What is a 'Fork' in cryptocurrency?
A "fork" in cryptocurrency refers to a divergence in the existing blockchain, typically due to changes in the network's protocol. There are two primary types of forks: hard forks and soft forks.
What is a hard fork?
A hard fork occurs when the existing code of a cryptocurrency is changed, leading to the creation of a new version of the coin while the original version continues to exist independently. This results in two or more blockchain branches. An example of this is the split between Bitcoin and Bitcoin Cash.
What is a soft fork?
In contrast, a soft fork involves modifications to the cryptocurrency's code that remain backward compatible with older versions. This can be thought of as an update to the system that does not result in multiple enduring blockchains, but rather a single, updated blockchain.
Categorizing Transactions as a Fork in CoinTracker
CoinTracker allows you to categorize any 'Received' coins in the transactions page as an Fork so you can review your income by tax year in the Tax page, in addition to the capital gains which are already tracked.
How to Categorize a Transaction as a Fork
- If needed, use the filters to find the transaction that needs to be categorized in the Transactions page.
- On the transaction, click the down arrow next to the transaction 'Category'.
- Search "fork" and select 'Fork' from the results.
- Your transaction will now be labeled as 'Fork' and can be filtered using the Category drop down at the top of the page.
- To remove the 'Fork' category, use the 3-dot menu on the right and select Delete manual edits.
Feel free to review our guide on how to categorize and edit transactions for more information.
Tax Implications of Tagging as 'Fork'
The IRS has left some grey area on how these assets should be taxed. In October 2019, they released a set of FAQs on cryptocurrency taxes that seem to indicate that forked coins should be treated as income, with the fair market value at the time of receipt being income and also the basis for the coin as you go forward until you dispose of the forked coin.
If you categorize a transaction as 'Fork' in CoinTracker, it will be treated as taxable for your tax calculations.
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