What Is Cryptocurrency?

Cryptocurrency, usually shortened to crypto, is a kind of digital asset that is recorded and transferred on a shared computer network rather than through a bank. For most cryptocurrencies, that network keeps its records in a type of shared ledger called a blockchain, and control over the crypto comes from cryptographic keys.

That definition is accurate, but it leaves out most of what matters if you are deciding whether to use crypto. This article covers how crypto differs from money in a bank account, the terms you will see in almost every other crypto article, the risks that come from the way crypto works, and how it is currently regulated and taxed in Australia.

How crypto differs from money in a bank account

The quickest way to understand crypto is to compare it with something familiar.

Money in an Australian bank account sits inside a regulated system. Banks, building societies and credit unions are licensed and supervised as authorised deposit-taking institutions. Your bank keeps the record of your account balance. Payments move through regulated payment systems, and banks can investigate mistaken or fraudulent payments and, in some cases, help recover them. Eligible deposits are also protected by a government scheme, up to a limit.

Crypto sits largely outside that system, and that changes several things at once.

It isn’t issued by a central bank, and it isn’t legal tender. Cryptocurrencies are not issued by the Reserve Bank of Australia and are not legal tender here. Bitcoin, the first cryptocurrency, was described in a 2008 paper as a way to send payments directly between people without relying on a trusted third party such as a bank. Many crypto assets created since then do have a company, foundation or small group behind them, so “decentralised” is a claim to check rather than something to assume.

The network keeps the underlying record. For crypto held directly, balances and transfers are recorded on a ledger shared across the network, and no single organisation can correct that record for you. If you hold crypto through a crypto platform, the platform usually keeps its own internal record of what it owes you, while the crypto itself sits on the network under the platform’s control.

Control comes from keys, not an identity check. On the network, crypto is controlled by whoever holds the relevant private keys. With self-custody, that is you. In a custodial arrangement, such as leaving crypto on a platform, the provider holds the keys and you rely on it to act on your instructions. Moneysmart warns that if you lose your private key, you usually lose the crypto.

Mistakes and thefts are hard to undo. Once a transfer is confirmed on most networks, there is generally no central party that can reverse it. Moneysmart notes that this is one reason scammers like to be paid in crypto.

The market sets the price. The RBA points out that cryptocurrencies have no legislated or intrinsic value; they are worth whatever buyers are willing to pay. Prices can move sharply in either direction.

It isn’t a bank deposit. The Financial Claims Scheme covers eligible Australian-dollar deposits held with banks, building societies and credit unions that the scheme covers, up to a limit. Crypto is not that kind of deposit, so it falls outside the scheme’s scope, including when you hold it on a crypto platform.

Few businesses accept it. The RBA notes that only a small number of retailers accept cryptocurrency as payment. For most people, crypto is something they hold, not something they spend.

How a cryptocurrency works, briefly

Most cryptocurrencies run on a network of computers following a shared set of rules. Details vary between networks, but on a typical blockchain-based network a transfer works roughly like this:

1. A transaction is created, saying how much to send and where to send it.
2. It is authorised with the private key that controls the crypto. This produces a digital signature that proves control without revealing the key itself. With self-custody you authorise it; in a custodial arrangement, the provider does so on your instruction.
3. Computers on the network check that the transaction is valid: that the signature is correct and that the same funds have not already been spent.
4. Valid transactions are added to the shared ledger, on most blockchains in batches called blocks. Once a block has been added and others have been built on top of it, changing it becomes very difficult.

Networks use different methods to agree on what gets added. You will see the terms “mining” (also called proof of work) and “staking” or “validators” (proof of stake). How Does Blockchain Work? explains these in detail.

One idea from this section is worth holding onto: crypto is not stored on a phone, in an app or in a wallet. It exists as entries on the network’s ledger. What controls it is the private key, so the important question is always who holds that key.

The words you’ll keep seeing

These are the terms the rest of EatCryptoPie relies on. Each gets a short definition here and fuller treatment in its own article.

Crypto, crypto asset, digital asset, virtual asset

Australian authorities use different words for broadly the same category. The ATO uses “crypto asset”, which it describes as a digital representation of value that can be transferred, stored or traded electronically. ASIC generally uses “digital asset”. AUSTRAC’s registration rules use “virtual asset”. The RBA’s explainer uses “cryptocurrency”.

The legal definitions differ in their detail, so when the exact meaning matters, such as for tax or licensing, the definition that counts is the one used by the relevant regulator. On EatCryptoPie, “crypto” and “crypto asset” are used for the general category, and a regulator’s own term is used when its legal meaning matters.

Blockchain and network

A blockchain is a type of shared ledger: a record of transactions grouped into blocks, with each block linked to the one before it. The ATO describes it as a secure digital ledger used to store a record of crypto transactions.

A network is the group of computers and software that maintains a particular blockchain. Bitcoin and Ethereum, for example, are separate networks with separate ledgers. Crypto on one network cannot simply be sent to an address on a different network, and sending crypto using the wrong network can mean losing it.

How Does Blockchain Work? covers this in more depth.

Coins and tokens

A coin is usually the native asset of its own blockchain, used to pay fees and reward the computers that run the network. For example, bitcoin is the native coin of the Bitcoin network, and ether is the native coin of the Ethereum network.

A token is usually created on top of an existing blockchain rather than having one of its own. The ATO notes that some crypto assets use an existing platform such as Ethereum. Some tokens are unique rather than interchangeable; these are called non-fungible tokens, or NFTs.

The terms are not used consistently, and promotional material often calls almost anything a “coin”. Coin vs Token: What’s the Difference? explains the distinction and why it matters.

Stablecoins

A stablecoin is a crypto asset designed to keep a steady value relative to something else, most often a national currency such as the US or Australian dollar.

Moneysmart describes “stablecoin” as a marketing term, and that is a useful way to read it: the name describes what the issuer is aiming for, not a guarantee. Whether a stablecoin actually holds its value depends on what backs it and whether the issuer can and will exchange it back for money. Even Australian-dollar stablecoins are not legal tender. ASIC’s view is that some stablecoins are financial products under current Australian law, which can bring extra obligations for the businesses that issue or distribute them.

Wallets and addresses

A crypto wallet is software or a physical device used to manage the keys that control crypto, show balances and authorise transactions. Despite the name, it does not hold crypto the way a leather wallet holds cash; the crypto stays on the network’s ledger. Some wallets let you hold your own keys. Others, including the account view inside a crypto platform, are run by a provider that holds the keys for you.

An address is a string of characters, derived from a key, that other people can send crypto to. It works a little like an account number. On most blockchains, the transactions linked to an address are publicly visible, even though the address does not show anyone’s name.

What Is a Crypto Wallet? covers the different kinds of wallet and how they compare.

Private keys and seed phrases

A private key is the secret that authorises transactions. Anyone who has it can move the crypto it controls, and if it is lost, the crypto is usually lost with it.

Wallets that let you hold your own keys usually back them up with a seed phrase, also called a recovery phrase: a list of words, commonly 12 or 24, from which the keys can be recreated. Anyone who gets your seed phrase gets control of the crypto it protects. Treat any request for it, whether from a website, an app, a “support” person or anyone else, as a warning sign of a scam.

Understanding Private Keys & Seed Phrases explains how to store and protect them.

Crypto platforms

A crypto platform is a business that lets you buy, sell or swap crypto, usually in exchange for Australian dollars. Crypto platforms are often called exchanges. In Australia, crypto platforms generally need to be registered with AUSTRAC, the anti-money-laundering regulator. The regulation section below explains the details, including what registration does and doesn’t mean.

How to Buy Crypto Safely in Australia explains what to check before opening an account with a platform.

Custodial and self-custody

Custody is about who controls the private keys.

In a custodial arrangement, a provider holds the keys on your behalf. When that provider is the crypto platform you bought from, and you leave your crypto there, that is platform custody. You are relying on the provider to stay secure, solvent and honest, and to let you withdraw when you ask.

In self-custody, you hold the keys yourself, usually in a wallet you control. That removes your reliance on a provider for holding the crypto, but it makes you solely responsible for protecting your keys and seed phrase. There is no one to call if you lose them.

Neither arrangement is free of risk. What Is a Crypto Wallet? compares the two in more detail.

What people use crypto for

People use crypto for a few broad purposes:

• Speculation and investment. Many people buy crypto hoping to sell it later for more than they paid. Moneysmart treats most crypto as a high-risk investment and warns that anyone who buys crypto should be prepared to lose everything they put in.
• Sending value online. Crypto can be sent across the internet, including across borders, without a bank in the middle. Fees, confirmation times and the cost of converting to and from Australian dollars all vary.
• Using blockchain-based applications. Some networks run applications for trading, lending and other services, often grouped under the label “decentralised finance” or DeFi. These carry additional risks beyond those of holding crypto.
• Moving dollar-equivalent value. Stablecoins are often used to move value between platforms and applications without converting back to a national currency each time.

Spending crypto on goods and services is possible in some places, but uncommon. In Australia it also has tax consequences, covered below.

The risks that come with how crypto works

Most of the risks in crypto come directly from the features described above.

Prices can change quickly. Because the market sets the price, values can rise and fall sharply in short periods. The RBA’s explainer gives the example of bitcoin’s price more than doubling during 2021 and then falling by roughly half within a few months.

Errors are hard to reverse. Sending crypto to the wrong address, on the wrong network or to a scammer usually cannot be undone.

Losing keys can mean losing access. With self-custody, if you lose both your keys and your seed phrase, there is generally no recovery process.

Providers can fail or be hacked. In a custodial arrangement, your crypto is only as safe as the provider holding it. Moneysmart notes that many crypto providers are not licensed at present, which means you may not be protected if a platform fails or is hacked.

Crypto assets can fail. A crypto asset can lose most or all of its value if the project behind it collapses or demand disappears. Moneysmart warns that if a crypto asset fails, you will most likely lose all the money you put in.

Scams are common. Crypto’s irreversibility makes it attractive to scammers. Moneysmart’s crypto scams guide lists warning signs, and Avoiding Crypto Scams and Staying Safe covers them in more depth.

Ordinary actions can create tax obligations. Swapping one crypto asset for another, or spending crypto, can be a taxable event even if no Australian dollars change hands.

How crypto is treated in Australia

Regulation

Crypto in Australia is not unregulated, but the protections are narrower than many people assume, and the rules are changing.

• AUSTRAC registration. AUSTRAC has regulated businesses that exchange crypto for money since 2018. From 31 March 2026, registration was extended to other crypto services, including swapping one crypto asset for another, holding crypto for customers and transferring it on their behalf. Businesses that started providing one of the newly covered services before 1 July 2026 had until 29 July 2026 to apply, so a provider may still be operating while AUSTRAC decides its application. AUSTRAC published its register of these providers on 30 June 2026. The register confirms whether a business is registered with AUSTRAC under anti-money-laundering law. It is not an assessment of whether a platform is financially sound, how it holds customers’ crypto, or whether it is right for you.
• Financial services law, where it applies. ASIC’s view is that some crypto assets and crypto-related products are financial products under existing law; examples it gives include some stablecoins, wrapped tokens and yield-bearing products. Where something is a financial product, licensing, disclosure and dispute-resolution requirements apply. Where it is not, ASIC notes it is harder to get help if things go wrong.
• New platform licensing law. The Corporations Amendment (Digital Assets Framework) Act 2026 will require operators of digital asset platforms and tokenised custody platforms to hold an Australian financial services licence. Under the Act, it commences on 8 April 2027. For the first six months, operators without the relevant licence can keep providing their services. An operator that applies for a licence during those six months can keep operating until ASIC decides its application. The new regime starting does not mean every platform will be licensed from that date.

For now, Moneysmart’s warning stands: many crypto providers are not licensed, and you may not be protected if a platform fails or is hacked.

Tax

For tax purposes, the ATO does not treat crypto as money. For most people who hold crypto as an investment, it is a capital gains tax (CGT) asset.

That matters because, according to the ATO, you dispose of a crypto asset, and may make a capital gain or loss, when you:

• sell it
• swap it for another crypto asset
• convert it to Australian dollars or another currency
• give it away
• use it to buy goods or services.

The ATO requires records of each crypto asset and every transaction, so records need to start with the first purchase. Its page on keeping crypto records sets out what to keep, and Crypto Taxes in Australia explains how the rules apply.

The bottom line

Crypto is a digital asset recorded on a shared network, controlled by whoever holds the keys, priced by the market, and largely outside the protections that come with money in a bank. Understanding who holds the keys, what can and cannot be reversed, and where Australian regulation stops is more useful than knowing which crypto assets are popular.

If you decide to buy crypto, How to Buy Crypto Safely in Australia covers the checks to make first.

Sources

Last checked 2 October 2026.

• Reserve Bank of Australia, Cryptocurrencies (explainer)
• Moneysmart, Crypto assets
• Moneysmart, Crypto scams
• Australian Taxation Office, What are crypto assets?
• Australian Taxation Office, Crypto asset transactions
• Australian Taxation Office, Keeping crypto records
• AUSTRAC, Virtual asset service provider register goes public (30 June 2026)
• AUSTRAC, AML/CTF transitional rules 2026
• AUSTRAC, Virtual asset service providers overview
• ASIC, Digital assets: Financial products and services (INFO 225)
• Federal Register of Legislation, Corporations Amendment (Digital Assets Framework) Act 2026
• ASIC, ASIC’s roadmap for digital assets law reform implementation
• APRA, Types of accounts covered under the Financial Claims Scheme
• Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008)