As well as property, savings, insurance policies and pensions, many LegacyScore users also own some level of cryptocurrency as part of their investment portfolios.

Cryptocurrency comes in many forms, with the most well-known being Bitcoin, Ethereum and Tether. Rather than having a physical format, cryptocurrency is entirely digital and its value is stored independently, which means it isn’t connected to governments and financial organisations such as banks.

In this article, we’re taking a look at how cryptocurrency works and factors to consider when investing in it.

Types of cryptocurrency

For classification purposes, cryptoassets fall into four main categories:

• Exchange tokens: These are intended to be used as a digital payment method, with Bitcoin being the most famous example.
• Utility tokens: These provide the holder with access to particular goods or services on a platform, which is usually carried out using distributed ledger technology, or DLT. This is a digital system for logging the transactions of assets, with the transaction details recorded in multiple places simultaneously. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
• Security tokens: These come with rights or interests in a particular business, such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits.
• Stablecoins: A form of cryptoasset that’s pegged to the value of mainstream legal tender or other physical assets and therefore comes without the volatility of traditional crypto.

Should I invest in cryptocurrency

The nature of any financial market is that it has its ups and downs. That being said, the cryptocurrency market is currently going through massive fluctuations and developments, making it a risky although not impenetrable opportunity for diversifying your investment portfolio.
If you’re considering taking out cryptoassets, make sure to first speak with a qualified financial advisor in order to fully understand your options and the potential risks involved.

Is cryptocurrency taxed?

If you hold any kind of cryptoassets as part of your personal investment portfolio, you’ll be liable to pay tax on them. The tax you pay will be on any profits above the Capital Gains Tax exemption, which sometimes changes with the start of a new tax year. To find out the current CGT tax-free allowance, please visit the GOV.uk website.

Add your crypto to LegacyScore

If you own cryptocurrency, you can add it to the LegacyScore platform to see how much it’s worth in real time. This allows you to monitor your crypto investments quickly and easily, as well as decide whether to hold onto them for the long term or sell your tokens while the price is high. To get started, sign up for your free LegacyScore account today.