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Is crypto taxable in UK? Pros and cons of cryptocurrency

Cryptocurrency is digital money that uses a powerful and complicated computer algorithm to generate its value. Popular coins such as Bitcoin and Ethereum allow people to avoid paying expensive bank charges and to remain anonymous when making or receiving transactions. Get the most essential information about Bitcoin here.

If you’re looking to dip your toe into the world of cryptocurrency, you will need to determine whether or not the UK government views your activity in a positive or negative light. In most cases, you will need to report your cryptocurrency earnings as taxable income.

What is cryptocurrency?

Cryptocurrency is the result of decades of academic research on the theory of cryptography. In simple terms, cryptography is the use of codes and ciphers to protect information, both tangible and intangible, by using maths to encrypt and decrypt electronic messages. The most well-known example of cryptography in use today is probably email: your emails are encrypted using advanced cryptography before they are transmitted, so that only the person you intend to send the message to can view it.

The most recent development in cryptography is cryptocurrency. Instead of using traditional public/private keypairing (like the asymmetric “public” key cryptosystems RSA and El-Gamal), which require a trusted third party to provide a secure key exchange, or symmetric key cryptography (like the triple-DES algorithm), which protects data using shared secret keys, cryptocurrency operates on a ledger system and is protected using advanced mathematics called “public-key cryptography”. This makes it much more difficult to break down into its constituent parts and theoretically impossible to do so (at least, without a lot of computing power).

Where does cryptocurrency come from?

Many people have pointed out that cryptocurrencies are the ultimate “free money”, as there is no one governing body that can charge you fees to use them. This aspect of crypto-currency makes it ideal for use in places where the government doesn’t want to impose extra charges (or places where the government doesn’t want to disclose how much money they’ve collected), as well as in places where bank charges are very high.

Another reason why cryptocurrencies have become so popular is that people want to keep their personal information private. Remember: you’re free to use a cryptocurrency without having to provide any personal details, so long as you use a VPN to ensure your anonymity.

Is cryptocurrency theft?

This is probably the most important question when it comes to considering whether or not to get involved with cryptocurrency. The short answer is that cryptocurrency is not physically stolen—it’s electronically “taken”. The only way to recover your cryptocurrency is by hacking into the central database where all the transactions take place (known as the “blockchain”). Fortunately, this is extremely difficult to do, requires extremely advanced hacking skills, and can be detected by the servers that host the blockchain. You can find more info on blockchain here.

If you’re looking for a quick and easy way to make money, you could try buying and selling cryptocurrency on the side, without necessarily having to register as a trader. We’ll discuss this more in the next section.

Should I register as a trader?

If you’re looking to make a living from trading and want to enjoy the benefits of an FSA account (frequently asked questions about registering as a trader here), then yes, you should register as a trader. The downside is that you will need to follow a lot of procedural rules and regulations. For example, you will have to hold a certain amount of cash in your account at all times (this is called “Level 3” cash management). You will also need to keep records of your transactions, including details about the people you trade with and what you pay them (this is known as “knowing your customer”).

Trading in cryptocurrency is a lot more advanced and requires a lot more paperwork than most people realize. While there is certainly no denying that it’s a lucrative market, you might want to consider whether or not you’re really equipped to handle all the complexities that come with trading in crypto-currency. If that’s what you want to do, then great, but be prepared to fill out a lot of forms and to keep careful track of your finances.

Is it easy to trace my cryptocurrency transactions?

This point may be difficult for individuals to understand, but it’s an essential one for businesses to consider. When you register as a trader with the UK government, they will ask you to identify all your sources of income, including any foreign gains. In most cases, you won’t be able to get away with simply saying you don’t hold any foreign gains, as there are various exceptions for individuals who are in designated countries or who are residents of a “high risk” country. In any case, if the Bank of England suspects you of avoiding taxes, they may decide to scrutinize your accounts more closely or even to investigate you.

What are the advantages of cryptocurrency?

To begin with, cryptocurrencies are incredibly easy to use. To send funds to someone, all you need to do is type in the recipients email address and amount you wish to send them in the appropriate fields. You do not need to set up special accounts or buy precious metals to use cryptocurrencies; all you need is a device with an internet connection and a wallet in which to store your funds.

Another advantage of cryptocurrencies is that they are completely decentralized. This means that no one person or group is in control of the coin; instead, the blockchain acts as a distributed ledger, where all transactions are logged and maintained using a “consensus algorithm”. In technical terms, this means that the network is “trustworthy” because everyone is motivated to behave honestly. Since there’s no “trusted third party” involved in the process, this eliminates the need for costly intermediaries like banks or stock exchanges. Read more about decentralization here.

How is cryptocurrency taxed?

Your profits from trading are generally taxed at standard income tax rates. However, most cryptocurrencies come with a built-in “gains deniability” feature, which protects you from having to declare any income you make from cryptocurrency trading. To understand what this means, let’s suppose you buy and sell a large amount of Bitcoin in a short space of time. In this case, the UK government could argue that your Bitcoin holdings represent an “unearned” income and could potentially increase your taxable income.

One thing to keep in mind is that cryptocurrencies are often “speculative” in nature. This means that their price is completely dependent on market supply and demand; there is no “real” value as far as the tax man is concerned. Bitcoin is a great example of a cryptocurrency that is highly speculative; its entire value is derived from market supply and demand, and there is no fixed price per coin.

The disadvantages of cryptocurrency

The main disadvantage of cryptocurrency is that, in most cases, you need to hold on to your investment for the long term to make any money at all. Due to its inherent volatility, cryptocurrency is highly risky; you could make a lot of money in the short term, but in the long term, you will likely lose a lot of money (this is known as the “price fluctuation”).

Another disadvantage of cryptocurrencies is that there is no way for traditional investors to directly participate in the “growth” of the cryptocurrency; in other words, there is no way for them to “cash out” quickly and easily. For example, if you bought a pound worth of Bitcoin five years ago for $5,000 and now the price is $20,000, you will have to wait five years before you can sell your Bitcoin and convert your money into a more traditional investment.

Last but not least, there is no way to send funds directly to someone using cryptocurrencies, as all transactions occur on a ledger system and need to be coordinated by third parties (known as “intermediaries”). In most cases, this means that any funds you transfer will be “mined” (i.e. fabricated) by the network.