Are you new to crypto? Our cryptocurrency for beginners guide will introduce the basics, explain what cryptocurrency is, outline its different types, walk you through how to start investing, and share reasons why people find it worthwhile. We’ll also highlight potential risks, suggest easy-to-understand coins, and explain how HMRC treats and taxes cryptocurrencies.
At the end of this post, you’ll be able to dive into the world of crypto while understanding the tax and compliance requirements relevant to the UK.
What is Cryptocurrency?
A cryptocurrency, or crypto, is a kind of money you use online. While traditional money is monitored by a central authority, such as a bank or government, cryptocurrencies are managed by many computers using specialised coding to keep them secure.
Cryptocurrencies record transactions on a shared online ledger called the blockchain. With blockchain, people can send and receive money directly to each other, without needing banks or governments to help.
Cryptocurrency is a digital asset and is taxable. You need to pay Capital Gains Tax (CGT) on profits made and Income Tax and National Insurance contributions on earnings as income.
What is Blockchain Technology?
Blockchain technology is a public, distributed ledger used to record information across a network of computers. This decentralised, immutable database mechanism enables transparent information sharing. A blockchain database stores data in blocks, verified by network nodes (computers)and linked together in a chain.
This technology is used in cryptocurrencies to maintain a secure, decentralised record of transactions. It is widely regarded as one of the most secure and advanced systems for financial transactions. Blockchain analytics tools, regulators, law enforcement, and compliance teams have made the process somewhat safer, more secure, and faster.
Why Cryptocurrency Exists?
Unlike fiat money and banking systems, cryptocurrency is fast, secure, globally accessible and does not rely on central authorities for financial transactions. Many cryptocurrencies, like Bitcoin, have a limited supply; thus, they can store value similar to gold and act as a hedge against inflation.
Cryptographic peer-to-peer systems remove the need for a reliable third-party to authorise transactions. With innovation and programmability, cryptocurrency is programmable money with smart incentives and newer products.
Cryptocurrency vs Fiat Currency
Although cryptocurrencies and fiat currencies are both mediums of exchange, they differ significantly in their structure and control. Fiat currency, like the British pound, is issued and regulated by banks and the government. In contrast, cryptocurrency has no central authority.
Traditional currencies derive their value from trust in banks and are backed by legal tender laws, while the value of cryptocurrencies is determined by supply, demand, and network adoption.
Fiat currencies are subject to inflation due to excessive money supply or government policies, but offer stability through government backing and widespread acceptance. On the other hand, cryptocurrencies offer faster transfers, lower fees, and cannot be censored. However, they are volatile, have limited mainstream acceptance, and face legal uncertainties.
Types of Cryptocurrencies
There are thousands of cryptocurrencies in the market, and this number is rapidly increasing. How can we classify them? They share core traits with subtle differences. We can categorise cryptocurrencies into 4 major types:
- Payment cryptocurrency: Cryptocurrency used for transactions, such as Bitcoin, Litecoin, etc.
- Utility Tokens: Digital assets for users to access specific products, services or functions.
- Stablecoins: These cryptocurrencies aim to maintain a stable value relative to a specified asset or a basket of assets.
- Central Bank Digital Currencies (CBDC): A type of cryptocurrency issued by a central bank of various countries in token form.
What Can You Actually Do with Crypto?
Crypto can be used for purchasing goods and services directly from vendors. Crypto-linked debit cards like BitPay enable daily spending. Investors buy and hold crypto (HODL) to build capital or trade it for profits. In crypto, decentralised finance (DeFi) enables users to earn interest, do yield farming, and take out loans.
Crypto can be fast and cheap for cross-border transactions. With staking, users can get rewards by using their crypto on a blockchain network. Crypto can also be used to make donations and tip charities without intermediaries.
How Are Cryptocurrencies Created?
As a beginner to crypto, you might wonder how cryptocurrencies are created. Crypto mining, staking, or pre-mining are the key methods of creating cryptocurrency. It involves using computers to solve complex mathematical problems to generate coins.
Creating cryptocurrency requires commitment, time, money, programming skills, marketing and other resources. You can create cryptocurrencies through one of these options:
- Launch your own blockchain and cryptocurrency from scratch.
- Change the code of an existing blockchain technology.
- Create a new cryptocurrency on an already established blockchain.
- Hire a blockchain developer to create one.
Please note that before creating your own crypto, check the legal rules and regulations governing crypto creation in your country.
How to Invest in Cryptocurrency as a Beginner?
Cryptocurrencies’ price volatility makes them a great opportunity for investors. As with all other assets, this digital asset can also gain or lose significant value. Price fluctuations occur for various reasons. Many people invest in crypto to protect their capital from devaluation by traditional currencies, political unrest and other reasons.
To invest in crypto as a beginner, you need to create an account with a broker or crypto exchange that has an online trading platform to buy or sell crypto. You need to do research and plan before investing. Here is a step-by-step guide for beginners to invest in crypto:
Choose a Reputable Broker or Exchange
Choose an FCA-registered broker or exchange that offers reasonable fees, a user-friendly interface and strong security. Check reviews, reputation, coins and withdrawal methods. The risk of broker or platform scams is everywhere, but it’s higher in crypto.
Open an Account and Deposit
You need to create an account with an id and a password. Then fill in identity verification. Now you can fund your account via bank transfers, debit cards or PayPal.
Buy Your First Crypto
Once your account is verified and funded, you can now buy cryptocurrency. You can decide how much to invest and which ticker (crypto/coin symbol) to buy.
Choose a Wallet to Store Crypto
After purchasing cryptocurrency, you need to decide how you want to store it. You can decide on a hot or cold wallet when buying from a crypto-exchange. Hot wallets store your crypto online, and cold wallets (hardware wallets) store your coins on offline devices.
Make a Strategy for Higher ROI
Just buying crypto isn’t enough to make a profit. Learn about strategies to boost your ROI. Discover long-term holding (HODLing) or trading actively. Avoid putting all your funds at risk; be aware of risks and informed about trends.
Typically, cold wallets are preferred for greater control and security. There are other ways to buy crypto, too, like peer-to-peer platforms and fintech apps. But they might be costly, with limited options and security.
Risk of Investing in Cryptocurrencies as a Beginner
Assets are inherently vulnerable to risk, but crypto investors should be even more cautious. The crypto market can see a quick boom or drop within minutes, leading to emotional investing. The value of other assets rises or falls with certain factors, but crypto prices fluctuate based on economic and geopolitical factors and industry news.
Crypto is partially regulated in different parts of the world, with evolving rules impacting the market. Although blockchain technology is secure, there are also risks of hacks, cyber attacks and wallet vulnerabilities. Investors should understand the volatility of crypto prices. If you are good with it, you could achieve a great ROI on your investment.
Regulatory changes can impact the cryptocurrency market. Be it a tax implication or an outright ban. These changes can affect your investment. To avoid major losses, investors need to be cautious, keep security in mind and predict market fluctuations.
Evaluate the profitability of your business with our online ROI calculator.
How to Stay Safe When Investing in Crypto?
You need to be vigilant and proactive about security to stay safe when investing in crypto. Cryptocurrency transactions cannot be reversed, so one mistake can mean losing everything. Here are some simple tips to protect your cryptocurrency:
- Enable two-factor authentication (2FA) everywhere.
- Withdraw crypto from exchanges to a personal wallet.
- Secure your seed phrase.
- Use strong, unique passwords.
- Avoid phishing and fake sites/apps.
- Use a reputable VPN and avoid public Wi-Fi.
Best Cryptocurrencies to Buy for Beginners
With thousands of options, new investors might feel daunted to get started with cryptocurrencies. Now they don’t need to juggle obscure coins. These are some of the most popular and recognised coins for beginners:
Bitcoin (BTC)
The most popular and widely accepted digital currency today is Bitcoin. It is best for beginners because of its widespread recognition, history and stable market.
Ethereum (ETH)
Ethereum allows a platform for smart contracts and decentralised applications (dApps). It is best for beginners because it covers a broader spectrum of blockchain technology.
Tether (USDT)
Tether is safe and predictable due to its almost zero volatility and stability. It is good for beginners due to its availability, easy transfers, reduced fees, and versatile fiat currency alternatives.
Binance Coin (BNB)
BNB is the native token of BNB Chain. It is the currency of the Binance platform. BNB can be used to reduce trading fees with multiple features, making it a favourable choice for beginners.
Solana (SOL)
Solana is another good choice for beginners who want to invest in cryptocurrency. SOL is faster, easier to use, and offers beginner-friendly apps, games, and DeFi.
Disclaimer: Market caps and rankings are subject to frequent change. Always check live data and only invest what you can afford to lose.
HMRC Crypto Assets Classification
HMRC classifies cryptoassets as property, not money, and considers them taxable assets subject to Capital Gains Tax (CGT) upon disposal. Income Tax and National Insurance apply if received as income from mining, staking, etc.
The tax treatment depends on the token’s use and nature, not its label. Key classifications include:
Exchange Tokens: Exchange tokens (like Bitcoin) can increase in value as investments and serve as a medium of payment. They’re subject to Capital Gains Tax, Income Tax and National Insurance (as per the use and nature).
Utility Tokens: Utility tokens are used to access specific goods and services on a platform (usually built on a DLT). They are taxed based on this activity.
Security Tokens: These tokens grant the holder specific rights or interests in a business. These tokens act as shares or loans and are taxed accordingly.
Stablecoins: These cryptoassets carry stable value like gold or fiat currency. Disposing of them triggers Capital Gains Tax.
- You might be interested in A Complete Understanding of Capital Gains Tax.
How Are Cryptocurrencies Taxed in the UK?
You need to pay Capital Gains Tax if you make a gain when disposing of cryptocurrency by:
- Selling
- Exchanging them for other cryptocurrencies
- Using them like money to pay for goods or services
- Transferring them to another person (unless a gift to a spouse, civil partner or charity)
You must report the gain to HMRC and pay Capital Gains Tax when your total gains in a tax year (6 April to 5 April) exceed £3,000 (except trusts), the Capital Gains Tax tax-free allowance for the 2025/26 UK tax year.
If you receive cryptocurrency as income from activities like staking, mining or lending, or income from Decentralised Finance (DeFi), you may need to pay:
- Income Tax
- National Insurance contributions.
You can get an allowance of £1,000 for trading and miscellaneous income each tax year.
You need to contact HMRC if your total miscellaneous income is between £1,000 and £2,500. If your miscellaneous income is over £2,500, you need to register for a Self Assessment.
You can also report Capital Gains Tax either by completing a Self Assessment tax return at the end of the tax year or using the real-time service of Capital Gains Tax.
How We Can Help
Clear House Accountants’ Experts Ensure Compliance and Tax Savings
We handle accurate crypto record-keeping, CGT calculations & reporting, Income Tax & NI guidance, Self-Assessment filing, and tax-efficient strategies.
The Bottom Line
After reading our guide to cryptocurrency for beginners, you might now have a better idea of what cryptocurrency is, how it works, the investment steps, risks and the possible tax implications in the UK. You can now decide whether to buy cryptoassets and which cryptocurrencies are best for you right now.
Crypto FAQs
Is crypto legal in the UK?
Yes, crypto is legal in the UK. You can buy, sell, hold and use crypto freely under FCA regulations. Gains from crypto are taxable.
Do I pay tax if I don’t withdraw? Â
No. You’ll only need to pay CGT when disposing of crypto, such as selling, trading, spending, and gifting, that result in a gain. Income from mining/staking or other activities is taxed as income.
How much crypto can I buy?
There is no legal cap on how much cryptocurrency you can buy in the UK. You can purchase as much as you want, subject to your situation.
How do I report crypto to HMRC?
Report crypto gains or income on your Self Assessment tax return. Use the Capital Gains pages for disposals (sell, trade, spend) and Income pages for mining/staking rewards. Keep proper records of costs, disposal values, fees, and dates.
Should I hire an accountant for myself as a crypto owner?
Yes, an accountant can be highly valuable if you have significant holdings, frequent trading, mining/staking income, or complex transactions (NFTs, DeFi, airdrops). Technology accountants can perform accurate CGT calculations, correct reporting, maximise allowances/reliefs, avoid penalties, and handle HMRC enquiries.
Is crypto gambling?
No, crypto itself isn’t gambling. It’s just digital money or an asset, like stocks or gold. Using crypto to gamble (on dice, slots, poker sites, or betting platforms) is gambling.
