Ethereum

You may know Ethereum as another cryptocurrency, like Bitcoin. In fact, Ethereum is not just another coin/token but one of the most popular types of blockchain software. Ether (ETH) is the token that’s native to the Ethereum blockchain, in the same way that bitcoins (BTC) are native to the Bitcoin blockchain.

What makes Ethereum so great?

It was founded by a Russian-Canadian child genius called Vitalik Buterin at age 19. The software became famous because, unlike the Bitcoin blockchain, it allows computer programmers to build decentralised apps (Dapps) with their own functionalities into it. This is done by Buterin’s technology: smart contracts. At their most basic, they are automated contracts that activate when certain conditions are met.

What is Ether?

Ether coins are not created by a central bank, but instead during a process called mining. Crypto mining is a process that allows you to verify transactions on the blockchain. It’s done on high-powered, specialised computers. Here are a couple of ways you can acquire crypto:

• Mining
• Buy it via a cryptocurrency exchange

In the UK, if you sell your Ether for profit, it’s considered a taxable asset. This is the same for all other cryptocurrencies.

When should I pay tax on my earnings?

If you earn Ether through mining it on your computer, it’s considered self-employment income. As a result, you need to pay Income Tax on its value calculated in pounds. You might also have to pay Class 2 and Class 4 National Insurance.

An advantage to this is that you’re allowed to claim back expenses. Here are some of the things that you can deduct:

• Mining equipment (e.g. computers)
• Electric bill
• Accounting software and fees

If you sell your crypto for a profit, you may also need to pay Capital Gains Tax. You’ll only owe this if you make more than £3,000 in a tax year.

What do I do if I make a loss?

You can claim this loss against other income (for mined Ether) or capital gains (for sold Ether). This can be done either this tax year or the next. You may have heard the process described as carrying a loss forward.

To claim a loss or pay tax on your Ether earnings, you need to file a Self Assessment tax return.