Learn — Beginner
What Is
Cryptocurrency?
Digital money that exists without a bank, a central government, or anyone in the middle. Secured by mathematics. Owned directly by you. Here's what it actually is, how it works, and what you need to know before you consider buying any.
By the numbers
The first cryptocurrency went live on 3 January 2009 with a £50 block reward
Thousands exist, though the vast majority have very little trading activity
Crypto is legal to own and trade in the UK. It is regulated as a financial asset.
HMRC classes crypto as property, not currency. Tax applies on disposal.
Digital money without a bank
Ordinary money — the pounds in your bank account — exists because a bank says it does. The bank keeps a database. When you transfer money to someone, the bank updates that database: your balance goes down, theirs goes up. The bank is the trusted middle party making sure nobody cheats.
Cryptocurrency replaces the bank with mathematics. Instead of one central database controlled by an institution, thousands of computers around the world each hold a copy of the same transaction record. They constantly compare notes. To change one record, you would have to change all of them simultaneously — which is, in practice, impossible.
That shared record is called a blockchain. It is public, permanent, and maintained by the network itself rather than by any single authority. Nobody owns Bitcoin the way Barclays owns the Barclays database.
What is a blockchain?
A blockchain is a list of transactions grouped into blocks, where each block contains a mathematical fingerprint of the block before it. Change anything in an old block and the fingerprint changes, breaking the chain from that point forward. The network rejects any version of the record that doesn't match what the majority of computers hold.
Think of it like a public ledger printed in ink, where every page is signed by the person who signed the previous page. Altering a historical entry means re-signing every page since — in front of everyone watching.
New transactions are added when participants in the network verify them. For Bitcoin, this verification is done by “miners” who use computing power to solve a mathematical puzzle. For Ethereum, it is done by “validators” who lock up their own ETH as a financial guarantee of honest behaviour. Both approaches create a financial cost to cheating.
Bitcoin: the first and the biggest
Bitcoin launched on 3 January 2009. It was created by a person or group using the pseudonym Satoshi Nakamoto. The identity remains unknown. The founding paper — a nine-page document called the Bitcoin Whitepaper — described a “peer-to-peer electronic cash system.”
The total supply of Bitcoin is capped at 21 million coins. As of early 2026, about 19.8 million have been mined. The fixed supply is a deliberate design choice — unlike pounds or dollars, no government or central bank can create more Bitcoin.
Bitcoin is the largest cryptocurrency by market value and the most widely recognised. When non-specialists say “crypto,” they usually mean Bitcoin. But Bitcoin is one of thousands of cryptocurrencies, each with different designs, purposes, and degrees of adoption.
Thousands of others exist
Ethereum launched in 2015 and introduced “smart contracts”: programmes that run automatically when conditions are met, without needing a middleman to enforce them. Most of the decentralised finance activity you read about runs on Ethereum or blockchains built in its image.
Stablecoins are cryptocurrencies designed to maintain a fixed value — usually $1. Tether (USDT) and USD Coin (USDC) are the largest. They are used for trading and storing value within crypto markets without the volatility of Bitcoin or Ethereum.
Beyond those, there are tens of thousands of smaller tokens. Some have genuine technology behind them. Many do not. A significant portion exist primarily for speculation and have no meaningful user base or real-world utility. Working out which is which is a core skill for anyone putting money into crypto.
You don't need to buy a whole coin
Bitcoin is divisible to eight decimal places. The smallest unit is 0.00000001 BTC, called a satoshi. You can buy £10 worth of Bitcoin and own a fraction of one coin. Most exchanges let you buy any amount above a small minimum — typically £1 to £10.
This is worth clarifying because the price of one Bitcoin — regularly quoted at tens of thousands of pounds — makes it sound inaccessible. The price per coin is irrelevant. What matters is the percentage change in value. A £50 investment that gains 20% returns £10, the same percentage gain whether you bought a fraction of Bitcoin or a cheaper token.
It is legal in the UK
Buying, selling, and holding cryptocurrency is entirely legal in the United Kingdom. The Financial Conduct Authority regulates exchanges that operate in the UK. Any exchange offering services to UK customers should be registered with the FCA.
Crypto is not legal tender — shops are not obliged to accept it as payment — but trading it, investing in it, and transferring it between wallets are all lawful activities. The UK government has published a policy statement describing its intention to make the UK a “global hub” for crypto asset technology.
It is volatile — genuinely
Between November 2021 and November 2022, Bitcoin fell from approximately £50,000 to approximately £15,000 — a 70% decline in twelve months. It recovered to new highs by late 2024. That is not an unusual cycle for crypto; similar moves have happened multiple times since 2013.
Smaller cryptocurrencies are more volatile still. It is not uncommon for a token to fall 90% from its peak and never recover. It is also not uncommon for speculative tokens to gain 1,000% before collapsing. Neither direction is predictable.
The short version: only put in money you can afford to lose entirely. That is not a legal disclaimer added out of caution — it is an accurate description of the risk profile.
What HMRC thinks about it
HMRC does not treat cryptocurrency as currency. It treats it as property. That distinction matters because selling property at a profit generates Capital Gains Tax, and receiving crypto as income generates income tax.
Every time you sell crypto, swap one coin for another, or spend crypto on goods or services, you create a taxable event. Simply buying and holding is not taxable. But the moment you dispose of it — in any form — the gain or loss is calculated and may need to be reported.
The annual Capital Gains Tax allowance is £3,000 for 2025/26. Gains above that are taxed at 18% or 24% depending on your income. From 2026, UK exchanges report user data directly to HMRC under the Crypto Asset Reporting Framework — so keeping accurate records is not optional.
Last updated: March 2026
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