What is a simple explanation of cryptocurrency?

Cryptocurrency is a type of digital asset secured by a database known as the blockchain. Blockchains are designed to ensure privacy and security using complex cryptographic algorithms. Cryptocurrencies have a huge number of potential uses. They can be spent like money, ensure contract transparency, manage supply chains and much more.

How does cryptocurrency make money?

Cryptocurrency prices rise and fall like any other speculative investment, and can be heavily influenced by public announcements and media sentiment. Some coins, like Bitcoin, have a small supply and high demand, which can also affect its value. You might be able to make money with crypto by buying from an exchange and holding it, trading it or earning it , but each method has unique risks attached.

Is crypto real money?

The Australian Tax Office treats cryptocurrency as an asset. In this sense, it's viewed more like a stock than a currency. This means profits made from buying, selling or trading crypto can be subject to capital gains tax (CGT). This includes selling one crypto for another.

What types of cryptocurrencies are there?

There are quite a few types of cryptocurrencies, including digital currencies, stablecoins, memecoins, store of value coins, governance tokens, staking tokens and payment tokens. Many cryptos may even fall into multiple categories at once. For example, Ethereum (ETH) is the governance token of the Ethereum network and is used to process transactions on the Ethereum network. It may also be considered a store of value coin because of its strong price performance and large market capitalisation.

Do I have to pay tax on cryptocurrency?

Buying, selling and holding cryptocurrencies may trigger a taxable event. Consult a financial adviser, refer to the latest guidance from the ATO and read our guide to crypto tax in Australia to find out more.

Can you turn cryptocurrency into cash?

Yes, cryptocurrency can be sold via exchanges and brokers for a local currency like Australian dollars. In some places, you can even use a crypto ATM to convert digital assets directly into cash, though this does attract high fees.

Which cryptocurrency is best?

Unfortunately for investors, there's no such thing. The best cryptocurrency will be whichever you believe has real utility and that suits your personal investment goals. Bitcoin and Ethereum are widely considered to be the "blue chips" of crypto because of their high market cap and proven use-cases. Check out our guide to which cryptos to buy now for a look at what's trending today.

Is cryptocurrency a good investment?

Cryptocurrency can be a good investment if you've conducted extensive research and understand fundamental trading strategies. Investing in a highly volatile asset comes with the potential to magnify your losses as well as your profits, so only invest what you can afford to lose.

Where does money go when you buy crypto?

Money spent on cryptocurrency goes to whoever sold the digital asset, similar to any other exchange of value. This is usually an exchange or broker service, but it can also be a stranger if you've used a decentralised finance or P2P platform.

Cryptocurrency Comparison - Best Exchanges, Wallets and Coins

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Buy and Sell Cryptocurrency from these Exchanges

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Product	Deposit methods	Fiat currencies	Cryptocurrencies	Offer	Disclaimer
CoinSpot Most Loved	Bank transfer, Credit card, Cryptocurrency, Debit card, PayPal	1	536	Get $20 in BTC when you make a deposit. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
Coinbase Australia	Bank transfer, Cryptocurrency, PayPal, PayID	7	298	Get $20 in BTC after your first crypto purchase. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
Kraken Finder AwardExclusive	Bank transfer, Cryptocurrency, PayPal, PayID	8	423	Get $25 USDG when you trade $100. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
Bitcoin.com.au	Bank transfer, Credit card, Cryptocurrency, Debit card, PayPal	1	34	Get $10 of Bitcoin when you verify your account. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
Swyftx Finder Award	Bank transfer, Credit card, Cryptocurrency, Debit card, PayID	3	450	Get $20 in BTC when you verify your account. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
Digital Surge	Bank transfer, Cryptocurrency, Osko, PayID	1	431	Receive $10 BTC on sign-up and verification. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
Coinstash	Bank transfer, Cryptocurrency, Osko, PayID	1	1129	Get up to $200 BTC when you sign up and trade. T&Cs apply.	Go to site More info Compare product selectionCompare	loading
OKX	Bank transfer, Cryptocurrency	1	282	Go to site More info Compare product selectionCompare	loading
eToro Crypto	Bank transfer, Credit card, Debit card, PayPal, eToro Money	27	130	Go to site More info Compare product selectionCompare	loading
Independent Reserve	Bank transfer, Credit card, Cryptocurrency, Debit card, PayPal	4	34	Get $10 of Bitcoin when you verify your account. T&Cs apply.	Go to site More info Compare product selectionCompare	loading

Showing 10 of 22 results

Cryptocurrencies are digital assets that have a value, just like a $10 note is a physical token with 10 dollars of value assigned to it.

The difference is that digital currencies are electronic – they only exist on the internet.

While some cryptocurrencies are intended to be spent like regular currencies, other may be considered a store of value investment, used to power transactions on a crypto network or even simply to assign governance over a project.

Others, known as memecoins, are simply designed as a novelty and aren't intended to have any intrinsic value.

In order for a cryptocurrency to have value, its coin needs to be unique, verifiable and unreplicable.

The Bitcoin blockchain was the innovation that made this possible and was first laid out in the original Bitcoin whitepaper in 2008.

Where can you buy and sell crypto in Australia?

The easiest place to buy and sell crypto is via a dedicated crypto exchange. Australians can now choose from dozens of established and feature-rich crypto exchanges.

If you're just starting out, you might want to go with an AUSTRAC-registered exchange that lets you buy and sell crypto with Australian dollars, either via bank transfer or card.

If you're a more experienced investors or trader, you may want to consider the number of coins an exchange offers, how low its trading fees are and other features like staking, advanced order types and good liqudiity.

You can click the Go to Site button when you're ready to create an account with any of the providers.

How does cryptocurrency work?

Crucial to crypto is the principle of decentralisation. There is no single authority or business (such as a bank or government) that controls cryptocurrencies.

This idea of sovereignty over your assets and removing reliance on any sort of intermediary is something you'll hear about a lot.

Decentralisation also makes crypto a powerful medium of exchange because it can help minimise the costs and processing times of transactions.

Thanks to these innovations, companies like Visa, PayPal and the big four Australian banks have also begun adopting cryptocurrency and blockchain technologies.

Cryptocurrency uses cryptographic technology to secure individual assets on a database called a "blockchain". A blockchain records transactions on a network in a way that cannot be altered.

You can think of a blockchain as hundreds of connected computers sharing information with one another. This builds a ledger of data that can be used to validate that each crypto transaction is legitimate and secure.

Some blockchains use a variation of proof-of-work or proof-of-stake consensus algorithms to execute transactions. Proof of work is where the term "Bitcoin miners" comes from.

Miners operate powerful computers that solve complex mathematical problems, which helps secure the blockchain by confirming transactions. For keeping the network secure and accurate, miners are rewarded with certain amounts of the cryptocurrency each time they confirm a "block" of transactions.

Proof of stake is a bit different. This algorithm uses staking – the process of locking up cryptocurrency on a specified blockchain wallet in exchange for a reward. Staking protocols use "nodes" – small copies of the blockchain being run on thousands of different computers.

Understanding how a crypto's algorithm works in detail isn't essential – or easy – but it can help explain movements in price.

You might be surprised to learn that Bitcoin (BTC) is not the most traded cryptocurrency, although it usually sits in the top 3.

Instead, it's the dominant crypto by market capitalisation – a metric that shows the circulating supply of a coin, multiplied by its value.

VIDEO: Cryptocurrency explained for beginners

How to buy cryptocurrency

Compare crypto exchanges
The easiest way to purchase cryptocurrency is through an exchange or trading platform. Features to look out for are low fees, supported coins and deposit methods. Registering an account with an Australian exchange will require you to provide a form of government identification.
Deposit funds
To deposit Australian dollars to your exchange account, first, you'll need to verify your identity in a process known as KYC. Most exchanges accept instant transfers from an Australian bank account, while others also support credit card purchases and sometimes even cash.
Choose a cryptocurrency
There are thousands of cryptos to choose from. Thoroughly research any you're interested in, check what's trending, and keep on top of the latest crypto news before investing any money.
Build your crypto portfolio
Most exchanges allow you to instantly buy cryptocurrency with the funds deposited to your account. Some platforms also have advanced market options and trading pairs which may be useful for more experienced traders.
Store your crypto
You can choose to leave your assets in your exchange wallet, but this does come with some added risks. It's generally recommended that you transfer your crypto to a non-custodial or hardware wallet for increased security.

Is cryptocurrency safe?

There are a number of risks associated with buying, storing and using digital currencies. Before jumping in, do plenty of research and make sure you understand how to keep your crypto safe. Some key risks to be aware of include:

Poor regulation. Cryptocurrency is still a largely unregulated market, which means you may not be protected if your funds are lost or stolen. Look for platforms that are registered with AUSTRAC and provide an insurance fund.
Volatile prices. Crypto is much more unpredictable than traditional markets and massive price fluctuations within a short window are not uncommon. Because of this, your investment can quickly lose its value.
Vulnerable to hacking. Several million dollars have been lost to successful hacks of crypto exchanges, wallets and blockchains. It's important to understand that without appropriate security measures like using a hardware wallet, securing your private key and enabling 2-factor authentication, your funds could be stolen.
Steep technical learning curve. Grasping the complex technical foundations of potential crypto investments can quickly become confusing. You'll also need to fully understand concepts like gas fees and wallet addresses before interacting with a blockchain, or else risk total loss of funds.
Scams. As crypto has become popular, so too have crypto scams. Be extremely wary of deals that seem too good to be true, thoroughly research all platforms or projects before putting your money in, and never disclose your private key.

Read the Australian government's crypto investment warning for more guidance on keeping your money safe.

Frequently asked questions

Cryptocurrency is a type of digital asset secured by a database known as the blockchain. Blockchains are designed to ensure privacy and security using complex cryptographic algorithms.
Cryptocurrencies have a huge number of potential uses. They can be spent like money, ensure contract transparency, manage supply chains and much more.
Cryptocurrency prices rise and fall like any other speculative investment, and can be heavily influenced by public announcements and media sentiment. Some coins, like Bitcoin, have a small supply and high demand, which can also affect its value.
You might be able to make money with crypto by buying from an exchange and holding it, trading it or earning it, but each method has unique risks attached.
There are quite a few types of cryptocurrencies, including digital currencies, stablecoins, memecoins, store of value coins, governance tokens, staking tokens and payment tokens.
Many cryptos may even fall into multiple categories at once. For example, Ethereum (ETH) is the governance token of the Ethereum network and is used to process transactions on the Ethereum network. It may also be considered a store of value coin because of its strong price performance and large market capitalisation.
Unfortunately for investors, there's no such thing. The best cryptocurrency will be whichever you believe has real utility and that suits your personal investment goals.
Bitcoin and Ethereum are widely considered to be the "blue chips" of crypto because of their high market cap and proven use-cases. Check out our guide to which cryptos to buy now for a look at what's trending today.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Thank you for your feedback!

Written by

Fred Schebesta

Founder

Fred Schebesta is one of Australia’s leading entrepreneurs and a crypto visionary, globally recognised as the founder and executive chair of the Finder Group. See full bio

Fred's expertise

Fred has written 3 Finder guides across topics including:

Cryptocurrency and NFTs
Business and scaling
Startups
Fintech

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2 Responses

SafinathNovember 15, 2024

Hi I have been with thos finder from last year. I have put money in my account to buy bitcoin. But now I can’t see any money or I can’t login to my account. Please help me how to do that .I have been sending emails to the finder group so far no help.

Finder

ThomasNovember 18, 2024Finder

Hi Safinath,

You can talk to our app customer support by heading to the Settings tab in the Finder app (by tapping the gear icon in the top right corner) and then selecting “Get support”.

If you’re struggling to log in to the app, please email us at app@finder.com.au.

Thanks,

Tom

Cryptocurrency — a beginner-friendly guide for the crypto-curious