Cryptocurrency, often shortened to crypto and described by regulators as crypto-assets, is a form of digital asset. Instead of a bank keeping a record of who owns what, ownership is recorded on a shared digital ledger, usually a blockchain, that is maintained by a network of computers. You prove you own your crypto, and authorise transfers, using cryptographic keys.
How crypto differs from money in the bank
| Money in an Australian bank | Cryptocurrency | |
|---|---|---|
| Who keeps the record | Your bank, a regulated institution | A shared ledger run by a network |
| Legal tender | Australian dollars are legal tender | Not legal tender |
| Government guarantee | Eligible deposits covered by the Financial Claims Scheme | No guarantee |
| Reversing a mistaken payment | Often possible through your bank | Usually not possible |
| Price | Stable in AUD | Can change sharply |
| Access | Username, password, bank support | Private keys or seed phrase; lose them and you may lose access |
A brief history
Bitcoin was the first cryptocurrency. It was described in a 2008 paper published under the pseudonym Satoshi Nakamoto and launched in January 2009. Its key innovation was a way for a network of strangers to agree on a shared record of transactions without a central authority. Since then, many thousands of other crypto-assets have been created. Many have failed. Read Bitcoin explained.
What gives crypto value?
Most crypto-assets do not produce earnings, pay interest or represent ownership of a business. Their price depends largely on supply and demand: what people are willing to pay, which can be driven by sentiment, news, speculation and wider market conditions. That is why prices can rise and fall dramatically. Moneysmart describes crypto-assets as highly speculative, and the Reserve Bank has noted their volatility.
Main types of crypto-asset
- Cryptocurrencies such as bitcoin, intended as a digital means of exchange or store of value.
- Platform tokens that power blockchains which run programs (smart contracts), used to pay network fees.
- Stablecoins designed to track the value of another asset, usually the US dollar. Read stablecoins explained.
- Non-fungible tokens (NFTs): unique tokens often linked to digital art, collectibles or game items.
- Governance and utility tokens issued by projects, sometimes giving voting rights or access to a service.
- Meme coins: tokens created largely as jokes or for speculation, often extremely volatile.
How people buy and hold crypto
Most Australians who own crypto buy it through an exchange or platform that converts Australian dollars into crypto. Businesses that exchange crypto for money in Australia must be registered with AUSTRAC. You can leave crypto on the platform (which holds it for you) or move it to a wallet you control. Each option has risks. Read how to check a crypto platform and crypto wallets, keys and seed phrases.
What crypto is used for
People use crypto in various ways: as a speculative investment, to send value across borders, to pay for some goods and services, and to access decentralised finance applications. Crypto is also used by criminals and scammers, which is one reason regulators focus on anti-money laundering rules and scam prevention.
The main risks
- Volatility. Prices can fall sharply and quickly.
- Platform risk. Exchanges can be hacked, collapse or freeze withdrawals.
- Loss of access. Lose your keys or seed phrase and your crypto may be gone.
- Irreversible transfers. Sending to the wrong address usually cannot be undone.
- Scams. Fake platforms and investment schemes are widespread.
- Limited protections. Crypto is not covered by the Financial Claims Scheme.
Read the risks of crypto for more detail.
Crypto and tax
The ATO says crypto held as an investment is generally a capital gains tax asset, and disposing of it, by selling, swapping, gifting or spending, can trigger a CGT event. Read crypto tax basics.
Questions to ask yourself
Before buying any crypto-asset, Moneysmart's guidance suggests asking questions like these:
Questions before you buy
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Common myths
- "Crypto is untraceable." Most blockchains are public, and Australian exchanges must verify identities.
- "Prices always recover." Many tokens have fallen to near zero and stayed there.
- "If it is on a big app, it must be safe." Platform size does not remove market or platform risk.
- "Government-backed." No crypto-asset is guaranteed by the Australian Government.
- "Guaranteed returns." Any promise of guaranteed crypto profits is a red flag for a scam.
The bottom line
Crypto is a new and evolving type of digital asset with real uses and very real risks. Understanding how it works helps you cut through hype, recognise scams and make informed decisions, whatever you decide.
Frequently asked questions
Who controls cryptocurrency?
Most cryptocurrencies are not issued or controlled by a government or central bank. Rules are set by software and by the people and organisations that run and develop each network. Some tokens are issued by companies.
Is cryptocurrency real money?
Crypto is not legal tender in Australia and is not issued or guaranteed by the Reserve Bank. Some businesses accept it, but no one is obliged to. The ATO does not treat it as money for tax purposes.
How many cryptocurrencies are there?
Many thousands of crypto-assets exist, and new ones are created all the time. Many have failed or become worthless.
How do people get cryptocurrency?
Most people buy crypto through a crypto exchange or platform. Some receive it as payment, through mining or staking, or as a gift.
Is cryptocurrency anonymous?
Most blockchains are public, so transactions can be traced, although wallet addresses do not directly show names. Australian exchanges must verify customers' identities under anti-money laundering law.
What is the difference between a coin and a token?
A coin usually refers to a blockchain's native asset, such as bitcoin on the Bitcoin network. A token is generally created on top of an existing blockchain. The terms are often used loosely.
Sources and further reading
Facts on this page were checked against these primary and official sources. Conditions change — confirm before you travel or buy.
- Cryptocurrencies — ASIC Moneysmart
- Cryptocurrencies explainer — Reserve Bank of Australia
- Crypto asset investments — Australian Taxation Office
