How To Gift Cryptocurrency

Cryptocurrency is a unique asset that’s easy to send to anyone in the world with a compatible cryptocurrency wallet. However, because cryptocurrency transactions can’t be altered or reversed once sent, it’s imperative you know exactly what you’re doing so your gift is received as planned. Cryptocurrencies can be extremely volatile, and they can soar or plunge quickly impacting the value of your gift. Also, depending on how much you send, there may be tax consequences to consider. 

Even with those concerns, cryptocurrency may truly be the gift that keeps on giving. Here’s a look at how you can send cryptocurrency correctly, when you may have to pay gift taxes, and other tips for a successful cryptocurrency gift.

How To Get Cryptocurrency

Typically, before gifting cryptocurrency, you need to own it. For that, you need an account with a cryptocurrency exchange or a brokerage that allows cryptocurrency transactions. Here’s how it works.

First of all, access to any cryptocurrency you own is through a cryptocurrency wallet. A cryptocurrency wallet stores a private key—a secret passcode—that allows you to access your cryptocurrency, much like your ATM PIN allows you to access the cash in your checking account.

Public keys, as opposed to private keys, are like an address for your cryptocurrency wallet (think bank routing number) and need to be shared with anyone you want to send cryptocurrency to or receive cryptocurrency from. Together both public and private keys enable you to make cryptocurrency transactions.

You can also get cryptocurrency through mining, but that’s a slower way to accumulate it and requires more technical knowledge and expensive computer hardware. 

Who To Give Cryptocurrency To

The decentralized nature of cryptocurrency networks enables you to send currency to anyone in the world with a compatible cryptocurrency wallet. If you wanted to, you could send cryptocurrency to your adult kids, a cousin in another country, a friend, a nonprofit, or anyone else you think is deserving of your gifts.

Before gifting cryptocurrency, make sure the recipient fully understands how cryptocurrency works. If the recipient doesn’t understand how to access or keep their cryptocurrency secure, you may be better off keeping your cryptocurrency and giving them something else as a gift.

How To Gift Cryptocurrency

Once you’ve decided to send someone cryptocurrency as a gift, here are the steps you’ll follow:

1. Review Your Cryptocurrency Holdings and Accounts

   Start by logging in to your cryptocurrency accounts to check your holdings and decide which currency to gift. Popular cryptocurrencies like bitcoin and ethereum typically have high transaction fees. You may want to send a stablecoin, which maintains a stable value relative to an underlying currency like the U.S. dollar. Or you may want to send an altcoin like dogecoin or stellar lumens, which typically charge meager transaction fees.

   Note

   Not all cryptocurrency exchanges and brokerages allow you to send your crypto to an outside wallet. For example, SoFi allows you to buy cryptocurrency, but you can’t send it out of your account. Robinhood, on the other hand, places a limit on the number or value of transfers in a 24-hour period.

2. Get Cryptocurrency Wallet Information From the Recipient

   Next, you’ll need the wallet information for the person receiving the gift. They should only give you the public address to receive the currency. The public address can be shared using a QR code or the actual address, which is a long string of random alphanumeric text.
   

3. Confirm Wallet Address and Compatibility

   All cryptocurrency transactions are final and cannot be canceled or reversed. In most cases, there’s no bank, cryptocurrency exchange, or brokerage to help you recover lost funds.

   If you send it to the wrong wallet address, you’re unlikely ever to recover the currency. Double-check with the recipient that the wallet address is accurate.

   Then confirm on your own that the recipient’s wallet is compatible with the assets you want to send. For example, you can’t send bitcoin to an ethereum address. Also, not all tokens on the ethereum network may be supported by a particular account or wallet.
   

4. Log In to Your Cryptocurrency Wallet or Account and Set Up the Transaction

   Now it’s time to do the actual sending. Log in to your cryptocurrency wallet or account, and choose the currency you want to send. Open the menu in your account or wallet application to send funds.

   Enter the cryptocurrency and amount, copy and paste the recipient's wallet address, double-check that you copied it correctly, and send off your currency. 
   

5. Monitor Your Transaction for Completion

   Your crypto wallet or exchange should show that the withdrawal is complete and give you updates on the transfer process. Some currencies transfer with near-instant speeds, while others can take minutes or hours to finalize.

   All cryptocurrency transactions are public. While they may be semi-anonymous, you’re can view all past transactions from any cryptocurrency using a free tool called a blockchain explorer. You can copy the transaction ID into a blockchain explorer to view progress through completion.
   

6. Confirm Receipt

   There are two ways to confirm receipt. First, you should get a "thanks" from the person to whom you sent the gift. Second, you can confirm that the currency is received in the wallet using a blockchain explorer, similar to viewing the transaction above. All wallets have a public record of transactions since inception, so you can easily find the transaction and updated balance in the recipient’s wallet.

Cryptocurrency Gift Cards

If you don’t want the hassle of using special software or linking your bank account to a cryptocurrency exchange, you can send a cryptocurrency gift card. Services such as BitCard allow you to add U.S. dollars to a gift card which can then be redeemed by the recipient to purchase bitcoin. The recipient will need to create an account and complete a KYC process in order to redeem the card.

What To Watch Out For: Rules, Regulations, and Reminders

Cryptocurrency is still a relatively new industry with emerging rules and regulations. Here are a few quick tips to be aware of when sending cryptocurrency as a gift:

Tax implications

The IRS treats virtual currencies as property for taxation purposes. If you send a large amount of currency, it could be subject to gift taxes. There’s a standard annual exclusion up to which you can make gifts tax-free. The person you gifted the cryptocurrency to may be liable to pay taxes as soon as they sell, exchange, or use their cryptocurrency to pay for goods or services.

Wallet Security

It’s generally okay to share your public key wallet address, but you should never share your private key with anyone. To keep your wallet's private key safe, consider a hardware or cold cryptocurrency wallet. A hardware or cold wallet is a cryptocurrency wallet that is not connected to the internet and that reduces the chances of it getting hacked. However, if you misplace your hardware wallet or it malfunctions, you may lose access to your cryptocurrency.

Transaction Errors

If you send to the wrong address or an address of a different type of wallet, the funds could be lost for good. Always double-check wallet addresses and confirm there are no errors before locking in a transaction.

Transaction Costs To Consider

Each cryptocurrency network relies on computers called miners to maintain a ledger of transactions and confirm new transactions. These miners are paid through a combination of minting new coins and network fees paid by people who request transfers.

Network fees vary widely by currency and network congestion. You may also have options to pay higher fees for faster processing or lower fees for slower processing. Because each currency is unique, it’s a good idea to review costs before gifting or sending any cryptocurrency.

Creative Gift Presentation Ideas

Cryptocurrencies are a completely digital gift, so there’s nothing physical to hand over. If you want to be creative and more fun, consider one of these ideas:

Preloaded Hardware Wallet

If you want to give the gift of cryptocurrency security at the same time you gift the currency, you could preload it onto a hardware wallet and give the physical hardware wallet, which, along with the wallet’s password or PIN, gives the new owner access to the currency. Trezor and Ledger are both large, respected cryptocurrency wallet makers.

Novelty Coins

You can find physical novelty cryptocurrency coins made on sites like eBay. Giving a metal dogecoin along with a gift of actual dogecoin could be fun, for example.

Surprise Them

If you know someone’s cryptocurrency address, you can send it to them at any time. Who wouldn’t be happy to see crypto show up in their account? Just make sure to tell them it was you shortly after, so they know what’s going on.

Benefits of Gifting Cryptocurrency

Giving the gift of cryptocurrency provides recipients with something of value, and it brings them into an exciting ecosystem of distributed financial products and applications.

Because cryptocurrency is so easy to send, it might even make a better gift than cash or other financial assets. Just make sure to take note of potential tax liabilities and always double-check the wallet address. If you do, you and your recipient should have a positive crypto-gifting experience.

Frequently Asked Questions (FAQs)