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Date of publication
30 October 2025
Reading Time
6 minutes 30 seconds
What is crypto?
The term crypto can refer to either cryptoassets or cryptocurrency. The former encompasses all blockchain-based digital assets, including cryptocurrencies, but also other token types such as non-fungible tokens (NFTs).
Cryptocurrencies are digital alternatives to fiat money, such as the Pound Sterling and the US dollar. Instead of banks processing and recording transactions between counterparties, this information is held on a digital public ledger (known as a blockchain) for everyone to see. By cutting out intermediaries, users can transact directly with one another, sometimes at lower cost than through traditional banking systems. Advanced crypto technology, such as smart contracts, can also enable them to carry out a complex series of transfers with ease.
Despite still being a relatively niche form of payment and value exchange, their popularity is growing rapidly. According to a recent survey commissioned by the UK’s economic regulator, the Financial Conduct Authority (FCA), 12% of UK respondents owned cryptocurrency in 2024, compared to 4.4% in 2021.
Typically, users buy and sell cryptocurrency through exchanges, such as Coinbase, Kraken and Etoro, which function similarly to a digital foreign currency bureau. When doing so, users must create an account and verify their identity, and may be provided with a digital ‘wallet’ to store their funds. Alternatively, anyone can create a self-hosted wallet to send and receive crypto without disclosing their identity to any service provider.
When you make a purchase with crypto you will send the funds via your wallet, which has a ‘wallet address’. The sale is confirmed and recorded on the blockchain. It will generate a unique identifier made up of letters and numbers known as a Transaction ID (TXID) which acts like a receipt.
Blockchain transactions are publicly traceable but pseudonymous — addresses are visible, but the real-world identity of the sender/receiver is not automatically revealed.
What are the emerging concerns with cryptocurrencies?
The UK Government’s 2025 National Risk Assessment identified cryptoassets as a growing risk to both money laundering and terrorist financing due “to the anonymity, speed, and…global reach of transactions”. Both the US and the UK have banned transactions with networks that use this technology to evade sanctions on Russia. UK law enforcement has linked cryptocurrencies to highly-sophisticated, cross-border money laundering for organised criminal gangs and Russian elites – akin to a shadow banking system.
While the larger parties in Parliament do not currently solicit donations via crypto the Reform Party does, and is campaigning to make the UK ‘the world’s premier hub for cryptocurrency and blockchain innovation’. This mirrors similar moves by Donald Trump’s Presidential campaign in 2024.
Some politicians and campaigners have questioned whether the anonymity provided by crypto could provide a backdoor for foreign interference in our democracy. Liam Byrne MP, chair of the Business and Trade Committee claimed “cryptocurrencies give people plenty of ways to hide, obscuring who is funding political parties and what they might want in return.” Senior minister, Pat McFadden, said that the Electoral Commission should consider a ban on crypto donations given how hard they can be to trace. And the NGO Spotlight on Corruption have warned crypto could be used to avoid controls on foreign donations.
Can you trace crypto currency?
There is a game of cat and mouse between investigators trying to follow the money and those seeking to find new ways to hide their identities.
In theory, crypto payments are recorded on an open ledger that anyone can view and analyse. This allows crypto investigators and specialist software to use blockchain analytics to link multiple transactions to the same entity and in some cases identify that entity. However, there is no guarantee that they will be able to uncover the real individuals behind the wallets, especially if the crypto has been sent or received without going through a regulated exchange provider. Or put simply: we can often track the flow of payments but not always who is making or receiving them.
To advertise crypto services in the UK, firms must be registered with the FCA and comply with Know Your Customer (KYC) rules to prevent money laundering.i This should provide some level of assurance about their clients and give law enforcement a source of information when investigating suspected illegal activity. For example, law enforcement can use blockchain analytics to trace payments to and from regulated businesses, which should have KYC processes, enabling them to link individuals to pseudonymous wallets. However, crucially, this requires the individual to have used a regulated and compliant service, which is far from guaranteed.
There is little to stop donors seeking and using providers from other countries who may have laxer standards. And our colleagues from Russia in exile have found a black market for ‘money mule’ accounts – accounts used by criminals in someone else’s name – which provide users a layer of anonymity, making tracing illicit funds more difficult.
Other methods used to hide those sending and receiving crypto payments include:
- ‘privacy coins’, like Monero and Zcash, which offer enhanced anonymity such as hiding the value of transactions, providing burner wallet address for every transaction, and obscuring the sender of payments
- the use of multiple crypto wallets to fragment public information about payments to and from a single source
- mixing services or “tumblers”, which combine multiple transactions to complicate traceability
smurfing, where large payments are broken down into multiple smaller payments to avoid detection.
- decentralised platforms and peer-to-peer exchanges can bypass anti-money laundering controls entirely
- complex layering through multiple crypto assets and blockchains
These tactics are frequently used in combination and are often linked to criminal activity including money laundering. For example, the founder of Bitcoin Fog – a prominent mixing protocol – was sentenced to 12 years in prison for facilitating money laundering activities.
How should political parties and politicians manage cryptocurrency donations?
The law requires that those receiving political contributions must take all reasonable steps to verify the identity of the donor. The Electoral Commission publishes guidance to help parties and politicians comply with electoral law. They have included a brief note to say that crypto transactions are subject to permissibility requirements and highlights the practical problem of how to value crypto donations. But it has not yet published detailed information on how to handle them.
Gifts in crypto pose challenges similar to cash and some non-cash donations, such as gold. Though the ease and speed with which it can transfer substantial amounts of assets across borders makes it particularly high risk. While parties can record the identity of the person claiming to be the donor, they may have no definitive way to verify whether that individual is the true source of the funds. Though the UK Government is proposing to introduce ‘know-your-donor’ rules, these are not yet a legal requirement.
When accepting donations via cryptocurrency, Reform UK requires donors to provide their contact details, such as their name and email, and confirm they are eligible to donate. The party also claims they have a compliance company carrying out ‘know your customer checks’ on those giving over £500 in value.
Given the value of some cryptoassets can be volatile, there is a practical challenge in how to report them for public disclosures. While the law requires that the market value of non-cash contributions be recorded, this may fluctuate significantly between the time it is received and accepted – potentially by thousands of pounds. According to the Electoral Commission, donations in crypto assets must be valued in GBP at the time of receipt of the donation. The value in GBP would either be the exchange rate of the payment provider, or if unavailable, the exchange rate on a major exchange at the time of receipt.
When accepted by a party, any subsequent changes to the asset’s value should be recorded annually in their annual accounts, although there are no equivalent reporting requirements for politicians.
What are the regulatory issues?
Crypto contributions pose novel compliance and enforcement issues, which need careful consideration.
Despite incremental steps towards regulating crypto payment providers more like banks, they might be subject to less stringent rules than more-established financial institutions. Notwithstanding action against traditional payment businesses, FCA enforcement against firms enabling customers to buy cryptocurrencies suggests some lack adequate due diligence and care to manage money laundering risks effectively. This raises questions as to whether crypto exchanges and associated electronic payment firms would be able to identify and report suspicious political donations like high street banks have done so in the past.
Even if they did, verifying the ownership of crypto wallets and tracing funds requires specialist tools, expertise and time. Plus, the cross-border infrastructure upon which crypto payments operate further complicates regulatory and enforcement action, especially when overseas providers are involved in UK-related transactions. These raise serious questions about whether crypto and other higher-risk forms of non-cash donations should be treated the same as those made through the conventional banking sector.
What can be done to address concerns about crypto currency?
There are some easy wins in terms of improving the opacity and risks of crypto donations. This would include banning privacy coins as a payment method. The Government could also require political parties to only use crypto wallets provided by FCA registered crypto exchanges and only accept donations via FCA registered crypto exchanges and payment services providers. A stricter approach, and one adopted by Brazil and Ireland, would be to ban them entirely as a mechanism for donating to political parties – at least over a certain amount. Were ministers to adopt this approach, they should also consider doing the same for cash and higher-risk asset classes, such as gold.
Were crypto donations to be allowed, the Electoral Commission should publish more detailed guidance about how to manage them, including how to record their value and payment provider. Government should also explore how to clarify in law when recipients must determine the market value of crypto contributions.
