What is a cryptocurrency? It is a digital asset recorded on a shared, cryptographically secured ledger and usually run by a network of computers rather than by a bank or a central bank. Bitcoin was the first one, described in a 2008 paper as "electronic cash" that people send directly to each other. If you have wondered what's cryptocurrency all about and whether it counts as real money, this guide gives you the plain definition, explains how the system works, sets out the main risks for readers in the US and the UK, and shows what to learn next. It does not recommend buying anything, and it contains no prices or predictions.
What a cryptocurrency is, in plain words
What is a cryptocurrency in the simplest terms? The US tax authority, the IRS, defines a digital asset as any digital representation of value recorded on a cryptographically secured, distributed ledger. The UK regulator, the FCA, uses similar wording: digital representations of value or rights, secured by encryption and usually held on distributed ledger technology.
A ledger is a record of who owns what. In a bank, the bank keeps that record. In Bitcoin and most public cryptocurrencies, copies of the record are shared across many computers, and software sets the rules for adding to it.
That is the main difference from everyday money. Central banks issue and oversee the money you spend in shops. Crypto is developed and run by groups, individuals or companies, so the practical question for any coin is who runs its network and what happens when something goes wrong.
Bitcoin, the first cryptocurrency
Bitcoin started with a 2008 paper by an author using the name Satoshi Nakamoto. The Bitcoin whitepaper proposed "a purely peer-to-peer version of electronic cash" that would let online payments go directly from one party to another without going through a financial institution. Who Nakamoto really is remains a topic of its own.
How cryptocurrency works
Understanding cryptocurrency starts with the ledger, usually called a blockchain. Transactions are grouped into blocks, and each block links to the one before it, which forms a chain. The whitepaper describes the network timestamping transactions into a chain of proof of work, a record that cannot be changed without redoing the work.
In practice this means an old entry is very hard to alter, because anyone trying would have to redo the work for that block and every block after it. The whitepaper ties this to one condition: honest computers must control most of the network's computing power.
Computers called miners do that work. The whitepaper says they are rewarded with new coins and with transaction fees, and that once a predetermined number of coins has entered circulation the reward can move entirely to fees.
The Bitcoin halving shows the mechanism with a dated example. On 20 April 2024, at block 840,000, the reward per block fell from 6.25 to 3.125 BTC. That is a rule about how new coins are issued. It says nothing about what any coin is worth.
Coins, tokens and stablecoins
Bitcoin runs on its own network and is usually called a coin. Many other assets, often called tokens, are built on top of existing networks, though the labels are used loosely. Stablecoins are a type of crypto that aims to link its value to an asset such as the US dollar or gold. Some are backed by reserves, and the FCA notes that the extent of those reserves varies in practice, so the label "stable" is a goal, not a guarantee. You can read how people use them in our guide to paying with crypto and stablecoins.
In the US, the GENIUS Act was signed on 18 July 2025 and set a federal framework for payment stablecoins. The rules under it are being phased in through regulation.
Is cryptocurrency real money?
Not in the way a dollar or a pound is, because no central bank issues it. For US federal tax purposes, digital assets are property, not currency. Form 1040 asks whether you received a digital asset as a reward, award or payment, or sold, exchanged or otherwise disposed of one.
In the UK, the FCA describes crypto as issued by networks and companies rather than the central bank, and as largely unregulated. In practice, you can pay with crypto only where a merchant chooses to accept it.
The decisions a beginner faces, in order
Five decisions come up, roughly in this order. Each block below points to the guide that covers it in depth.
Learn before you buy
Start with how it works and what can go wrong, which is what this page covers. Then practise without money. A free crypto course for complete beginners is planned for this section. Until you understand how a transaction moves and who is responsible when it fails, there is no reason to put money in.
Decide how you will store it
Crypto sits behind private keys, and whoever holds the keys controls the coins. With a custodial wallet a company holds the keys for you. With self custody you hold them yourself, and nobody can reset them for you, so your backup is the only way back in if you lose them. Never share a seed phrase with anyone, for any reason. Our guide to how crypto wallets work explains the trade-offs.
Know how buying and selling works
A beginner can judge a provider on neutral points: whether it is registered or licensed in your country and what that status actually covers, what it charges, who holds your assets, and what the withdrawal limits are. Our guide to how buying and selling crypto works goes through each point. In the UK, crypto is largely unregulated today, and it is highly unlikely you would be covered by the Financial Services Compensation Scheme if a firm failed. A new FCA authorisation regime is expected to start on 25 October 2027.
Understand the tax before you sell
In the US, the IRS treats crypto as property. Brokers report gross proceeds on Form 1099-DA for transactions on or after 1 January 2025, and they report basis for certain transactions on or after 1 January 2026. In the UK, the rules have their own guide: see UK crypto tax rules.
Trading is a separate decision
Trading means buying and selling frequently, and it is not the same as learning about crypto or paying with it. Most retail traders lose money, and leverage multiplies losses. Read what trading involves before you consider it. This site does not tell you what to buy or when.
The main risks of cryptocurrency
The FCA calls crypto high risk and speculative and says you should be prepared to lose all your money. Four risks come up most often.
- Volatility and total loss. Prices can move suddenly and sharply, and a holding can fall to nothing.
- Firm failure and poor safeguards. The FCA lists firm failure, poor segregation of client funds and cyberattacks among the risks.
- No compensation. In the UK it is highly unlikely you would be covered by the Financial Services Compensation Scheme.
- Scams. The FCA warns that scammers are increasingly active, and its advice applies everywhere: if something sounds too good to be true, then it probably is. Fake trading robots that promise daily profits and invented celebrity endorsements are the classic pattern. Our guide to common crypto scams and how to spot them shows how they work.
Frequently asked questions
Is cryptocurrency real money?
Not in the sense of money issued by a central bank. In the US, digital assets are property, not currency, for federal tax purposes. In the UK, crypto is issued by networks and companies rather than the central bank, and the FCA calls it largely unregulated. You can spend it only where a merchant accepts it.
Who controls a cryptocurrency?
No central bank does. Bitcoin's design lets people send value directly to each other, and its network agrees on the ledger through proof of work. The FCA says crypto is developed and run by groups, individuals or companies, so control depends on the specific project.
Is crypto regulated in the UK?
Largely not yet. The FCA says crypto is largely unregulated in the UK today. A new regime is expected to come into force on 25 October 2027, based on final FCA rules published on 30 June 2026.
Do you pay tax on cryptocurrency in the US?
The IRS treats digital assets as property, and Form 1040 asks whether you received one as a reward, award or payment, or sold, exchanged or otherwise disposed of one. Brokers report on Form 1099-DA from transactions on or after 1 January 2025. Check the IRS page or a tax professional for your own situation.
Can you lose all the money you put into crypto?
Yes. The FCA says you should be prepared to lose all your money. It lists sudden market moves, firm failure, poor segregation of client funds and cyberattacks among the risks, and says you are unlikely to get compensation in the UK.
Where to go next
Pick the next step that matches your situation. If you are about to hold crypto, read the Wallets and security section first: it covers keys, backups and seed phrases. If you want to spend it, the Crypto payments section explains how payments and stablecoins behave in practice. If someone has offered you easy profits, read the Crypto scams section before you reply.
