Why are cryptocurrencies taxed when exchanged for other cryptocurrencies or when they are used?

My name is Ayane Izumi, and I am researching cryptocurrency and Web 3.0-related taxes at Toyo University's Faculty of Law. As a tax accountant, I provide individual consultations and recently have been supporting people undergoing tax audits. Starting with this issue, I will be starting a series on cryptocurrency taxes.

First of all, if an individual exchanges cryptocurrency A for another type of cryptocurrency B, even if they have not exchanged it for legal tender, they must include the unrealized gain or loss on cryptocurrency A in their income tax calculations. I'm sure many of our readers are already aware of this by now.

The same applies if cryptocurrency A is used as a means of payment. For example, if you use cryptocurrency A to pay for food and drink or buy home appliances, the unrealized gain or loss on cryptocurrency A will be included in the calculation of income tax. In the case of an equivalent exchange, the unrealized gain or loss is basically expressed as the difference between ① the market value of the cryptocurrency at the time of exchange or use, and ② the acquisition price of the cryptocurrency.

Such unrealized gains and losses are merely unrealized gains and losses before you exchange your crypto assets for other crypto assets or use them as a means of payment to receive goods or services.