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How to Pay With Cryptocurrency

By Nathan Reiff Full Bio Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016. Learn about our editorial policies Updated November 10, 2024 Reviewed by Somer Anderson Reviewed by Somer Anderson Full Bio ​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. Learn about our Financial Review Board Fact checked by Ryan Eichler Fact checked by Ryan Eichler Full Bio Ryan Eichler holds a B.S.B.A with a concentration in Finance from Boston University. He has held positions in, and has deep experience with, expense auditing, personal finance, real estate, as well as fact checking & editing. Learn about our editorial policies Part of the Series Bitcoin Basics How To Get and Store It What Is Bitcoin? How To Buy, Mine, and Use It How Bitcoin Works How To Buy Bitcoin How to Store Bitcoin How Does Bitcoin Mining Work? How to Use it Advantages of Paying with Bitcoin CURRENT ARTICLE Bitcoin vs. Credit Card Transactions Benefits & Risks of Trading Forex with Bitcoin Pros and Cons of Investing in Bitcoin IRAs Should You Buy Gold Or Bitcoin? How Much of the World's Money is in Bitcoin?

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One of the primary reasons cryptocurrencies were developed was to be used as anonymous payments. This reason is often lost in the hype by media outlets and the financial sector, which are focused on gains, losses, and price fluctuations. Prices are important, but it is more important to know how to pay with cryptocurrency if you re considering using it, as is understanding the taxes triggered when you do.

Here s how and where you can pay with crypto and the tax implications when you use it.

Key Takeaways

You can buy cryptocurrency with fiat money on cryptocurrency exchanges or apps. You send and receive payments using a cryptocurrency wallet. You can use any wallet compatible with the cryptocurrency and exchange you choose. A growing list of online retailers and brick-and-mortar stores accept cryptocurrency as payment. Using cryptocurrencies for payment creates a tax event you should become familiar with, as taxes regarding crypto can be complicated and are still evolving.

How to Make a Payment With Cryptocurrency

At one time, sending a cryptocurrency involved diving into the command line on your computer and programming a transaction. Now, the complex process of sending and receiving crypto is much more simple, very much like using an app to send or receive money to and from your bank account. How you initiate the payment is specific to the application you choose, but generally speaking, here is how it works.

Consider Using a Web3 Username

While not necessary for transactions, a Web3 username is a unique identifier you choose that can be used instead of your wallet address. These usernames are similar to the domain name services (DNS) used currently on the Internet, which allow you to type in a dotcom address instead of an IP address to access a website.

You can claim a Web3 username (which is a domain name) on service providers like Uniswap or Coinbase. This makes it easy to claim yours but removes some anonymity.

To use it, you simply give someone your Web3 username instead of a long hexadecimal number to transfer assets. For example, your wallet address might be:

0x1iFW7YRbNANd78rSALLtFPAutp1sW2LyqX

This is very cumbersome to type in, and mistakes are common—an ENS address would be simpler:

MyName.eth

This is much easier for you to give to someone and for them to enter into their wallet to send crypto.

Acquire a Cryptocurrency

It isn t necessary to have an account with an institution, exchange, company, or other entity to acquire a cryptocurrency. However, it is one of the easier and safer ways to get one.

A regulated cryptocurrency exchange will let you exchange fiat money for cryptocurrency. It will also give you some extra features if you need them, such as storing your private keys or helping you with technical issues. A reputable one like Coinbase, Binance.US, Kraken, or Gemini will be able to get you started when you create an account and fund it for your crypto purchases.

You may not be able to afford an entire coin because it can be very expensive—when you buy a cryptocurrency to use as payment, you ll receive portions that equal the dollar amount you paid on the day you purchased it . This is important because the 0.0001 bitcoin you bought on Wednesday for $7.95 might only be worth $5.50 on Thursday.

Wallet

To make a payment using cryptocurrency, you ll also need to have a wallet application. Wallets can be installed on your computer or mobile devices and act as an interface for accessing your crypto.

Your wallet doesn't actually store crypto; it holds the keys you need to access them—these are your private keys . Your wallet has an address used in transactions; it acts like an email address to send and receive payments.

There are hundreds of wallets available, each with different features. Some are compatible with nearly all cryptocurrencies, while others may only work with a few.

Most cryptocurrency exchanges provide a wallet for their users that lets them transfer funds to other exchange users or make payments using services that are compatible with the exchange's services. Many wallets can use your device's camera to scan QR codes to create unique addresses for sending and receiving crypto. Some even have near-field communication capabilities that let you make touchless payments in cryptocurrency.

If you choose not to use the wallet from an exchange, you could consider some popular wallets like Exodus, Electrum, or Mycelium.

Sending and Receiving a Payment

You'll need to use your wallet to send and receive payments. All wallets are different, so the Coinbase wallet is used for this example. In general, to make a payment or send cryptocurrency, you:

Open your wallet app Click on Send Payment or a similar button Enter the amount you want to send Enter the QR code or wallet address of the recipient Click Send or a similar button

To receive a payment, you would:

Open your wallet app Tap Receive Payment or a similar button Share your address (your public key) with the sender Accept the payment when it appears in your wallet

Where Can You Pay With Cryptocurrency?

Cryptocurrency is still in its infancy, but the list of places you can use it to pay for goods and services is growing. Most businesses that accept cryptocurrency as payment do so through cryptocurrency payment gateways, which are payment service providers that generally guarantee cryptocurrency to fiat conversion at the time of the transaction so that there is no price slippage.

Some notable businesses that accept crypto outright, let you add it to an app for payment, or accept it through a service provider are:

Paypal Overstock Starbucks Newegg AMC Theaters AT&T

Some brick-and-mortar retailers and stores accept cryptocurrency as well. Those who do will generally use point-of-sale hardware linked to a payment service provider . You'll often see signs on the doors, windows, or at the cash register announcing which crypto is accepted.

Pros and Cons of Paying with Cryptocurrency

Pros

Anonymity/Pseudonymity

Peer-to-Peer

Pay From Anywhere

Available to Everyone

Cons

Network Transaction Fees

Price Volatility

Triggers Taxable Events

Not Reversible

Risk of Loss

Pro Explained

Anonymity/Pseudonymity : Cryptocurrency can provide a certain level of anonymity or pseudonymity, but this aspect is slowly disappearing as laws evolve to remove it for user safety and security purposes as well as to fight criminal activity. Peer-to-Peer : Cryptocurrency is designed to be peer-to-peer , reducing the need for third-party involvement. You can send money to or receive it from anyone without other services. Pay from Anywhere : Cryptocurrency lets you make or receive payment anywhere you have a connection to the internet. Available to Everyone : Many people do not have quick access, or any at all, to financial services like banks and loans. However, most have internet connections through mobile devices. This allows everyone to make and receive payments, acquire or create loans, or access financial services wherever they are.

Cons Explained

Transaction Fees : Although fewer fees are involved in cryptocurrency transactions, you'll need to pay transaction fees to the cryptocurrency network, and possibly other fees if you use the services of exchanges, brokers, or other intermediaries. Price Volatility : It's no secret that cryptocurrency prices are volatile . This means that your cryptocurrency's value will change over time. It's possible for your cryptocurrency's price to drop between the instant you purchase an item with it and the time the network approves the transaction—causing you not to have sent enough to pay for the item. Conversely, if prices rose during that time, you might send too much.
Triggers Taxable Events : The Internal Revenue Service (IRS) considers cryptocurrency property for tax purposes. When it is used in a transaction or sold, there is likely a gain or loss of capital because cryptocurrency prices never remain constant. Any gain or loss in value must be reported to the IRS, and taxes must be paid based on how long it has been held (which results in capital gains tax or income tax). Not Reversible : Once an exchange is completed, it is locked into the blockchain and cannot be undone. The only way to get money back if there was an error or mistake is to have the recipient voluntarily send back what they owe in another transaction. Risk of Loss : As with other forms of currency, you can lose your cryptocurrency. You're responsible for the private keys that give you access to your money; if you lose them, there is no way to get them back. In addition to losing your keys, you can lose money if you hold your cryptocurrency and prices fall.

Tax Considerations When Paying in Crypto

A major consideration regarding paying with cryptocurrency is the taxable event that is triggered when you use it. Because crypto is considered property for tax purposes and has fluctuating market values, it is imperative (and the IRS requires it) to record your cryptocurrency activities.

The IRS considers realized gains on cryptocurrency held longer than one year as capital gains, and they are taxed as such. Realized gains on cryptocurrency held less than one year are taxed as regular income. If you don t keep detailed records of your transaction activity, you might report gains or losses inaccurately or not at all. This can create issues for you, as the IRS says it uses advanced methods to track cryptocurrency transactions to ensure compliance.

The agency also requires you to maintain "sufficient" records so that you can prove your loss or gain claims. In general, you ll need to record:

Types of digital asset Dates and times of transactions Number of units Fair market value at the time of the transactions (as measured in U.S. dollars) Basis of digital asset sold or disposed of (paying with cryptocurrency is considered disposal because you re using property to pay for something)

It s also a good idea to record the addresses used and the transaction ID or hash because they may soon be required on tax forms. If you only use peer-to-peer exchanges or transactions, you ll need to record all of your activity and report gains and losses accordingly.

If you use the services of a centralized exchange or brokerage for transactions, you re in luck—brokerages (and those considered brokers) will be required to file a new tax form for the 2025 tax year (filed in 2026), Form 1099-DA. The 1099-DA must be filed for every transaction via a broker, and you ll receive a copy of it so you can report your taxes accurately.

However, this form does not account for changes in basis between the time you withdraw your cryptocurrency from a custodial account and the time you use it to purchase something. The business you transact with will be required to report the receipt of a cryptocurrency via their taxes, which will record the value you transferred to them. As tax laws and crypto tracking systems progress, it is likely most of this will become automatic. For now, you ll need to make sure you account for the change in the basis of the cryptocurrency you spend and record all your transactions, especially your off-exchange and non-broker ones.

How Can I Pay With Crypto?

To pay with crypto, you need to first buy some. Then, you use your wallet to enter the recipient s address and send it to them. Several online retailers and some brick-and-mortar stores allow users to pay with cryptocurrency wallets .

Who Accepts Crypto As Payment?

Many merchants, retailers, and some small businesses accept cryptocurrency payments. It s best to check your favorites to make sure they accept them before trying to make a purchase.

Is It Legal to Pay in Crypto?

In many countries, it is legal to use cryptocurrency to pay for goods and services if the business or government accepts it. There are some countries that do not allow transactions in crypto, so make sure to check the laws of your country before paying in cryptocurrency.

The Bottom Line

Cryptocurrency is an easy way to pay for products or services using a crypto wallet. Crypto wallets are internet-connected apps that let you access your cryptocurrency wherever you are, but because they are software, they are vulnerable. If you decide to use cryptocurrency for payments, be sure to look into storing your cryptocurrency private keys in an offline wallet until you need to use them and become familiar with their tax implications.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author owns BTC, LTC, XRP, and ADA.

Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Coinbase. " How Do I Send and Receive Crypto? "

Internal Revenue Service. " Digital Assets ."

Internal Revenue Service. " Instructions for Form 1099-DA (Draft) ."

Internal Revenue Service. " Form 1099-DA (Draft) ."

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