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Cryptocurrency (also called crypto) is a form of decentralised digital currency. It only exists online and there are now over 1500 different cryptocurrencies in existence. They are governed independently of any bank or government (a.k.a they are decentralised) which is the main difference between crypto and traditional (fiat) currencies.
In short, no. Crypto is not the same as the money you have in your online bank account.
A few examples of popular cryptocurrencies are:
This is a broad question. There are lots of different types of cryptocurrencies, each with different reasons for existing. Some like XRP hope to tackle the friction in traditional international money transfer, others like Bitcoin are tools for investment and a digital currency in themselves. An interesting use case for crypto that’s come to the fore recently is their use for digital art exchange. Read more on our blog about NFTs 👇
If you earn cryptocurrencies through mining, this counts as income from self-employment.
On earnings over £1,000 from self-employment, you might need to pay Income Tax and National Insurance on the value of the mined crypto (calculated in GBP); however, it’s possible to expense mining costs. This can be your computer, electricity, bookkeeping etc., but only if cryptocurrency trading is your business as opposed to a hobby.
If you make a profit from selling cryptocurrencies (e.g. on an exchange), you need to pay Capital Gains Tax on any profit over £6,000. If you make a loss, you can carry this loss forward and claim it next year.
It’s really simple. You just complete a Self Assessment tax return. The most common tax that crypto investors pay is Capital Gains Tax. You can use our calculator to see what you might owe on your investment profits.
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