It’s actually rather simple. In the USA, the IRS has issued guidance that cryptocurrency is treated as an asset—just like the stocks in your brokerage account. (This treatment is for tax purposes only).*IRS Virtual Currency GuidanceFull Draft Notice, 2014–21I am an expert on Bitcoin and the evolution of cryptocurrencies, but I am not an accountant or tax adviser and I have not carefully read these guidelines. But, as a taxpayer, I can comment on the treatment of asset sales. What follows is a layperson explanation of asset treatment and it should not be misconstrued as expert advice…AcquisitionLike shares in a corporation, you typically don’t report anything at the time of acquisition (this assumes that you acquired the asset for investment purposes and not as compensation for work performed or in exzchange for something that you sold). Of coures, you should retain clear records and receipts.LiquidationYou must report the capital gain upon selling virtual currency or converting it into something else of value.In Kind Exchange (Wash transactions)But just like a Picasso painting or stock in an aerospace company, if you convert it into a substantially similar asset (or buy a substantially similar asset a short time after the sale), then you are generally not required (or allowed) to record your gain. Instead, you may be required to treat as a “wash sale”. This means that the gains can be reported another day.I suspect that converting between like values of a virtual currencies constitutes a wash. Check with your accountant or tax advisor, of course![2022 UPDATE]: The 2022 Trump tax reform explicitly eliminates the wash sale exemption s for cryptocurrency. Even a direct conversion between two currencies (e.g. Bitcoin and Bitcoin Cash) results in a taxable / reportable event on personal tax filings.* Operating an Exchange or any Money Handling BusinessTreatment as an asset is for the purpose of tax reporting only! If you exchange or hold virtual currency on behalf of other individuals or organizations—or simply offer a Bitcoin ATM to a store or bus station, FinCEN guidelines make it very clear that you are a Money Service Business (MSB), a qualified custodian, or perhaps even a currency exchange. That really changes the game. You must now comply with regulations, training and oversight. Operating an MSB entails:Business permits/licensing (both Fed & State)Training and licensing of your staff (possibly even as brokers)Report and meet cash reserve requirementsCompliance with anti-money laundering regulations (AML)Compliance with Know your Customer regulations (KYC)Compliance with the Racketeer Influenced and Corrupt Organizations Act (RICO)In some communities, you may even need to meet requirements related to your hours of operation, or you may need to offer a notary service to your community.…and, perhaps, a dozen other hurdles. Effectively, if you exchange currencies or handle money for others, you must become a bank to be legal.Ellery Davies is a frequent contributor to Quora. He is also co-chair of Cryptocurrency Standards Association and editor at A Wild Duck.