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What is Cryptocurrency?
Cryptocurrency has emerged as a transformative force in the financial world, redefining traditional notions of currency and revolutionising the way we conduct transactions. As a type of digital currency, cryptocurrencies employ encryption techniques to ensure security and operate on a decentralised network of computers.
Unlike traditional currencies controlled by governments or central banks, cryptocurrencies operate in a decentralised manner. This means that no single entity has absolute control over the currency or its transactions. Instead, cryptocurrencies use a distributed network of computers, where each node maintains a copy of transaction history. This decentralised nature ensures transparency, security, and resilience against tampering or censorship.
What is Blockchain?
Central to cryptocurrencies lies blockchain technology. The blockchain is a decentralised ledger that records and verifies transactions across computers. Every transaction constitutes a “block” that contributes to a sequence of preceding blocks, forming an open, unchangeable, and impervious ledger. This innovative technology ensures transparency, immutability, and resilience against fraudulent activities. By leveraging the blockchain, cryptocurrencies enable secure and reliable digital transactions. Furthermore, due to its distributed nature, the blockchain eliminates the need for intermediaries, reducing costs and enhancing efficiency in financial transactions.
Is cryptocurrency regulated in the UK?
In the United Kingdom, cryptocurrencies, or cryptoassets, as defined by lawmakers, currently operate without specific regulations. However, in 2019, the UK government issued guidance outlining the regulatory framework for businesses operating in the cryptocurrency sector. This guidance covers various aspects, including anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, tax laws, and consumer protection.
To ensure compliance with the UK’s AML and CTF regulations, cryptocurrency exchanges and other crypto-related businesses are required to register with the Financial Conduct Authority (FCA). They must adhere to the same regulatory requirements as traditional financial institutions. The FCA possesses the authority to take actions against non-compliant companies, such as imposing fines and revoking licenses.
Furthermore, cryptocurrency transactions in the UK are subject to the country’s tax laws. Generally, cryptocurrency is considered property for tax purposes, and individuals are obligated to pay capital gains tax on any profits derived from buying and selling cryptocurrencies.
In 2020, the FCA, the UK’s financial watchdog, implemented regulatory measures mandating that all businesses in the crypto sector register on its temporary register for cryptoasset firms. This step aimed to assess and verify the effectiveness of anti-money laundering and terrorist financing procedures implemented by these companies.
As the UK seeks to strike a balance between innovation and protecting consumers, the evolving regulatory landscape for cryptocurrencies continues to take shape. While specific regulations are not yet in place, businesses operating in the cryptocurrency sector must navigate the existing guidance, comply with AML and CTF requirements, adhere to tax obligations, and ensure effective procedures for combatting financial crimes.
Cryptocurrency Guides
How many cryptocurrencies are there?
According to CoinMarketCap, there are approximately 22,932 cryptocurrencies, with a combined market capitalisation of £1.1 trillion. [May 2023]
Bitcoin (BTC) is the first and most well-known cryptocurrency, with the largest market capitalisation.
Ethereum (ETH) is a decentralised platform that enables the creation of smart contracts and decentralized applications.
Binance Coin (BNB) is the native cryptocurrency of the Binance exchange and is used for discounted trading fees.
Ripple (XRP) aims to facilitate fast, low-cost international money transfers.
Cardano (ADA) is a blockchain platform focused on secure and sustainable infrastructure for decentralised applications.
Litecoin (LTC) is a peer-to-peer cryptocurrency known for faster transaction confirmation times.
Polkadot (DOT) is a multi-chain platform designed to enhance scalability and interoperability across blockchains.
Tether (USDT) is a type of cryptocurrency known as a stablecoin. Unlike many other cryptocurrencies that experience significant price volatility, stablecoins are designed to maintain a stable value by being pegged to a specific asset, such as a fiat currency like the US dollar, each USDT token intended to represent one US dollar.
Cryptocurrency FAQs
How do I buy and sell cryptocurrency?
To purchase and sell cryptocurrency, you will need to start by opening an account with a cryptocurrency exchange. Once you have successfully created an account, you can proceed to deposit funds using a bank transfer or a debit or credit card. Once your account is funded, you can begin the process of buying cryptocurrencies.
What is the difference between traditional currencies and cryptocurrencies?
Cryptocurrency and traditional currencies, or fiat currencies, have notable differences. Traditional currencies are regulated by central banks and governments, while cryptocurrencies operate in a decentralized manner without a central authority. Cryptocurrencies exist solely in digital form, secured through cryptography, while traditional currencies exist as physical cash and digital bank balances. Individuals have direct ownership and control over their cryptocurrencies through private keys, whereas traditional currencies rely on centralized financial institutions for ownership representation.
