Crypto Glossary: Terms for Beginners

This crypto tax glossary explains the terms you need before filing taxes on digital assets. Use it to understand cost basis, capital gains, staking, wallets, taxable events, NFTs, DAOs, and Form 8949.

Many crypto investors don't know much about tax reporting and filing. On the other hand, many accountants don't know much about trading crypto. This means that sometimes important information gets lost in translation.

501(c)(3): An organization recognized by the IRS as being a non-profit or charitable organization. Donations to 501(c)(3) organizations may be tax-deductible.

Airdrop: The mass distribution of tokens to many wallets, often as a reward or incentive. Airdrops may require a recipient's consent or be deposited directly into their wallet. They have increasingly been used in phishing schemes. Airdropped tokens are generally ordinary income at fair market value once you gain control of them.

Altcoin: A cryptocurrency other than Bitcoin.

Audit trail: A detailed record that sequentially tracks how an asset has been transferred or traded.

Automated market maker (AMM): The pricing formula a decentralized exchange uses to quote trades against a liquidity pool instead of matching individual buyers and sellers. Trades through an AMM are taxable disposals like any other swap.

Average cost basis: The accounting method used in the UK, Canada, and some other nations.

Bear market: When prices are falling across the crypto market.

Block explorer: A search tool for reading a blockchain's public record of transactions, addresses, and balances. Explorers like Etherscan and Solscan are often the only source of transaction history for on-chain activity, which makes them useful at filing time.

Blockchain: A shared digital ledger that records transactions in linked blocks maintained by a network of computers rather than a single company. Once recorded, entries are extremely difficult to alter.

Bridge (cross-chain bridge): A protocol that moves value between blockchains, typically by locking a token on the source chain and issuing a wrapped version on the destination chain. The IRS has not addressed bridging directly, so whether a given bridge transaction is a disposal depends on whether you end up holding a different asset than you started with.

Bull market: When prices are rising across the crypto market.

Capital gain: Earnings made from the appreciation and subsequent sale or trade of an asset.

Capital loss: The result when an asset is disposed of for less than its cost basis. Capital losses offset capital gains, and net losses beyond that can offset a limited amount of ordinary income, with the rest carried forward. See our guide to reporting crypto losses.

Carryforward: Using tax losses from prior years to offset capital gains from the current tax year.

Centralized exchange (CEX): An organization that brokers sales and trades of tokens and is owned and governed by a known entity or entities. These must typically follow know-your-customer (KYC) rules and report to tax authorities. Examples: Coinbase, Gemini, Binance.

Coin: A cryptocurrency native to its own blockchain, usually used to pay that network's transaction fees. Examples: BTC on Bitcoin, ETH on Ethereum.

Cost basis: The amount a trader paid for an asset, plus additions for any applicable fees.

Covered asset: A digital asset a broker is required to report cost basis for, generally one acquired on or after January 1, 2026 and held continuously with that broker. Anything else is noncovered, and the basis box on your form will be blank or marked as not reported, which means you supply the number.

Cryptocurrency: Digital money secured by cryptography and recorded on a blockchain, issued without a central bank. The IRS treats cryptocurrency as property rather than currency, which is why disposals produce capital gains and losses.

Decentralized autonomous organization (DAO): An organization (social or commercial) governed by rules encoded in smart contracts stored on the blockchain rather than by any centralized leadership. Examples: Uniswap, MakerDAO, FWB, Radicle.

Decentralized exchange (DEX): A set of smart contracts that lets traders swap tokens directly from their own wallets with no company holding the assets. A DEX does not verify your identity and will not send you a tax form, but trades on one are taxable disposals just the same. Examples: Uniswap, Curve, Jupiter.

Decentralized finance (DeFi): A broad umbrella term for financial instruments (exchanges, brokerages, etc.) made directly accessible to investors via smart contracts on a blockchain. DeFi aims to increase access to investment opportunities by bypassing traditional third-party intermediaries.

Digital asset: The IRS's term for any digital representation of value recorded on a cryptographically secured distributed ledger, covering cryptocurrency, stablecoins, and NFTs. This is the phrase used in the yes/no question near the top of Form 1040.

Disposal: Accounting term for relinquishing control over an asset through a sale, swap, trade, or some other mechanism.

Dominion and control: The point at which you can actually transfer, sell, or otherwise use tokens you have received. It matters because income from staking, airdrops, and rewards is generally recognized when you gain control of the tokens, not when they were announced or allocated.

Estimated taxes: A payment of a portion of your expected total tax liability; these are due four times a year from people who expect to make a significant amount of income through self-employment.

Fair market value (FMV): What an asset would sell for in dollars at a given moment. FMV on the day you receive crypto sets the amount of income you report and becomes your cost basis in those tokens.

Report of Foreign Bank and Financial Accounts (FBAR): If you, at any point in the year, had more than $10,000 in one or more foreign accounts, you need to submit this form to the Treasury's Financial Crimes Enforcement Network (FinCEN). It is unclear whether foreign crypto exchange accounts must be reported; we recommend speaking to a crypto tax advisor.

Fiat: Government-issued currency not backed by any commodity. Examples: USD, CAD, EUR, JPY.

First-in-first-out (FIFO): A form of specific ID accounting in which the first tax lots acquired are the first sold.

Form 1040: The IRS form used to report individual income tax, an individual tax "return." See our guide to the crypto tax forms you need.

Form 1099: An IRS form used to report income or earnings made from something other than wages, salaries, or tips. Payers (exchanges, brokerages, etc.) send a copy of a Form 1099 to both the IRS and the payee (individual trader). There are more than 20 types of Form 1099, but the most common in cryptocurrency include 1099-MISC, 1099-K, and 1099-DA.

Form 1099-DA: The broker form for digital asset sales, first issued for 2025 transactions. Brokers report gross proceeds, and cost basis only for covered assets, so treat it as a cross-check against your own records rather than a complete picture. See our guide to Form 1099-DA.

Form 8949: The IRS form that aggregates capital gains and losses as reported on Forms 1099-DA or 1099-S. The total is then carried over to Schedule D and then the Form 1040.

Gas fee: A transaction fee paid to the validators securing the Ethereum network. Gas fees can sometimes be added to an asset's cost basis.

Hard fork: Occurs when a community decides to make a fundamental change to a blockchain, resulting in new blocks that are no longer backward-compatible with older blocks. This creates a new branch of the chain and a corresponding new token.

Hardware wallet: A physical device that stores private keys offline, away from internet-connected software. Because the keys never touch an internet-connected machine, a hardware wallet is the standard recommendation for holdings you don't trade often.

Highest-in-first-out (HIFO): A form of specific ID accounting in which the highest cost tax lots acquired are the first sold.

Holding period: The amount of time an investor keeps an asset after acquiring it and before trading or selling it.

Impermanent loss: The difference in value between holding tokens and depositing them in a liquidity pool after the prices of the pooled assets diverge. It stays on paper until you withdraw, so there is nothing to claim on a return until the position is closed.

Know your customer (KYC): The identity verification process financial platforms are required to run on their users. Centralized exchanges collect KYC information; decentralized protocols generally do not.

Last-in-first-out (LIFO): A form of specific ID accounting in which the last tax lots acquired are the first sold.

Layer 2 (L2): A network built on top of a base blockchain to process transactions faster and more cheaply, then settle them back to the main chain. Examples: Arbitrum, Optimism, Base. Transactions on a layer 2 are taxed the same way as transactions on the underlying chain.

Liquidity pool: A reserve of tokens locked in a smart contract that funds trades on a decentralized exchange, with depositors earning a share of trading fees. Depositing usually means exchanging your tokens for LP tokens, which can be a taxable disposal.

Long-term gain: A long-term gain (or loss) is one realized when the sold capital asset was held for more than one year. Long-term gains receive preferable tax treatment for individual taxpayers.

Market cap: A token's price multiplied by its circulating supply, used as a rough measure of a project's size.

Meme coin: A crypto token associated with a popular meme, like Dogecoin.

Mining: The process of verifying and adding new transactions to a proof-of-work blockchain such as Bitcoin. Crypto miners are rewarded for their computational power with newly minted tokens. Mined tokens are taxed as ordinary income.

Minting: Creating a new token on a blockchain.

Non-fungible token (NFT): A file minted to a blockchain whose unique metadata makes it one-of-a-kind and unable to be subdivided or copied.

Ordinary income: Income earned through salaries, wages, or payment for a good or service.

Play-to-earn (P2E) games: Blockchain games through which players can earn, buy, and sell crypto assets that often have "real world" value. Rewards are ordinary income at fair market value when you gain control of them. Examples: Axie Infinity, Gods Unchained, Illuvium.

Private key: The secret value that authorizes transactions from a wallet. Anyone holding the private key controls the assets, which is why it is never shared.

Proceeds: The total amount received from the sale or trade of an asset.

Profit and loss (PnL): The change in value of a trader's position. In crypto margin trading, PnLs can be realized or unrealized. Open positions have unrealized PnL and closed positions have realized PnLs.

Proof of stake (PoS): A consensus method in which validators lock up tokens for the right to confirm transactions, earning rewards for doing so. Those rewards are ordinary income when you gain control of them. See our guide to staking.

Proof of work (PoW): A consensus method in which computers compete to solve cryptographic puzzles to add blocks, with the winner receiving newly issued tokens. Mined tokens are ordinary income at fair market value when received.

Realizing a gain or loss: Locking in a gain or loss on an asset by selling, swapping, or trading it.

Rug pull: A type of crypto scam in which investors are left with worthless tokens after the project's creators limit users' access to tokens and/or quickly sell off their holdings in the project. Recent collapses widely described as rug pulls include $SQUID in 2021, $HAWK in 2024, and $LIBRA in 2025.

Safe harbor rule: If you pay quarterly estimated taxes and make payments that fall within a certain range, you have made "safe harbor" and will not be penalized for underpayment should your actual total tax liability exceed your estimated payments. The safe harbor threshold varies based on whether you make more or less than $150,000.

Schedule 1: The IRS form used to report additional income that doesn't belong on the main body of Form 1040. Non-business crypto income, such as an occasional reward or bounty, commonly lands here rather than on Schedule C.

Schedule C: An IRS form that is part of Form 1040 and is used to report business earnings from a sole proprietorship.

Schedule D: An IRS form attached to Form 1040 that is used to report capital gains and losses. It carries the totals from Form 8949.

Security: A tradable financial instrument regulated by the SEC, such as a stock or bond. Whether a particular crypto asset counts as one is decided asset by asset rather than across the board, and courts have reached different answers for different tokens and even for different sales of the same token. The distinction matters at tax time because some rules apply only to securities. The wash sale rule is the one crypto investors run into most.

Seed phrase: A sequence of 12 or 24 words that restores access to a wallet and every key inside it. Anyone holding the phrase controls the assets, so it should never be shared, photographed, or stored online.

Self-employment tax: The Social Security and Medicare tax paid by people who work for themselves, calculated on Schedule SE. Crypto earned through work that rises to a trade or business is generally subject to it; a one-off payment usually is not.

Sh-tcoin: An altcoin that has lost most or all value; often one that capitalized on a meme for short-term gain.

Short-term gain: A short-term gain (or loss) is one realized when the sold capital asset's holding period was a year or less. Short-term gains receive the ordinary income tax rate.

Slippage: The gap between a trade's expected price and the price it actually executes at, common in thin markets and large orders. Report the amounts that actually settled, rather than the quoted amounts, since slippage affects both proceeds and the cost basis.

Smart contract: A computer program on the blockchain that executes specific actions when certain conditions are met, as laid out in a previously agreed-upon digital contract.

Specific ID: A method of inventory valuation that tracks individual inventory items rather than grouping them together, which can reduce capital gains taxes in a given year.

Stablecoin: A token designed to be pegged to the value of another currency, token, or commodity, for instance, the US dollar. Examples: DAI, USDT.

Staking: Depositing tokens into a proof-of-stake protocol in order to support its continued operation and receive staking rewards. Those rewards are ordinary income at fair market value when they come under your control.

Tax loss harvesting: Strategically identifying unrealized losses that can be realized through sales or trades to offset capital gains.

Tax lot: A set of tokens purchased or acquired in a specific transaction.

Taxable event: A transaction that results in taxes owed to the government. In crypto, that includes selling for cash, swapping one token for another, spending crypto on goods or services, and receiving it as income from staking, mining, airdrops, or work. Buying crypto with cash and holding it is not a taxable event, and neither is moving assets between wallets you own.

Token: A digital asset issued on top of an existing blockchain by a project that doesn't operate its own network. Tokens and coins are taxed the same way, since the IRS treats both as property.

Total value locked (TVL): The dollar value of assets deposited in a DeFi protocol, used as a measure of its size and adoption.

Validator: A participant in a proof-of-stake network that confirms transactions and produces blocks in exchange for rewards. Running one, or delegating tokens to one, produces ordinary income when the rewards come under your control.

Vesting: A schedule that releases tokens to a recipient over time rather than all at once, common for team, advisor, and investor allocations. Tokens received for services are generally ordinary income at fair market value once they vest and you can control them.

Wallet: Software or hardware that stores the keys controlling your crypto. A hot wallet stays connected to the internet, a cold wallet does not. Moving assets between wallets you own is not a taxable event, but it needs to be recorded so cost basis follows the asset. See our roundup of the best crypto wallets.

Wallet address: The public identifier that funds are sent to on a blockchain, derived from the wallet's keys. Cost basis is now tracked per wallet rather than pooled across accounts, so knowing which address holds which lot matters at filing time.

Wash sale: Selling an asset at a loss and reacquiring the same asset within 30 days before or after the sale. These superficial transactions allow traders to artificially increase their capital losses and minimize taxes. In the US, the rule applies to securities, and crypto is generally not treated as one for this purpose, so there is no specific crypto wash sale rule. We recommend that conservative investors avoid them.

Wrapped token: A token pegged to the value of another token to allow a trader to use the original asset on a different blockchain. A wrapped token is signified with a W, ie- WBTC, WETH.

Yield farming: Moving assets between DeFi protocols to chase the highest available return, often across lending markets and liquidity pools. Rewards are ordinary income when received, and the swaps and deposits along the way are separate taxable events.