Key takeaways
- A cryptocurrency is digital money or a digital asset recorded in a shared ledger, a blockchain, rather than in a bank's books.
- Unlike krónur in a bank account, no central bank issues cryptocurrencies, their price is set by the market and no deposit guarantee covers them.
- The main types are Bitcoin, Ethereum and other platforms for applications, stablecoins that track a currency, and memecoins.
- Crypto prices swing a lot and transactions can't be reversed, so never put in more than you can afford to lose.
Contents
A cryptocurrency is digital money or a digital asset that exists only online and is recorded in an open, shared ledger called a blockchain. No bank keeps track of who owns what. Instead, thousands of computers around the world do it together, following the same rules.
The first cryptocurrency, Bitcoin, was launched in 2009. Thousands more have followed, with different goals and very different levels of risk. This page covers the basics and points you to more detailed articles on each topic.
How does cryptocurrency work?
When you make a transfer in your online bank, the bank changes numbers in its own books. It lowers your balance and raises the recipient's. You trust the bank to keep those books correctly.
Cryptocurrency works without that middleman. The books are one shared BlockchainBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing. that anyone can inspect, and thousands of computers each keep a copy. These computers check every new transaction and reject any that break the rules. This is called DecentralisationDecentralisationWhen power and responsibility are spread across many participants, instead of one bank, company or government controlling a system.: no single party is in charge. Read more about blockchains.
You don't hold the crypto itself the way you hold a banknote. What gives you control over it is a private keyPrivate keyA secret number that proves you own the crypto in your wallet. Whoever holds the private key controls the crypto., a secret number that lets you move the crypto. The key is kept in a crypto walletCrypto walletAn app or device that holds the keys to your crypto and lets you receive, store and send it., either by you or by a service that holds it for you. Read more about crypto wallets.
How is crypto different from krónur in a bank?
The krónur in your bank account and cryptocurrency are both digital value. The systems behind them are completely different.
| Krónur in a bank account | Cryptocurrency | |
|---|---|---|
| Who issues it? | The Central Bank of Iceland issues the króna | No central bank. Bitcoin is created by fixed rules, other cryptocurrencies are created by companies or projects |
| Supply | No cap. The amount of money in circulation grows year after year | Bitcoin's supply is capped at 21 million |
| Who keeps the books? | Your bank | Thousands of computers together, in an open blockchain |
| Value | One króna is always one króna, although inflation erodes what it buys | The market sets the price, which can rise or fall by tens of percent in a short time |
| Sending money abroad | Through banks, often for a fee and over several banking days | Anywhere in the world, at any time of day |
| Mistakes and fraud | The bank can sometimes stop or reverse a payment | A confirmed transaction can't be reversed |
| Protection if things go wrong | Deposits have minimum protection if a bank fails | No deposit guarantee or compensation scheme |
| Legal tender | Yes | No |
The biggest difference is responsibility. In the banking system there is usually someone to turn to if something goes wrong. With crypto, more of the responsibility rests with you, especially if you keep the keys in your own wallet.
Coins and tokens
Cryptocurrencies are often split into two groups:
- A coin is the built-in currency of its own blockchain. Bitcoin is the coin of the Bitcoin network and ether (ETH) is the coin of the Ethereum network. The coin is used, among other things, to pay transaction fees on the network.
- A TokenTokenA digital asset created with a smart contract on another cryptocurrency's blockchain, rather than on a blockchain of its own. is created on top of an existing blockchain by a program called a smart contractSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met.. The stablecoin USDC and ChainlinkChainlink (LINK)A network of oracles that bring outside information, such as prices, into smart contracts. LINK is an ERC-20 token on Ethereum, with 1 billion in total. (LINK) are examples of tokens that run on Ethereum, among other networks.
You can compare a blockchain like Ethereum to the operating system on a phone. Ether is built into the system, while tokens are like apps that others build to run on top of it. This matters in practice: when you send a token you need to pick the right network, or the transfer can be lost.
Every cryptocurrency other than bitcoin is sometimes called an AltcoinAltcoinA catch-all term for every cryptocurrency other than bitcoin, short for "alternative coin"..
The main types of cryptocurrency
Bitcoin
Bitcoin was the first cryptocurrency and has always been the largest by market capitalisation. There will never be more than 21 million bitcoin, and many people see it as digital gold: something to store value in rather than to spend. Read more about Bitcoin.
Ethereum and other platforms
Ethereum launched in 2015 and is designed to run applications on its blockchain. Lending apps, exchanges and stablecoins are among the things built on it. SolanaSolana (SOL)A blockchain designed for fast, low-cost transactions. SOL is the network's cryptocurrency, used for network fees and staking., Cardano and Avalanche are other platforms with similar aims. Read more about Ethereum and how Bitcoin and Ethereum differ.
Stablecoins
StablecoinsStablecoinA cryptocurrency designed to keep a steady price, usually by tracking the US dollar or another currency. are designed to keep a stable price, usually one US dollar. The best known, USDT and USDC, are meant to be backed by assets such as cash and US government bonds. They are widely used for trading crypto and for sending dollars across borders. Read more about stablecoins.
Memecoins
MemecoinsMemecoinA cryptocurrency born from an internet joke or meme, usually with little or no practical use, whose price rests almost entirely on hype. are cryptocurrencies built around a joke or an internet meme. DogecoinDogecoin (DOGE)A cryptocurrency created as a joke in 2013, with a Shiba Inu dog from a meme as its logo, and with no maximum supply. was created as a joke in 2013 and has a dog's face as its logo. The price of a memecoin is driven almost entirely by hype and popularity, and it can fall as fast as it rises. Many disappear altogether.
What is cryptocurrency used for?
- Long-term saving. Many people buy bitcoin or other cryptocurrencies and hold them for years, for example because bitcoin's supply is limited. There is no guarantee the price will rise.
- Payments across borders. Crypto can be sent anywhere, at any time of day, without banks being involved.
- Digital dollars. Stablecoins are used to hold and send value in dollars.
- Financial services without a middleman. On Ethereum and similar networks you can lend, borrow and swap crypto without a bank.
- Short-term trading. Some people buy and sell frequently, trying to profit from price movements. This is very risky.
What are the risks?
The European supervisory authorities EBA, EIOPA and ESMA warn that people can lose everything they put into crypto. These are the main risks:
- Large price swings. From its peak in November 2021 to November 2022, the price of bitcoin fell by more than 75%, before more than doubling in 2023. Smaller cryptocurrencies often swing even more. Read about VolatilityVolatilityHow much and how quickly the price of an asset moves up and down. and why crypto prices are so volatile.
- No safety net. Crypto is not covered by deposit guarantees or the compensation schemes that protect traditional financial products.
- Irreversible transactions. If you send to the wrong wallet address or lose your keys, the crypto is gone. Read about private keys and recovery phrases.
- Scams. Scammers promise quick profits or pretend to be your bank or the police. Learn about the most common crypto scams.
- The provider. When the FTX exchange collapsed in November 2022, its customers lost access to their assets. So check whether a provider is licensed.
Go through the risks before you buy for the first time.
Is cryptocurrency legal in Iceland?
Yes. It is legal to buy, hold and sell crypto in Iceland. The law calls it a Crypto-assetCrypto-assetThe legal term for cryptocurrencies and tokens, meaning a digital representation of value or rights that can be transferred and stored on a blockchain.. Crypto-assets are governed by Act No. 101/2025 on markets in crypto-assets, which took effect on 1 January 2026 and implements the EU's MiCAMiCAThe EU regulation on markets in crypto-assets, in force in Iceland since 1 January 2026, which sets the same rules for crypto services across the EEA. regulation. Read more about MiCA.
Since 1 July 2026, it has been prohibited to provide crypto-asset services in Iceland without a licence. The Central Bank of Iceland grants the licences here and supervises the firms that hold them, and firms licensed in another EEA country can also offer services here. Myntkaup holds such a licence as a crypto-asset service provider (CASPCASP (crypto-asset service provider)A company licensed under MiCA to provide crypto-asset services, such as buying, selling, custody or transfers.). The article How to buy crypto in Iceland walks through the process step by step.
Profit from selling crypto is taxable. For individuals it is generally taxed as a capital gain under capital income tax, according to Skatturinn's guidance (in Icelandic). The article Crypto and tax in Iceland covers this in more detail. Talk to your accountant or Skatturinn about your own situation.
Frequently asked questions
How many cryptocurrencies are there?
Thousands, and new ones appear all the time. Most are small and many disappear. The number says little about quality, since anyone can create a new token in minutes.
Is cryptocurrency the same as a crypto-asset?
Almost. Cryptocurrency is the everyday word. Crypto-asset is the legal term used by MiCA and Icelandic law, and it covers more, for example tokens that give access to a particular service.
Do I need to buy a whole coin?
No. Most cryptocurrencies can be divided into very small units. One bitcoin, for example, is divided into 100 million satoshis, so you can buy a small amount.
Can I lose more than I put in?
Not if you buy crypto and own it outright. Then the worst case is losing the whole amount. If you use LeverageLeverageTrading with borrowed money, which multiplies both gains and losses and can wipe out your whole stake in a short time., meaning you trade with borrowed money, everything can be lost very quickly, and in some cases more than you put in.
Can crypto replace the króna?
Not as things stand. Cryptocurrencies are not legal tender in Iceland, and most are too volatile for everyday shopping. Stablecoins are more stable, but the most common ones track the US dollar, not the króna.
Closing thoughts
Cryptocurrency is digital value recorded in a shared blockchain instead of a bank's books. Bitcoin, Ethereum, stablecoins and memecoins are all cryptocurrencies, but they are built for different purposes and carry very different risks.
Take the time to understand what you are buying, use a licensed provider, and remember that you can start with a small amount. To learn the basic terms, a good next read is 10 crypto terms everyone should know.
