Cryptocurrency
Cryptocurrency is a digital currency that uses encryption and decryption to secure transactions. It’s important to understand the risks before using them.
What is cryptocurrency?
Cryptoassets, also referred to as ‘cryptocurrency’, ‘tokens’ or ‘coins’, are digital representations of value or rights which can be stored, transferred and traded, often using distributed ledger technology (DLT).
They use cryptography to secure communications. This means that information is protected through encryption and decryption.
There are thousands of coins and tokens that exist, including Bitcoin, Ethereum and Ripple, and they each operate differently.
Risks
They’re not regulated like banks
Cryptocurrency tends to be volatile and speculative, and there are various risks when using them.
In the UK, they’re not regulated as strictly as banks or the stock market, and they’re unlikely to be covered by the Financial Services Compensation Scheme (FSCS). This means that you won’t be protected if something goes wrong, and you may struggle to get reimbursement if your assets are lost, even to fraud.
For more information on this, visit:
Financial Conduct Authority: Crypto: The basics
They’re attractive to criminals
The benefits of cryptocurrency are also attractive to criminals, such as decreasing fees for services, quick transfers of assets, relative anonymity and lack of centralised authorities.
It’s important to use caution, conduct thorough research, and follow legal guidelines while using crypto and digital assets to avoid inadvertently participating in, or supporting, criminal activities, including money laundering and terrorist financing.
The Financial Conduct Authority also provides information about crypto investment scams and advice on how to consider whether the investment is right for you.