the counter rather than through a gift card.

    Beyond that, local acceptance is a patchwork. BTC Map, a community-maintained directory, shows independent merchants that take bitcoin and Lightning, with a heavy concentration in cities like Austin, Miami and Nashville. Coinmap is an older directory with similar coverage. Both are community data, so a pin on the map can be stale. Call ahead.

    The Lightning route is where bitcoin feels like cash. Scan a QR code, confirm in your wallet, done in seconds for a fee under a penny. Wallets like Cash App, Strike, Phoenix and Wallet of Satoshi support it, though Wallet of Satoshi and some other custodial Lightning wallets have restricted US users in the past. Check the app’s current terms.

    7. Donations and causes

    Charities were early adopters because of a tax quirk explained below. Save the Children, the American Cancer Society, United Way and many others accept crypto through The Giving Block. Donor-advised funds such as Fidelity Charitable accept bitcoin donations. The Wikimedia Foundation, by contrast, stopped taking crypto in 2022 after a community vote.

    Open-source projects, including some bitcoin developers, run on donations too. Verify the address on the project’s official site, since fake donation pages are a common scam.

    What each route costs

    Fees depend on the route, not just the coin. Here is how a hypothetical $100 purchase compares.

    Route Who converts Typical fee you pay Reversible?
    On-chain payment to processor Processor Network fee (varies with congestion, can exceed $5 when busy) No
    Lightning payment Processor or merchant Usually under $0.01 No
    Crypto debit card Card issuer Conversion spread set by issuer, plus any card fees Card purchase yes, crypto sale no
    Gift card bought with crypto Gift card seller Network fee, sometimes a small markup No
    Bill pay service Service Service fee plus network fee No

    Bitcoin’s base-layer fee is the wild card. It depends on how crowded the network is that hour, not on the amount you send. Paying $20 for a $15 purchase has happened during busy periods. For anything small, Lightning or a card beats an on-chain transfer.

    Taxes: every purchase is a sale

    Under IRS Notice 2014-21, the IRS treats cryptocurrency as property, not currency. Spending it is a disposition, the same as selling it for dollars. You owe capital gains tax on the difference between what you paid for the coins and their fair market value when you spent them.

    Step Amount
    Bought 0.005 BTC $300 (your cost basis)
    Spent it on a monitor when 0.005 BTC was worth $450
    Capital gain $150
    Held more than one year Long-term rate (0%, 15% or 20% by income)
    Held one year or less Taxed as ordinary income

    Losses work the other way. Spend coins worth less than you paid and you have a capital loss you can use against gains, and up to $3,000 a year against other income.

    You report each disposition on Form 8949 and Schedule D. Starting with 2025 transactions, exchanges and other brokers send you a 1099-DA showing gross proceeds, and cost basis reporting on that form phases in for later years. The IRS also requires you to track basis wallet by wallet under Revenue Procedure 2024-28, so a card that sells slivers of bitcoin a dozen times a week creates a dozen taxable lots. Most card issuers and exchanges export a transaction history; keep it.

    There is no de minimis exemption in current law. Bills have been introduced in Congress to exempt small purchases, a 2025 Senate proposal set the line at $300, but as of this writing none has passed. Until one does, the coffee counts.

    Sales tax still applies based on the dollar value of what you bought. Paying in bitcoin does not change what the state collects.

    Donations are the exception that makes charities popular. Give appreciated crypto you have held more than a year directly to a qualified charity and you deduct the fair market value without paying capital gains on the appreciation. Gifts over $5,000 require a qualified appraisal on Form 8283, and the IRS confirmed in Chief Counsel Advice 202302012 that an exchange price printout does not count as one.

    Your rights, and where they stop

    A bitcoin payment is not an electronic fund transfer from a bank account, so the error-resolution and unauthorized-transfer protections of the Electronic Fund Transfer Act and Regulation E generally do not reach it. If you use a crypto debit card, the dollar purchase at the merchant runs on the card network and the issuing bank’s dispute rules apply to that leg. The crypto sale that funded it is still final.

    The consumer-protection laws that do apply are the general ones. Processors like BitPay are licensed money transmitters, and you can confirm a license on NMLS Consumer Access or your state regulator’s lookup. A merchant that takes your bitcoin and never ships is still liable for the goods under state consumer law, and you can report it to the FTC at ReportFraud and to the FBI’s IC3.

    Lower-cost ways to pay

    Use Lightning or a card for small purchases; on-chain fees can swamp a $20 order.
    Buy only the gift card you need today, since cards are non-refundable.
    If a bill is the reason you are spending, call the biller about a hardship plan before selling crypto at a loss.

    Before you pay a merchant in crypto

    1. Confirm the crypto option exists on today’s checkout page, not in an old announcement.
    2. Note which processor handles it and check its license on NMLS Consumer Access.
    3. Compare the locked exchange rate to the current market price.
    4. Match the network: send bitcoin to a bitcoin address, Lightning to a Lightning invoice. Mixing them loses the money.
    5. Save the receipt with the dollar value and date for your tax records.

    Scams that target people trying to spend crypto

    A real merchant never asks you to pay bitcoin to a personal wallet address in a text message. Fake “crypto stores” with prices far below market, fake charity pages and “pay with bitcoin for a discount” offers on marketplaces are classic theft patterns, because the payment cannot be reversed. Anyone promising guaranteed returns if you “spend” crypto on an investment product is describing a ponzi scheme. Verify the business, verify the address on its official site, and walk away if the only accepted payment is crypto.

    FAQ

    Where can I buy things with bitcoins in the US?

    Directly at merchants that use processors like BitPay or Coinbase Commerce, such as Newegg, AMC Theatres and Namecheap; indirectly almost anywhere through gift cards from Bitrefill or BitPay, or with a crypto debit card.

    How do you spend bitcoins at a store that does not accept them?

    Buy a gift card for that retailer with crypto, or use a crypto debit card that sells your bitcoin and pays the store in dollars.

    Does spending bitcoin trigger taxes?

    Yes. The IRS treats crypto as property, so each purchase is a sale with a capital gain or loss. There is currently no exemption for small purchases.

    Are crypto purchases protected like credit card purchases?

    No. On-chain payments are final with no chargeback. A crypto debit card gives you the card network’s dispute process for the merchant charge, but not for the crypto sale that funded it.

    Why do merchants stop accepting bitcoin?

    Price volatility, low customer demand and compliance costs. Tesla, Expedia and Wikimedia all dropped it, which is why you should check a checkout page rather than a list.

  • Pegged meaning: how a hard peg works for currencies and stablecoins

    Pegged meaning: how a hard peg works for currencies and stablecoins

    Pegged means fixed to something else. A pegged currency or stablecoin is set to trade at a stated rate against another asset, usually the US dollar, and someone promises to keep it there. We explain how a hard peg is held, why pegs break, and what US rules and tax law say about pegged stablecoins.

    Pegged meansfixed exchange rate
    Hard pegone fixed rate, no band
    Soft pegnarrow trading band
    Common anchorthe US dollar
    Stablecoinsnot FDIC or SIPC insured
    Peg breaksUST 2022, USDC 2023 dip

    What pegged means in plain words

    A peg is a wooden pin that holds something in place. That is the whole idea. When we say a currency is pegged, we mean its price is held in place against another currency, a basket of currencies, or a commodity like gold.

    The Saudi riyal is a textbook example. The Saudi Arabian Monetary Authority has held it at 3.75 riyals per dollar since 1986. The Hong Kong dollar is another, pegged at HK$7.80 per US dollar by the Hong Kong Monetary Authority under a system that dates to October 1983, and kept within a trading band of HK$7.75 to HK$7.85 since May 2005.

    In crypto, a pegged token is one designed to track an outside price. A dollar stablecoin is pegged at $1. A tokenized gold product is pegged to an ounce of gold. The word “pegged” tells us the target. It does not tell us how strong the promise is, and that is where the risk lives.

    People also use “pegged” in everyday speech to mean sized up or categorized, as in “we had him pegged as a salesman.” The money meaning and the slang meaning share the same root: something fixed in position. Any dictionary will list both, but in finance the word almost always points to an exchange rate.

    Hard peg versus soft peg

    A hard peg is a single fixed rate backed by a strict mechanism. A soft peg allows the price to drift inside a band before the authority steps in.

    Peg type How it works Real example
    Currency board (hard) Every unit of local money is backed by reserves of the anchor currency, and the board converts on demand at the fixed rate Hong Kong dollar at HK$7.75 to 7.85 per USD
    Fixed rate with intervention (hard) Central bank buys or sells its own currency to hold one rate Saudi riyal at 3.75 per USD
    Band (soft) Currency floats inside a stated range around a central rate Danish krone, held within 2.25% of a central euro rate under ERM II
    Fiat-backed stablecoin (hard in design) Issuer holds cash and Treasury bills and redeems one token for one dollar USDC, USDT
    Crypto-collateralized stablecoin Users lock more crypto than the dollar value they mint, and liquidations protect the peg DAI
    Algorithmic stablecoin Code mints and burns a sister token to push the price back to $1, often with little or no hard collateral TerraUSD before May 2022

    The strength of any peg comes down to one question: what happens when everyone wants out at the same time? A currency board or a fully reserved stablecoin can pay every holder. An algorithmic peg cannot.

    How a hard peg is actually held

    Flow diagram showing how stablecoin arbitrage maintains a hard peg: trader buys discounted token, redeems with issuer, receives dollar, price rises back to peg

    A peg is a promise plus a mechanism. The promise says “one of ours equals one of theirs.” The mechanism is what makes the promise true on a bad day.

    For a national currency, the mechanism is reserves and intervention. If the market pushes the Hong Kong dollar toward the weak side of its band, the HKMA sells US dollars from its reserves and buys Hong Kong dollars until the rate moves back. If traders push it to the strong side, it does the reverse. Interest rates move with that flow, which is the price Hong Kong pays for the peg: it imports US monetary policy.

    For a fiat-backed stablecoin, the mechanism is redemption. Circle, the issuer of USDC, and Tether, the issuer of USDT, both say that an eligible customer can send back tokens and receive dollars one for one. Arbitrage does the rest. If USDC trades at $0.99 on an exchange, a trader can buy it, redeem it for $1.00, and pocket the gap. That buying lifts the price back to $1.

    Notice the weak points. Redemption usually requires an account with the issuer, minimum sizes, and identity checks. Retail holders mostly cannot redeem directly. They rely on exchanges and arbitrage traders, who may step back when the issuer looks shaky.

    Why pegs break

    Every broken peg has the same anatomy: the promise outruns the mechanism.

    Britain left the European Exchange Rate Mechanism on 16 September 1992 after the Bank of England could not defend the pound against sellers led by George Soros’s fund. Argentina abandoned its one-to-one dollar peg in January 2002 after a run on the banks. The Swiss National Bank dropped its 1.20 franc-per-euro floor on 15 January 2015 without warning, and the franc jumped roughly 20% in minutes.

    Crypto has its own list.

    Event What happened Outcome
    TerraUSD (UST), May 2022 Algorithmic peg relied on minting the LUNA token to absorb selling; a wave of redemptions overwhelmed it UST fell to pennies, LUNA went near zero, and estimates of losses ran into the tens of billions of dollars
    USDC, March 2023 Circle disclosed about $3.3 billion of reserves at the failed Silicon Valley Bank USDC dipped below $0.90 over a weekend, then recovered after US regulators guaranteed SVB deposits
    Tether reserves, 2021 The CFTC found Tether had misstated that USDT was fully backed by dollars at all times during 2016 to 2018 $41 million CFTC penalty, plus an $18.5 million settlement with the New York Attorney General

    Terra’s yield pitch deserves a word. Its Anchor lending protocol paid around 20% a year on UST deposits, funded in part from reserves rather than real lending income. A payout that depends on fresh money coming in has the shape of a ponzi scheme even when the code is public. US prosecutors later charged founder Do Kwon with fraud.

    Before you hold a stablecoin

    A dollar stablecoin is not a dollar. It can lose all its value if the issuer fails or the mechanism breaks, and it is not insured by the FDIC or SIPC. Only a bank deposit carries FDIC coverage, up to $250,000 per depositor, per bank, per ownership category.

    US rules for pegged stablecoins

    For years, dollar stablecoins sat in a gap between banking law, securities law and money-transmission law. That changed in July 2025, when the Guiding and Establishing National Innovation for U.S. Stablecoins Act, known as the GENIUS Act, was signed into law.

    The law creates a federal framework for “payment stablecoins.” Issuers must hold reserves at least one to one in cash, insured bank deposits, short-term Treasuries and similar assets, publish monthly reserve reports, and keep reserves separate from company money. It bars issuers from paying interest or yield to holders simply for holding the coin. Its main provisions take effect on a delayed schedule tied to regulators finishing their rules, so as of the law’s passage the market was still in transition.

    Two things the law does not do: it does not make stablecoins FDIC insured, and it does not guarantee the peg. It raises the odds that an issuer can honor redemptions. It does not promise that the token will trade at $1 on every exchange every minute.

    How to check a stablecoin's backing

    1. Find the issuer’s latest monthly reserve report on its own site, and note which accounting firm signed it.
    2. Read the reserve mix: cash and short Treasuries are strongest; loans, commercial paper or crypto are weaker.
    3. Read the redemption terms: who can redeem, minimum size, fees and how long it takes.
    4. Check the issuer’s regulator and any enforcement history with the CFTC, SEC or a state regulator.
    5. Compare the market price against $1 on more than one exchange.

    How the IRS treats pegged stablecoins

    Under IRS Notice 2014-21, the IRS treats virtual currency as property, and the IRS has confirmed that stablecoins count as digital assets. Pegging a token to the dollar does not turn it into a dollar for tax purposes.

    In practice this means every sale, swap or purchase with a stablecoin is a taxable disposal. If you bought USDC at $1.00 and sold at $1.00, the gain is zero, but the transaction still belongs on your return. Buying a stablecoin at $0.97 during a depeg and later selling at $1.00 creates a capital gain. Starting with 2025 transactions, US brokers report digital asset sales on Form 1099-DA, so the IRS will see these trades.

    Safer places for cash you cannot afford to lose

    An FDIC-insured savings or money market deposit account covers up to $250,000 per depositor.
    A Treasury bill bought through TreasuryDirect is backed by the US government.
    An NCUA-insured credit union share account carries the same $250,000 limit.

    FAQ

    What does pegged mean for a currency?

    A pegged currency has an exchange rate fixed by its central bank against another currency, a basket, or a commodity. The bank holds the rate by buying and selling reserves. The Saudi riyal, pegged at 3.75 per US dollar since 1986, is a clear example.

    What is a hard peg?

    A hard peg is one fixed rate with no trading band, held by a strict mechanism such as a currency board or full one-to-one reserves. A soft peg lets the price move inside a range before the authority intervenes.

    Is a stablecoin the same as a pegged currency?

    They share the idea of a fixed value, but a national peg is defended by a central bank with legal authority, while a stablecoin peg is defended by a private issuer’s reserves and redemption promise. Neither is guaranteed, and stablecoins carry no FDIC or SIPC insurance.

    Why did USDC lose its peg in 2023?

    Circle held about $3.3 billion of USDC reserves at Silicon Valley Bank when the bank failed in March 2023. Traders feared a shortfall and sold, pushing USDC below $0.90. The price recovered once federal regulators guaranteed SVB deposits in full.

    Do I owe tax on a stablecoin that stays at $1?

    Yes, each disposal must be reported, because the IRS treats stablecoins as property under Notice 2014-21. The gain is usually zero or a few cents, but the transaction still counts, and brokers now report sales on Form 1099-DA.

  • Transactions per second: how fast blockchains really are

    Transactions per second: how fast blockchains really are

    Transactions per second (TPS) is the number of transactions a network confirms in one second, averaged over some window. For blockchains it is the most quoted speed metric, and also the most abused. Bitcoin handles single digits, Ethereum’s base layer a few dozen, and Solana claims tens of thousands, yet none of those numbers mean what the marketing suggests until you know how they were measured.

    Bitcoin typical TPSabout 3 to 7
    Ethereum base layerroughly 15 to 30
    Solana claimed peak65,000
    Visa stated capacity65,000 messages per second
    Counting methodvaries by chain
    As oflate 2025

    Define TPS: what transactions per second actually measures

    TPS is a throughput figure. Take the total number of transactions a system processed over a period, divide by the number of seconds in that period, and you have it.

    The word “transaction” is doing a lot of work in that sentence. In a bank’s database it might mean one debit. On a blockchain it can mean a payment, a token swap, a contract call, or an internal housekeeping message that moves no money at all.

    So the TPS definition is simple arithmetic, but the inputs are not. Two chains reporting “1,000 TPS” can be describing completely different amounts of useful work.

    TPS outside crypto

    The term predates Bitcoin by decades. Database engineers and performance testers use TPS to measure how many operations a server, payment switch or API can complete under load.

    In load testing, a team ramps up simulated users and watches TPS climb until response times degrade or errors appear. That peak is the system’s practical capacity. Visa uses the same framing when it says VisaNet can handle more than 65,000 transaction messages a second, a figure from the company’s own fact sheet.

    Blockchains borrowed the vocabulary. The difference is that a blockchain’s ceiling is set by consensus rules everyone can read, not by how many servers a company bought.

    How a blockchain’s TPS is set

    Every public blockchain has three dials that determine throughput. Change any one and TPS changes.

    Block size or gas limit. This caps how much data or computation fits in one block. Bitcoin caps block weight at 4 million weight units, which works out to a bit under 1 MB of typical transaction data. Ethereum uses a gas limit, which stood at 30 million for years and was raised in stages during 2025 to 45 million.

    Block time. This is how often a new block is produced. Bitcoin targets ten minutes. Ethereum produces a block every 12 seconds. Solana targets a 400-millisecond slot.

    Transaction size. A simple Bitcoin payment with one input and two outputs takes roughly 140 virtual bytes. On Ethereum a plain ETH transfer costs 21,000 gas, while a token swap through a decentralized exchange can burn 100,000 to 150,000 gas or more.

    Divide capacity per block by transaction size, then divide by block time, and you get a theoretical ceiling. Here is that math for the two largest networks.

    Network Capacity per block Typical transaction Max per block Block time Theoretical TPS
    Bitcoin (pre-SegWit math) 1,000,000 bytes ~250 bytes ~4,000 600 s ~7
    Bitcoin (SegWit payments) ~1,000,000 vbytes ~140 vbytes ~7,000 600 s ~12
    Ethereum, simple transfers 45,000,000 gas 21,000 gas ~2,140 12 s ~178
    Ethereum, DEX swaps 45,000,000 gas ~150,000 gas ~300 12 s ~25

    Notice how Ethereum’s “TPS” swings from 178 to 25 depending on what people are doing. That is why observed throughput sits well below any theoretical figure. Real blocks hold a mix of cheap and expensive transactions, and blocks are not always full.

    The famous “Bitcoin does 7 TPS” line comes from the first row. It was a fair ceiling in 2016. Since the SegWit upgrade in 2017 the practical limit is a bit higher, but typical observed throughput is still in the 3 to 7 range because blocks carry plenty of larger multi-input transactions.

    Theoretical versus live TPS

    Flow diagram showing three levels of blockchain TPS measurement: theoretical maximum, peak observed, and average live throughput

    We think of three different numbers whenever anyone quotes TPS.

    Theoretical maximum. What the rules allow if every block were stuffed with the smallest possible transactions. This is the number in whitepapers and marketing decks.

    Peak observed. The highest sustained rate seen on the live network, usually during a congestion event such as a popular token launch.

    Average live. What the chain actually does on a normal day. This is the only number that tells you what using the network feels like.

    Solana illustrates the gap. The project’s documentation and marketing have long cited a theoretical figure of 65,000 TPS. Explorer data over 2024 and 2025 shows total throughput commonly in the low thousands per second, and a large share of that total consists of validator vote transactions. Strip those out and user transactions typically land somewhere in the hundreds to low thousands.

    That is still far faster than Ethereum’s base layer. It is just not 65,000.

    Why vote transactions matter

    Solana validators vote on the chain’s state by sending transactions, and those votes are counted in the headline TPS on many dashboards. The votes are real work for the network, but they are not payments or trades. A reader comparing Solana’s number to Ethereum’s, where consensus votes travel outside the transaction count, is comparing different things.

    The honest comparison uses “non-vote” or “user” transactions. Most Solana explorers now show both.

    Ethereum rollups and “operations”

    Ethereum’s layer 2 networks introduced another wrinkle. A single transaction on a rollup can bundle several user actions. L2BEAT, the most widely used independent tracker, therefore reports “user operations per second” rather than raw TPS, and the combined figure across Ethereum rollups ran into the hundreds of operations per second during 2025.

    Again, useful data. Again, not directly comparable to a raw transaction count elsewhere.

    TPS across different blockchains

    The table below gives structural facts that do not change often, plus the observed ranges we consider defensible from public explorer data as of late 2025. Live figures move by the hour, so treat the ranges as orientation and check an explorer before relying on them.

    Network Block or slot time Typical observed TPS Claimed or theoretical ceiling Time to strong finality
    Bitcoin ~10 minutes 3 to 7 ~7 to 12 ~60 minutes (6 confirmations)
    Ethereum (layer 1) 12 seconds 15 to 30 25 to ~178 depending on mix ~13 minutes (2 epochs)
    Solana ~400 ms hundreds to low thousands (non-vote) 65,000 ~13 seconds (32 slots)
    Arbitrum One (optimistic rollup) sub-second sequencer tens to hundreds thousands 7-day challenge window for L1 withdrawals
    Base (optimistic rollup) 2 seconds tens to hundreds thousands 7-day challenge window for L1 withdrawals
    Bitcoin Lightning off-chain, instant not meaningfully capped not capped instant between channel partners

    A few observations.

    Bitcoin is slow by design. Ten-minute blocks and a small block size keep the cost of running a full node low, which is the point. Anyone with a modest laptop and a few hundred gigabytes of storage can verify the whole chain.

    Ethereum’s base layer deliberately stopped chasing raw TPS. Since the Dencun upgrade in March 2024, which added cheap “blob” data space for rollups, and the Pectra upgrade in May 2025, which doubled the blob target, the plan has been to scale through layer 2 networks rather than bigger layer 1 blocks.

    Solana’s speed comes from a different trade. Validators need powerful hardware and fast connections, which raises the cost of participating in consensus. Fewer people can run a validator, and the network has had several multi-hour outages between 2021 and February 2024.

    Lightning does not belong on the same axis at all. Payments happen in private channels and only the opening and closing touch the Bitcoin chain, so there is no block limit to divide by.

    Blockchains versus Visa, ACH and FedNow

    The “Visa does 65,000, Bitcoin does 7” comparison is everywhere. It is misleading in both directions.

    Payment rail Settlement model Stated or typical throughput What “final” means
    Visa (VisaNet) Authorization now, settlement in batches later Capacity of 65,000+ messages per second per Visa; average load in the low thousands per second based on reported annual volume Chargebacks possible for months
    ACH Batch files, settled same day or next day More than 30 billion payments a year per Nacha, processed in batches, so per-second rate is not the design goal Returns possible for days to 60 days
    FedNow (launched July 2023) Real-time gross settlement Designed for continuous instant payments Irrevocable on completion
    Bitcoin Global broadcast, probabilistic finality 3 to 7 TPS Practically irreversible after ~6 blocks
    Solana Global broadcast, fast finality Hundreds to low thousands (non-vote) Finalized in ~13 seconds

    Visa’s 65,000 is a capacity claim, not a daily average. The company reports annual volume in the hundreds of billions of transactions, and spreading that across a year works out to an average in the single-digit thousands per second.

    More importantly, a Visa authorization is a promise, not a settlement. Money moves between banks later, and the payment can be reversed. A confirmed Bitcoin or Solana transaction is settlement itself. Comparing a blockchain’s TPS to a card network’s message rate is a bit like comparing a courier’s deliveries to a call center’s phone calls.

    That said, the gap is real for retail payments. Nobody is going to run a coffee shop on Bitcoin’s base layer, which is exactly why Lightning and the Ethereum rollups exist.

    How layer 2 networks raise TPS

    A layer 2 is a separate network that processes transactions off the main chain and periodically posts a compressed record back to it. The main chain, or layer 1, becomes the court of final appeal rather than the place every trade happens.

    Optimistic rollups

    Arbitrum, Optimism and Base batch thousands of transactions, post the data to Ethereum, and assume the batch is valid. Anyone can challenge a fraudulent batch for a set period, typically seven days. Fast and cheap for users, but moving funds back to Ethereum through the standard bridge waits out that window.

    Zero-knowledge rollups zkSync, Starknet, Scroll and others post a cryptographic proof that the batch is valid. No challenge window is needed, so withdrawals to layer 1 can finish in hours. Generating proofs is computationally heavy, which has historically meant higher operating costs for the network.

    State channels

    Lightning is the clearest example. Two parties lock funds on-chain, exchange signed updates privately as often as they like, and settle once. Ideal for repeated small payments between known counterparties.

    Each approach lifts throughput by taking work off the base layer. The cost is new trust assumptions, which we cover under risks.

    Why TPS is the wrong single number

    Throughput tells you how many cars a highway moves per hour. It tells you nothing about how long your own trip takes, whether the road closes in bad weather, or who gets to add lanes.

    Latency and finality. A chain can confirm your transaction in a block within seconds yet not consider it final for minutes. Ethereum includes transactions every 12 seconds but reaches economic finality after about two epochs, roughly 13 minutes. Bitcoin never reaches absolute finality; the convention of waiting six blocks is a risk judgment, not a rule.

    Failed transactions. High TPS counts can include transactions that landed on-chain but did nothing useful. During the memecoin surge on Solana in April 2024, a large share of user transactions failed to execute because of network congestion, even as dashboards showed healthy throughput.

    Fees under load. Ethereum’s base layer processed roughly the same TPS in 2021 as it does today, but during the NFT boom a simple swap regularly cost more than $50 in gas. Throughput did not change; demand did. If you want the background on that boom, our “nft explained” piece covers what was actually being traded.

    Decentralization. The simplest way to raise TPS is to require bigger, faster validators. Every chain that advertises very high numbers has made that trade to some degree. Vitalik Buterin’s “scalability trilemma” framing, where you pick two of scalability, security and decentralization, is a simplification, but it is a useful one.

    Who is counting. We have already seen vote transactions, bundled operations and theoretical ceilings. Always ask what was counted and over what window.

    What TPS means for a US reader

    Most Americans interact with a blockchain’s throughput in two moments: when they move money during a busy period and when they file taxes.

    Congestion and your money

    When a market crashes, everyone tries to transact at once. Base-layer fees spike and transactions queue. During the May 2022 collapse of the Terra ecosystem, and again in the November 2022 FTX failure, users reported long waits and high fees across several networks while trying to move funds.

    If you are considering whether a sell-off has reached the point of forced selling, our “capitulation definition” explainer describes that stage of a market. The practical point here is that in those hours, the network’s advertised TPS is irrelevant. What matters is whether your transaction gets into a block at a fee you can stomach.

    Traders who rely on speed feel this most. A “scalping trading strategy” that depends on getting in and out within seconds is hostage to the chain’s latency and fee market, which is why most high-frequency crypto trading happens on centralized exchanges rather than on-chain.

    Taxes: every fast transaction is still a taxable event

    Under IRS Notice 2014-21, the IRS treats cryptocurrency as property. Every sale, swap or use of crypto to pay for something is a disposal that can trigger a capital gain or loss.

    A high-TPS chain does not change that rule. It changes how many taxable events you can create. Someone who makes 400 token swaps in a month on Solana or Base has 400 disposals to report, each with its own cost basis and holding period.

    Gas fees add another layer. Paying a fee in ETH or SOL is itself a disposal of that ETH or SOL. In practice most tax software adds fees to your cost basis or subtracts them from proceeds, but you still need the records.

    Starting with 2025 transactions, custodial brokers such as US exchanges report gross proceeds on Form 1099-DA, with cost basis reporting phasing in for 2026. Our “1099-da” guide walks through the form. Self-custody wallets and decentralized exchanges do not issue it, and the IRS rule that would have required certain DeFi front-ends to report was repealed by Congress in April 2025. The reporting burden for on-chain activity therefore sits with you.

    One more unsettled area: the IRS has not issued specific guidance on whether bridging the same asset from layer 1 to a layer 2 is a taxable event. Many practitioners treat a like-for-like bridge as a non-taxable transfer. Keep records either way.

    No deposit insurance, no required speed

    No federal law sets a minimum TPS for a blockchain, and no regulator certifies throughput claims. The figures in a project’s marketing are not audited disclosures.

    More broadly, crypto held on-chain or at an exchange is not FDIC insured and not SIPC protected. Both agencies have said so publicly. A fast chain that halts, gets exploited or simply loses user interest can leave holders with tokens worth nothing, and no insurance fund steps in.

    Before you rely on a fast chain

    A high TPS figure says nothing about whether a network stays online, whether your transaction will execute during a rush, or whether the token holds any value. Crypto can lose all of its value and is not FDIC or SIPC insured.

    Risks that scale with throughput

    Outages. Solana’s history shows that pushing hardware to the edge can bring the whole network down. Its February 2024 outage lasted around five hours. Bitcoin and Ethereum have had no comparable base-layer halts in years, partly because they ask less of each node.

    Layer 2 trust assumptions. Most rollups still run a single sequencer operated by the project, and many retain upgrade keys that could change the rules. L2BEAT publicly grades rollups on these points, and as of late 2025 only a minority had reached its most decentralized stage. Your transactions are fast, but a centralized operator sits in the path.

    Bridges. Moving assets between chains to chase throughput means using bridges, which have been the single largest source of crypto theft. The Ronin bridge lost roughly $600 million in March 2022 and the Wormhole bridge about $320 million in February 2022. A high-TPS destination is worthless if the route there is unsafe.

    Spam and inflated metrics. Because TPS is a marketing number, some networks have seen bursts of near-zero-value transactions that lift the count without lifting adoption. A dashboard spike is not proof of real users.

    Validator concentration. Heavy hardware requirements concentrate validators in data centers run by a handful of hosting providers. That is a censorship and availability risk that no TPS chart shows.

    How to check a TPS claim yourself

    You do not need special tools. Every public chain has a block explorer, and the arithmetic takes a minute.

    How to verify a blockchain's TPS

    1. Open a public block explorer for the chain and find the latest blocks.
    2. Note the average time between blocks over the last 20 or so blocks.
    3. Note the number of transactions in each of those blocks, and exclude validator votes if the explorer separates them.
    4. Divide total transactions by total seconds to get live TPS.
    5. Compare that figure with the project’s advertised number and with the theoretical ceiling from its block size and block time.

    If the advertised number is ten or a hundred times what you just calculated, you are looking at a theoretical ceiling or a testnet result, not the live network.

    Common TPS calculation pitfalls

    We see the same mistakes repeated in articles, pitch decks and forum posts.

    Mixing windows. A one-second peak during a token launch is not an average. Insist on the window: one minute, one hour, one day.

    Counting consensus traffic. Validator votes, system transactions and internal calls can double or triple a headline number.

    Quoting testnets. Test networks run on controlled hardware with simulated load. Mainnet, with adversarial traffic and real economic stakes, is always slower.

    Ignoring failures. A transaction that lands but reverts still counts on many dashboards. Useful throughput is lower.

    Comparing settlement to messaging. Visa messages, ACH batches and blockchain confirmations are different units. Line them up only after defining what each one guarantees.

    Treating TPS as speed. Throughput and latency are separate. A chain with 2,000 TPS and 15-minute finality can feel slower for a single withdrawal than one with 30 TPS and quick finality.

    Where blockchain throughput is heading

    Ethereum’s roadmap continues to add blob capacity for rollups, with data-availability sampling in development to let the network carry far more rollup data without raising hardware requirements for ordinary nodes. The stated goal is to scale through layer 2 rather than inflate base-layer blocks.

    Solana’s developers have been working on an alternative validator client and network upgrades aimed at both higher throughput and better resilience under load, after the congestion problems of 2024.

    Bitcoin’s base layer is unlikely to change meaningfully. Throughput growth there happens on Lightning and other second-layer systems.

    None of this tells you what any token will be worth, and we do not make price calls. It does mean that the TPS tables above will keep moving, and the counting conventions will keep shifting with them. The habit worth keeping is to ask three questions of every number: what was counted, over what window, and on which network.

    FAQ

    What is transactions per second in simple terms?

    It is the number of transactions a network confirms every second, averaged over some period. For a blockchain, the ceiling is set by how much fits in a block and how often blocks are produced.

    Which blockchain has the highest TPS?

    Among major networks, Solana consistently shows the highest observed throughput, in the hundreds to low thousands of user transactions per second once validator votes are excluded. Its 65,000 figure is a theoretical ceiling, not a daily average. Several newer chains claim higher ceilings, but claims and live mainnet data are different things.

    Why does Bitcoin only handle about 7 transactions per second?

    Bitcoin produces a block roughly every ten minutes and limits block weight to 4 million units. Divide the roughly 2,000 to 7,000 transactions that fit in a block by 600 seconds and you get single digits. The limit is deliberate, to keep the cost of running a full node low.

    Is a higher TPS always better?

    No. Higher throughput usually requires more powerful validators, which reduces the number of people who can participate in consensus, and it does not guarantee uptime or low fees during a rush. Finality time, fee stability and decentralization matter as much as the raw count.

    Does a blockchain’s TPS affect my US taxes?

    Indirectly. The IRS treats crypto as property under Notice 2014-21, so each swap or sale is a taxable event regardless of the chain. Fast, cheap networks make it easy to rack up hundreds of disposals that all need cost-basis records. Custodial exchanges report proceeds on Form 1099-DA; on-chain and self-custody activity you must track yourself.

    How does TPS differ from finality?

    TPS is how many transactions get processed per second. Finality is how long until a transaction cannot be reversed. Ethereum includes transactions every 12 seconds but finalizes after about 13 minutes, while Bitcoin’s six-confirmation convention takes about an hour. A withdrawal from an optimistic rollup to Ethereum through the standard bridge waits a seven-day challenge window no matter how fast the rollup itself runs.

  • What a Ponzi scheme is and how crypto Ponzi schemes work

    What a Ponzi scheme is and how crypto Ponzi schemes work

    A Ponzi scheme is an investment fraud that pays earlier investors with money collected from newer ones, while the operator claims the “returns” come from a real business. Nothing is actually being invested, so the scheme survives only as long as new deposits outpace withdrawals. Crypto has become the fastest-growing home for this fraud because it combines big return expectations with assets that are hard to verify.

    Named afterCharles Ponzi, Boston, 1920
    Core tricknew money pays old investors
    Largest everMadoff, $64.8 billion on paper
    Crypto examplesBitConnect, OneCoin, PlusToken, Forsage
    US regulatorsSEC, CFTC, DOJ, state securities agencies
    As ofOctober 2026

    Before you put money in

    If an investment promises steady or guaranteed returns, especially in crypto, treat that as the single strongest sign of a Ponzi scheme. Crypto can lose all its value and is not FDIC or SIPC insured, and money handed to a Ponzi operator is usually gone for good.

    Where the word “Ponzi” comes from

    The scheme is named after Charles Ponzi, an Italian immigrant who ran his fraud out of Boston in 1920. He told investors he could profit by buying international postal reply coupons cheaply abroad and redeeming them in the United States at a higher value. He promised a 50% return in 45 days, or 100% in 90 days.

    The coupon trade was real but tiny. Ponzi never bought coupons in any meaningful volume. He simply paid the first investors with deposits from the next wave, and word of mouth did the rest. When the Boston Post started digging in late July 1920 and the arithmetic fell apart that August, investors lost roughly $20 million, a fortune at the time. Ponzi went to federal prison, and his name became the label for every “rob Peter to pay Paul” fraud since.

    He was not the first. Sarah Howe’s Ladies’ Deposit in the 1880s and William “520 Percent” Miller in 1899 ran the same play. Ponzi was simply the one who got famous enough to lend his name to it.

    How a Ponzi scheme works

    Every Ponzi scheme has the same four moving parts, regardless of whether the pitch involves postal coupons, hedge fund trading or a crypto “arbitrage bot”.

    1. A promoter offers returns that are high, consistent or both, backed by a strategy that is vague or “proprietary”.
    2. Early investors receive the promised payments on time. Those payments come from later deposits, not profits.
    3. Satisfied early investors recruit friends and family, giving the promoter free marketing and social proof.
    4. The operator skims money for personal use while encouraging everyone to “reinvest” rather than withdraw.

    The math guarantees collapse. Here is a simplified example of a scheme promising 10% per month, with each investor putting in $10,000 and everyone collecting their returns in cash.

    Month New investors Cash in Owed to all investors Cumulative shortfall
    1 10 $100,000 $10,000 $0
    2 20 $200,000 $30,000 $0
    3 40 $400,000 $70,000 $0
    6 320 $3.2 million $630,000 $0
    12 20,480 $204.8 million $40.9 million $0

    The scheme looks healthy only because recruitment doubles every month. The moment growth slows, or a wave of investors asks for principal back, the cash runs out. In Madoff’s case the trigger was the 2008 financial crisis, when clients requested about $7 billion in redemptions that did not exist. Prosecutors found that Madoff’s firm had not executed a single trade for clients in years, despite account statements showing $64.8 billion in balances. Investors’ actual lost principal came to about $17.5 billion according to the court-appointed trustee, and Madoff received a 150-year sentence in 2009.

    Ponzi scheme vs pyramid scheme vs real investing

    Three-column flow diagram comparing a Ponzi scheme, a pyramid scheme, and a legitimate fund across four labeled rows: source of pay, who recruits, investor return, and collapse trigger

    People use “Ponzi” and “pyramid” interchangeably, but regulators separate them.

    Feature Ponzi scheme Pyramid scheme Legitimate fund
    Who recruits The operator Each participant No recruiting needed
    What investors think they own Shares in a trading strategy A product distributorship Audited assets
    Source of payouts New deposits Recruitment fees Actual returns
    Returns Steady, often guaranteed Depends on your downline Variable, can be negative
    Ends when New money dries up Recruitment stalls Never required to

    Many crypto frauds blend both models: a central “platform” fakes returns like a Ponzi while paying multi-level referral bonuses like a pyramid. The Securities and Exchange Commission treats both as securities fraud when an investment of money is involved.

    How crypto Ponzi schemes work

    Crypto gives a Ponzi operator three advantages that Charles Ponzi never had.

    First, verification is hard. A fund manager who claims to hold Treasury bonds can be checked against a custodian statement. A platform that claims to run a “trading bot” or to stake tokens across chains can show you a dashboard that is nothing more than a web page. The balance you see is a number in a database, not a wallet you control.

    Second, the token itself can be the bait. Operators create a coin, control most of the supply, and tell investors the price can only rise. Paying “returns” in that token costs the operator nothing until people try to sell.

    Third, payments are fast, global and often irreversible, which makes recovery harder once the scheme ends.

    The biggest cases follow the same script:

    • BitConnect promised daily returns from a “volatility software trading bot” and paid referral commissions through a multi-level structure. The platform shut its lending program in January 2018, and the SEC later charged founder Satish Kumbhani, alleging the scheme defrauded retail investors worldwide of about $2 billion, while a separate federal grand jury indictment put the figure at $2.4 billion. Lead US promoter Glenn Arcaro pleaded guilty to conspiracy.
    • OneCoin sold “packages” of a coin that was never even on a blockchain. Co-founder Ruja Ignatova, the self-styled “Cryptoqueen”, disappeared in 2017 and sits on the FBI’s Ten Most Wanted list. Co-founder Karl Sebastian Greenwood was sentenced to 20 years in US federal prison in 2023, with investors losing an estimated $4 billion.
    • PlusToken drew in mostly Chinese and Korean investors in 2018 and 2019 with promises of monthly wallet “dividends” before operators vanished with billions in crypto, which later moved through exchanges and depressed prices when it was sold.
    • Forsage was a smart-contract “matrix” that the SEC charged in August 2022 as a pyramid and Ponzi scheme, alleging it raised more than $300 million. The code paid earlier participants from new ones automatically, which prosecutors argued made the fraud transparent rather than legitimate.

    The scale keeps growing. The FBI’s Internet Crime Complaint Center reported $3.94 billion in losses from crypto investment fraud in 2023, the largest share of the $4.57 billion in investment fraud losses that topped its annual report, and investment fraud losses rose to $5.8 billion in its 2024 report. Many of those complaints involve “pig butchering” schemes that use fake trading platforms to show fictitious gains, which is a Ponzi structure run by a scam compound rather than a single promoter.

    Red flags the SEC tells investors to watch for

    The SEC’s investor education site lists the warning signs below. If you see two or more, stop and verify before sending anything.

    • Returns that are high with little or no stated risk. Every real investment that can gain can also lose.
    • Returns that are suspiciously consistent regardless of market conditions. Madoff reported gains in months when the market dropped.
    • Investments not registered with the SEC or state regulators, and sellers who are not licensed.
    • Strategies described as secret, too complex to explain, or “proprietary AI”.
    • Paperwork errors, missing statements, or a refusal to show audited financials.
    • Difficulty withdrawing money, or pressure to “roll over” rather than cash out.
    • Referral bonuses for bringing in new investors.

    How to check an investment before you commit

    1. Search the person and firm on FINRA BrokerCheck and the SEC’s Investment Adviser Public Disclosure database.
    2. Look up the offering on SEC EDGAR; most legitimate funds and token offerings file something.
    3. Check your state securities regulator’s licensing database through the North American Securities Administrators Association.
    4. For a crypto exchange, confirm it is registered as a money services business in FinCEN’s MSB registrant search.
    5. Ask for audited financial statements naming the auditor, then call the auditor directly.

    What US law says and what you can get back

    A Ponzi scheme violates federal securities law when the investment meets the Howey test from the 1946 Supreme Court case SEC v. W.J. Howey Co.: an investment of money in a common enterprise with an expectation of profit from the efforts of others. That covers nearly every crypto yield platform. Operators face civil action from the SEC, and criminal charges from the Department of Justice under the securities fraud statutes and the federal wire fraud statute (18 U.S.C. 1343). The Commodity Futures Trading Commission can also bring charges under the Commodity Exchange Act when the scheme involves spot crypto or derivatives.

    Recovery runs through a court-appointed receiver or bankruptcy trustee. Two facts surprise most victims. First, recoveries are partial and slow: the Madoff trustee has returned over $14 billion of the $17.5 billion in lost principal, which is unusually high, and it took more than a decade. Most crypto cases return cents on the dollar. Second, “net winners” who withdrew more than they deposited can be sued by the trustee to give the excess back under fraudulent transfer law. Profiting from a Ponzi scheme early does not protect you.

    How the IRS treats Ponzi losses

    The IRS treats crypto as property under Notice 2014-21, so an ordinary drop in a coin’s price is a capital loss. A Ponzi loss is different. Under Revenue Ruling 2009-9 and Revenue Procedure 2009-20, money stolen in a Ponzi scheme is a theft loss from a transaction entered into for profit, which stays deductible under Internal Revenue Code Section 165(c)(2) even though the 2017 tax law suspended most personal theft losses through 2025.

    The safe harbor lets you deduct 95% of your qualified investment in the year the lead figure is charged, or 75% if you are pursuing recovery from third parties, without waiting years to learn the final recovery amount. “Qualified investment” means cash you put in plus any phantom income you reported and paid tax on, minus withdrawals. Keep every statement, since exchanges now report crypto sales on Form 1099-DA and you will need to reconcile what was real against what was fiction.

    Where to report a suspected Ponzi scheme

    • SEC: submit a tip or complaint through the SEC’s Tips, Complaints and Referrals system.
    • CFTC: file a tip for commodity or crypto derivatives fraud.
    • FBI: file at the Internet Crime Complaint Center, IC3, especially for crypto cases with wallet addresses and transaction hashes.
    • FTC: ReportFraud.ftc.gov for consumer-facing schemes.
    • Your state securities regulator, which often moves faster on local promoters.

    Report even if your loss is small. Regulators build cases from patterns, and your complaint can be the one that connects a dozen others.

    FAQ

    What is a Ponzi scheme in simple terms?

    A Ponzi scheme is a fake investment where the operator uses money from new investors to pay returns to earlier ones, instead of earning profits. It collapses when new money stops coming in.

    Why is it called a Ponzi scheme?

    The name comes from Charles Ponzi, who ran a postal reply coupon fraud in Boston in 1920 that collapsed with around $20 million in losses. Similar schemes existed before him, but his became the household name.

    Is Bitcoin itself a Ponzi scheme?

    No. Bitcoin has no operator promising returns and no mechanism that pays old holders from new deposits. It is a volatile asset that can fall sharply or lose all its value, which is a different risk from fraud. Ponzi schemes are built on top of crypto by people who promise yields.

    How is a crypto Ponzi scheme different from a traditional one?

    The structure is identical. Crypto versions are harder to verify because “returns” can be displayed on a dashboard or paid in a token the operator controls, and funds move across borders in minutes. That makes recovery less likely.

    Can I get my money back from a Ponzi scheme?

    Sometimes, partially. Court-appointed receivers and trustees distribute recovered assets, but most crypto cases return a small fraction. You can also claim a theft loss on your federal taxes under the IRS safe harbor in Revenue Procedure 2009-20.

    Can I be sued if I made money in a Ponzi scheme?

    Yes. Trustees routinely sue “net winners” to claw back withdrawals above their original deposits, since that money came from other victims.

  • What is an NFT and how do NFTs work

    What is an NFT and how do NFTs work

    An NFT, short for non-fungible token, is a unique digital record stored on a blockchain that says who controls a specific item, usually a piece of digital art, a game item, a music file or a membership pass. You can trade it, prove you hold it and move it between wallets, but it is not insured, its value can fall to zero, and the IRS taxes it as property. This guide explains how NFTs actually work, what they cost, where the risks sit and how US tax rules apply.

    NFT stands fornon-fungible token
    Main blockchainEthereum, plus Solana, Bitcoin, Polygon
    Key standardsERC-721 and ERC-1155
    IRS treatmentproperty, sometimes a collectible
    Insurancenone, not FDIC or SIPC
    Peak sale$69.3 million, Christie's, March 2021

    NFT meaning: what “non-fungible” means

    Fungible means interchangeable. One dollar bill is worth exactly the same as any other dollar bill, and one bitcoin is the same as any other bitcoin. You can swap them with nobody caring which one they got.

    Non-fungible means one of a kind. A signed first-edition book, a house, your passport. Each has its own identity and history, so you cannot swap it one-for-one with another and call it even.

    An NFT applies that idea to digital files. Before NFTs, a JPEG could be copied a million times with no way to say which copy was “the” original. An NFT creates a single blockchain entry tied to that file, with a serial number and an owner address. The file itself can still be copied. The token cannot.

    Feature Fungible token (bitcoin, ETH, USDC) Non-fungible token (NFT)
    Interchangeable? Yes, every unit identical No, each token has a unique ID
    Divisible? Yes, down to fractions Usually no, you hold whole tokens
    Typical use Money, payments, trading Art, collectibles, game items, tickets, memberships
    Ethereum standard ERC-20 ERC-721, ERC-1155
    Value driver Supply, demand, utility as money Scarcity, creator, community, utility of the specific item

    How NFTs work, step by step

    Flow diagram showing the four steps of NFT creation and transfer: Upload File, Mint Token, Record Ownership, Transfer via Sale

    An NFT lives inside a smart contract, which is a program running on a blockchain. On Ethereum, most NFTs follow the ERC-721 standard, finalized in 2018, which defines a token with a unique ID and an owner. ERC-1155 came later and lets one contract issue both unique items and batches of identical items, which is why games prefer it.

    Creating an NFT is called minting. The creator uploads a file, writes the metadata (name, description, traits) and calls the contract to issue the token. The token points to the file’s location. Many projects store the actual image on IPFS, a decentralized file system, while some store it on a regular web server. That distinction matters, and we come back to it under risks.

    Ownership is just an entry saying “token #4821 belongs to wallet 0xAB12…”. When you sell, the contract updates that entry. Anyone can look up the full history on a block explorer such as Etherscan. That public, tamper-resistant record is the whole point.

    You hold NFTs in a crypto wallet. Software wallets like MetaMask or Phantom hold the private keys on your device. A hardware wallet keeps keys offline. Whoever controls the keys controls the NFT, so losing a seed phrase or signing a malicious transaction loses the token for good. There is no customer service line that can reverse it.

    What you actually own

    This is where many buyers get burned. Holding an NFT typically does not give you copyright. You own the token. The creator usually keeps the intellectual property unless the project’s license says otherwise. Some collections, including Bored Ape Yacht Club, grant holders commercial rights to their specific image. Many others grant personal display rights only. Read the license before you assume you can print T-shirts.

    Where NFTs show up in practice

    Profile-picture collections such as CryptoPunks and Bored Ape Yacht Club drove the 2021 boom. Holders used them as social identity, and some projects attached community perks: private chat rooms, event access, merchandise drops.

    Games use NFTs for characters, land and gear. Axie Infinity’s play-to-earn model drew millions of players in 2021, mostly in the Philippines and Venezuela, before its in-game token collapsed and the Ronin bridge was hacked for roughly $600 million in March 2022. NBA Top Shot sold officially licensed video highlights as NFTs on the Flow blockchain.

    Beyond collectibles, NFTs have been tested for concert tickets, domain names (Ethereum Name Service addresses like yourname.eth are NFTs), music royalties and tokenized real-world assets. Bitcoin joined the field in January 2023 when the Ordinals protocol enabled inscriptions on individual satoshis.

    Notable sale Date Reported price Why it mattered
    Beeple, “Everydays: The First 5000 Days” March 2021 $69.3 million at Christie’s First major auction house NFT sale
    CryptoPunk #5822 February 2022 About $23.7 million (8,000 ETH) Highest CryptoPunk sale on record
    Jack Dorsey’s first tweet March 2021 About $2.9 million Resold attempt in 2022 drew bids under $300
    Bored Ape Yacht Club Launched April 2021 Mint price 0.08 ETH, roughly $190 then Became the signature “club membership” NFT

    Those headline prices tell you what a handful of items fetched at the peak. They say nothing about what a typical NFT is worth, which is usually very little.

    What it costs to create, buy or sell an NFT

    NFTs have fees at every step. Blockchain “gas” pays validators to process your transaction, marketplaces take a cut, and many contracts pay the original creator a royalty on each resale. Gas on Ethereum swings with network traffic; in 2021 a single mint could cost over $100, while quiet periods and layer-2 networks like Polygon or Base bring it under a dollar.

    Here is a worked example for selling an NFT you bought for $500 on an Ethereum marketplace. The fee percentages are illustrative; check each marketplace’s current disclosure.

    Item Amount
    Purchase price $500
    Gas to buy (variable) $8
    Sale price six months later $650
    Marketplace fee at 2.5% $16.25
    Creator royalty at 5% $32.50
    Gas to list and transfer $6
    Net proceeds before tax $595.25
    Gain subject to tax About $87

    Notice how a $150 paper profit shrinks to under $90 once fees come out, before any tax. On a $50 NFT the same fee structure can wipe out the gain entirely.

    Before you spend money on an NFT

    Most NFTs minted in 2021 and 2022 now trade for a tiny fraction of their peak or do not trade at all. Treat any money spent as money you can afford to lose completely, because there is no deposit insurance, no refund mechanism and often no buyer when you want out.

    The main risks

    Total loss of value. NFTs are illiquid. A fungible coin can be sold on an exchange in seconds; an NFT needs a specific buyer who wants that specific item. When demand dries up, the price does not fall gradually, it simply stops existing. Several research firms tracking NFT markets reported in 2023 that the large majority of collections had a market value near zero. If you look up a “capitulation definition” in crypto, the NFT market in late 2022 is a textbook case.

    No insurance. FDIC insurance covers bank deposits. SIPC covers brokerage accounts. Neither covers crypto or NFTs. If a marketplace fails, is hacked or freezes withdrawals, you are an unsecured creditor at best.

    Custody and phishing. The most common way people lose NFTs is signing a transaction they did not understand. A fake mint page asks you to “approve” and the signature hands a scammer permission to move everything in your wallet. Wallet drainers stole hundreds of millions of dollars in crypto and NFTs across 2022 and 2023, according to blockchain security firms.

    Broken links. If the token points to an image on a normal web server and the project shuts down, you own a token that points at nothing. Projects that store files on IPFS or fully on-chain are more durable.

    Wash trading and rug pulls. Because anyone can trade with themselves across two wallets, volume and price history can be faked. Chainalysis documented wash trading across NFT marketplaces in its crypto crime reports. A rug pull is when founders take mint money and disappear, which happened repeatedly in 2021 and 2022.

    Legal uncertainty. Some NFT sales have been treated as unregistered securities offerings. In August 2023 the SEC charged Impact Theory, which agreed to pay about $6.1 million, and in September 2023 it charged Stoner Cats 2, which paid a $1 million penalty. Both projects had marketed NFTs with promises about future value. The agency’s stance softened in 2025, when it closed its OpenSea investigation without charges, but a project that sells tokens with investment promises still carries securities-law risk for its creators and holders.

    Lower-risk ways to learn

    Set up a test wallet with nothing in it and practice signing on a testnet before touching real funds.
    Claim a free mint from a known project to see how gas and metadata work.
    Keep any NFT you care about in a hardware wallet separate from the wallet you use to interact with new sites.

    US rules and taxes on NFTs

    The IRS has treated virtual currency as property since Notice 2014-21, and that framework extends to NFTs. Buying an NFT with ETH is a taxable disposal of the ETH. Selling the NFT later is a second taxable event. Minting your own and selling it produces ordinary income, and creator royalties are ordinary income too.

    In March 2023 the IRS issued Notice 2023-27, announcing it intends to treat certain NFTs as collectibles using a “look-through” test: if the NFT represents a collectible under the tax code, such as artwork or a gem, the NFT is a collectible. Long-term gains on collectibles are taxed at a maximum 28% rate instead of the 0%, 15% or 20% rates for other capital assets. Short-term gains are ordinary income either way.

    Every Form 1040 now asks whether you received, sold or disposed of a digital asset during the year. Answer it honestly. Starting with sales on or after January 1, 2025, US brokers including custodial marketplaces must report gross proceeds on Form 1099-DA, so the IRS will see centralized-platform sales directly. Our “1099-da” explainer walks through what the form includes. Peer-to-peer and self-custody sales are not on that form but remain taxable.

    Event Tax treatment
    Buy NFT with ETH Capital gain or loss on the ETH spent
    Sell NFT held under one year Short-term gain, ordinary income rates
    Sell NFT held over one year Long-term gain, up to 28% if a collectible
    Mint and sell your own NFT Ordinary income, possibly self-employment tax
    Receive creator royalties Ordinary income
    Receive an airdropped NFT Ordinary income at fair market value when you gain control
    NFT becomes worthless No deduction until you sell or abandon it

    Keep records of every wallet address, transaction hash, date and dollar value at the time. Rev. Proc. 2024-28 requires taxpayers to track cost basis wallet by wallet from 2025 onward, which makes casual record-keeping expensive to fix later.

    How to check an NFT project before spending anything

    1. Find the official contract address from the project’s verified social account, then confirm it on a block explorer.
    2. Read the license to learn what rights, if any, come with the token.
    3. Check where the image is stored: on-chain, IPFS, or a plain URL that can vanish.
    4. Look at holder distribution; a few wallets holding most of the supply is a warning sign.
    5. Search the founders’ names and the project on the SEC’s litigation releases and the FTC’s scam alerts.
    6. Report fraud to the FBI’s IC3 and the FTC at ReportFraud if you are targeted.

    FAQ

    What does NFT mean?

    NFT stands for non-fungible token. “Non-fungible” means unique and not interchangeable, and “token” means a blockchain entry controlled by a wallet. Put together, it is a one-of-a-kind digital certificate of control over a specific item.

    Are NFTs still a thing?

    Yes, but the market is much smaller than in 2021 and 2022. Trading activity, floor prices and new-project launches all fell steeply after the peak, and many 2021 collections have no active buyers. The technology continues to be used for gaming items, domain names, event tickets and tokenized assets, where the uniqueness of each token matters more than speculation.

    Are NFTs worth anything anymore?

    A small number of established collections, such as CryptoPunks, still trade for meaningful sums. The vast majority of NFTs are worth whatever a buyer will pay, and for most that is close to nothing. Research from several analytics firms in 2023 and 2024 found most collections had little or no trading volume. Price depends entirely on demand for that specific item.

    How much is 1 NFT worth?

    There is no standard price, because there is no standard NFT. One can sell for a few cents or for tens of millions of dollars, and the same token can drop from thousands to zero if interest fades. The only way to estimate value is to look at recent verified sales of comparable items in the same collection and ask whether those sales were real rather than wash trades.

    Do I owe tax if my NFT lost value?

    Only when you dispose of it. Selling at a loss lets you claim a capital loss, which offsets gains and up to $3,000 of ordinary income a year, with the rest carried forward. Simply holding a worthless NFT creates no deduction.

  • Capitulation: what it means in crypto and stock markets

    Capitulation: what it means in crypto and stock markets

    Capitulation is the moment investors give up. The capitulation definition in markets is a wave of panic selling in which holders dump an asset at almost any price because they cannot stand the losses any longer, or because a lender forces them out. The word comes from the military idea of surrender, and in crypto and stock markets it describes the same thing: the fight is over, and the sellers walk off the field.

    Plain meaningsurrender, giving up
    Market meaningpanic selling at any price
    Word formscapitulation, capitulate, capitulating
    Typical signshuge volume, sharp price drop
    Crypto insurancenone, not FDIC or SIPC
    Tax treatmentIRS treats crypto as property

    Capitulation definition: the plain-English meaning

    Open any dictionary and the entry is short. Capitulation is a noun meaning the act of surrendering, especially on agreed terms. Merriam-Webster and Cambridge both lead with the military sense: an army capitulates when it stops fighting and accepts defeat. The second, older meaning is the document that lists those surrender terms.

    The word traces back to the Latin capitulum, a “little head” or chapter, which gave rise to capitulare, to draw up an agreement under headings. A surrender was literally a list of conditions written out point by point. That is why “capitulation” and “chapter” share a root.

    The verb is capitulate. The present participle is capitulating, the adjective is capitulatory, and the plural is capitulations. A few example sentences show the range:

    • The garrison’s capitulation came after a nine-day siege.
    • She refused to capitulate to pressure from the board.
    • The team spent the fourth quarter capitulating on every drive.
    • Analysts described Friday’s crash as a classic capitulation.

    That last sentence is the one this article is about. Finance borrowed the word because it captures something ordinary price language misses. A “drop” or a “sell-off” is a number. Capitulation is a feeling, the point where holding on hurts more than letting go.

    What does capitulation mean in a market?

    In trading, capitulation means that the people who were still holding a losing position finally sell, all at once, and usually at the worst possible prices. Three groups tend to sell during a capitulation:

    1. Exhausted holders. They bought high, watched the asset fall for weeks or months, and told themselves it would recover. One more bad day breaks that story.
    2. Forced sellers. Anyone who borrowed to buy gets a margin call or an automatic liquidation. They do not choose to sell; the lender or the exchange sells for them.
    3. Funds hit by redemptions. When clients pull money, a fund has to raise cash and sells whatever it can, including good assets.

    Those three groups feed each other. Forced selling pushes the price down, which triggers more margin calls, which pushes it lower still. Volume explodes because almost everyone is on the sell side. Then, often within hours, the selling stops, because the people who were going to sell already have.

    Market commentators like to say that capitulation “washes out the weak hands.” We think that phrase is unkind, but the mechanics behind it are real. After a capitulation, the remaining holders are the ones who did not need to sell. With fewer sellers left, prices can stabilize, at least for a while.

    Signs analysts look for

    There is no official measure. Nobody rings a bell. Analysts piece together a judgment from a few signals:

    • Volume far above normal, often several times the recent daily average.
    • A sharp price gap down, meaning the asset opens well below the prior close.
    • Fear gauges at extremes. For stocks, the Cboe Volatility Index (VIX) is the usual reference. In crypto, many people watch the Crypto Fear and Greed Index published by Alternative.me, where readings from 0 to 24 count as “extreme fear.”
    • Forced-selling evidence. In crypto, that means a spike in liquidations of leveraged positions. In stocks, it shows up as margin debt falling sharply in FINRA’s monthly data.
    • A reversal the same day or soon after. The price bounces because sellers are exhausted, not because any news improved.

    The honest caveat is that all of this is a label assigned in hindsight. During the event, a capitulation looks exactly like the middle of a crash.

    Capitulation in the stock market: two examples

    The US stock market has clear circuit breakers under rules that took their current form in 2013. If the S&P 500 falls 7% from the prior close before 3:25 p.m. Eastern, trading halts for 15 minutes. A 13% drop triggers a second halt. A 20% drop ends trading for the day. Those rules exist to slow capitulation down, and twice in modern history they got a serious workout.

    Episode Peak to trough What capitulation looked like Fear reading
    2008 financial crisis S&P 500 from 1,565 (Oct 2007) to 677 (Mar 2009), about 57% Massive volume in October 2008 after Lehman Brothers failed; the final low came five months later VIX hit a record intraday high of 89.53 on Oct 24, 2008
    COVID crash, 2020 S&P 500 from 3,386 (Feb 19) to 2,237 (Mar 23), about 34% Level 1 circuit breakers tripped on March 9, 12, 16 and 18 VIX closed at a record 82.69 on Mar 16, 2020

    The 2008 example is worth a closer look because it shows how capitulation and “the bottom” are not the same thing. October 10, 2008 is still cited as one of the heaviest selling days in the history of the New York Stock Exchange. Many commentators called it capitulation. The S&P 500 then fell another 20% before bottoming on March 9, 2009. The panic in October was real. It just was not the last panic.

    March 2020 went the other way. The capitulation on March 16 and the low on March 23 were a week apart, and the market recovered its losses within about five months. Same word, two completely different follow-throughs.

    Capitulation in crypto: 2018, 2020 and 2022

    Crypto has no circuit breakers, trades 24 hours a day and lets people borrow far more against their positions than any US stock broker would allow. That makes crypto capitulations faster and deeper.

    Episode Price move (bitcoin) What forced the selling
    2018 bear market From roughly $19,800 (Dec 2017) to about $3,200 (Dec 2018), around 84% Slow grind lower all year, then a November 2018 break below $6,000 that liquidated leveraged longs
    “Black Thursday,” Mar 12, 2020 Roughly 40% lower in about 24 hours Global margin calls across every asset class; DeFi lending protocols liquidated collateral at fire-sale prices
    2022 bear market From about $69,000 (Nov 2021) to about $15,500 (Nov 2022), around 77% TerraUSD lost its dollar peg in May; Celsius froze withdrawals on June 12; Three Arrows Capital was ordered into liquidation in June; FTX filed for bankruptcy on November 11

    The 2022 cycle produced at least three separate capitulations, and that is the lesson. In May, the collapse of the Terra ecosystem wiped out a token that had ranked among the ten largest by market value within days. In June, Celsius halted customer withdrawals with bitcoin trading in the low $20,000s, and within days the price fell below $20,000 for the first time since 2020, briefly touching the $17,000s. Plenty of analysts called that the capitulation. Five months later, FTX failed, and the price fell another 15% to its cycle low.

    Each of those events cleared out leveraged positions. None of them was the final one until the last.

    Why crypto capitulations hit harder

    Four structural differences make the crypto version of capitulation more violent than the stock version.

    Leverage. Under Regulation T, a US stock broker can lend at most 50% of a purchase, and FINRA Rule 4210 requires 25% maintenance equity. Offshore crypto derivatives exchanges have advertised leverage of 50x or 100x. At 100x, a 1% move against you wipes out your entire margin. A cascade of those liquidations is what turns a 5% dip into a 20% crash.

    No trading halts. A stock capitulation pauses at 7%, 13% and 20%. A crypto capitulation at 3 a.m. on a Sunday just keeps going.

    Thin order books. Beyond bitcoin and ether, most tokens have very little real buying interest below the current price. When forced sellers hit the market, there is nobody there to catch them.

    Counterparty failure. In stocks, capitulation hurts your portfolio. In crypto, it can take down the company holding your coins. Celsius, Voyager, BlockFi and FTX customers did not just see lower prices; they lost access to their assets and became unsecured creditors in bankruptcy court, waiting years for partial recoveries.

    The risks of acting on capitulation

    Before you act on a "capitulation" call

    Nobody can identify a market bottom in real time, and in crypto an asset can capitulate all the way to zero. Crypto held on any exchange or in any wallet is not FDIC insured and is not covered by SIPC, so losses from price moves and from platform failures fall entirely on you.

    The appeal of the word is obvious. If capitulation marks the point where sellers run out, buying there sounds like a bargain. Here is what that framing leaves out.

    Capitulation is not a floor. October 2008 and June 2022 both show capitulation followed by further declines of 15% to 20%. A bounce after panic selling can be a “dead cat bounce” that fades within days.

    Some assets never come back. LUNA fell from more than $60 to fractions of a cent in May 2022 and did not recover. Thousands of smaller tokens from the 2017 and 2021 cycles are effectively worthless. In stocks, a capitulation in a single company can end in bankruptcy, where common shareholders typically get nothing.

    Forced sellers are forced for a reason. If you are the one being liquidated, “buying the capitulation” is not an option. Borrowed money removes your choice about when to sell.

    Emotion cuts both ways. The same panic that makes others sell at the low can make us freeze, average down into a dead asset, or borrow to “make it back.” Research on investor behavior, including work summarized by the SEC’s Office of Investor Education, consistently finds that individuals who trade around fear and greed underperform those who do not.

    Platform risk peaks during capitulation. Exchanges and lenders are most likely to fail exactly when prices crash, because that is when their own leveraged bets go wrong. FTX halted withdrawals on November 8, 2022 and filed for bankruptcy three days later.

    Safer ground during a panic

    Keep crypto you want to hold through a crash in self-custody or at a platform that publishes audited reserves and is registered where it operates.
    Never fund crypto with borrowed money, and never with money you need for rent, food or minimum debt payments.
    If a loss has left you behind on bills, a nonprofit credit counselor (NFCC member agencies) can set up a hardship plan at no or low cost.

    Capitulation and borrowed money

    A capitulation is when leverage does the most damage, and we want to be direct about one pattern that shows up in CFPB complaint data every cycle: people borrowing at high cost to cover crypto losses or to buy a dip.

    A payday loan carries fees that work out to annual percentage rates of 300% to 600% in the states that allow them, and it is due in full in about two weeks. Using one to buy an asset that just fell 40% means betting that the asset recovers faster than the loan compounds. If it does not, the borrower is now dealing with a crash and a debt collector at the same time. Under the Fair Debt Collection Practices Act, collectors cannot harass or lie to you, but the debt itself does not go away because the coins did.

    Margin in a brokerage account is cheaper but carries the same core problem. The broker can sell your positions without asking during a capitulation, and under FINRA rules it does not have to wait for you to meet the call first.

    What capitulation means for your taxes

    Selling at a loss during capitulation has one concrete consequence we can state with confidence: it is a taxable event, and the loss can be useful.

    Under IRS Notice 2014-21, the IRS treats cryptocurrency as property. Every sale, swap or spend is a disposal that produces a capital gain or loss, reported on Form 8949 and Schedule D. Stocks work the same way.

    The rules that matter after a loss:

    • Netting. Capital losses offset capital gains dollar for dollar, short-term against short-term first, then across categories.
    • The $3,000 limit. If losses exceed gains, you can deduct up to $3,000 of the excess against ordinary income per year under Internal Revenue Code Section 1211(b), or $1,500 if married filing separately. The rest carries forward indefinitely.
    • Wash sales. The wash sale rule in Section 1091 disallows a loss on “stock or securities” if you buy the same asset within 30 days before or after the sale. As of the 2025 tax year, no federal law has extended that rule to crypto, though Congress has proposed doing so more than once. For stocks, it absolutely applies.
    • Reporting. Starting with 2025 transactions, US crypto brokers must send Form 1099-DA showing gross proceeds, with cost basis added for assets bought in 2026 or later. The first of those forms reached taxpayers in early 2026. If you sold during a crash, expect the IRS to have a copy.

    Capitulation losses on a platform that went bankrupt are messier. Until the bankruptcy resolves and you know what you will recover, the IRS generally does not consider the loss realized. People with funds stuck at FTX or Celsius found this out the hard way, and a tax professional is worth the fee in that situation.

    Capitulation versus a crash, a correction and a bear market

    These terms get mixed together, so here is how we separate them.

    Term What it describes Typical scale
    Correction A decline from a recent high 10% to 20%
    Bear market A sustained decline 20% or more
    Crash A sudden, steep drop Often 10%+ in days
    Capitulation The panic-selling climax inside a crash or bear market A moment, not a period

    A bear market can last a year. A crash can last a week. Capitulation is the hour, day or handful of days when the selling becomes indiscriminate. You can have a crash without a clear capitulation, and a bear market can contain several.

    The opposite of capitulation is euphoria, sometimes called a blow-off top: buying at any price because everyone is afraid of missing out. November 2021 in crypto and early 2000 in dot-com stocks are the standard examples. Both words describe a crowd abandoning judgment, just in opposite directions.

    How to check a platform before a panic, not during one

    Capitulation is when platforms fail, and the time to verify one is before you need to withdraw. This is the process we use.

    How to verify a crypto platform's US registration

    1. Search the company name in FinCEN’s MSB Registrant Search to confirm it is registered as a money services business.
    2. Check your state regulator’s license lookup; New York requires a BitLicense, and most states require a money transmitter license.
    3. If the platform offers anything it calls a security or a brokerage account, look it up on FINRA BrokerCheck and the SEC’s EDGAR system.
    4. Read the terms of service for the words “custody,” “lend” and “rehypothecate” to see what the platform can do with your coins.
    5. Report anything that does not match at the CFPB complaint portal, FTC ReportFraud or the FBI’s IC3.

    FAQ

    What does capitulation mean in simple terms?

    It means giving up. In a market, capitulation is the point where investors who were holding onto losses finally sell in a panic, often all at the same time, pushing prices down sharply on very heavy volume.

    Is capitulation the same as a market crash?

    No. A crash is a fast, steep price decline. Capitulation is the emotional and mechanical climax inside a crash or bear market, when selling becomes indiscriminate. A crash can happen without a clear capitulation, and a long bear market can include more than one.

    Does capitulation mean the bottom is in?

    Not reliably. October 2008 and June 2022 were both widely called capitulations, and prices fell another 15% to 20% afterward. The label is assigned in hindsight. In crypto, some assets capitulate all the way to zero and never recover.

    How do analysts identify capitulation?

    They look for a combination of signals: volume several times the normal daily average, a sharp gap down in price, extreme readings on fear gauges such as the VIX or the Crypto Fear and Greed Index, a spike in forced liquidations, and a reversal soon after. None of these is official, and they only confirm a capitulation after it is over.

    Can I deduct losses from selling during a capitulation?

    Yes, within limits. The IRS treats crypto as property, so a sale at a loss is a realized capital loss reported on Form 8949. Losses offset gains first, then up to $3,000 of ordinary income per year, with the remainder carried forward. The wash sale rule currently applies to stocks and securities but not to crypto under federal law as of the 2025 tax year.

    What is the opposite of capitulation?

    Euphoria, or a blow-off top. That is when buyers pay any price out of fear of missing out, the mirror image of sellers accepting any price out of fear of further losses.

  • What is scalping in trading and what it risks

    What is scalping in trading and what it risks

    Scalping is a trading style built on holding a position for seconds or minutes and closing it for a tiny gain, often less than half a percent, then repeating the process dozens or hundreds of times a day. A scalp trader wins by stacking many small profits while cutting losers fast. In crypto, where markets run all night and fees are high, the math works against most people who try it, and we explain exactly why below.

    Holding periodseconds to a few minutes
    Typical target per trade0.1% to 0.5%
    Trades per sessiondozens to hundreds
    Biggest costexchange fees and spread
    Insurance on cryptonone (not FDIC or SIPC)
    Tax treatmentshort-term gains, ordinary rates

    Scalping defined

    The plain scalping definition is this: a scalper tries to capture the smallest profitable move in a price and get out before the market has time to reverse. The trade is called a scalp trade. The person is a scalp trader or scalper. Scalp trading is the activity as a whole.

    Three features separate scalping from every other style.

    • Holding time is extremely short. Many scalps last under a minute.
    • Profit targets are small, often measured in a few ticks or a few hundredths of a percent.
    • Volume is high. Because each win is tiny, the scalper needs many of them.

    A position that stays open for an hour is a day trade, not a scalp. A position that sits overnight is swing trading. The lines blur in practice, but the intent is different. A scalper is not betting on where Bitcoin will be tomorrow. The scalper is betting on where the next few trades will print.

    How a scalp trade works

    Flow diagram showing five steps of a scalp trade: Watch Order Book, Enter Position, Set Limit, Set Stop, Exit Trade

    Every scalp runs through the same loop. We walk through one using numbers, with no suggestion that any of these prices are a forecast.

    Suppose a scalper watches Ether trading around $3,000 on an exchange’s order book. The best bid is $2,999.90 and the best ask is $3,000.10, so the spread is $0.20. The scalper sees heavy buy orders stacked just below $2,999 and decides the price is unlikely to fall through them in the next minute.

    1. The scalper buys 0.5 ETH at $3,000.10 with a market order, paying the ask.
    2. A sell limit order is placed at $3,006.00, a gain of about 0.2%.
    3. A stop order is placed at $2,997.00, a loss of about 0.1%.
    4. Within 40 seconds the price ticks up, the limit fills, and the trade closes for a $2.95 gross profit on $1,500 of capital.

    Before fees, that is a clean win. After fees it may not be. We come back to that, because the fee line is where most scalping stories end.

    The tools scalpers lean on

    A scalp trader almost never uses a daily chart. The working screen is a one-minute or tick chart, a level-two order book showing resting bids and asks, and a time-and-sales feed (the “tape”) showing every executed trade. Scalpers read the order book to guess where the next few trades will go. Momentum scalpers use short moving averages or volume spikes instead.

    Order type matters a lot. A market order fills instantly but pays the taker fee and crosses the spread. A limit order sits on the book, may earn the lower maker fee, but might never fill. Scalpers who rely on market orders pay the highest possible cost per trade.

    Scalping compared with other trading styles

    The table below shows how scalping sits next to the two styles people most often confuse it with. Figures are typical ranges, not rules.

    Style Holding period Trades per day Target per trade Main cost driver Time at the screen
    Scalping Seconds to minutes 20 to several hundred 0.05% to 0.5% Fees and spread Constant, every second
    Day trading Minutes to hours 1 to 10 0.5% to 3% Fees, slippage Most of the session
    Swing trading Days to weeks A few per week 3% to 20% Overnight gaps, funding Daily check-ins

    Notice the direction of the cost column. The shorter the hold, the more fees matter relative to the gain. That is the structural problem with scalping and it never goes away.

    Why fees decide whether scalping can work

    Here is the number that matters more than any chart pattern. If a round trip (buy plus sell) costs 0.8% in fees and spread, the scalper needs to be right by more than 0.8% on average just to reach zero. Every scalp that gains 0.3% is a loss after costs.

    US exchanges publish tiered fee schedules. The base tier, which applies to anyone trading under roughly $10,000 a month, is the one that matters for a new scalper. The figures below are the published base-tier rates at the time of our last review. Exchanges change them often, so the current fee page on each exchange is the source that counts.

    Venue (advanced or pro interface) Base maker fee Base taker fee Round-trip cost using market orders
    Coinbase Advanced 0.40% 0.60% 1.20%
    Kraken Pro 0.25% 0.40% 0.80%
    Gemini ActiveTrader 0.20% 0.40% 0.80%

    Now put a realistic session against those numbers. Say a scalper trades $2,000 per position, 30 round trips a day, always with market orders on a venue charging 0.40% per side.

    Item Per trade Per session (30 trades)
    Position size $2,000 $60,000 traded
    Taker fee at 0.40%, buy side $8.00 $240
    Taker fee at 0.40%, sell side $8.00 $240
    Total fees $16.00 $480
    Gain needed to break even 0.80% 0.80% average
    Fees as a share of a $5,000 account 0.32% 9.6%

    A scalper running this pattern burns almost 10% of a $5,000 account in fees every single day before any market losses. To be net positive, the average scalp has to beat 0.8%, and scalps by definition aim for far less than that. The spread adds more on top, since the buyer pays the ask and the seller receives the bid.

    How to work out your breakeven move

    1. Find your maker and taker fee on the exchange’s current schedule.
    2. Add the fee for entering to the fee for exiting. That is your round-trip fee.
    3. Add the typical spread on your pair as a percentage of price.
    4. The total is the minimum average gain per scalp you need just to lose nothing.

    Professional scalpers survive because they do not pay retail fees. High-volume tiers on the same exchanges drop maker fees to near zero. Proprietary trading firms run co-located servers that react in microseconds and pay rebates to provide liquidity. A person clicking a mouse on a laptop is competing against that, at twenty times the cost per trade.

    Scalping trading styles

    Not every scalper trades the same way. Four approaches show up most often.

    Market-making scalps

    The scalper places a bid slightly below the current price and an ask slightly above it, hoping both fill and the spread becomes the profit. This earns maker fees and can work in calm markets. It gets destroyed by a sudden one-way move that fills one side and leaves the scalper holding the bag.

    Momentum scalps

    The trader waits for a burst of volume or a break of a very short-term level, jumps in, and exits within a minute. This relies on market orders, so fees are at their worst. It also fails constantly on fake breakouts, which are more common in thin crypto pairs than in large-cap stocks.

    Order-book or tape reading

    The scalper watches large resting orders and the flow of executed trades, trying to read where big players are leaning. In crypto this is hard because many large orders are placed to be seen and then cancelled, a practice called spoofing that the CFTC has prosecuted in futures markets.

    Cross-venue scalps

    When the same coin trades at slightly different prices on two exchanges, a scalper buys on the cheaper venue and sells on the dearer one. This looks risk-free on paper. In practice, withdrawal times, network fees and the second price moving before the first trade settles eat most of the gap.

    What a scalp trader actually risks

    Before you scalp crypto

    Crypto can lose all of its value, and nothing you hold on an exchange is FDIC or SIPC insured. A scalping account can also bleed to zero through fees alone, with no dramatic crash required.

    The asset itself

    Scalping does not remove the risk of the underlying coin. A scalper who is in a position when an exchange halts trading, a stablecoin breaks its peg or a token’s issuer is charged by the SEC is simply stuck. The short holding period limits exposure most of the time, but it offers no protection in the minute that matters.

    No insurance behind the account

    Bank deposits are backed by the FDIC up to $250,000 per depositor, per bank, per ownership category. Securities at a failed broker-dealer are protected by SIPC. Crypto on an exchange has neither. The FDIC said so plainly in a 2022 advisory after several crypto companies implied otherwise. When FTX collapsed in November 2022, customers became unsecured creditors in a bankruptcy. A scalper with a five-figure balance sitting on an exchange faces that risk every day.

    Leverage and liquidation

    Many scalpers use margin or perpetual futures because small moves on unleveraged capital do not produce meaningful dollars. Leverage turns a 1% adverse move into a 10% or 20% loss at 10x or 20x, and crypto venues liquidate automatically. If a leveraged account goes negative, exchange terms generally allow the company to pursue the shortfall, which can mean a debt collector eventually calling about money lost in a trade that lasted ninety seconds.

    Slippage and outages

    A stop order is a promise to try, not a guarantee of price. In a fast move, a stop at $2,997 can fill at $2,990. During the busiest minutes, exactly when scalpers are most active, exchanges have historically slowed, frozen or thrown errors. A scalper who cannot click out of a position is holding a day trade they never intended.

    The evidence on short-term traders

    The research is one-sided. A study of Brazilian equity futures traders published in 2020 by Chague, De-Losso and Giovannetti found that 97% of individuals who day traded for more than 300 days lost money, and only 1.1% earned more than the Brazilian minimum wage. Barber, Lee, Liu and Odean studied every day trader in Taiwan over fifteen years and found fewer than 1% could reliably earn positive returns after costs. Scalping sits at the most expensive, most frequent end of that spectrum.

    Overtrading and tilt

    Scalping rewards speed and punishes hesitation, which makes it a magnet for revenge trading after a loss. Thirty planned trades become eighty impulsive ones, and each one pays a fee. People under financial pressure are most exposed here. Scalping is not a way to cover a bill due Friday. A bad session can take the rent money in an afternoon. Someone short on cash should compare fixed-cost options first, and should know that even a payday loan, among the most expensive legal products, at least has a disclosed price. A scalp session does not.

    US rules that touch scalping

    Crypto scalping sits in a patchwork of rules. We separate what is law from what is only proposed.

    The pattern day trader rule does not reach crypto spot

    Under FINRA Rule 4210, a customer who makes four or more day trades within five business days in a margin account at a securities broker is flagged as a pattern day trader and must keep at least $25,000 in equity. This applies to stocks, options and other securities held at a FINRA member. Buying and selling Bitcoin on a crypto exchange is not covered. FINRA has proposed amendments to the rule, so the current text at finra.org is the one to check. Crypto ETFs and crypto-related stocks are securities and the rule does apply to scalping those.

    Who regulates the venue

    The CFTC treats Bitcoin and Ether as commodities and regulates futures on them. Under the Commodity Exchange Act, leveraged retail commodity transactions must take place on a CFTC-registered exchange unless actual delivery happens within 28 days, which is why offshore perpetual-futures platforms block US customers on paper and why using a VPN to reach them puts a trader outside every US protection. Spot crypto exchanges register with FinCEN as money services businesses and hold state money transmitter licenses, including New York’s BitLicense. Before scalping anywhere, confirm the venue appears in FinCEN’s MSB registrant search and your state regulator’s license lookup.

    Market manipulation is still illegal

    Spoofing, wash trading and pump-and-dump schemes violate the Commodity Exchange Act and, where tokens are securities, the Securities Exchange Act of 1934. A retail scalper is more likely to be a victim than a perpetrator, but anyone coordinating trades in a chat group to move a thin coin is taking legal risk on top of financial risk.

    Lower-risk ways to learn the same skills

    Paper trade on an exchange sandbox for at least a month and track fees as if they were real.
    Trade a spot position with money you can lose entirely, no leverage, and keep a written log of every fill.
    Focus on one highly liquid pair where the spread is a few hundredths of a percent, not a thin altcoin.

    How the IRS treats scalping profits

    Every closed scalp is a taxable event. There is no exception for small trades or short holds.

    Under IRS Notice 2014-21, the IRS treats virtual currency as property. Each sale, and each swap of one coin for another, triggers a capital gain or loss equal to the sale proceeds minus cost basis. Because scalps are held for one year or less, every gain is short-term and taxed at ordinary income rates, which currently run up to 37% at the federal level. High earners may also owe the 3.8% net investment income tax. State income tax applies on top in most states.

    Tax question How it works for a crypto scalper Source
    Is each scalp a taxable event? Yes, every sale or crypto-to-crypto swap IRS Notice 2014-21
    What rate applies? Short-term capital gains at ordinary income rates, top federal bracket 37% Internal Revenue Code and current brackets
    Can losses offset gains? Yes, capital losses offset capital gains, then up to $3,000 of ordinary income per year Internal Revenue Code section 1211
    Does the wash sale rule apply? Not to crypto as of this writing; section 1091 covers stock and securities, and Congress has proposed extending it Internal Revenue Code section 1091
    Will the exchange report trades? Yes, on Form 1099-DA, gross proceeds for 2025 sales onward, with cost basis added for later years Treasury final regulations, 2024
    Who tracks basis across 500 trades a day? You do, with exchange exports or tax software, lot by lot IRS guidance on digital asset records

    Two points deserve emphasis. First, a scalper who makes 300 trades a day generates tens of thousands of taxable transactions a year, and the IRS expects each one reconciled on Form 8949. Second, a trader can finish the year with a net loss and still owe tax if gains landed in one tax year and the offsetting losses in the next. Form 1099-DA now puts those gross proceeds in front of the IRS, so the days of untracked scalping on US exchanges are over.

    Some traders ask about the “trader tax status” election under Internal Revenue Code section 475, which lets qualifying securities and commodities traders mark positions to market and treat losses as ordinary. Whether and how that applies to spot crypto is unsettled, and anyone considering it needs a tax professional who works with active traders, not a general preparer.

    Other meanings of scalping

    The word shows up in three unrelated contexts, and search traffic for the term mixes them together.

    Ticket scalping

    Ticket scalping means buying event tickets and reselling them above face value. Federal law does not ban resale itself. The Better Online Ticket Sales Act of 2016, known as the BOTS Act, makes it illegal to use software to bypass purchase limits or security measures on ticket sites, and the FTC brought its first enforcement cases under it in 2021. Several states regulate resale through price caps, licensing or venue-area restrictions, and those rules vary widely.

    Scalping in slang

    In everyday speech, “scalping” or “getting scalped” means being overcharged or beaten badly, as in a sports team getting scalped. Among sneaker and console buyers, a scalper is someone who buys limited stock to flip it. The meaning is always the same at root: taking a thin slice off the top, quickly, often at someone else’s expense.

    The historical practice

    Scalping as the removal of a scalp from an enemy is documented in warfare across many cultures and eras. In North America it was practiced by some Indigenous nations before contact and was then expanded dramatically by European colonial governments, which paid cash bounties for scalps. We address this briefly in the FAQ because the question appears in search data, not because it relates to trading.

    Who scalping can make sense for, and who it cannot

    We will be direct. Scalping can be a viable approach for a trader with institutional-level fees, low-latency infrastructure, a tested edge in a specific market and enough capital that a bad day is a rounding error. That describes professional desks and automated market-making firms.

    It is a poor fit for someone trading a few thousand dollars on a retail fee tier, learning the order book in real time, and hoping the activity replaces income. The fee math alone makes the outcome predictable. Add leverage, exchange risk and the tax burden of thousands of short-term transactions, and the expected result is a smaller account and a complicated return.

    Anyone who still wants to learn the mechanics should treat it as expensive education, size positions so that a 100% loss changes nothing about next month’s budget, and keep every receipt.

    FAQ

    What is scalping in trading?

    Scalping in trading is a style where a trader opens and closes a position within seconds or minutes to capture a very small price move, usually well under 1%, and repeats this many times a session. The scalper, or scalp trader, relies on volume of trades rather than size of gains. Fees and the bid-ask spread are the main obstacle, since every scalp must beat the round-trip cost just to break even.

    What is scalping and why is it illegal?

    Scalping in financial markets is legal. The illegal kind people usually mean is ticket scalping done with bots. The BOTS Act of 2016 makes it a federal violation to use software to get around ticket purchase limits or security checks, and the FTC enforces it. Resale itself is regulated at the state level, with some states capping markups or requiring licenses. In markets, the related illegal acts are spoofing and wash trading, which are forms of manipulation, not scalping.

    What is scalping slang for?

    As slang, scalping means profiting by skimming a quick margin, often unfairly. A ticket scalper or sneaker scalper flips scarce goods above retail. “Getting scalped” means being charged far too much or losing badly. In trading forums, “a scalp” simply means a very short trade.

    Why did Native Americans practice scalping?

    Historians document scalping as a wartime practice in several Indigenous North American cultures before European contact, where a scalp served as proof of a defeated enemy and carried spiritual or status meaning that varied by nation. The practice was then greatly expanded by colonial authorities, including governments in New England, New France and later Mexico, which paid bounties for Native scalps and in doing so encouraged settlers and soldiers to take part. It was never a uniquely Native American practice.

    Is scalping crypto legal in the United States?

    Yes, buying and selling crypto quickly on a licensed US exchange is legal. The FINRA pattern day trader rule and its $25,000 minimum apply to securities accounts, not to spot crypto. What is not legal is trading leveraged crypto futures on an offshore platform that is not registered with the CFTC, or using coordinated trades to manipulate a price. Every closed trade is still taxable under IRS rules treating crypto as property.

    How much money does scalping take?

    There is no legal minimum for crypto spot scalping, but the fee math sets a practical floor. A scalper paying 0.40% per side needs each trade to gain more than 0.8% before showing a profit, regardless of account size. Larger accounts reach lower fee tiers, which is one reason the style favors well-capitalized professionals over small retail traders. Whatever the amount, it should be money whose complete loss would not affect rent, food or debt payments.

  • Form 1099-DA explained for crypto investors

    Form 1099-DA explained for crypto investors

    Form 1099-DA, titled “Digital Asset Proceeds From Broker Transactions,” is the IRS form that US crypto exchanges and other custodial brokers use to report your sales of cryptocurrency, stablecoins and NFTs. It debuted for sales made on or after January 1, 2025, and the first copies reached customers in early 2026. If you sold crypto through a US platform, the IRS now has a record of your proceeds, and your return needs to match it.

    Form name1099-DA, Digital Asset Proceeds
    First tax year covered2025 sales
    Furnished to youby mid-February each year
    Shows gross proceedsyes, starting with 2025
    Shows cost basis2026 purchases onward
    Legal authorityIRC Section 6045, TD 10000

    What Form 1099-DA is

    The IRS treats crypto as property, a position it first laid out in IRS Notice 2014-21. Every time you sell, swap or spend a digital asset, you realize a gain or loss, and that has been true since long before this form existed. What changed is who tells the IRS about it.

    For stocks, brokers have reported sales to the IRS on Form 1099-B for decades. Crypto had no equivalent until Congress rewrote Section 6045 of the Internal Revenue Code in the Infrastructure Investment and Jobs Act of 2021. That law widened the definition of “broker” to cover businesses that handle digital asset sales for customers. The Treasury Department finalized the rules in Treasury Decision 10000, published in the Federal Register on July 9, 2024, and Form 1099-DA is the paperwork those regulations created.

    Think of it as a 1099-B rebuilt for crypto. It lists what you sold, how many units, when you sold it and how much money or value you got back. Over time it will also show what you paid, which is the number that actually determines your tax.

    Who sends it and who gets one

    The form comes from “digital asset brokers,” a term the regulations define more narrowly than the crypto community feared in 2021. As the rules stand now, the businesses required to file include:

    • Centralized exchanges that hold customer assets, such as Coinbase, Kraken and Gemini
    • Hosted wallet providers that take custody of your coins
    • Crypto ATMs and kiosks
    • Certain payment processors that settle crypto payments to merchants, which the regulations call PDAPs

    You should receive a 1099-DA if you are a US customer of one of these businesses and you sold, swapped or spent a digital asset through it during the year. The broker sends you a copy and files a matching copy with the IRS.

    Several categories were left out. Miners and validators are not brokers just because they confirm transactions. Self-custody wallet software that never touches your keys does not report. Decentralized finance front ends were going to be covered by a separate rule, Treasury Decision 10021 from December 2024, but Congress repealed that rule under the Congressional Review Act in April 2025. So a swap you make from your own wallet through a decentralized protocol does not generate a 1099-DA. It is still taxable, and you still have to report it yourself.

    Two de minimis rules also matter. Under the final regulations, a broker can skip reporting sales of qualifying stablecoins if your total stablecoin sales through that broker stay under $10,000 for the year, and it can report larger stablecoin volumes as a single annual total rather than trade by trade. Specified NFT sales have a similar aggregate option with a $600 floor. Payment processors only report once a customer’s crypto payments pass $600 in a year.

    How the form works, year by year

    Flow diagram showing two phases of 1099-DA reporting: first year proceeds only, second year proceeds plus basis

    The IRS phased the reporting in over two tax years, and the phase-in is the source of most of the confusion.

    Tax year What the broker reports When you receive it
    2025 sales Gross proceeds only; basis box generally blank February 17, 2026
    2026 sales Proceeds, plus cost basis for assets bought on or after January 1, 2026 in that same account mid-February 2027
    2027 and later Same as 2026, with more assets qualifying as “covered” over time mid-February each year

    The phrase “covered digital asset” does the heavy lifting here. A covered asset is one you bought through the broker on or after January 1, 2026 and kept in that same account until you sold it. For those, the broker knows your purchase price and must report it. Anything bought before 2026, or transferred in from another wallet or exchange, is “noncovered.” The broker reports the proceeds but leaves basis to you, and it ticks a box on the form telling the IRS that basis was not reported.

    For 2025 sales, nearly everything was noncovered by definition. That means your first 1099-DA almost certainly showed a proceeds figure with no basis next to it.

    The IRS also carved out transaction types it was not ready to handle. Notice 2024-57 told brokers they do not have to report wrapping and unwrapping tokens, liquidity pool deposits and withdrawals, staking, crypto lending, short sales and notional principal contracts until the IRS says otherwise. Those activities can still create taxable income for you. They just will not appear on this form yet.

    What the form actually shows

    Each 1099-DA covers a single sale or disposition, though most brokers deliver them as one consolidated statement that runs through every transaction. The key fields are:

    • An identifier and name for the digital asset
    • The number of units disposed of
    • The date you acquired the asset, if the broker knows it
    • The date you sold or disposed of it
    • Gross proceeds, usually the dollar value you received after any fees the broker netted out
    • Cost or other basis, when the asset is covered
    • A checkbox showing whether basis was reported to the IRS
    • Whether the holding period was short-term or long-term, when the broker can determine it
    • Any federal income tax withheld

    Early drafts of the form in 2024 asked for wallet addresses, transaction hashes and the exact time of day of each sale. After public comments, the IRS dropped those fields from the version brokers now use.

    One more detail worth knowing: the proceeds figure can reflect value you received in other crypto, not only cash. If you traded ETH for SOL on an exchange, the broker reports the fair market value of the SOL you received as your proceeds from selling ETH. Swaps count as sales for tax purposes and always have.

    Why a proceeds-only form can cost you money

    Here is the problem with a form that reports what you sold for but not what you paid. The IRS runs an automated matching program that compares the 1099s it receives against the income on your return. When a 1099-DA arrives showing $45,000 in proceeds and your return shows nothing, the system does not assume you broke even. It can treat the entire $45,000 as gain and send you a CP2000 notice proposing extra tax, interest and an accuracy penalty.

    A worked example shows the gap:

    Item Your real numbers What a bare 1099-DA shows
    Sold 0.5 BTC on a US exchange 0.5 BTC
    Proceeds $45,000 $45,000
    Cost basis $38,000 (bought in 2024) blank, noncovered
    Actual gain $7,000 unknown to IRS
    Tax at a 15% long-term rate $1,050 could be assessed on $45,000 if you fail to report

    The fix is entirely in your hands. You report the sale on Form 8949 with your own basis figure, carry the total to Schedule D, and the proceeds you report match what the broker filed. The matching program is satisfied, and you pay tax on the $7,000 you actually made.

    Ignoring the notice is the expensive route. Unpaid balances accrue interest daily, and the IRS can file liens, levy bank accounts and, for older inactive accounts, assign the debt to a private debt collector under its private collection program. None of that happens if you reconcile the form the first time.

    Tracking basis under the new rules

    Because the broker will not know your basis for most older coins, the IRS has issued a cluster of guidance on how you prove it.

    Wallet-by-wallet accounting. Revenue Procedure 2024-28 ended the informal “universal” method many investors used, where all their coins across every exchange were treated as one big pool. As of January 1, 2025, basis must be tracked account by account and wallet by wallet. The revenue procedure gave a safe harbor for allocating your existing unused basis to specific wallets as of that date. If you never made that allocation, you need to do it now using records you already had.

    Default method is FIFO. If you do not specifically identify which units you are selling, the regulations treat you as selling the earliest units acquired in that account first. For coins bought cheaply years ago, FIFO can produce the largest possible gain.

    Specific identification. You can choose which lots to sell, which often lowers your gain, but under the regulations the identification has to be made no later than the time of the sale and the broker needs to be able to record it. Because most exchanges did not have that capability ready, Notice 2025-7 gave taxpayers relief for 2025: you could rely on your own books and records to identify the units sold, as long as you kept them. Check whether your exchange now supports lot selection before you assume that relief continues.

    Transfers. When you move coins from one exchange to another, the receiving exchange has no idea what you paid. The final regulations did not require brokers to pass basis information between each other, so the burden of carrying that number across platforms is yours. Keep the original purchase confirmation, the transfer record and the dates.

    How to reconcile your 1099-DA

    1. Download every 1099-DA and the broker’s full transaction history for the year.
    2. Confirm the proceeds on the form match the sum of your sales in the history export.
    3. Pull your own basis for each sale from purchase records, prior-year forms or your tracking software.
    4. Enter each sale on Form 8949, using the box for basis not reported to the IRS where the form marks the asset noncovered.
    5. Carry the totals to Schedule D, and answer “Yes” to the digital asset question on Form 1040.
    6. Keep the records for at least three years after filing, and longer if the IRS questions a return.

    Risks the form does not change

    A 1099-DA reports taxes, it does not protect you from losses. Crypto can lose all of its value, and holding it on an exchange adds custody risk on top of market risk. Your coins on an exchange are not FDIC insured the way bank deposits are, and they are not covered by SIPC the way securities in a brokerage account are. When FTX collapsed in 2022, customers got tax paperwork from other platforms as usual but spent years in bankruptcy court trying to recover their assets.

    Losses have their own tax rules. Capital losses offset capital gains, and up to $3,000 of net capital loss per year can offset ordinary income, with the remainder carried forward. A 1099-DA that shows a sale below your basis is useful evidence of that loss. Coins that simply became worthless while you still hold them are harder; there is no sale, so there is usually no deductible loss until you dispose of them.

    Backup withholding is the other risk worth flagging. Normally a broker must withhold 24 percent of proceeds when a customer has not supplied a valid taxpayer identification number. Notice 2024-56 gave brokers transitional relief from backup withholding and related penalties on digital asset sales during 2025 so their systems could come online, and Notice 2026-20 later extended identification relief into 2026. If your exchange account has an outdated or missing Social Security number, fix it, because once the relief expires 24 percent of each sale can go straight to the Treasury.

    What a 1099-DA is not

    The form only covers sales and dispositions. Several other kinds of crypto income show up elsewhere or nowhere at all:

    • Staking and mining rewards are ordinary income when you gain control of them, per Revenue Ruling 2023-14. An exchange may report larger amounts on Form 1099-MISC, but the income is taxable at any amount.
    • Airdrops and hard forks are ordinary income at fair market value when received.
    • Payments received for goods or services in crypto may arrive on a Form 1099-K from a payment app or a 1099-NEC from a client, not a 1099-DA.
    • Real estate bought with crypto is reported by the closing agent on Form 1099-S for closings on or after January 1, 2026, with the digital asset’s fair market value shown.

    Receiving no form at all also changes nothing. Self-custody trades, foreign exchanges and DeFi activity all remain reportable. The 1099-DA tells the IRS part of the story; your return has to tell the whole thing.

    Before you file

    The biggest mistake is reporting nothing because the basis box is blank. The IRS has the proceeds figure either way, and a return that omits the sale invites a notice taxing the full amount.

    Free help first

    IRS Free File supports Form 8949 for most filers under its income limit.
    VITA and Tax Counseling for the Elderly sites prepare returns free for eligible taxpayers.
    The IRS Taxpayer Advocate Service can step in if a notice is causing hardship and the normal channels have stalled.

    FAQ

    What is Form 1099-DA in plain terms?

    It is the tax form a US crypto exchange or other custodial broker files to report your sales of digital assets to the IRS, with a copy to you. It lists the asset, the units, the dates and your gross proceeds, and for assets bought on the platform from 2026 onward it also lists your cost basis.

    When did Form 1099-DA start?

    Brokers began tracking sales on January 1, 2025. The first forms, covering 2025 activity, were due to customers by February 17, 2026. Cost basis reporting starts with assets acquired on or after January 1, 2026 and appears on forms issued in early 2027.

    Do I owe tax on the proceeds number?

    No. You owe tax on your gain, which is proceeds minus basis. The form may show only proceeds. You supply the basis on Form 8949, and the difference, if positive, is your taxable gain.

    I did not get a 1099-DA. Do I still report my crypto sales?

    Yes. The reporting requirement applies to you regardless of what paperwork arrives. Sales from a self-custody wallet, a decentralized exchange or a foreign platform are taxable even though no broker reports them.

    What if the form is wrong?

    Contact the broker and ask for a corrected form. If the broker will not fix it, report the correct figures on Form 8949 and attach an explanation of the difference. Keep the records that support your numbers, because the IRS will see the broker’s version too.

    Does Form 1099-DA report swaps between two cryptocurrencies?

    Yes. Trading one digital asset for another is a disposition of the asset you gave up, and the broker reports the fair market value of what you received as your proceeds.

    Will the IRS see my wallet addresses on the form?

    No. The IRS removed wallet addresses, transaction hashes and time-of-day fields from the final version of the form after public comments on the 2024 drafts.